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Question 1 Report
A fishers' cooperative has a fixed quota of 600 kg of tuna each week. It is considering using some boats to catch squid instead, because global demand for squid has risen.
(a) What is meant by opportunity cost? [1]
(b) Explain one possible opportunity cost of allocating boats to squid fishing. [2]
(c) Analyse how higher global demand for squid could affect the cooperative's decision. [1]
The decision should compare the expected gain from squid with what is sacrificed by moving boats away from tuna.
The decision should compare the expected gain from squid with what is sacrificed by moving boats away from tuna.
Question 2 Report
A community library has funding to buy either new computers or more books. Its managers cannot buy every item requested by local consumers because the budget is limited.
(a) What economic problem does the limited budget illustrate? [1]
(a) The limited budget illustrates scarcity. Resources, including money, are limited, but consumers’ wants for computers, books and other library items are unlimited. Therefore not every want can be satisfied. [1]
(a) The limited budget illustrates scarcity. Resources, including money, are limited, but consumers’ wants for computers, books and other library items are unlimited. Therefore not every want can be satisfied. [1]
Question 3 Report
Read the information below about a private bus company. The firm wants to stop its least profitable rural route. Residents argue that the route enables workers to reach jobs, reduces isolation and allows older consumers to attend medical appointments.
(a) State one private benefit the bus firm receives from operating the route. [1]
(b) State two external benefits generated by the route. [2]
(c) Explain why the route could be socially worthwhile even if it makes a loss. [2]
(d) Analyse how a government subsidy could affect the price, supply and demand for rural bus journeys. [3]
(e) Assess whether a subsidy is the best policy to maintain this service. [1]
(a) A private benefit is received directly by the firm. Fare revenue is a valid answer because passengers pay the bus company for journeys. Profit would also be valid. [1]
(b) External benefits are benefits received by third parties rather than the buyer or seller. Two valid benefits are:
Reduced social isolation, fewer car journeys and less congestion would also gain credit. [2]
(c) The firm's loss measures private costs and private revenue, not all effects on society. The route creates external benefits for other people, such as employers gaining access to workers and residents gaining healthcare access. If these wider social benefits exceed the firm's private loss, or exceed the social cost of providing the route, keeping it running is socially worthwhile. [2]
(d) A subsidy reduces the firm's effective operating cost, or increases the revenue it receives for each journey. This makes the firm willing to supply more bus services, including continuing the rural route. If the subsidy is passed on through lower fares, passengers face a lower price and quantity demanded for rural bus journeys rises. [3]
(e) A subsidy may maintain a service with substantial external benefits, but it is not automatically the best policy. Its suitability depends on the size of those external benefits and whether a lower-cost alternative, such as community transport, could provide the service. [1]
Exam focus: distinguish the firm's private revenue from benefits received by other people when deciding whether a loss-making service may still be socially beneficial.
(a) A private benefit is received directly by the firm. Fare revenue is a valid answer because passengers pay the bus company for journeys. Profit would also be valid. [1]
(b) External benefits are benefits received by third parties rather than the buyer or seller. Two valid benefits are:
Reduced social isolation, fewer car journeys and less congestion would also gain credit. [2]
(c) The firm's loss measures private costs and private revenue, not all effects on society. The route creates external benefits for other people, such as employers gaining access to workers and residents gaining healthcare access. If these wider social benefits exceed the firm's private loss, or exceed the social cost of providing the route, keeping it running is socially worthwhile. [2]
(d) A subsidy reduces the firm's effective operating cost, or increases the revenue it receives for each journey. This makes the firm willing to supply more bus services, including continuing the rural route. If the subsidy is passed on through lower fares, passengers face a lower price and quantity demanded for rural bus journeys rises. [3]
(e) A subsidy may maintain a service with substantial external benefits, but it is not automatically the best policy. Its suitability depends on the size of those external benefits and whether a lower-cost alternative, such as community transport, could provide the service. [1]
Exam focus: distinguish the firm's private revenue from benefits received by other people when deciding whether a loss-making service may still be socially beneficial.
Question 4 Report
A hospital has one operating theatre available for an afternoon. Managers must choose whether it is used for six planned cataract operations or emergency surgery after a road accident.
(a) What is the opportunity cost of using the theatre for emergency surgery? [1]
(b) Explain why this choice is an example of resource allocation. [2]
(a) The opportunity cost is the six planned cataract operations that cannot be carried out at that time. [1]
(b) The operating theatre, surgeons and available time are scarce resources. Managers must choose whether these resources are used for planned cataract operations or emergency surgery. Deciding which service receives scarce resources is resource allocation. [2]
(a) The opportunity cost is the six planned cataract operations that cannot be carried out at that time. [1]
(b) The operating theatre, surgeons and available time are scarce resources. Managers must choose whether these resources are used for planned cataract operations or emergency surgery. Deciding which service receives scarce resources is resource allocation. [2]
Question 5 Report
Table 1 shows trade data for a country that exports tea and imports fertiliser.
| Year | Value of tea exports ($ million) | Value of fertiliser imports ($ million) |
|---|---|---|
| 2024 | 84 | 60 |
| 2025 | 90 | 72 |
(a) Calculate the balance of trade in goods shown in Table 1 for 2025. [2]
(b) Analyse one possible reason why the value of fertiliser imports increased. [3]
(a) The balance of trade in goods shown is export value minus import value:
\[\$90\text{ million}-\$72\text{ million}=\$18\text{ million}\]
This is a \(\$18\) million trade surplus, because exports exceed imports. [2]
(b) Domestic farmers may increase production and therefore need more fertiliser. [1] Their demand for imported fertiliser rises. [1] If the price is unchanged, the greater quantity imported raises the value of fertiliser imports. [1] Alternatively, a rise in world fertiliser prices could raise import value even if quantity did not increase.
(a) The balance of trade in goods shown is export value minus import value:
\[\$90\text{ million}-\$72\text{ million}=\$18\text{ million}\]
This is a \(\$18\) million trade surplus, because exports exceed imports. [2]
(b) Domestic farmers may increase production and therefore need more fertiliser. [1] Their demand for imported fertiliser rises. [1] If the price is unchanged, the greater quantity imported raises the value of fertiliser imports. [1] Alternatively, a rise in world fertiliser prices could raise import value even if quantity did not increase.
Question 6 Report
A regional transport authority is considering applications from firms that want to operate a new electric ferry service. One established firm already owns the harbour berths and has a long-term licence to use them. Consumers demand reliable journeys, but a new firm would face high costs before it could earn any profit.
(a) Which factor is most likely to prevent a new firm entering this market?
A lower prices charged by the existing firm
B exclusive access to the harbour berths
C an increase in workers' wages in another industry
D greater demand for ferry travel [1]
(b) Explain how the factor chosen in part (a) can reduce competition and affect prices in this market. [3]
(a) The factor most likely to prevent entry is exclusive access to the harbour berths. [1]
(b) A new ferry firm cannot obtain a suitable place to dock and load passengers, or it must pay high costs to obtain alternative facilities. [1] This makes entry difficult or raises the entrant’s costs. [1] With fewer firms able to supply the service, the established firm has greater market power and may charge higher prices, while consumers have less choice. [1]
(a) The factor most likely to prevent entry is exclusive access to the harbour berths. [1]
(b) A new ferry firm cannot obtain a suitable place to dock and load passengers, or it must pay high costs to obtain alternative facilities. [1] This makes entry difficult or raises the entrant’s costs. [1] With fewer firms able to supply the service, the established firm has greater market power and may charge higher prices, while consumers have less choice. [1]
Question 7 Report
Read the information below about three independent gyms in one district. Each gym offers different classes, equipment and membership packages. When one gym reduces its monthly fee, the other two retain their fees but advertise free trial sessions.
(a) Which market structure is most likely shown by the gyms? [1]
(b) Explain why the gyms may choose advertising rather than immediately matching the lower price. [1]
(a) The gyms are most likely in monopolistic competition. [1] There are several independent firms and their classes, equipment and packages are differentiated.
(b) Advertising can differentiate a gym’s service and retain customers without reducing the revenue earned per membership. [1] Matching the lower monthly fee would lower the price paid by all members who remain.
(a) The gyms are most likely in monopolistic competition. [1] There are several independent firms and their classes, equipment and packages are differentiated.
(b) Advertising can differentiate a gym’s service and retain customers without reducing the revenue earned per membership. [1] Matching the lower monthly fee would lower the price paid by all members who remain.
Question 8 Report
Table 1 shows annual emissions and the estimated social cost created by a cement firm.
| Annual cement output (tonnes) | Carbon emissions (tonnes) | Estimated external cost ($) |
|---|---|---|
| 10 000 | 4 000 | 80 000 |
| 15 000 | 6 000 | 120 000 |
| 20 000 | 8 000 | 160 000 |
(a) Calculate the estimated external cost per tonne of cement when output is 20 000 tonnes. [1]
(b) Explain why the firm's private costs may be lower than its social costs. [1]
(a) At an output of 20 000 tonnes, the estimated external cost is $160 000:
\[\frac{\$160\,000}{20\,000\text{ tonnes}}=\$8\text{ per tonne}\]
The estimated external cost is $8 per tonne of cement. [1]
(b) Private costs are costs paid by the cement firm itself. Social costs include these private costs plus pollution costs imposed on others. Since the firm does not pay these external pollution costs, its private costs may be lower than social costs. [1]
(a) At an output of 20 000 tonnes, the estimated external cost is $160 000:
\[\frac{\$160\,000}{20\,000\text{ tonnes}}=\$8\text{ per tonne}\]
The estimated external cost is $8 per tonne of cement. [1]
(b) Private costs are costs paid by the cement firm itself. Social costs include these private costs plus pollution costs imposed on others. Since the firm does not pay these external pollution costs, its private costs may be lower than social costs. [1]
Question 9 Report
Table 1 shows closing share prices for a bicycle manufacturer traded on a stock market. The firm issued the shares several years ago, but investors now buy and sell them between themselves.
Table 1
(a) The share-price table is not visible in the supplied question text, but the mark scheme gives a Monday price of 148 cents and Wednesday price of 156 cents:
\[156\text{ cents}-148\text{ cents}=8\text{ cents}\]
The share price rose by 8 cents [1].
(b) Investors trading shares that have already been issued are using the secondary market, or stock market [1]. The firm does not receive the sale money from these trades because investors are selling to other investors.
(c) News of higher expected profit can increase demand for the firm’s shares, raising their market price [1]. Investors may expect higher future dividends or a more valuable business, so more wish to buy the available shares.
(a) The share-price table is not visible in the supplied question text, but the mark scheme gives a Monday price of 148 cents and Wednesday price of 156 cents:
\[156\text{ cents}-148\text{ cents}=8\text{ cents}\]
The share price rose by 8 cents [1].
(b) Investors trading shares that have already been issued are using the secondary market, or stock market [1]. The firm does not receive the sale money from these trades because investors are selling to other investors.
(c) News of higher expected profit can increase demand for the firm’s shares, raising their market price [1]. Investors may expect higher future dividends or a more valuable business, so more wish to buy the available shares.
Question 10 Report
Which one of the following is most likely to be a capital good for a small firm producing fruit juice?
A a delivery van
B bottles of juice bought by consumers
C wages paid to workers
D oranges used in production
(a) State the correct answer. [1]
(a) A capital good is a man-made asset used by a business to help produce or deliver goods and services. A delivery van helps the fruit-juice firm transport its products, so it is capital. [1]
Oranges are a raw material, workers' wages are a payment to labour, and bottles of juice bought by consumers are finished consumer goods rather than capital goods.
(a) A capital good is a man-made asset used by a business to help produce or deliver goods and services. A delivery van helps the fruit-juice firm transport its products, so it is capital. [1]
Oranges are a raw material, workers' wages are a payment to labour, and bottles of juice bought by consumers are finished consumer goods rather than capital goods.
Question 11 Report
Fig. 1 shows a new digital-finance kiosk at a bus terminal. It lets consumers deposit cash, transfer money, buy government savings certificates and check the market price of these certificates. A nearby small food-processing firm is considering selling certificates to raise funds for a new packaging line. Some residents have limited digital skills and are worried about fraud.
(a) The kiosk supports money's role as a medium of exchange, because consumers can transfer money and make payments. [1] It also supports money as a store of value, because consumers can deposit cash or use savings certificates to hold value for the future. [1] Unit of account and standard of deferred payment are also acceptable functions.
(b) A government savings certificate is a financial asset: the consumer lends funds to the government. Cash at home is physical money held directly by the consumer. [1] The certificate pays interest, so it can generate a return. [1] However, cash is immediately available for spending, while a certificate may have to be sold or held until maturity before the funds can be accessed. [1]
(c)
\[\$1500\times\frac{4}{100}=\$60\]
The interest earned in one year is $60. [2]
(d) A well-functioning financial market allows savers to supply funds and earn interest or other returns. [1] It allows the food-processing firm to obtain finance for its new packaging line. [1] This investment may raise output, productivity or profit. [1] Market prices and information help direct funds towards firms and projects expected to generate returns, improving allocation of resources. [1]
(e) The kiosk could raise welfare by making payments easier, providing safer saving than keeping cash, reducing travel costs, and giving residents access to investment information. It may also improve local firms' access to finance. [2] However, fraud, service charges, unreliable systems, and exclusion of residents with limited digital skills could reduce these gains. [1] Overall, welfare is likely to rise if users receive suitable digital training and strong consumer protection against fraud is provided. [1]
(a) The kiosk supports money's role as a medium of exchange, because consumers can transfer money and make payments. [1] It also supports money as a store of value, because consumers can deposit cash or use savings certificates to hold value for the future. [1] Unit of account and standard of deferred payment are also acceptable functions.
(b) A government savings certificate is a financial asset: the consumer lends funds to the government. Cash at home is physical money held directly by the consumer. [1] The certificate pays interest, so it can generate a return. [1] However, cash is immediately available for spending, while a certificate may have to be sold or held until maturity before the funds can be accessed. [1]
(c)
\[\$1500\times\frac{4}{100}=\$60\]
The interest earned in one year is $60. [2]
(d) A well-functioning financial market allows savers to supply funds and earn interest or other returns. [1] It allows the food-processing firm to obtain finance for its new packaging line. [1] This investment may raise output, productivity or profit. [1] Market prices and information help direct funds towards firms and projects expected to generate returns, improving allocation of resources. [1]
(e) The kiosk could raise welfare by making payments easier, providing safer saving than keeping cash, reducing travel costs, and giving residents access to investment information. It may also improve local firms' access to finance. [2] However, fraud, service charges, unreliable systems, and exclusion of residents with limited digital skills could reduce these gains. [1] Overall, welfare is likely to rise if users receive suitable digital training and strong consumer protection against fraud is provided. [1]
Question 12 Report
A local council has reviewed four services that households may buy: a measles immunisation, a streaming subscription, designer trainers and a restaurant meal. The council is deciding whether to reduce the price paid by consumers for one service because its consumption may create wider economic benefits.
(a) Which one of the four services is most likely to be a merit good? [1]
(b) State one benefit to people other than the consumer when demand for this service rises. [1]
(c) Explain why the market supply and demand outcome may result in too little of this good being consumed without government action. [2]
(d) Explain one way in which the council could increase consumption of the merit good. [2]
(a) A measles immunisation is most likely to be a merit good. Merit goods create benefits that consumers may undervalue and which can extend beyond the consumer. [1]
(b) One external benefit is a lower risk that other people will catch measles. This benefit is received by people other than the immunised consumer. Reduced pressure on hospitals or fewer workdays lost are also valid. [1]
(c) A consumer deciding whether to pay for immunisation may consider mainly their private benefit. They may not fully take account of the protection given to other people through lower infection risk. As a result, market demand and the quantity consumed are below the socially efficient level. [2]
(d) The council could subsidise or provide free immunisations. This lowers the price paid by consumers, making immunisation more affordable and increasing quantity demanded and consumed. Providing information about health benefits, or requiring immunisation for specified activities, could also increase consumption if explained. [2]
Exam focus: merit goods are under-consumed because private choices may ignore external benefits.
(a) A measles immunisation is most likely to be a merit good. Merit goods create benefits that consumers may undervalue and which can extend beyond the consumer. [1]
(b) One external benefit is a lower risk that other people will catch measles. This benefit is received by people other than the immunised consumer. Reduced pressure on hospitals or fewer workdays lost are also valid. [1]
(c) A consumer deciding whether to pay for immunisation may consider mainly their private benefit. They may not fully take account of the protection given to other people through lower infection risk. As a result, market demand and the quantity consumed are below the socially efficient level. [2]
(d) The council could subsidise or provide free immunisations. This lowers the price paid by consumers, making immunisation more affordable and increasing quantity demanded and consumed. Providing information about health benefits, or requiring immunisation for specified activities, could also increase consumption if explained. [2]
Exam focus: merit goods are under-consumed because private choices may ignore external benefits.
Question 13 Report
A small fishing harbour has open access to a bay. Each boat owner increases its catch when fish prices rise, but no firm owns the fish stock or limits the number of boats.
(a) Which economic problem may result from open access to the bay? [1]
(b) State one possible government response. [1]
(a) Open access may lead to overuse or depletion of a common resource, often called the tragedy of the commons. Individual boat owners have an incentive to catch more fish, but no owner has an incentive or power to conserve the whole fish stock. [1]
(b) The government could impose a fishing quota to limit catches. [1] A licence limit, closed season, or tax on catches would also be acceptable.
(a) Open access may lead to overuse or depletion of a common resource, often called the tragedy of the commons. Individual boat owners have an incentive to catch more fish, but no owner has an incentive or power to conserve the whole fish stock. [1]
(b) The government could impose a fishing quota to limit catches. [1] A licence limit, closed season, or tax on catches would also be acceptable.
Question 14 Report
A government plans to tax plastic microbeads used in some cosmetics. Scientists estimate that microbeads enter rivers and that removing them from water treatment systems is expensive.
(a) What is meant by a corrective tax? [1]
(b) Explain why the tax could make firms reduce the supply of cosmetics containing microbeads. [2]
(c) Calculate the tax revenue if 3 million containers are sold and the tax is $0.40 per container. [1]
(d) Analyse one reason why the tax may not completely eliminate river pollution. [2]
(a) A corrective tax is a tax designed to reduce a negative externality by making private costs closer to social costs. [1]
(b) The tax raises firms' cost per container of cosmetics containing microbeads. [1] Firms may then reduce supply or switch to less polluting ingredients. [1]
(c)
\[3\,000\,000\times\$0.40=\$1\,200\,000\]
Tax revenue is $1 200 000. [1]
(d) Pollution may continue because some consumers may still demand the cosmetics despite the higher price. [1] In addition, other firms or products may continue to release pollutants into rivers, so taxing microbeads alone cannot eliminate all river pollution. [1]
(a) A corrective tax is a tax designed to reduce a negative externality by making private costs closer to social costs. [1]
(b) The tax raises firms' cost per container of cosmetics containing microbeads. [1] Firms may then reduce supply or switch to less polluting ingredients. [1]
(c)
\[3\,000\,000\times\$0.40=\$1\,200\,000\]
Tax revenue is $1 200 000. [1]
(d) Pollution may continue because some consumers may still demand the cosmetics despite the higher price. [1] In addition, other firms or products may continue to release pollutants into rivers, so taxing microbeads alone cannot eliminate all river pollution. [1]
Question 15 Report
Table 1 gives weekly information from a local market for second-hand guitars. The number supplied includes guitars offered by private sellers and music shops.
| Price per guitar ($) | Quantity demanded | Quantity supplied |
|---|---|---|
| 120 | 80 | 40 |
| 160 | 60 | 60 |
| 200 | 40 | 90 |
(a) Which price produces market equilibrium? [1]
(b) Calculate the surplus at $200. [1]
(c) Analyse why a seller may reduce the price when there is a surplus. [1]
(a) Equilibrium is at \(\$160\), where quantity demanded and quantity supplied are both 60 guitars. [1]
(b) At \(\$200\), 90 guitars are supplied but only 40 are demanded:
\[\text{surplus}=90-40=50\text{ guitars}\]
The surplus is 50 guitars. [1]
(c) A seller may reduce price because a lower price makes guitars more attractive to consumers and helps clear unsold stock. [1]
(a) Equilibrium is at \(\$160\), where quantity demanded and quantity supplied are both 60 guitars. [1]
(b) At \(\$200\), 90 guitars are supplied but only 40 are demanded:
\[\text{surplus}=90-40=50\text{ guitars}\]
The surplus is 50 guitars. [1]
(c) A seller may reduce price because a lower price makes guitars more attractive to consumers and helps clear unsold stock. [1]
Question 16 Report
Fig. 1 shows a tomato grower's supply curve. A new irrigation system reduces the grower's water costs for every crate produced. The market demand curve does not change.
(a) Which supply curve is likely to apply after the irrigation system is installed? [1]
(b) State the likely change in equilibrium price. [1]
(c) Explain why lower water costs change supply. [2]
(a) After installation, supply is shown by the curve labelled S2. It is the outward, rightward supply curve, indicating more crates supplied at each price. [1]
(b) The equilibrium price is likely to fall. Greater supply meets unchanged demand at a lower price. [1]
(c) Water is an input in tomato production. Lower water costs lower the cost of producing each crate and raise profit at any given selling price. The grower is therefore willing and able to supply more crates at every price, which is an increase in supply rather than simply a movement along the original supply curve. [2]
(a) After installation, supply is shown by the curve labelled S2. It is the outward, rightward supply curve, indicating more crates supplied at each price. [1]
(b) The equilibrium price is likely to fall. Greater supply meets unchanged demand at a lower price. [1]
(c) Water is an input in tomato production. Lower water costs lower the cost of producing each crate and raise profit at any given selling price. The grower is therefore willing and able to supply more crates at every price, which is an increase in supply rather than simply a movement along the original supply curve. [2]
Question 17 Report
| Worker | Annual income ($) | Income tax paid ($) |
|---|---|---|
| Mira, laboratory technician | 54 000 | 13 500 |
| Ravi, company director | 180 000 | 63 000 |
Table 1 gives income-tax rates and tax paid by two workers in Ardin. The government says that its tax system should raise revenue while reducing income inequality.
Table 1
(a) Which worker pays the higher proportion of income in tax? [1]
(b) Calculate Mira's disposable income. [1]
(c) Explain how progressive taxation may reduce inequality. [2]
(a) Ravi pays the higher proportion of income in tax.
Mira pays \(13\,500/54\,000 = 25\%\), while Ravi pays \(63\,000/180\,000 = 35\%\). [1]
(b) Disposable income is income after direct taxes have been paid:
\[\$54\,000 - \$13\,500 = \$40\,500\]
Mira’s disposable income is $40 500. [1]
(c) Under progressive taxation, higher-income workers pay a larger percentage of their income in tax. The revenue can fund transfer payments or public services used by lower-income households. This narrows the difference between incomes and can reduce inequality. [2]
(a) Ravi pays the higher proportion of income in tax.
Mira pays \(13\,500/54\,000 = 25\%\), while Ravi pays \(63\,000/180\,000 = 35\%\). [1]
(b) Disposable income is income after direct taxes have been paid:
\[\$54\,000 - \$13\,500 = \$40\,500\]
Mira’s disposable income is $40 500. [1]
(c) Under progressive taxation, higher-income workers pay a larger percentage of their income in tax. The revenue can fund transfer payments or public services used by lower-income households. This narrows the difference between incomes and can reduce inequality. [2]
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