A-level ECONOMICS Paper 3 Economic Principles and Issues 2 *02* IB/M/Jun22/7136/3

A-level ECONOMICS Paper 3 Economic Principles and Issues 2 *02* IB/M/Jun22/7136/3 Section A Answer all questions in this section. Only one answer per question is allowed. For each question completely fill in the ...

A-level ECONOMICS Paper 3 Economic Principles and Issues 2 *02* IB/M/Jun22/7136/3 Section A Answer all questions in this section. Only one answer per question is allowed. For each question completely fill in the circle alongside the appropriate answer. CORRECT METHOD WRONG METHODS If you want to change your answer you must cross out your original answer as shown. If you wish to return to an answer previously crossed out, ring the answer you now wish to select as shown. 0 1 A positive statement [1 mark] A does not take into account irrational behaviour. B enables accurate forecasts to be made. C includes a value judgement. D may be true or false. 0 2 Which one of the following is a nudge technique that could be used to encourage healthy eating? [1 mark] A Banning supermarkets from selling high-calorie energy drinks B Increasing taxes on high-fat products to raise their price C Moving products with a high sugar content away from supermarket checkouts D Subsidising fruit and vegetables to reduce their prices Do not write outside the box 3 *03* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 0 3 Figure 1 shows the production possibility diagram for an economy producing capital goods and consumer goods. Figure 1 The opportunity cost of producing an additional unit of capital goods is [1 mark] A greater at X than Y. B greater at Z than Y. C the same at X, Y and Z. D zero when 300 units of consumer goods are produced. Turn over for the next question 4 *04* IB/M/Jun22/7136/3 Do not write outside the box 0 4 Table 1 shows the individual price indices and the weightings of the three goods that make up a price index. Table 1 Good Weighting Price Index in April 2022 (April 2021=100) X 0.1 102 Y 0.4 104 Z 0.5 103 What was the percentage increase in the overall price index between April 2021 to April 2022? [1 mark] A 1.1% B 3% C 3.3% D 9% 0 5 When using data to make international comparisons of the standard of living, purchasing power parity (PPP) exchange rates are more useful than market exchange rates. This is because PPP exchange rates take into account differences in countries’ [1 mark] A distribution of income. B levels of taxation. C price levels. D rates of population growth. 5 *05* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 0 6 Figure 2 shows two aggregate demand (AD1 and AD2) curves and the short-run aggregate supply (SRAS) curve for an economy. Figure 2 Which one of the following is the government most likely to increase if it wishes to use fiscal policy to reduce national output from Y1 to Y2? [1 mark] A Infrastructure expenditure B Interest rates C Rates of income tax D The budget deficit Turn over for the next question 6 *06* IB/M/Jun22/7136/3 Do not write outside the box 0 7 Which one of the following is a reason why the extension of property rights is likely to reduce market failure? [1 mark] A Merit goods will no longer be underconsumed in a free market. B Producers will be more likely to have to pay compensation for pollution. C Public goods will no longer be subject to the free-rider problem. D The inequality in the distribution of income and wealth will be reduced. 0 8 Figure 3 shows the demand curve for a firm’s scarves. Figure 3 Which one of the following statements is true when the price of scarves is reduced from £30 to £25? [1 mark] A Demand for scarves is price elastic. B Price elasticity of demand is –0.5. C The firm’s total revenue falls. D The firm’s total revenue increases. 7 *07* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 0 9 A firm charging different customers different prices for the same product is practising [1 mark] A limit pricing. B marginal cost pricing. C price discrimination. D price leadership. 1 0 In an economy, an index showing the change in the money supply multiplied by the velocity of circulation increases from 100 to 115.5. At the same time, the final output produced by the economy increases from 100 to 110. According to Fisher’s equation of exchange, the price level will increase by [1 mark] A 5% B 5.5% C 10% D 15.5% 1 1 Systemic risk is most likely to occur in financial systems when [1 mark] A investment banks have low capital-output ratios. B most banks carry out both commercial and investment banking activities. C the central bank acts as lender of last resort to financial institutions. D the commercial banks have high liquidity ratios. 8 *08* IB/M/Jun22/7136/3 Do not write outside the box 1 2 Figure 4 shows the aggregate demand (AD) curve, the short-run aggregate supply (SRAS1 and SRAS2) curves and the long-run aggregate supply (LRAS1 and LRAS2) curves for an economy. Figure 4 All other things being equal, which one of the following is most likely to move the economy from point M to point N? [1 mark] A A decrease in the natural rate of unemployment B A loss of consumer and producer confidence C A natural disaster, damaging productive capacity D A rise in factor prices, resulting in cost-push inflation 9 *09* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 1 3 Which one of the following is a role of the World Trade Organisation? [1 mark] A Helping countries settle disputes over tariffs and quotas B Lending money to countries with balance of payments problems C Monitoring the stability of the international monetary system D Providing loans at low rates of interest to low-income countries 1 4 Which one of the following is a reason why the supply of cars is likely to be price elastic in the short run when the price of cars increases? [1 mark] A Car manufacturers’ stocks of unsold cars are low B The demand for cars is also price elastic C The marginal cost of producing cars increases significantly with output D There is considerable spare capacity in the car industry Turn over for the next question 10 *10* IB/M/Jun22/7136/3 Do not write outside the box 1 5 Which one of the following diagrams, A, B, C or D, shows the most likely short-run impact on an economy of an improvement in technology in the production process? [1 mark] 11 *11* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 1 6 Which one of the following best explains the existence of relative poverty? [1 mark] A Some households have to pay more in income tax than other households. B The Gini coefficient in some countries is low. C The income of some households is significantly less than the median household income. D The prices of items that are essential for life differ between countries. 1 7 Table 2 shows the amount paid in tax by individuals at different levels of income. Table 2 Income (£) Tax paid (£) 20 000 4 000 30 000 5 400 40 000 6 400 50 000 7 000 This tax is an example of a [1 mark] A lump sum tax. B progressive tax. C proportional tax. D regressive tax. 12 *12* IB/M/Jun22/7136/3 Do not write outside the box 1 8 Which one of the following is a supply-side policy aimed at reducing the natural rate of unemployment? [1 mark] A Government retraining schemes for structurally unemployed workers B Increasing legal protection against unfair dismissal for employees C Increasing the real value of the national minimum wage D New government subsidies for developers of artificial intelligence 1 9 Figure 5 shows the average revenue (AR), marginal revenue (MR) and marginal cost (MC) curves for an industry which was perfectly competitive but is now a monopoly. The cost and revenue curves remain unchanged. Figure 5 Which of the following areas shows the total deadweight loss of consumer and producer surplus resulting from the structure of the industry changing from perfect competition to monopoly? [1 mark] A 1 + 2 B 3 + 4 C 5 + 6 D 7 + 8 13 *13* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 2 0 There is a reduction in the market demand for the product supplied by firms operating in a perfectly competitive industry. All other things being equal, which one of the following will happen to firms’ average and marginal revenue as a result of this change? [1 mark] A Average revenue and marginal revenue will both fall. B Average revenue and marginal revenue will not change. C Average revenue will fall and marginal revenue will increase. D Average revenue will increase and marginal revenue will fall. 2 1 Figure 6 shows the marginal utility that a consumer gains from eating apples. Figure 6 When 7 apples per day are consumed [1 mark] A average utility is maximised. B marginal utility is maximised. C opportunity cost is minimised. D total utility is maximised. 14 *14* IB/M/Jun22/7136/3 Do not write outside the box 2 2 Table 3 shows different combinations of performance for three macroeconomic indicators. Which one of the combinations, A, B, C or D, is most likely to indicate an economy experiencing an economic boom? [1 mark] Table 3 Imports Price level Job vacancies A Decreasing Increasing Decreasing B Decreasing Decreasing Increasing C Increasing Increasing Increasing D Increasing Decreasing Decreasing 2 3 Table 4 shows the values of nominal GDP and a price index in two different years. Table 4 Year 2015 2019 Nominal GDP (£ billions) 250 290 Price index 100 110 What was the value of real GDP in 2019, to the nearest £ billion, expressed in 2015 prices? [1 mark] A £227 billion B £261 billion C £264 billion D £319 billion 15 *15* Turn over ► IB/M/Jun22/7136/3 Do not write outside the box 2 4 Figure 7 shows the average revenue and marginal revenue (AR and MR) curves and the average cost and marginal cost (AC and MC) curves for a firm in monopolistic competition in the short run. Figure 7 At the profit maximising price and output the firm will [1 mark] A make supernormal profits. B produce the allocatively efficient output. C produce where average revenue = average cost. D set price equal to minimum average costs. Turn over for the next question 16 *16* IB/M/Jun22/7136/3 Do not write outside the box 2 5 The price of a government bond was £10 000 when it was issued. The bond does not have a maturity date and the government is not intending to buy back the bond. The bond pays £200 per year to the bond holder and has a market price of £8 000. Which one of the following fractions represents the yield on the bond? [1 mark] A 1 50 B 1 40 C 1 5 D 4