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exclusive use of examiners in this examination session.

It is the property of the no one and should be nicked, copied,
reproduced or distributed to any interested person
without the authorization of anybody.
In addition to the assessment criteria, use the paper-specific markscheme below. Award up to the maximum
points available

SECTION A

Microeconomics

1. (a) Explain why a firm operating under monopolistic competition never operates
at an output of allocative efficiency. [10 marks]

Answers may include:

● definitions of monopolistic competition and allocative efficiency

● explanation of monopolistic competition operating at normal profit in the long run without
allocative efficiency, possibly including the welfare (deadweight) loss.
● diagram to show the above, highlighting welfare loss
● examples of markets in monopolistic competition.

Assessment Criteria
Part (a) 10 marks

Level Marks
0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10

N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.
 (b) “Economies of scale increase efficiency to the benefit of society”. Discuss this
statement with regard to market structure [15 marks]

Answers may include:

● definitions of economies of scale, efficiency and market structure

● explanation of theory of how economies of scale create dynamic efficiency, but depending on market
structure, may lead to increased profit rather than reduced prices.
● diagram and theory of economies of scale.
● examples of economies of scale operating in different market structures.
● synthesis and evaluation (discuss).

Discussions may include:

Contrast of effects on different stakeholders, hierarchy of who benefits and loses.
Discussion of dynamic and allocative efficiency of the market and effects on stakeholders
In cases of natural monopoly, how economic profit may remove any benefit of economies of scale for
consumers (although benefitting producers).
Long run versus short run analysis on various stakeholders.
Examiners should be aware that candidates may take a different approach which, if appropriate, should
be rewarded.
Opinions or conclusions should be presented clearly and should be supported
 Assessment Criteria

Level Marks

0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
2. (a) Explain how pollution from mining results in market failure and a negative
production externality. [10 marks]

Answers may include:

● definitions of market failure and negative production externality

● explanation of market failure theory and negative production externality
● explanation over-production and social cost of mining
● diagram of negative production externality: MSC>MPC and creates welfare (deadweight)
loss
● examples of negative production externality from mining.

Assessment Criteria
Part (a) 10 marks

Level Marks
0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.

(b) Evaluate the view that a firm’s corporate social responsibility may help reduce
the market failure of a negative production externality. [15 marks]

Answers may include

● definition of corporate social responsibility

● explanation of theory of firms with corporate social responsibility internalising negative externalities
through investment.
● explanation of increasing costs as part of corporate social responsibility, not maximising profit
● reference to diagram showing market failure in Part A with explanation of corporate social responsibility
increasing private cost to reduce market failure.
● examples of mining operations with and without corporate social responsibility.
● synthesis and evaluation (discuss).

Discussions may include:

Contrast of effects on different stakeholders, hierarchy of who benefits and loses.
Allocative efficiency contrasted with maximising profit.
Possible long run benefits, corporate image increasing demand and revenue, contrasted with short run
costs of investing in corporate social responsibility.
Society v individual analysis, possibly using MSC/MSB contrasting to MPC/MPB.
Examiners should be aware that candidates may take a different approach which, if appropriate, should
be rewarded.
Opinions or conclusions should be presented clearly and should be supported
 Assessment Criteria

Level Marks

0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
 SECTION B

Macroeconomics

3. (a) Explain how crowding out may have an effect on the effectiveness of fiscal
policy. [10 marks]

Answers may include:

● definitions of crowding out and fiscal policy

● explanation of fiscal policy and crowding out explaining how rising AD has an effect on the
output in the macro-economy and crowding out reduces its effectiveness
● Diagram, Keynesian or new classical, to show the above, shifting AD to the right to increase
output/GDP
● examples of fiscal policy or crowding out in the real world.

Assessment Criteria

Level Marks
0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.

(b) Evaluate the effectiveness of market-based supply-side policies as a way of

increasing economic potential GDP. [15 marks]

Answers may include:

● definitions of market-based supply-side policy and potential GDP

● explanation of theory of market-based supply-side policy and shifts in AS/SRAS/LRAS.
● diagram of AD/AS, Keynesian or new classical, showing shift to the right in
AS/LRAS/SRAS.
● examples of market-based supply-side policy in real world.
● synthesis and evaluation (discuss).

Discussions may include:

Discussion of the theoretical possibility of good deflation as a result of market-based supply-side.
Contrast market-based supply-side with interventionist supply-side policy.
Discuss effectiveness of market-based supply-side policies; possible negative consequences on some
stakeholders with cost efficient policy (costs government very little).
Long run versus short run; contrasting shifts in AD in the short run with shifts in AS/SRAS/LRAS in the
long run.
Examiners should be aware that candidates may take a different approach which, if appropriate, should
be rewarded.
Opinions or conclusions should be presented clearly and should be supported
 Assessment Criteria

Level Marks

0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15
4. (a) Explain how monetary policy may be used to end deflation. [10 marks]

Answers may include:

● definitions of monetary policy and deflation

● long run growth shifting AS (and AD) with both interventionist and market-based policies.
● explanation of theory of expansionary monetary policy and quantitative easing.
● diagram of expansionary monetary policy (money market and/or AD/AS diagram,
Keynesian or new classical) with AD shifting to the right.
● examples of quantitative easing and monetary policy.

Assessment Criteria
Part (a) 10 marks

Level Marks
0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–3

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 4–6

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There are few errors. 7–8

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There are no significant errors. 9–10
N.B. It should be noted that definitions, theory and examples that have already
been given in part (a), and then referred to in part (b), should be rewarded.

(b) Evaluate the effectiveness of demand-side policies in controlling the fluctuations

of the business cycle. [15 marks]

Answers may include

● definition of demand-side policies and business cycle

● explanation of theory of how demand-side policies may soften the fluctuations of the
business cycle
● diagram illustrating business cycle.
● examples of demand-side policies.
● synthesis and evaluation (discuss).

Discussions may include:

Contrast of monetary and fiscal policy as tools to control fluctuations in the business cycle.
Discussion of effectiveness of demand-side policies to control fluctuations in the business cycle.
Discussion of possible effects of distribution of income, government debt, motivation etc, of different
demand-side policies.
Examiners should be aware that candidates may take a different approach which, if appropriate, should
be rewarded.
Opinions or conclusions should be presented clearly and should be supported
 Assessment Criteria

Level Marks

0 The work does not reach a standard described by the descriptors below. 0

1 There is little understanding of the specific demands of the question.

Relevant economic terms are not defined.
There is very little knowledge of relevant economic theory.
There are significant errors. 1–5

2 There is some understanding of the specific demands of the question.

Some relevant economic terms are defined.
There is some knowledge of relevant economic theory.
There are some errors. 6–9

3 There is understanding of the specific demands of the question.

Relevant economic terms are defined.
Relevant economic theory is explained and applied.
Where appropriate, diagrams are included and applied.
Where appropriate, examples are used.
There is an attempt at synthesis or evaluation.
There are few errors. 10–12

4 There is clear understanding of the specific demands of the question.

Relevant economic terms are clearly defined.
Relevant economic theory is clearly explained and applied.
Where appropriate, diagrams are included and applied effectively.
Where appropriate, examples are used effectively.
There is evidence of appropriate synthesis or evaluation.
There are no significant errors. 13–15