AQA A Level Economics Paper 3: Economic principles and issues June 2019 question paper 7136/3

A monopolistically competitive firm’s demand curve is

The table below contains selected data on a country’s macroeconomic performance over a 20 year period.

All other things being equal, which one of the following, A, B, C or D, can be inferred from the above data?

Which one of the following is most likely to result in complete market failure?

The diagram below shows the aggregate demand (AD) curve, the long-run aggregate supply (LRAS) curve, and two short-run aggregate supply (SRAS₁ and SRAS₂) curves for an economy. The economy’s initial equilibrium is at E_1.

The most likely explanation for the move of the economy from its initial equilibrium at E₁ to a new short-run equilibrium at E₂ is a decrease in the

Which one of the following policies is most likely to improve the supply side of the

The diagram below shows the market demand (D) curve and two supply (S₁ and S₂) curves for a brand of soft drink. The drink is a demerit good because of its high sugar content. The government imposes an indirect tax on each can sold that cuts consumption by 100 000 cans per week.

If the price elasticity of demand for the drink is –2.0, the price must have increased by

The hypothesis of diminishing marginal utility

A rational, utility maximising consumer is considering the purchase of a used car. Her final choice is between two cars which are identical in all respects except for the differences shown below.

Based on the above information, which one of the following is the most likely explanation for the customer’s purchase of Car 2? She

All other things being equal, if the velocity of circulation is constant, the quantity theory of money based on Fisher’s equation of exchange, MV=PQ, predicts that an x% increase in the money supply will always cause an x%

The diagram below shows the aggregate demand (AD) curve, the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy. The economy’s initial equilibrium is at E₁.

The government wants to achieve economic growth without conflicting with its long-run objective of price stability. All other things being equal, which one of the following policy combinations is most likely to enable the economy to achieve a new long-run equilibrium

The table below shows how a firm’s total cost of producing handbags changes as output increases.

What is the average fixed cost of producing 3 000 handbags per month?

The existence of negative externalities in consumption results in a misallocation of resources. This is because at the free market level of output the

The diagram below shows the actual level of real GDP and the trend level of real GDP over time for an economy. The economy starts its recovery from recession at point M. After several years of growth the economy reaches point N.

All other things being equal, which one of the following is the most likely consequence of the economy’s growth path between points M and N?

All other things being equal, which one of the following would be most likely to result in a reduction in inequality in the distribution of income in the UK? An increase in the

The table below shows different combinations of changes in the rate of interest and the government’s budget position. The economy has a negative output gap. All other things being equal, which one of the combinations of policies, A, B, C or D, is most likely to

The table below shows the value of the Gini coefficient for a country between 2012 and 2016. Over the five year period, the government has used progressive taxation to change the distribution of income.

Based on the above data, which one of the following is a positive statement?

The UK’s labour productivity increases by only 10% over a five year period. Over the same period its main trading partners increase their productivity by 25%. All other things being equal, the most likely consequence for the UK is

The diagram below shows the kinked demand curve (D) for a firm operating in a competitive oligopolistic market.

The kinked demand curve model provides an explanation of why the

A large Asian steel-producing country dumps its surplus steel on the world market. All other things being equal, if the demand for steel is price elastic, the most likely consequence for the EU market for steel will be to

A company has an issued share capital of £1 million and an outstanding corporate bond issue of £200 000. To fund its expansion, the company issues additional corporate bonds for £300 000. All other things being equal, after the issue of the additional corporate bonds the ratio of the company’s total debt to its equity will be

Despite its central bank operating a policy of quantitative easing for several years, an economy has rising unemployment and a rate of inflation significantly below the target rate set by the government. All other things being equal, which one of the following actions is the central bank most likely to take in order to meet the target for inflation?

Beef and leather are in joint supply. Changes in farming methods have resulted in a significant fall in the price of chicken, a substitute for beef. All other things being equal, which one of the following diagrams, A, B, C, or D, best illustrates the effects of the fall in the price of chicken on the market for leather?

The table below shows different combinations of changes in a commercial bank’s liquidity and capital ratios. All other things being equal, which one of the following combinations, A, B, C or D, is most likely to improve the bank’s financial stability?

An economy had a 3% increase in its real GDP over a one year period. In the same period its population grew by 5% and its rate of inflation was 2.5%. From these data it can

The marginal propensity to consume (MPC) in an economy is 0.5. If the MPC increases by 20% the new value of its multiplier will be

All other things being equal, which one of the following is most likely to cause the marginal revenue product of labour curve in the shoe manufacturing industry to shift to the right?

The diagram below shows the average revenue and marginal revenue (AR and MR) curves, and the average cost and marginal cost (AC and MC) curves, for the only firm in an industry.

If the market is highly contestable, in the long run, the firm is most likely to set its price at

A country experiences a large net capital outflow. All other things being equal, the most likely consequence of this in the short run will be a decrease in

The diagram below shows two market demand curves (D₁ and D₂) and the market supply curve (S), for Good X.

The price elasticity of supply of Good X when the demand curve shifts from D₁ to D₂ is

An economy’s GDP increased from £400 billion in 2016 to £428 billion in 2018. Using 2016 as the base year, what is the value of the index for GDP in 2018?

Turn over for Section B

To what extent, if at all, do the data suggest that houses in the UK were more affordable in 2017 than they were in 2007? You must use the data in Extract C to support your assessment.

Explain the likely causes of the main changes in house prices that have taken place between 2007 and 2017.

After considering Extract E, and the original evidence in Extracts A, B, C and D, would you recommend that the Government should increase its spending on housing? Justify your recommendation.