past paper

Question 1

Wants

Answer 1

desires for goods and services

Question 2

Resources

Answer 2

factors used to produce
goods and services.

Question 3

The economic
problem

Answer 3

unlimited
wants exceeding finite
resources.

Question 4

Scarcity

Answer 4

a situation
where there is not
enough to satisfy
everyone’s wants

Question 5

Economic good

Answer 5

a product which
requires resources
to produce it and
therefore has an
opportunity cost.

Question 6

Free good

Answer 6

a product
which does not
require any resources
to make it and so
does not have an
opportunity cost.

Question 7

Identify two reasons why people become entrepreneurs. [2]

Answer 7

To make money / earn a profit (1) to be independent /not having to be told what to do (1) to follow an interest / be innovative / to run / own business (1) willingness to take risks (1) possess good leadership skills (1) easier to set up a firm / lower barriers to entry (1) for self-esteem / status / become well-known (1)
flexible working hours (1) unable to find a job (1).

Question 8

Explain two benefits that an MNC can bring to its host country. [4]

Answer 8

Logical explanation which might include:
Increase employment (1) raise living standards /
increase income / higher wages / reduce poverty (1).
Increase skills (1) provide training to workers (1).
Increase exports / reduce imports (1) improve the
current account of the balance of payments (1).
Increase GDP / output (1) raise economic growth (1).
Increase competition (1) raise efficiency / reduce
prices (1).
Bring in new technology (1) raise quality / raise
productive capacity / productivity / reduce costs of
production (1).
Increase the range of goods and services available in
the country (1) raise living standards (1).
Increase tax revenue (1) enable the government to
spend more (1).
Increase infrastructure (1) an MNC may build e.g.
roads / reduce e.g. transport costs (1)

Question 9

Analyse how a government could encourage the consumption of merit goods. [6]

Answer 9

Provide a subsidy (1) reduce any indirect tax (1) lower
price (1) make the goods more affordable (1) raise
quality (1).
Provide information about the benefits of consuming
the goods (1) e.g. health campaigns / advertisements
(1) overcome information failure (1).
Use regulation (1) make consumption compulsory /
impose fines for non-consumption (1) e.g. school
attendance (1).
Provide services such as education / healthcare (1)
free to consumers (1).
Set maximum price (1) to make the goods more
affordable (1) but may create a shortage (1).
Measures to reduce demerit goods clearly linked to
idea of encouraging substitution of merit goods (1)
relevant example (1)

Question 10

Discuss whether or not private sector firms are likely to charge lower prices than public sector
firms. [8]

Answer 10

Why they might:
* competition may encourage private sector firms to
charge low prices
* private sector firms may seek to reduce waste
and costs to avoid going out of business
* private sector firms may have more funds to
invest
* higher investment may reduce costs of production
* may be an MNC with significant economies of
scale

Why they might not:
* profit motive may encourage private sector firms
to charge high prices
* private sector firms may be monopolies
* public sector firms may be subsidised
* public sector firms may charge low prices to make
the products affordable
* public sector firms may produce on a large scale

Question 11

Define a minimum price. [2]

Answer 11

A price set by e.g. government (1) above the
equilibrium price (1).
A price floor (1) to encourage higher supply (1) will
result in a surplus (1).

Question 12

Explain two advantages of capital‑intensive production. [4]

Answer 12

Logical explanation which might include:
Lower costs of production (1) can produce on a large
scale / may result in lower prices / higher profits (1).
Raise productivity / efficiency (1) higher output / can
produce faster (1).
Quality may increase / consistency of quality may be
greater (1) may increase demand (1).
Absence of human error (1) less wastage (1).
Capital goods can work long hours (1) need few
breaks / no need for holidays (1).
Capital goods will not take industrial action (1) will not
disrupt production (1).
Can eliminate boring / repetitive / physically
demanding tasks (1) increase workers’ job satisfaction
(1).

Question 13

Analyse why low‑income farmers are likely to have low living standards. [6]

Answer 13

May be unable to afford basic necessities / may spend
a high proportion of income on basic necessities / low
purchasing power / low ability to consume goods and
services (1).
Unable to save much (1) banks reluctant to lend to
them (1) examples of items they may need to borrow
to buy which could improve their quality of life (1).
Unable to afford good quality housing (1) which can
result in poor health / overcrowding (1).
Unable to afford good health care (1) good nutrition /
food (1) more likely to become ill (1) lower life
expectancy (1).
Unable to afford good education (1) reduce range of
interests (1).
Unable to buy good capital equipment for farms (1)
making work hard (1).
May have to reinvest into their farms giving them less
to spend (1).
May experience poor working conditions / physically
demanding work (1) long hours (1) reducing health (1)
Live in rural areas (1) which may lack infrastructure
(1).

Question 14

Discuss whether or not a government subsidy on the export of sugar will help it achieve its
macroeconomic aims. [8]

Answer 14

Why it might:
* lower price of exports and increase their supply
* increase export revenue and improve the current
account balance
* higher output of sugar can contribute to economic
growth
* more people may be employed in growing sugar
and processing sugar cane.

Why it might not:
* other countries’ sugar may still be cheaper
* may make farmers and mill owners lazy
* sugar sellers may not lower their prices
* demand for sugar may be price-inelastic
* introduction of capital equipment may lower
employment
* other countries may retaliate against the subsidy
and so current account position may not be
improved
* higher exports may increase total demand
resulting in inflation
* opportunity cost – e.g. spending on education
which may be more effective.

Question 15

Identify two causes of an increase in labour productivity. [2]

Answer 15

improved education
* improved training / higher skills
* improved healthcare
* higher pay / bonuses / lower income tax
* better quality capital equipment / advances in
technology
* shorter working hours / longer holidays
* better working conditions / better (fringe) benefits
* increased experience
* higher unemployment
* specialisation

Question 16

Explain two reasons why someone may choose to become a doctor. [4]

Answer 16

High pay (1) resulting in high living standards / caused
by low supply / high demand / high number of job
vacancies / strong bargaining power / high
qualifications / high skills (1).
Vocation (1) wanting to help people (1).
Interest / job satisfaction (1) enjoying the challenges
involved (1).
Status (1) doctors are highly regarded (1).
Family tradition (1) parents may have been doctors
(1).
High pensions (1) enabling high living standards
during retirement (1).
May be good working conditions (1) working inside
(1).
Job security (1) difficult to replace / essential service
(1).
(Fringe / non-wage) benefits (1) e.g. pension schemes
(1).

Question 17

Analyse how advances in technology may improve the current account balance on a country’s
balance of payments. [6]

Answer 17

Raise productivity / increase efficiency / increase
speed of production / increase output (1) reduce costs
of production (1) lower prices (1) raise quality (1)
create new products (1) increase international
competitiveness (1) increase exports (1) reduce
imports (1) increase export revenue (1) reduce import
expenditure (1) improve trade in goods (and services)
balance / reduce a current account deficit / create a
surplus / increase a surplus (1).
Increase access to information about goods and
services (1) promote sales (1).
Increase foreign tourism (1) easier to book foreign
holidays (1) increase speed of transport (1).
Make it easier to keep in contact with branches
abroad (1) encourage setting up branches in other
countries (1) receive profits from other countries (1)
increase primary income (1).

Question 18

Discuss whether or not a country with a high population growth rate is likely to experience a
high economic growth rate. [8]

Answer 18

Why it might:
* may have an increasing labour force, capable of
producing a higher output
* likely to have higher demand, encouraging higher
output
* larger markets can enable greater advantage to
be taken of economies of scale
* may have higher tax revenue, enabling the
government to spend more on e.g. education
which can promote economic growth

Why it might not:
* may have an increase in the number of
dependents, reducing resources which can be
devoted to increasing productive capacity
* rise in birth rate may reduce the size of the labour
force as people leave the labour force to bring up
children
* resources may be depleted, reducing productive
capacity
* external costs e.g. congestion and pollution may
increase which may reduce productivity.

Question 19

Identify two determinants of price elasticity of demand. [2]

Answer 19

• substitutes
• whether a luxury or necessity
• proportion of income taken
• whether habit forming / addictive
• whether the purchase can be postponed
• time period
• breadth of definition
• brand loyalty
• number of uses
• complements

Question 20

Explain how the economic problem results in consumers having to make choices. [4]

Answer 20

The economic problem is unlimited / infinite wants (1)
exceeding limited / finite / scare resources (1)
resulting in scarcity (1).
Consumers have limited incomes (1) and so cannot
buy everything they want (1).
Buying one product involves an opportunity cost (1) in
the form of another product sacrificed / example (1)

Question 21

Analyse why some workers decide not to join a trade union. [6]

Answer 21

Trade unions charge a subscription fee (1) workers
cannot afford to join (1) may be unemployed / have
low income (1).
Government legislation may prevent trade union
membership / government may discourage
membership (1) may reduce the power of trade unions
(1) less benefit from joining (1).
Employers may discourage membership (1) may think
it will reduce chance of employment / increase chance
of unemployment (1) chance of promotion (1).
May be satisfied with wages (1) working conditions (1)
may have job security (1) no need for collective
bargaining (1).
May be employed in industries that do not have a
history of trade union membership (1).
May be reluctant to take industrial action (1) may lose
pay during a strike (1).
May not agree with the objectives of the trade union
(1).
May follow example of fellow workers (1).

Question 22

Discuss whether or not a government should reduce the amount of money it gives to each
state pensioner. [8]

Answer 22

Why it should:
* ageing population can mean the amount of
government spending on pensions rises
significantly
* a reduction in the state pension could reduce a
budget deficit
* may persuade people to work longer, raising
output and tax revenue
* paying pensions involves an opportunity cost,
could spend more on e.g. education

Why it should not:
* will reduce living standards of pensioners
* may increase the numbers living in absolute
poverty
* will reduce total demand
* lower spending by pensioners could reduce
output and increase unemployment.