This document consists of 10 printed pages and 2 blank pages. IB16 06_9708_32/2RP © UCLES 2016 [Turn over *0533490684* Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/32 Paper 3 Multiple Choice May/June 2016 1 hour 15 minutes Additional Materials: Multiple Choice Answer Sheet Soft clean eraser Soft pencil (type B or HB is recommended) READ THESE INSTRUCTIONS FIRST Write in soft pencil. Do not use staples, paper clips, glue or correction fluid. Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided unless this has been done for you. DO NOT WRITE IN ANY BARCODES. There are thirty questions on this paper. Answer all questions. For each question there are four possible answers A , B , C and D . Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet. Read the instructions on the Answer Sheet very carefully. Each correct answer will score one mark. A mark will not be deducted for a wrong answer. Any rough working should be done in this booklet.
2 © UCLES 2016 9708/32/M/J/16 1 What action by a firm is most likely to raise its dynamic efficiency? A distributing all its current profit to its existing shareholders B maximising the labour productivity of its current workers C minimising the average cost of producing its current output D retaining its current profit for product research and development 2 The current distribution of goods between two individuals in a two-person economy with given technology and resources is at point X. According to the Pareto criterion, which point would definitely indicate increased allocative efficiency? O Tariq’s goods Samir’s goods A B C D X 3 The concept of allocative efficiency assumes that each individual in society is the best judge of their own economic welfare. Which example of government intervention is based on an argument which rejects this assumption? A pollution controls B subsidies for merit goods C the provision of public goods D the regulation of monopolies
3 © UCLES 2016 9708/32/M/J/16 [Turn over 4 In the indifference curve diagram point M is the consumer’s initial equilibrium and MN is the substitution effect of a fall in the price of good X. If good X is a Giffen good which point will be the consumer’s new equilibrium point after the fall in the price of good X? O K L J M N good X good Y A B C D I 5 To maximise the satisfaction he derives from a given level of expenditure on two goods, X and Y, a consumer should allocate his expenditure between the two goods so that A marginal utility of X = price of X and marginal utility of Y = price of Y. B marginal utility of X plus marginal utility of Y is maximised. C marginal utility of X = marginal utility of Y.
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