ECONOMICS MULTIPLE

CHOICE QUESTIONS
+ ANSWERS EXPLAINED

A LEVEL

Questions from 9708 Cambridge

past papers CLASSIFIED BY TOPI C

Page 1
Table of
Contents
Law of Diminishing Marginal Utility,
01
Indifference Curves and Budget Lines.

02 Types of Cost, Revenue and Profit

03 Firms and Market Structures

04 Efficient resource allocation

05 Equity and Policies towards Income and

Wealth Redistribution

06 Labour Market Forces

07 National Income Statistics

08 The Circular Flow of Income

09 Money Supply (theory)

10 Economic Growth, Economic

Development and Sustainability

11 Government Macroeconomic Policy Aims

Page 2
 TOPIC 1

Law of Diminishing
Marginal Utility,
Indifference Curves
and Budget Lines.
Economics multiple-choice
questions + Answers explained

Page 3
1. The table shows the total utility that an individual 3. In the diagram, a consumer’s initial
derives from consuming different quantities of budget line is JK.
a good. 1. D In order to obtain
each unit of the good,
quantity of good total utility the consumer sacrifices
(units) (units) 12 units of utility. The
consumer will continue
I 24
to purchase up to the
2 45 point where

3 63 MUgood =MUmoney
4 78
unit MUfpod
MU good MUfficney
MU money
5 90
1 24 12
6 99
2 19 12
Assuming no change in the price of 3 18 12
The individual’s marginal utility of
money is SI =2 units of utility. X, what could explain a shift in the 4 15 12
consumer’s budget line to GH? 5 12 12
What is the maximum quantity of the
6 9 12
good that the individual will buy
price of consumer’s
when its price is $6? good Y money income 2. B

A 2 units B 3 units A decrease decrease

C 4 units D 5 units B decrease increase

C increase decrease
[N13/P3/Q2]
D increase increase

2. The line RS in the diagram shows the different [J14/P3/Q2] A change in equilibrium
combinations of goods X and Y that a to point N suggests a
consumer can afford with her present income. pivotal outward shift on
Y- axis and inward shift
on X-axis. This may be
caused by an increase
in the price of X
and a fall in the price of
Y

3 . A A decrease in the
Price of Y shifts the curve
pivotal upward on y-axis,
while a decrease in
The consumer’s original equilibrium income with no change in
is at M. the Price of X shifts the
What could explain a subsequent change in curve pivotal inward on x-
her equilibrium position to N? axis.

A a change in her tastes

B an increase in the price of X
and a fall in the price of Y

C an increase in the price of X and a smaller

percentage increase in the price of Y

D equal percentage increases in

her income and in both prices

[N13/P3/Q3]

Page 4
4. The diagram shows two indifference 6. What would not affect the budget line
curves for a consumer. of an individual consumer?

A the individual’s preference for

various goods
4. A The further an
B the level of income tax
Indifference curve (IC)
C the money prices of goods drawn from the origin, the
higher the level of
D the wages earned by the
satisfaction. The
individual
consumer, therefore, acts
[JI8/P3/Q5] rationally when he shifts
the equilibrium to the
7. The diagram shows the demand curve highest possible IC.
for a product. 5 . C Substitution and
What can be concluded if the income effect for a
normal good move in the
consumer’s equilibrium moves from same direction because
Q to R? the relative decrease in
the price of the good will
A The consumer is acting rationally. result in an increase in
quantity demanded ,
B The consumer’s money income because it is now
is unchanged. cheaper than substitutes,
and lower price will
C The opportunity cost of good Y increase the purchasing
power, increasing overall
is constant.
consumption.
D The price of good X has risen.
6. A A budget line
[J17/P3/Q4] What is maximised at X? shows real income be­
cause it is drawn with the
A marginal revenue
5. When the price of a good falls the effect on the assumptions that money
B total revenue income and prices of the
quantity demanded is the result of an income
C marginal utility goods remain unchanged.
effect and a substitution effect.
Therefore, changes in
D total utility
Which statement about these either of the two or both
effects is correct? [J18/P3/Q6] would shift the budget
line. A change in
A For inferior goods the income effect and the consumer's preferences
substitution effect work in the same 8 . The diagram shows budget lines and an
is indicated by a change
direction. indifference curve . The consumer ’s initial
in combination of two
position is T. The price of good X then falls.
B For inferior , but not Giffen , goods the goods on the same bud­
get line, therefore it does
income effect outweighs the substitution
not affect the budget line.
effect.

C For normal goods the income effect and

substitution effect work in the same
direction.
D For normal goods the income ef­
fect outweighs the substitution
effect.
[J17/P3/Q5)

Which combination of statements

about the movements in this diagram
is correct?

Page 5
A T to Q represents perfect elasticity; T to P
represents a Giffen good

B T to R represents an
7. D Consumer is willing to
income effect ; R to S obtain quantity Y at zero price,
represents a substitution therefore it would reduce both TR
effect & MR to zero . Thus options A & B
are incorrect.
C T to U represents a substitution effect; T to
Q represents a normal good A consumer is willing to pay as
D T to U represents a substitution much as the MU he derives from
each unit and the graph suggests
effect; U to P represents an
that he is willing to obtain the last
income effect
unit of quantity Y at zero price that
[N18/P3/Q4] makes MU to fall to zero hence
option C is incorrect .

TU is the sum of MU that the

consumer derives from all
individual units he consumes up to
quantity Y hence it is maximized.

8 . D Movement along the same

indifference curve from T to U
suggests positive substitution
effect for all gcods. Thus options A
& B are ruled out.
Income effect of normal goods is
also positive and it is indicated by
a movement from U to S. Hence
option C is ruled out.
Giffen goods have a negative
income effect that outweighs
positive substitution effect. Thus a
movement from T to U on the new
budget line is due to income
effect indicating a fall in Q that is
more than a rise caused by
substitution effect.

Page 6
 TOPIC 2

Types of Cost,
Revenue and Profit

Economics multiple-choice
questions + Answers explained

Page 7
 Shortcuts:

MC = MARGINAL COST
AVC = AVERAGE VARIABLE COST
AFC = AVERAGE FIXED COST
ATC = AVERAGE TOTAL COST
AR = AVERAGE REVENUE
1. In the diagram, TC is a firm’s short- FC = FIXED COST
3. Which is not a source of market
run total cost curve. Q = QUANTITY
failure? P = PRICE
TC = TOTAL COST
A imperfect information TR = TOTAL REVENUE
B income inequality 1. D MC as measured by
the slope between two
C monopoly
successive points on TC
D non-excludability curve is the lowest at Q2 .
[N16/P3/Q14] ATC refers to the slope of
each point on a TC curve
from origin therefore A is
4. The government wants to regulate the incorrect . AVC refers to the
consumption of a demerit good in or­ slope of each point on a
der to increase society’s net welfare. In TVC curve from origin.

which situation will society’s net 2 . A At zero output Total

welfare increase? Cost = Fixed Cost . In this
A The fall in the marginal social case Fixed Cost = 40 and
benefit is greater than the fall in Total Cost = Fixed Cost +
Which statement is correct? the marginal social cost. Variable Cost.

A Average total cost is minimised B The fall in the marginal social Then VC/Q = AVC
at output OQ2. cost is greater than the fall in the
($80-$40)/4=$10
B Average variable cost is marginal social benefit.
minimised at output OQ1. 3 . B It refers to equity
C The fail in the total social benefit
therefore not related to
C Average variable cost is is greater than the fall in the total
efficiency or market failure.
minimised at output OQ3. social cost.
D Marginal cost is minimised at 4. D Demerit goods are
D The fall in the total social cost is
output OQ2. associated with higher
greater than the fall in the total
[N16/P3/Q9] Social costs therefore
social benefit.
greater fall in Social Costs
[N16/P3/Q15] will improve net welfare.
2. The table shows the total cost of a
firm. 5. A Selling mines would
5. In 2015 , a large mining company said it lower total fixed cost while
output total cost ($) would reduce the number of staff by lowering the number of
0 40 6000 and sell its less profitable mines in workers would reduce
an attempt to become more efficient. variable cost . These two
1 55
would eventually lower
2 60 If it is successful, what is most likely
Average Cost.
to happen to its costs?
3 65
4 80

total fixed total variable average

What is the average variable cost of
cost cost cost
producing 4 units of output?
A fall fall fall
A $10 B $15
C $20 B fall fall no change
D$40
C fall no change fall
[N16/P3/Q10]
D no change fall fall

[N17/P3/Q2]

Page 8
6. The diagram shows the cost 8. Which diagram shows the total revenue
curves for a firm. function for a firm in perfect competition?

A
TR

6. B Diminishing returns
revenue
causes MC to rise . Q 1 can
be marked as the lowest
point on AVC and after that
, it rises therefore A is

O incorrect . Economies of
output scale are operative in the
long run while curves
suggest short run ,
B therefore C is incorrect. For
What does the firm experience as profit we need to have
revenue curves along with
it increases output from Q1 to Q2? revenue
cost curves, this rules out D
A decreased average variable TR
cost
7. C At zero output,
B diminishing returns
C economies of scale Total Cost = Fixed Cost

D increased profit
[N17/P3/Q5] Average Fixed Cost =

Fixed cost /Quantity

7 . In the diagram the curve TC shows the
relationship between a firm ’s total costs Fixed cost = OP
and its level of output.
Quantity = OQ

AFC = OP/OQ

8 . C Since a firm in a
perfectly competitive mark-
et can sell its output at the
market price , therefore its
AR = MR = P . So each
additional unit sold adds
same to the TR and hence
TR increases at a constant
rate.

R
. to------.
0to 9. In the year ending July 2016 , airline fuel
equal
equal OR
------
OQ prices fell by 20 .4% while the price of
OQ passenger aircraft increased by around
. OP
equal to OP 1.1%.
equal to------.
------
OQ Assuming no other changes in the
OQ
passenger airline industry, what was
measured by the slope of the
the outcome for fixed costs and
line OR.
[N17/P3/Q7] variable costs?

Page 9
 fixed costs variable costs
A decreased decreased
9. C Cost on fuel is dependent on output, therefore
B decreased increased it is part of airline's variable cost and with no other
C increased decreased changes a fall in fuel price must have decreased
airline 's variable cost . Therefore an increase in
D increased increased
price per passenger must have resulted from an
[J18P3/Q8] increase in airline’s fixed cost.

10. D When output = 0. firm 's TC = FC. We then

10. The schedule shows the short-run
progressively add MC in order to obtain TC for
marginal cost of producing good X.
each increasing level of output and in order to
obtain ATC we divide TC at each level of output on
units of X 1 2 3 4 5 its corresponding level of output.

marginal cost ($) 45 40 30 20 20

Average total cost lowest at 5 units of output.
Given that the total fixed cost is $50,
which level of output minimises Unit of X MC TC ATC=TC/Q

average total cost? 0 50 -

A 2 units B 3 units 1 45 95 95

C 4 units D 5 units 2 40 135 67.5

[N18/P3/Q6] 3 30 165 55

4 20 185 46.25

5 20 205 41

Page 10
 TOPIC 3

Firms and Market

Structures

Economics multiple-choice
questions + Answers explained

Page 11
1 . Which feature of oligopoly is being 4 . Increased advertising by a firm in an
assumed when the demand curve for an imperfectly competitive industry leads to
individual firm is as shown? an increase in demand for the industry’s
product but a fall in the firm’s profits. 1. C A kinked
demand curve implies
What could help to explain this?
interdependence.
A Production is subject to
diseconomies of scale. 2. D Horizontal integration
implies same stage of
B Rival firms respond by production in the same
increasing their advertising outlays. industry.
C The demand for the industry’s
3. A Economies of scale is
product is price-inelastic.
the source of a natural
D The increase in demand for the firm’s monopoly and high fixed
output is entirely at the ex­ pense of cost results in
A price discrimination other firms. more economies of scale
[N17/P3/Q10] leading to a natural mon
B price leadership by the dominant
opoly.
firm
5. An industry consists of a dominant firm ,
C interdependence between firms 4. B It will increase the firm'
which acts as a price leader, and a large s cost but response by the
D collusion between firms number of small firms. rival firms will make it
[J17/P3/Q13] ineffective . All other
Which statement about the profit ­
options are likely to
maximising output of the small firms is
2. Firms X and Y merge in a horizontal increase firm’s profits.
correct?
integration.
A Average cost is equal to average 5. C All other firms
What must be true about the industry
become price takers and
and the stage of production in which revenue.
in that case they have
X and Y operate? B Average cost is minimised. their P = AR = MR.
C Marginal cost is equal to price. therefore MC = MR
stage of implies P = MC.
industry D Marginal revenue is zero.
production
[N17/P37Q11] 7. D A typical example
A different different
of game theory.
B different same 7. There are two firms in an industry . Firm X
8. C Because of this the
same different faces a choice . It can either act
C firm maintains its price that
independently or work with its rival . If it
produces a kinked demand
D same same acts independently its profit could be curve . In other cases price
[N17/P3/Q6] $900 a week but it could be only $400 a may change.
week depending on what its rival does. If
3. Many public utilities can be described it works with its rival the joint profit of the
as ‘natural’ monopolies'. Which two firms together would be $1400 ,
Shortcuts:
$ 700 each . It has no knowledge of what
statement best describes the
the rival’s policy will be. MC = MARGINAL COST
situation leading to a ‘natural’ MR = MARGINAL REVENUE
monopoly'? Which concept describes this situa­
AVC = AVERAGE VARIABLE COST
A There are high fixed costs and tion? AFC = AVERAGE FIXED COST
ATC = AVERAGE TOTAL COST
falling average costs over all out­ A contestable market AR = AVERAGE REVENUE
puts demanded.
B kinked demand curve FC = FIXED COST
B There are legal restrictions on
C principal agent problem Q = QUANTITY
new entrants. P = PRICE
D prisoner’s dilemma
C A single firm controls the supply
[N17/P3/Q12] TC = TOTAL COST
of raw materials. TR = TOTAL REVENUE
D The firm has a patent on an es­
sential process.
[N17/P3/Q9]

Page 12
8. What explains the kinked demand curve 11. What is an example of backward
model of price rigidity in oligopoly ? vertical integration? 9. D On a kinked dem
and curve the firm faces
A a bakery buying a wheat form
A collusion between all firms in elastic demand curve for a
theindustry in the setting of prices B a car manufacturer buying a car rise in price because if
B the assumption that a single showroom it chooses to raise its
C a vineyard buying an apple price the rival firms prefer
firm acts as price leader for all firms
in the industry orchard
not to follow suit and
hence TR earned by the
D two rival supermarkets joining firm de­ creases . On the
C the individual firm’s expectations
together contrary the firm faces
about other firms’ responses to
its price changes [J18/P3/Q10] inelastic demand curve
for a fall in price , because
D the presence of barriers to rival firms match any
the entry of new firms into 12. The diagram shows a firm in imperfect decrease in price and
the industry competition . It changed its aim from this again causes its TR
[N17/P3/Q13] profit maximising to sales revenue to fall . Being dependent
maximising. on rival firms ’ reaction
9. The diagram shows a firm’s cost and the firm prefers to
revenue curves. maintain its price . Options
cost. A & B are incorrect
revenue because P > MC indicates
allocative inefficiency .
Option C is ruled out
because AC curve is
missing In the graph and
hence we cannot read
economies of scale.

10 . C A low fixed costs

makes it easier for firms to
enter and exit an industry -a
key feature of contestable
Which type of profit was it making in market. Other options point
each case? out features that are not
Which features are associated
necessarily required for a
with the diagram? market to become
profit sales revenue contestable.
A economics of scale and allocative
maximising maximising 11 . A Vertical integra-
efficiency
A normal profit supernormal profit tion takes place between
B interdependence and allocative different stages of pro­
efficiency B subnormal profit normal profit
duction . Bakery , being a
C price rigidity and economies of C supernormal profit normal profit manufacturer buys a wheat
scale D supernormal profit supernormal profit farm i.e . raw material
provider is an example of
D price rigidity and interdependence [J18/P3/Q11] backward vertical
[J18/P3/Q7] integration . Option B
suggests vertical forward
10. Which feature of production would make integration , while C &D are
it more likely that an industry is a examples of horizontal
contestable market? integration because firms
are integrating at the same
A advertising has established con­ stage of production.
sumer loyalty
12. D MC =MR indicates
B all firms in the industry share re­ profit maximizing output
where firm's AC < AR,
search and development indicating supernormal
profit. A firm maximizes
C low fixed costs sales revenue at an
output when its MR=0
D market rivals aim to reduce where this firm is still
product differentiation earning supernormal profit
because its AC< AR.
[J18/P3/Q9]

Page 13
13. The diagram shows the costs
and revenue for a firm in
imperfect competition.
13. D Normal profit is
Which level of output would produce
indicated by AR = AC
only a normal profit?
14. A Economics of scale
allow some of the existing
firms to grow large and
produce at a relatively
lower per unit cost than the
smaller firms who arc then
competed away by the
large firms . Other options
suggest the valid reasons
for survival of small firms.

15 . D It means that the

dominant oligopolist would
reduce its price inthe short
run to a level where it may
survive even by incurring
short term loss but its weak
competitors would be
driven out from the indus try
. The oligopolist then would
14. What would be a reason why small raise its price to a level
firms do not survive? where it earns higher long
run profits.
A In certain industries, there are
economics of scale.
B Small firms often supply personal
services to consumers.
C Small firms often supply prod­
ucts, the size of the market for
which is limited.
D Small owner-managed firms in­
volve less risk.
[NI8/P3/Q11]

15 . What is the implication of a dominant

oligopoly following a limit pricing policy?

A The industry will be restricted to

a target number of firms.
B The industry will contract as rival
oligopolists are eliminated.
C The oligopolist will achieve a
satisficing level of profit.
D The oligopolist will sacrifice
short-term profit for long-term
profit.
[N18/P3/Q12]

Page 14
 TOPIC 4

Efficient resource
allocation

Economics multiple-choice
questions + Answers explained

Page 15
1. In an economy no one can be made better 3. In the UK in 2015 there were two methods of
off without making someone else worse charging for water supply.
off.
1 a fixed charge giving the con­
What can be deduced from this?
sumer the right to consume wa­ 1. D By definition.
A Individuals are the best judges of ter at zero price per litre Options A & B suggest
their own well-being.
2 a price per litre of water used inefficiencies while C is
B Individuals can be relied upon to not related to efficiency
behave rationally. It has been observed that the amount .
of water consumed is markedly lower
C The distribution of income is 2 . C SC = PC + EC , so if
when method 2 is used.
socially optimal. SC > PC it must be due to
What is implied by this observation?
D The economy’s resources are EC . Option B suggests
allocated efficiently. A Water in the UK is not a scarce external benefits while the
outcome of A & D is
[N17/P3/QI] good.
uncertain.
B Water is a free good of nature and
2. The production of a firm which operates in no charge should be levied. 3. D Since MU of wa ter
an imperfectly competitive market gives diminishes therefore
C Water is a necessity, the use of
people do not consume
rise to external production costs. Which which should not be restricted by
water beyond the point
statement about this firm must be unit prices. where MU of the money
correct? D Water is subject to the law of that they pay for it equals

A External costs exceed external diminishing marginal utility. MU of an additional unit

of waler.
benefits. [N17/P3/Q4]
B Private costs exceed social costs. 4. B Options A, C & D aim

C Social costs exceed private 4. Which policy is not designed to at correcting market failure
correct a market failure? white B aims at correcting
costs.
BOP
D Social costs exceed social A government provision of health
benefits. care 5. C Social cost

[H17/P3/Q3] = private cost + external

B removing import quotas
cost. Option A measures
C price controls on large firms
net external benefits and
D regulations to limit smoke pollu­ D suggests net social
tion benefits while B is
irrelevant.
[NI7/P37Q14]

6. C Requiring minimum
5. How is social cost calculated?
wage to be paid aims at
A external cost minus external correcting inequitable
benefit distribution of income
hence it is not related to
B external cost minus private cost
efficient allocation of
C external cost plus private cost resources. All other options
D social cost minus social benefit clearly suggest policies to
correct inefficient
IJ18/P3/Q1]
allocation of resources.

6. Which government policy is not aimed at Shortcuts:

correcting inefficiency in resource SC = SOCIAL COST
allocation? PC = PRIVATE COST
EC = EXTERNAL COST
A marginal cost pricing in state SB = SOCIAL BENEFIT
owned industries PB = PRIVATE BENEFIT
EB = EXTERNAL BENEFIT
B permits restricting the pollution of
MU = MARGINAL UTILITY
rivers by private firms
PED = PRICE ELASTICITY OF DEMAND

Page 16
 C requiring firms to pay a minimum
wage 9. Under which circumstances will a sub­
sidy from the government be most
D
beneficial if there are externalities from 7. A PB = SB -EB
the provision of public goods producing good X?
at zero price ( 500 = 550 - 50)
[J18/P3/Q2] externality caused price elasticity of
by good X demand of good X PB = 500 and PC = 450 ,
therefore it is profitable for
7. The table shows some of the costs and A negative <1
a private firm to build the
benefits , in $ millions , associated with a B negative >1 road . Government would
road building project. Both a government C positive <1 be willing to take up this
department and a profit ­ maximising project because PC + EC =
D positive >1 SC < SB. (450 + 75 = 525 <
private firm are considering building the
road. [J18/P3/Q17] 550)
private
external external social 8. B A higher SC than PC
costs costs benefits benefits 10. In which situation are there definitely
suggests presence of
positive externalities? negative externality.
450 75 50 550
A Private benefits exceed private
Who would be willing to build the costs. 9. D Government uses
road? subsidy in order to
B Private benefits exceed social increase provision of
A Both would be willing to build it. benefits. goods that generate posi­

B Neither would be willing to build C Social benefits exceed private tive externalities Thus
benefits. options A & B are ruled
it.
out. A subsidy
C Only the government department D Social benefits exceed private benefits the most when
would be willing to build it. costs. PED > 1 because it
[N18P3/Q1] causes price to fall and
D Only the private firm would be
a proportionately larger
willing to build it.
11. A cost-benefit analysis is increase in consumption.
[J18/P3/Q3]
carried out on the construction of
10 . C Positive exter ­
a hydroelectric power station.
8. In the diagram , Q 1 is the quantity pro ­ nalities refer to external
duced of a good as the result of market Which combination of circum­ benefits that exist when SB
forces. stances would be most likely to > PB. Option A measures
lead to the scheme being ap­ net private benefits /cost
proved? while B suggests negative
externalities (PB > SB )
A Private benefits are greater while option C is irrelevant
than private costs. .
B Social benefits arc greater
11. B A project is ap­
than social costs.
proved when it gener­
C Social benefits arc greater ates net social benefits
than total costs. (SB > SC). Thus C & D
D Total costs arc greater than are incorrect. Option A
is more likely to be
total revenue.
applied by private firms.
[N18/P3/Q2]
12. B Income inequalities
Which concept is present at output 12. What does not pose a threat to the refer to the issue of income
Q1? achievement of allocative efficiency? distribution hence it is not

A imperfect information on the part related to efficient alloca ­

A a government subsidy
tion of resources as are ail
B a negative externality of consumers
other options.
B income inequalities
C a positive externality
C the existence of externalities Shortcuts:
D a specific tax
[J18/P3/Q4] SC = SOCIAL COST
D the presence of PC = PRIVATE COST
monopolistic elements EC = EXTERNAL COST

SB = SOCIAL BENEFIT
[N18P3/Q3] PB = PRIVATE BENEFIT
EB = EXTERNAL BENEFIT

MU = MARGINAL UTILITY

PED = PRICE ELASTICITY OF DEMAND

Page 17
13. Transport economists estimate the price
elasticity of demand for private car use is
very low. 13 . A A lower PED o
What would be the most effective way fusing private transport
of reducing road traffic congestion? means a tax or subsidy
would bring a
proportionately smaller fall
A banning private cars and lorries
in number of private cars
from town centres
on roads and hence they
B introducing a subsidy to lower the price of will fail to reduce road
congestion . In that case a
using bicycles
direct control such as
C introducing road pricing on all putting a ban would help
main roads reduce road congestion.
D subsidising public transport
such as trains and buses
[N18/P3/Q13]

Page 18
 TOPIC 5

Equity and Policies

towards Income and
Wealth Redistribution

Economics multiple-choice
questions + Answers explained

Page 19
1. Which statement is most likely to explain
distribution of distribution of
why a government decides to increase income wealth
the highest rates of tax on personal
A shift from curve 1 shift from curve 4
income?
to curve 2 to curve 3
A It expects total tax revenue to be
B shift from curve 2 shift from curve 3
unaffected by the policy change.
to curve 1 to curve 4
B It is concerned about the
C shift from curve 3 shift from curve 2
possibility of emigration by
to curve 4 to curve 1
some high earning individuals.
D shift from curve 4 shift from curve 1
C It regards equity considerations as
to curve 3 to curve 2
being more important than
efficiency ones. [J17/P3/QI5] 1. C Options A & D
clearly contradict the
D It wishes to switch the emphasis of its
statement, while B is in­
tax system from direct to indirect
correct because the
taxation. policy would encourage
[J17/P3/Q14] emigration.

2 . A Further the curve

2. The Lorenz curves in the diagram show
drawn on the left of 45
different distributions of income and of
degree line the more is the
wealth. unfair distribution of
income and wealth and

100 vice versa.

% of income 3 . C Nudge theory

or % of wealth proposes positive but in ­
direct suggestions to try
and achieve non -forced
compliance of groups and
individuals . Options A, B &
D suggest compliance by
3. A government wishes to discourage force , therefore , they are
tax avoidance. incorrect.

Which policy to achieve this would be an

example of the behavioural approach of
Income in a country is more equally
nudge theory?
distributed than wealth.
In a period the distribution of income A compelling direct tax deduction
becomes more unequal but the by employers
distribution of wealth becomes more
B making random inspections of individual
equal.
tax records
Which movement would show the
effects of these changes on the C providing information on how the tax is
distribution of income and wealth spent by the government
within the country?
D using penalties, such as fines and
imprisonment for tax avoidance

[J17/P3/Q16]

Page 20