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Question 1 Report
A housing charity finds that tenants cannot easily discover whether a rented flat has poor insulation until after winter. Landlords know the heating costs, and some advertise only the low monthly rent.
(a) State which side of this market has more information. [1]
(b) Explain one effect this information failure may have on the market for rented flats. [2]
(c) Use one policy to show how the government could improve information for tenants. [1]
(a) Landlords, the sellers in this market, have more information [1]. They know the likely heating costs and insulation quality before the flat is rented.
(b) Tenants may rent poorly insulated flats because they cannot identify the quality before renting [1]. As a result, efficient, well-insulated flats may be under-demanded, or landlords may have less incentive to improve insulation [1]. The market does not reward quality properly when tenants cannot distinguish it in advance.
(c) The government could require an energy-efficiency rating or certificate to be displayed in advertisements [1]. This supplies comparable information before tenants decide.
(a) Landlords, the sellers in this market, have more information [1]. They know the likely heating costs and insulation quality before the flat is rented.
(b) Tenants may rent poorly insulated flats because they cannot identify the quality before renting [1]. As a result, efficient, well-insulated flats may be under-demanded, or landlords may have less incentive to improve insulation [1]. The market does not reward quality properly when tenants cannot distinguish it in advance.
(c) The government could require an energy-efficiency rating or certificate to be displayed in advertisements [1]. This supplies comparable information before tenants decide.
Question 2 Report
Read the case study below. In 2022, StreamSphere held 58% of a country's video-streaming subscriptions. It bought a small production studio and made several popular programmes exclusive to its platform. Two rivals allege that StreamSphere is using its market power to raise subscription rates. The competition authority is considering action.
(a) State two indicators that StreamSphere may have market power. [2]
(b) Explain how exclusive programmes can act as a barrier to entry. [3]
(c) Analyse two possible effects on consumers if StreamSphere increases its subscription rate. [4]
(d) Assess whether the competition authority should prevent StreamSphere from buying further production studios. [6]
(a) Two indicators of market power are:
(b) Exclusive programmes differentiate StreamSphere's service and make it attractive to consumers. [1] A new entrant would need to spend heavily to obtain rights to comparable content or create its own popular programmes. [1] This raises start-up costs, making entry less likely. [1]
(c) A higher subscription rate raises consumers' spending on streaming and reduces their real disposable income. [1] They may consequently reduce spending on other goods and services. [1] Some consumers may cancel or switch to rivals. [1] However, consumers who value the exclusive programmes may remain subscribed despite the increase, showing that their alternatives are limited. [1]
(d) Preventing further purchases could be justified because acquiring more studios may increase concentration and make entry harder for rivals. [1] Control of more exclusive content could allow StreamSphere to raise rates, reduce choice, or lower service quality. [1]
However, further studios may create economies of scale: StreamSphere could fund better programmes and lower average costs. [1] It also faces competition from existing streaming rivals and other entertainment services. [1]
A justified conclusion is that the authority should prevent a purchase if it would substantially reduce competition and consumer harm is likely to exceed efficiency gains. [2] It could allow a purchase with conditions if the gains, such as better content or lower costs, are passed on to consumers. The decision should depend on the likely effect on competition and consumers, not solely on StreamSphere's current size.
(a) Two indicators of market power are:
(b) Exclusive programmes differentiate StreamSphere's service and make it attractive to consumers. [1] A new entrant would need to spend heavily to obtain rights to comparable content or create its own popular programmes. [1] This raises start-up costs, making entry less likely. [1]
(c) A higher subscription rate raises consumers' spending on streaming and reduces their real disposable income. [1] They may consequently reduce spending on other goods and services. [1] Some consumers may cancel or switch to rivals. [1] However, consumers who value the exclusive programmes may remain subscribed despite the increase, showing that their alternatives are limited. [1]
(d) Preventing further purchases could be justified because acquiring more studios may increase concentration and make entry harder for rivals. [1] Control of more exclusive content could allow StreamSphere to raise rates, reduce choice, or lower service quality. [1]
However, further studios may create economies of scale: StreamSphere could fund better programmes and lower average costs. [1] It also faces competition from existing streaming rivals and other entertainment services. [1]
A justified conclusion is that the authority should prevent a purchase if it would substantially reduce competition and consumer harm is likely to exceed efficiency gains. [2] It could allow a purchase with conditions if the gains, such as better content or lower costs, are passed on to consumers. The decision should depend on the likely effect on competition and consumers, not solely on StreamSphere's current size.
Question 3 Report
Table 1 shows selected components of gross domestic product in Arvania in 2022 and 2023.
| Component | 2022 ($bn) | 2023 ($bn) |
|---|---|---|
| Consumer spending | 210 | 218 |
| Investment | 64 | 70 |
| Government spending | 82 | 86 |
| Exports | 51 | 55 |
| Imports | 57 | 63 |
(a) Calculate GDP in 2023 using GDP = C + I + G + X - M. [2]
(b) State whether Arvania's trade balance improved or worsened between 2022 and 2023. [1]
(c) Explain one way increased government spending could increase economic growth. [1]
(a) Use \(GDP=C+I+G+X-M\):
\[218+70+86+55-63=366\]
Arvania's GDP in 2023 was \($366\text{ bn}\). [2]
(b) The trade balance worsened. In 2022, \(51-57=-6\), a \($6\text{ bn}\) deficit; in 2023, \(55-63=-8\), a \($8\text{ bn}\) deficit. [1]
(c) Higher government spending raises aggregate demand for goods and services. Firms may increase output, causing real GDP and economic growth to increase. [1]
(a) Use \(GDP=C+I+G+X-M\):
\[218+70+86+55-63=366\]
Arvania's GDP in 2023 was \($366\text{ bn}\). [2]
(b) The trade balance worsened. In 2022, \(51-57=-6\), a \($6\text{ bn}\) deficit; in 2023, \(55-63=-8\), a \($8\text{ bn}\) deficit. [1]
(c) Higher government spending raises aggregate demand for goods and services. Firms may increase output, causing real GDP and economic growth to increase. [1]
Question 4 Report
Fig. 1 shows two possible production points for an economy producing consumer goods and capital goods. Point B is reached after increased investment in machinery.
(a) Which point has the greater output of capital goods? [1]
(b) Explain why investment in capital goods may raise economic growth in the future. [1]
(a) Point B has the greater output of capital goods. [1] It is higher on the vertical capital-goods axis than point A.
(b) Investment in capital goods can provide more or better machinery. This raises productivity or productive capacity, increasing potential output and therefore future economic growth. [1]
(a) Point B has the greater output of capital goods. [1] It is higher on the vertical capital-goods axis than point A.
(b) Investment in capital goods can provide more or better machinery. This raises productivity or productive capacity, increasing potential output and therefore future economic growth. [1]
Question 5 Report
Table 1 shows annual data for a company producing bamboo flooring.
| Year | Output (m2) | Total revenue ($) | Total cost ($) |
|---|---|---|---|
| 2021 | 12 000 | 360 000 | 330 000 |
| 2022 | 15 000 | 420 000 | 405 000 |
Calculate profit in 2022. [2]
Use Table 1 to explain whether profit increased or decreased from 2021 to 2022. [3]
State one reason why output may have increased in 2022. [1]
Explain one risk to profit if inflation increases the cost of bamboo. [3]
(a) Profit equals total revenue minus total cost.
\[\$420\,000-\$405\,000=\$15\,000\]
Profit in 2022 was \$15 000. [2]
(b) Profit in 2021 was:
\[\$360\,000-\$330\,000=\$30\,000\]
Profit in 2022 was \(\$15\,000\). [1] Therefore profit decreased by \(\$15\,000\), from \(\$30\,000\) to \(\$15\,000\), despite output and revenue both rising. [3]
(c) One valid reason is increased demand. [1] Other acceptable reasons are investment in capacity, improved productivity, or expansion into export markets.
(d) Bamboo is a variable cost, so a rise in its price increases total costs. [1] If selling price and output stay unchanged, total revenue does not rise. [1] The gap between revenue and cost narrows, reducing profit. [1]
(a) Profit equals total revenue minus total cost.
\[\$420\,000-\$405\,000=\$15\,000\]
Profit in 2022 was \$15 000. [2]
(b) Profit in 2021 was:
\[\$360\,000-\$330\,000=\$30\,000\]
Profit in 2022 was \(\$15\,000\). [1] Therefore profit decreased by \(\$15\,000\), from \(\$30\,000\) to \(\$15\,000\), despite output and revenue both rising. [3]
(c) One valid reason is increased demand. [1] Other acceptable reasons are investment in capacity, improved productivity, or expansion into export markets.
(d) Bamboo is a variable cost, so a rise in its price increases total costs. [1] If selling price and output stay unchanged, total revenue does not rise. [1] The gap between revenue and cost narrows, reducing profit. [1]
Question 6 Report
Fig. 1 shows a simplified production process at a solar-panel factory. Silicon cells are combined with glass and frames before panels are packaged for export.
Which stage adds value to the components? [1]
(a) Assembly is the stage that adds value. [1]
Value is added when a business changes inputs into a product that consumers are willing to pay more for. Combining the silicon cells, glass and frames creates a usable solar panel, whereas the components on their own are less finished. Packaging prepares the completed product for export, but the transformation of components into panels occurs at assembly.
(a) Assembly is the stage that adds value. [1]
Value is added when a business changes inputs into a product that consumers are willing to pay more for. Combining the silicon cells, glass and frames creates a usable solar panel, whereas the components on their own are less finished. Packaging prepares the completed product for export, but the transformation of components into panels occurs at assembly.
Question 7 Report
A youth theatre has a fixed weekly budget. It can hire either extra lighting equipment or more acting workshops, so choosing one use of its income means giving up another.
(a) What is meant by opportunity cost in this situation? [2]
Opportunity cost is the next best alternative forgone. [1] In this case, if the theatre uses its fixed budget to hire extra lighting equipment, the acting workshops it could instead have provided are forgone. [1]
The key word is next best: opportunity cost is not every possible thing the theatre cannot buy, but the most valuable alternative sacrificed.
Opportunity cost is the next best alternative forgone. [1] In this case, if the theatre uses its fixed budget to hire extra lighting equipment, the acting workshops it could instead have provided are forgone. [1]
The key word is next best: opportunity cost is not every possible thing the theatre cannot buy, but the most valuable alternative sacrificed.
Question 8 Report
Fig. 1 shows the market shares of three firms in the domestic rail-ticket booking market in 2022.
(a) Show the three-firm concentration ratio for this market. [1]
(b) Which market structure is suggested by the figure? [1]
(a) The three-firm concentration ratio is the combined market share of the three largest firms:
\[46\% + 31\% + 15\% = 92\%\]
Therefore, the three-firm concentration ratio is 92%. [1]
(b) This very high concentration ratio suggests an oligopoly, or concentrated market. [1]
Only three firms account for 92% of sales, so a small number of firms dominate the market.
(a) The three-firm concentration ratio is the combined market share of the three largest firms:
\[46\% + 31\% + 15\% = 92\%\]
Therefore, the three-firm concentration ratio is 92%. [1]
(b) This very high concentration ratio suggests an oligopoly, or concentrated market. [1]
Only three firms account for 92% of sales, so a small number of firms dominate the market.
Question 9 Report
Read the information below about a country where globalisation has increased competition for local clothing manufacturers.
The government plans to reduce payroll taxes for small exporters. It hopes firms will employ more workers and sell more abroad.
(a) State one government objective that may be supported if exports increase. [1]
(b) Explain how lower payroll taxes could decrease unemployment. [2]
(a) If exports increase, this may support a favourable trade balance. [1] Lower unemployment or economic growth would also be acceptable objectives.
(b) Lower payroll taxes reduce firms' labour costs. [1] Firms may therefore hire more workers or avoid making workers redundant, decreasing unemployment. [1]
(a) If exports increase, this may support a favourable trade balance. [1] Lower unemployment or economic growth would also be acceptable objectives.
(b) Lower payroll taxes reduce firms' labour costs. [1] Firms may therefore hire more workers or avoid making workers redundant, decreasing unemployment. [1]
Question 10 Report
Table 1 shows trade data for an economy that imports fuel and exports software services.
| Year | Exports ($bn) | Imports ($bn) |
|---|---|---|
| 2021 | 48 | 52 |
| 2022 | 55 | 68 |
| 2023 | 63 | 61 |
(a) Which year had a trade surplus? [1]
(b) Show the trade balance in 2022. [1]
(a) 2023 had a trade surplus, because exports of $63 billion exceeded imports of $61 billion. [1]
(b) The 2022 trade balance was:
\[\$55\text{ billion}-\$68\text{ billion}=-\$13\text{ billion}\]
This is a $13 billion trade deficit. [1]
(a) 2023 had a trade surplus, because exports of $63 billion exceeded imports of $61 billion. [1]
(b) The 2022 trade balance was:
\[\$55\text{ billion}-\$68\text{ billion}=-\$13\text{ billion}\]
This is a $13 billion trade deficit. [1]
Question 11 Report
Table 1 shows selected data for Norland, where the government wants economic growth without high inflation.
| Year | Real GDP growth (%) | Inflation rate (%) |
|---|---|---|
| 2021 | 1.4 | 2.1 |
| 2022 | 3.8 | 6.7 |
| 2023 | 2.6 | 3.4 |
(a) Which year had the highest inflation rate? [1]
(b) State the percentage-point decrease in inflation from 2022 to 2023. [1]
(a) 2022 had the highest inflation rate, at 6.7%. [1]
(b) The fall is measured in percentage points because two percentage rates are being compared:
\[6.7\%-3.4\%=3.3\text{ percentage points}\]
The inflation rate decreased by 3.3 percentage points. [1]
(a) 2022 had the highest inflation rate, at 6.7%. [1]
(b) The fall is measured in percentage points because two percentage rates are being compared:
\[6.7\%-3.4\%=3.3\text{ percentage points}\]
The inflation rate decreased by 3.3 percentage points. [1]
Question 12 Report
A cinema offers customers the choice of paying now for an annual membership or paying separately for each visit. Membership fees are held by the cinema's bank until they are needed for wages and rent.
(a) State what is meant by liquidity. [1]
(b) Use the information to explain why the cinema may value a liquid bank deposit. [2]
(a) Liquidity is the ease with which an asset can be converted into cash or used for payments. [1]
(b) The cinema values a liquid bank deposit because it can access the money quickly. [1] It can then pay wages, rent, or other bills when they become due. [1]
Liquidity is about speed and ease of access, not necessarily about earning the highest return.
(a) Liquidity is the ease with which an asset can be converted into cash or used for payments. [1]
(b) The cinema values a liquid bank deposit because it can access the money quickly. [1] It can then pay wages, rent, or other bills when they become due. [1]
Liquidity is about speed and ease of access, not necessarily about earning the highest return.
Question 13 Report
Fig. 1 shows the production possibility boundary for a country using all of its available resources to produce healthcare visits and vocational-training places. Point R is inside the boundary and point S is outside it.
(a) State what point R shows about the country's use of resources. [2]
(b) Explain why point S cannot be reached with current resources and technology. [4]
(c) Assess whether the government should allocate more resources to vocational training rather than healthcare during a period of high unemployment. [9]
(a) Point R is inside the production possibility boundary, showing that resources are underused or allocated inefficiently. [1] The country could increase healthcare visits, vocational-training places, or both, without giving up the other service. [1]
(b) Point S lies beyond the production possibility boundary. [1] Current quantities of labour, capital, land and enterprise are insufficient to produce that combination. [1] Existing technology and productivity also cannot produce it. [1] Reaching S would require economic growth, such as more resources or improved technology. [1]
(c) Allocating more resources to vocational training can improve workers' skills and employability. [1] This can reduce structural unemployment. [1] A more skilled workforce may raise productivity and long-run economic growth. [1] Higher employment can increase tax revenue and reduce benefit spending. [1]
However, diverting resources from healthcare can worsen health outcomes. [1] Poor health can reduce productivity and increase absence from work. [1] Healthcare may be urgently needed and provides substantial social benefits. [1] In addition, training will not necessarily reduce unemployment if there are too few jobs or if training does not match available vacancies. [1]
The best allocation depends on the seriousness of healthcare need, whether unemployment is structural, and whether unused resources at R can be used to expand both services. Where skills shortages are a major cause of unemployment, vocational training has a stronger case; where healthcare is inadequate, cutting it may damage both welfare and productive capacity. [1]
(a) Point R is inside the production possibility boundary, showing that resources are underused or allocated inefficiently. [1] The country could increase healthcare visits, vocational-training places, or both, without giving up the other service. [1]
(b) Point S lies beyond the production possibility boundary. [1] Current quantities of labour, capital, land and enterprise are insufficient to produce that combination. [1] Existing technology and productivity also cannot produce it. [1] Reaching S would require economic growth, such as more resources or improved technology. [1]
(c) Allocating more resources to vocational training can improve workers' skills and employability. [1] This can reduce structural unemployment. [1] A more skilled workforce may raise productivity and long-run economic growth. [1] Higher employment can increase tax revenue and reduce benefit spending. [1]
However, diverting resources from healthcare can worsen health outcomes. [1] Poor health can reduce productivity and increase absence from work. [1] Healthcare may be urgently needed and provides substantial social benefits. [1] In addition, training will not necessarily reduce unemployment if there are too few jobs or if training does not match available vacancies. [1]
The best allocation depends on the seriousness of healthcare need, whether unemployment is structural, and whether unused resources at R can be used to expand both services. Where skills shortages are a major cause of unemployment, vocational training has a stronger case; where healthcare is inadequate, cutting it may damage both welfare and productive capacity. [1]
Question 14 Report
Table 1 shows nominal GDP for the economy of Meridia. The government is monitoring economic growth.
| Year | Nominal GDP ($ billion) |
|---|---|
| 2021 | 248 |
| 2022 | 260 |
(a) Calculate the increase in nominal GDP between 2021 and 2022. [1]
(b) State why nominal GDP alone may not show whether real output increased. [1]
(a) The increase in nominal GDP is:
\[\$260\text{ billion}-\$248\text{ billion}=\$12\text{ billion}\]
The increase is \(\$12\) billion. [1]
(b) Nominal GDP is measured using current prices. It may rise because prices have increased through inflation, even if the quantity of goods and services produced, real output, has not increased. [1]
(a) The increase in nominal GDP is:
\[\$260\text{ billion}-\$248\text{ billion}=\$12\text{ billion}\]
The increase is \(\$12\) billion. [1]
(b) Nominal GDP is measured using current prices. It may rise because prices have increased through inflation, even if the quantity of goods and services produced, real output, has not increased. [1]
Question 15 Report
A city council observes that the number of vacant shop units has increased while local household income has fallen. It is considering lower business rates for one year.
(a) Which type of unemployment is most likely to have increased if the fall in income reduced demand for shop goods? [1]
(b) Explain how lower business rates could reduce this unemployment. [2]
(a) The likely type is cyclical unemployment, also called demand-deficient unemployment. Household income has fallen, reducing demand for shop goods, so shops need fewer workers. [1]
(b) Lower business rates reduce firms' costs. Keeping shops open, producing, and employing workers may then become more profitable or affordable. Firms may therefore retain workers or hire workers, reducing demand-deficient unemployment. [2]
(a) The likely type is cyclical unemployment, also called demand-deficient unemployment. Household income has fallen, reducing demand for shop goods, so shops need fewer workers. [1]
(b) Lower business rates reduce firms' costs. Keeping shops open, producing, and employing workers may then become more profitable or affordable. Firms may therefore retain workers or hire workers, reducing demand-deficient unemployment. [2]
Question 16 Report
Fig. 1 shows the value of the maru, the currency of Meridia, in US dollars. The fall followed an increase in global demand for US exports.
(a) State what happened to the external value of the maru between January and June. [1]
(b) Explain one effect of this change on Meridia's import prices. [2]
(c) Analyse one reason why the government may be concerned if the currency decrease causes increased inflation. [3]
(a) The external value of the maru decreased, or depreciated, from \($0.80\) to about \($0.62\) per maru. [1]
(b) When each maru buys fewer US dollars, more maru are needed to buy one US dollar. [1] Imports priced in dollars therefore become more expensive in maru. [1]
(c) More expensive imported goods and inputs raise firms' production costs and/or consumer prices. [1] Higher prices reduce households' real income and purchasing power. [1] If households reduce consumption, aggregate demand and output may fall, reducing economic growth. [1]
This is a concern because currency depreciation can create cost-push inflation through higher import prices.
(a) The external value of the maru decreased, or depreciated, from \($0.80\) to about \($0.62\) per maru. [1]
(b) When each maru buys fewer US dollars, more maru are needed to buy one US dollar. [1] Imports priced in dollars therefore become more expensive in maru. [1]
(c) More expensive imported goods and inputs raise firms' production costs and/or consumer prices. [1] Higher prices reduce households' real income and purchasing power. [1] If households reduce consumption, aggregate demand and output may fall, reducing economic growth. [1]
This is a concern because currency depreciation can create cost-push inflation through higher import prices.
Question 17 Report
Table 1 shows trade in goods for the economy of Seabourne in 2022.
| Value ($ million) | |
|---|---|
| Exports of goods | 720 |
| Imports of goods | 910 |
(a) Which trade balance did Seabourne have in goods? [1]
(b) Show the size of this balance. [1]
(a) Seabourne had a trade deficit in goods because the value of its imports was greater than the value of its exports. [1]
(b) The size of the deficit is:
\[\$910\text{ million}-\$720\text{ million}=\$190\text{ million}\]
Seabourne had a \(\$190\) million trade deficit. [1]
(a) Seabourne had a trade deficit in goods because the value of its imports was greater than the value of its exports. [1]
(b) The size of the deficit is:
\[\$910\text{ million}-\$720\text{ million}=\$190\text{ million}\]
Seabourne had a \(\$190\) million trade deficit. [1]
Question 18 Report
A small producer of bicycle lights sells through a global online marketplace. It can advertise at low cost, but customers can compare hundreds of similar imported products.
(a) Which effect of globalisation is likely to increase competition for the producer? [1]
(b) Use the scenario to explain why the producer may find it difficult to increase its price. [2]
(a) Globalisation increases competition by giving the producer greater access to foreign competitors and imported products through the online marketplace. [1]
(b) Customers can compare hundreds of similar products from many sellers. [1] If this producer raises its price, customers may switch to a cheaper imported or domestic alternative, reducing its sales. [1]
Low-cost advertising may help the firm reach customers, but it also operates in a market where buyers can compare alternatives easily.
(a) Globalisation increases competition by giving the producer greater access to foreign competitors and imported products through the online marketplace. [1]
(b) Customers can compare hundreds of similar products from many sellers. [1] If this producer raises its price, customers may switch to a cheaper imported or domestic alternative, reducing its sales. [1]
Low-cost advertising may help the firm reach customers, but it also operates in a market where buyers can compare alternatives easily.
Question 19 Report
A textile cooperative buys a new cutting machine that allows the same number of workers to cut more fabric each hour. What has happened to labour productivity? [1]
(a) Labour productivity has increased. [1]
Labour productivity is output per worker, or output per hour worked. The same number of workers can now cut more fabric each hour, so output per worker per hour has risen.
(a) Labour productivity has increased. [1]
Labour productivity is output per worker, or output per hour worked. The same number of workers can now cut more fabric each hour, so output per worker per hour has risen.
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