9708A. 29 March

1. The diagram shows an individual’s budget lines and indifference curves.
The initial budget line is JL. There is then an increase in the price of good Y.

Which distance represents the substitution effect of the increase in price of good Y?

2. In which type of market structure are commercial banks usually found?
A perfect competition, because they all link their interest rates to that of the central bank
B perfect competition, because they offer identical products and services
C monopolistic competition, because a competitive market prevents them making excess
D oligopoly, because they are affected by the actions of other banks

3. The manufacture of some sports equipment is dominated by very large firms but there are also
smaller firms in the industry.
What enables a small firm to exist in such an industry?
A high concentration ratio that reduces competition
B high start-up costs that occur in a contestable market
C decreasing average cost as a large firm expands
D a requirement for personalised equipment

4. The marginal cost curve of a firm passes through the lowest point of the firm’s
A average fixed cost curve.
B average variable cost curve.
C marginal revenue curve.
D total cost curve.

5. What would definitely be abnormal profits?
A the extra revenue received from the sale of a farmer’s land to a house-building firm
B the extra revenue received by a firm from an unexpectedly large increase in demand
C the total revenue from the sale of a firm’s products in excess of the total variable costs of the
D the total revenue in excess of total costs of the firm above the minimum needed to keep the
firm in business in the long run


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