OCR - A Lev - Econ - Ans - EOC - Ques

Answers to end-of-chapter questions
OCR A Level Economics (Fourth Edition)

Section 1 Microeconomics
Part 1 Introduction to microeconomics

Chapter 1 The economic problem and opportunity cost
A Multiple-choice questions
1 d. Unlimited wants in the face of limited resources
2 b. Unemployment in the UK has increased
3 d. Labour, capital, enterprise, land
B Stimulus response question
4 a
Correctly labelled axis 1 mark

Correctly drawn PPF 1 mark
Correctly labelled points A–E 1 mark
b 25 bananas = 50 cereal bars

50 cereal bars/25 bananas = 2 cereal bars
c Reasons for a shift in the production possibility curve may include the following:
● The group might increase their budget to buy stock
● The group might get a discount on crisps and/or sweets (or the price may fall)
C Essay question
5
AO1 Knowledge 3 marks

AO2 Application 4 marks
AO3 Analysis 6 marks
AO4 Evaluation 7 marks
Knowledge (3 marks) is likely to include:

● Rationality
● Choices
● Opportunity cost
Application (4 marks) is likely to include:

● Choices about other subjects
● Choices about staying at school/college or working/taking an apprenticeship etc.
● Other uses of time
© Hodder & Stoughton Limited 2019 1

Analysis (6 marks) is likely to include:
Analysis that taking A Level Economics will be a rational choice, for example:

● The financial benefits of taking A Level Economics, such as the potential to earn high wages in
later life
● The lesser benefits of taking the subjects on offer
● The belief that taking A Levels may lead to better jobs/better life in the future
● Comparisons with other possible qualifications, such as apprenticeships
● Parental influence to take A Level Economics
Evaluation (7 marks) is likely to include:

Evaluation that taking A Level Economics may not have been a rational choice, for example:
● The choice was impulsive, not a rational, thought-out choice
● There was no/little actual choice
● Did not do enough research into the choices
A judgement of the extent to which a rational choice was made and justification of this judgement
Chapter 2 The allocation of resources, specialisation and

trade
1 c. The level of satisfaction that a consumer gains from consumption
2 d. A mixed economy
3 a. Exchange
B Knowledge and understanding questions
4 An incentive is something that motivates an economic agent to behave in a certain way, for
example profit may be an incentive for a business.
A full explanation of an incentive 2 marks

A vague or partial explanation of an incentive 1 mark
5 Differences may include:

● Fewer government officials are needed in a market economy compared with a planned
economy (1 mark) because the government does not play a part in market decisions (1 mark).
● The main incentives are different in a market and a planned economy (1 mark). In a planned
economy the incentive is social welfare whereas the main driver in a market economy is likely
to be self-interest or profit (1 mark).
Two differences explained 4 marks

One difference explained AND one difference 3 marks
identified
One difference explained OR two differences 2 marks
identified
One difference identified 1 mark

6 The role of the government in a market economy is to provide the following:
● A basic framework of property rights
● A basic legal framework

A full explanation of the role of the government 2 marks
in a market economy
A vague or partial explanation of the role of the 1 mark
government in a market economy
7 A barter system operates without money so that transactions in goods and services rely on
direct exchange.
An explanation of a barter system AND a 2 marks

relevant example
An explanation of a barter system 1 mark
C Stimulus response question

8 a The division of labour is a process whereby the production procedure is broken down into
a sequence of stages, and workers are assigned to particular stages.
A full explanation of the division of labour 2 marks

A vague or partial explanation of the division of 1 mark
labour
b
AO1 Knowledge 1 mark
AO2 Application 1 mark
Knowledge (1 mark) is likely to include:

● Scarcity
● Opportunity cost
Application (1 mark) is likely to include:

● Uses of Katie and Sahdat’s time — plastering and painting

Analysis that specialisation will reduce the overall time/resources needed to decorate the house,
for example:
● Reduction in time needed
● Reduction in wasted resources (from poor work)
● Increased quality

Evaluation that specialisation may not reduce the time/resources needed to decorate the house, for

example:
● Boredom, leading to poor work
● Are the tasks of painting and plastering equal in terms of skill and time?
● Does Katie have an aptitude for plastering? Does Sahdat have an aptitude for painting? Will it
lead to resentment?
A judgement of the extent to which specialisation may address the problem of scarcity for Sahdat
and Katie

Part 2 The role of markets

Chapter 3 Demand
1 d. Other things being equal
2 b. There is a successful advertising campaign for the television programme
3 c. Substitute goods
4 a. An increase in consumer surplus and a decrease in price
5 As the price of a good decreases the quantity demanded falls.
A full explanation of the relationship 2 marks

A vague or partial explanation of the relationship 1 mark
6 Factors may include:

● Price of the meals
● The price of meals at another restaurant
● A person’s income — as their income increases the demand is also likely to increase (a normal
good)
● Other factors including advertising, tastes, trends/fashion, number of other restaurants in the
area
Two factors explained 4 marks

One factor explained AND one factor identified 3 marks
One factor explained OR two factors identified 2 marks
One factor identified 1 mark
7 As the price of petrol increases the demand for cars is likely to decrease at each price level.
An explanation of how the demand may reduce at up to 2

each price level marks
A diagram showing an appropriate shift to the up to 2
left of the demand curve marks
8 An inferior good is one where the quantity demanded decreases in response to an increase in
consumer incomes.
An explanation of an inferior good AND a 2 marks

relevant example
An explanation of an inferior good 1 mark

9 a Factors may include:

● Price — the price of Navpreet’s cleaning service
● Price of substitutes — how many other businesses in the area charge for their dog-cleaning
service
● Income — as people earn more, they are likely to demand more of Navpreet’s service
(normal/luxury good)
● Advertising — that Navpreet might have produced for her business/service
● Fashions/trends — for dog-cleaning services
● Competition — the number of other businesses offering dog-cleaning services in the area
Identification of a factor that may affect demand 1 mark for

for Navpreet’s service each factor,
up to max. 3
marks
Explanation of each factor 1 mark for
each factor,
up to max. 3
marks

Correctly labelled demand curve 1 mark
Demand curve that matches the points in Table 1 up to 2 marks
in the book (see page 41)
c
An explanation of the increase in consumer up to 2 marks
surplus resulting from a decrease in price
Reference to the points on the graph used in up to 2 marks
student’s answer to Question 9(b)
Chapter 4 Supply
1 b. A decrease in the price of a rival product
2 c. An increase in quantity supplied
3 a. An increase in price and a decrease in producer surplus
4 As the price of a good increases the quantity supplied rises.
A full explanation of the relationship 2 marks


● The production costs of bottled water
● The technology of production

● Taxes and subsidies
● The price of related goods, such as plastic bottles
● Firms’ expectations about future prices of bottled water

6 The bad harvest is likely to reduce the supply of pumpkins because fewer can be produced and
sold. This will reduce the supply of pumpkins at every price level.
An explanation of how the supply may reduce at up to 2

left of the supply curve marks
7 Producer surplus is the difference between the price received by firms for a good or service
and the price at which they will have been prepared to supply that good or service.
An explanation of producer surplus up to 2

marks
A diagram showing producer surplus up to 2
marks

8 a As the duty on petrol increases the supply of cars is likely to decrease at each price level.
An explanation of how the supply may reduce at up to 2

left of the supply curve marks
b Factors may include:

● The production costs of cars decreases
● The technology of production improves/get cheaper
● A reduction in indirect tax on cars
● A subsidy to car producers
● The price of goods used in the production of cars decreases
● Firms’ expectations that future prices of cars will increase


Chapter 5 The interaction of markets

1 c. Quantity supplied equalling quantity demanded in the market
2 d. A decrease in demand leading to an decrease in the equilibrium quantity and price
3 b. An increase in quantity demanded and an increase in quantity supplied
4
Correctly drawn and labelled 1 mark
demand and supply curves
Correctly labelled equilibrium 1 mark
point
5
Correctly drawn and labelled 1 mark
demand and supply curves
Correctly labelled excess 1 mark
supply price point
An explanation of how a shift in demand to the up to 2

right may increase price and the quantity marks
supplied and demanded at equilibrium
A diagram showing a shift to the right of demand up to 2
and a new equilibrium point marks

7 a
An explanation of an excess supply of chicken on up to 2

Friday of 35 chickens marks
A diagram showing an excess supply of chicken up to 2
marks
b Ways may include:

● Forecasting chicken demand (based on sales figures from previous weeks)
● Cooking chickens at many times of the day to avoid overproduction
● Supplying a lower number of cooked chickens and a greater number of substitute items that do
not need to be cooked (or can be cooked quicker)
● Asking customers to pre-order cooked chickens

Two ways explained 4 marks
One way explained AND one way identified 3 marks

One way explained OR two ways identified 2 marks
One way identified 1 mark
D Essay question
8


● Demand
● Substitutes
● Effect of an increase/decrease price on demand
● Competitive demand

● Application to the housing market
● Application to the renting market
● Use of figures (65% owners, 25% renters)
● Use of diagrams

Analysis of the effects of an increase in house prices on the market for rented accommodation, for
example:
● A graph showing an increase in the demand for rented accommodation, leading to an increase
in the equilibrium price and an extension of the supply of rented accommodation

● An explanation of the effects on demand for rented accommodation

Evaluation that demand for rented accommodation may not increase, for example:
● Incomes may be rising faster than the price of houses
● The price of rented accommodation may also be increasing — perhaps at a faster rate than
house prices
● Rented accommodation and purchasing houses may not be substitutes for one another
Evaluation that the effects may not be as substantial as expected, for example:
● The supply of rented accommodation may be price inelastic, leading to an increase in the price
of rented accommodation but little/no increase in quantity
A judgement of the extent to which an increase in house prices will always lead to an increase in
the demand for rented accommodation

Chapter 6 Elasticity

1 c. The responsiveness of quantity demanded to a change in price
2 a. –5
3 d. A superior service
4 a. An increase in quantity supplied of 2%
5 £5 – £4 = £1 (decrease)
–£1/£5 x 100 = –20% – change in price
500 units – 400 units = 100 units (increase)
100 units/400 units x 100 = +25% – change in quantity demanded
+25%/–20% = –1.25 (answer)
Note: Allow 1 mark for an answer that makes one error in calculation under the own figure
rule
Correct answer (with or without working) 2 marks

Correct calculation of change in price AND 1 mark
correct calculation of percentage change in
quantity demanded
6 Current sales revenue is 200 x £0.60 = £120 (1 mark)

Change in price is £0.63 – £0.60 = £0.03 (increase) £0.03/£0.60 x 100 = +5% (1 mark)
Therefore the change in QD must be –2.5% (1 mark)
2.5% of 200 is 5 chocolate bars, so new demand is 195 chocolate bars
New sales revenue is 195 x £0.63 = £122.85
Therefore the change in sales revenue is +£2.85 (answer) (1 mark) = (4 marks total)
Each correct stage of the calculation (own figure 1 mark up

rule applies for errors within stages of the to max 4
calculation) marks

● If the hairdresser has spare capacity in his or her salon
● How long it takes to cut/style a customer’s hair
● How quickly the hairdresser can recruit (or make redundant) new labour
● How quickly the hairdresser can expand or reduce the capacity of the salon
● Access to capital


8 a Cross elasticity of demand is a measure of the sensitivity of quantity demanded of a good

or service to a change in the price of some other good or service.
A full explanation of cross elasticity of demand 2 marks

A vague or partial explanation of cross elasticity 1 mark
of demand
b £800 – £600 = £200 (decrease)

–£200/£800 x 100 = –25% – change in price
80,000 phones – 40,000 phones = 40,000 phones (decrease)
–40,000 phones/80,000 phones x 100 = –50% – change in quantity demanded
–50%/–25% = +2
Note: Allow 1 mark for an answer that makes one error in calculation under the own figure
rule
Correct answer (with or without working) 2 marks

Correct calculation of change in price AND 1 mark
correct calculation of percentage change in
quantity demanded
c A cross elasticity od demand of –2 means that the goods are complements (1 mark). This
means that the price of the contract and the quantity demand for the phone have an inverse
relationship (1 mark).
D Essay question
9


● Income
● Income elasticity of demand
● Normal/superior/luxury goods

● Application to the market for overseas holidays

Analysis of the effects of a fall in income on the market for holidays overseas, for example:
● An explanation of the effects of a fall in income on a luxury/superior product — as income
decreases demand also decreases

● A graph showing the effects of a fall income on the demand curve, leading to a fall in the
equilibrium price and quantity


Evaluation that demand for overseas holidays may not decrease, for example:
● Overseas holidays may not be a superior good
● The price of domestic holidays may be increasing more, leading to consumers substituting
overseas holidays for domestic ones — so demand does not decrease
Evaluation that the effects may not be as substantial as expected, for example:
● The supply of overseas holidays increases, leading to no change in the quantity demanded, only
a fall in price
● The change in income may be insignificant
A judgement of the extent to which a fall in income will always lead to lower sales of holidays
overseas
Chapter 7 Prices, resource allocation and concept of the

margin
1 d. Produce only if the marginal cost is lower than or equal to the marginal benefit
2 d. A person gains less marginal utility from each additional unit consumed
3 a. When measured in terms of money, demand and marginal utility are the same thing
4 b. A market is both allocatively and productively efficient
5 c. Price equals marginal cost
6 The concept of the margin is based on the additional benefit gained from the production or
consumption of one additional unit, for example the extra benefit gained from the
consumption of one more chocolate bar.
An explanation of the concept of the margin 2 marks

AND an example
An explanation of the concept of the margin OR 1 mark
an example
7 Productive efficiency is attained when a firm operates at minimum cost, choosing an

appropriate combination of inputs and producing the maximum output possible from those
inputs.
A full explanation of productive efficiency 2 marks

A vague or partial explanation of productive 1 mark
efficiency

8 a 20 utils – 17 utils = 3 utils (answer)
Note: award 1 mark each for identification of the correct figures

b As customers get fuller they get less satisfaction from eating more food due to the law of
diminishing marginal utility (1 mark). This eventually leads to a customer getting over-full
and uncomfortable, reducing their total utility when the sixth plate of food is consumed (1

mark).
A full explanation 2 marks

A vague or partial explanation 1 mark
c Rationally customers should only eat five plates of food, which equals a cost to Sandy of
£12.50 (1 mark). Therefore the rice of £13 will allow her to make more profit as long as her
customers are rational in their consumption (1 mark).

d Factors may include:

● Costs of supplying food may increase
● Costs of running the restaurant may have increased (labour, capital items, etc.)
● Taxes may have increased for supplying food in a restaurant (business rates, VAT, etc.)

Chapter 8 Market failure and externalities

1 c. A cost to a third party not reflected in market prices
2 c. MPB < MSB
3 b. Demerit good
4 Reasons may include:
● Externalities
● Environmental issues
● Underconsumption of merit goods
● Overconsumption of demerit goods
● Monopoly power
Two reasons explained 4 marks

One reason explained AND one reason identified 3 marks
One reason explained OR two reasons identified 2 marks
One reason identified 1 mark

5 MSC > MPC — price is too low and quantity is too high
An explanation of the effect of a negative up to 2

production externality marks
A diagram showing a negative production up to 2
externality marks
6 MSB > MPB — price is too low and quantity is too low
An explanation of the effect of a positive up to 2

consumption externality marks
A diagram showing a positive consumption up to 2
marks

7 a Adeel will be willing to spend money on his garden up to the point where the marginal
benefit he gains from the spending is equal to the amount he is spending. For example, if he
buys a plant for £3 then he believes that he will gain at least £3-worth of enjoyment from that
plant.

b The purchaser of Tina’s house (and Tina) will gain from Adeel’s spending on his garden.
Neither Tina nor the prospective purchaser of the house was involved in the transaction
between Adeel and the business selling the plants for his garden.
An explanation of the positive externality gained up to 2

from Adeel’s spending on his garden marks
A diagram showing a positive externality up to 2
marks
Chapter 9 Market failure: information failure and public

goods
1 d. A person who takes out life insurance so that they feel happy to do a bungee jump
2 c. A person who takes out payment protection insurance because they know they will lose
their job soon
3 b. A good that is not excludable and not rivalrous
4 c. Netflix
5 The free-rider problem is when an individual cannot be excluded from consuming a good, and
therefore has no incentive to pay for its provision, for example street lighting.

An explanation of the free-rider problem 2 marks

An explanation of the free-rider problem OR an 1 mark
example
6 Information failure could lead to over or underconsumption, so a demand curve that does not
reflect the true benefit to a consumer.
In the case of overconsumption, the consumer does have access to complete knowledge of the
benefits of a good and therefore demand is too high at every price point.
In the case of underconsumption demand is too low at every price point.
An explanation of how information failure could up to 2

lead to market failure marks
A diagram showing information failure and the up to 2
effect on demand marks
7 A public good is not diminished through consumption, so each additional consumer does not
add cost to the firm. For example, the council may supply street lighting. The cost of one light
does not change if there is one consumer of the light as compared with two or more
consumers.


8 a It is not possible to exclude consumers from using street lighting because most roads are
public highways so anyone is allowed to use the road and therefore the street lighting.
Street lighting is non-rivalrous because the consumption of the lighting by one consumer does
not affect the ability of another consumer to use it at the same time.
Identification that street lighting is non excludable 4 marks

AND non-rivalrous
Explanation of one of the issues (non-excludable 3 marks
or non rivalrous) AND identification of the other
Identification that street lighting is non- 2 marks
excludable AND non-rivalrous, or explanation of
why street lighting is non-excludable OR non-
rivalrous
Identification that street lighting is non- 1 mark
excludable OR non-rivalrous


● Public goods — non-excludable and non-rivalrous

● Application to street lighting

Analysis that the provision of street lighting as a public good is important, for example:
● Under provision if it were not provided as a public good
● Use of a market failure graph, to show the effects of underprovision
● Safety benefits — positive externality

Evaluation that the provision of street lighting is not a public good, for example:
● Households might be willing to pay for the provision to benefit their neighbourhood
● Consumers might be willing to pay
● Technology may allow consumers to pay for the lighting they use
Evaluation that the provision of street lighting is not important in the UK:
● Many areas are lit with few consumers
● Most consumers have technology (mobile phones, for example) that have built-in torches
● Modern cars have good lights
A judgement of the extent of the provision of street lighting as a public good in the UK
Chapter 10 Government intervention and government failure

1 d. A tax on the product
2 a. Price control
3 b. The demand for a product
4 Uses may include:
● A ban — to stop demand for smoking and thereby eliminate negative externalities
● Further restrictions on where smoking can take place (i.e. not in public places like parks) — to
reduce the likelihood of negative externalities affecting other people

● Fines for people who smoke near other people
● Laws to stop smoking in private households

5 Ways may include:

● Legislation — to stop or reduce the production of single-use plastic
● Tax — to increase the cost of production using single-use plastic
● Subsidies — to firms who do not use single-use plastic in the production process
● Information provision — to reduce the demand for single-use plastic and convince consumers
to switch to other products/brands

● Price controls — to increase the price of products that include single-use plastic




● Tradable pollution permits

● Application to negative externalities of production

Analysis of how a system of tradable pollution permits may reduce market failure caused by a
negative externality of production, for example:
● Increase the cost to firms of polluting — shift of the supply curve to the left
● Relatively decrease the cost of not polluting — shift of the supply curve to the right

7 a The market for alcohol may be failing because it is overconsumed. This could be through
addiction, which makes people consume alcohol beyond their marginal private benefit.
Alternatively it may be that there is a negative externality of consumption through the cost to
society of extra policing, and the costs to the NHS of excessive alcohol consumption.
An explanation of market failure in the market for up to 2

alcohol marks
A diagram showing an appropriate market failure in up to 2
the market for alcohol marks


● Price controls
● Market failure

● Application to the market for alcohol (market failure diagram)


Analysis that a minimum price for alcohol will correct the market failure, for example:
● Increase price beyond equilibrium price — reducing quantity demanded in line with the
marginal social benefit

● May increase demand for non-alcoholic drinks

Evaluation that a minimum price may not correct the market failure, for example:
● Addiction — may not be effective in reducing consumption because alcohol may be price
inelastic
● Unlikely to effect the price of many types of alcohol — premium priced wines/spirits etc.
● May increase the purchase of black-market alcohol — could cause worse market failures
● May damage the alcohol/pub market in the UK
A judgement of the effectiveness of a minimum price for alcohol in correcting market failure in
the alcohol market

Part 3 Business objectives

Chapter 11 Costs, economies of scale, revenue and profit
1 c. The time period when all factors of production can be varied
2 d. The decrease in productivity of one factor of production as others remain fixed
3 a. Developing economies of scale
4 a. Rent of the production factory
5 d. £1,000 per month
6 Diseconomies of scale are an increase in the marginal cost of production as a business
increases its scale of operation. This will increase the average cost of production and may
force the business to increase its prices.
An explanation of how diseconomies of scale up to 2

may affect the operation of a business marks
A diagram showing diseconomies of scale up to 2
marks
7 The minimum efficient scale is the level of output at which long-run average cost stops falling
as output increases. This is the lowest point on the long-run average cost curve.
An explanation of the minimum efficient scale up to 2

marks
A diagram showing the minimum efficient up to 2
scale marks
8 Normal profits are the returns needed for a firm to stay in a market in the long run.
Accounting profits are the profits made by a business based on explicit costs incurred but
excluding opportunity cost.
Differences may include:
● Accounting profits do not include opportunity cost, whereas normal profits do include
opportunity cost
● Accounting profit is total revenue – total (explicit) costs, whereas normal profit includes the
returns needed for all the factors of production, including the owner’s capital
Explanation of a difference between 4 marks

accounting and normal profits
Identification of a difference between 3 marks
accounting and normal profits
Knowledge of accounting AND normal profits 2 marks
Knowledge of accounting OR normal profits 1 mark

9 Supernormal profits are those earned above normal profits.


10 a As the scale of Zhang’s business increases with the addition of a new shop the average
cost of production may decrease.
Economies of scale may include:
● Marketing economies of scale
● Managerial economies of scale
● Financial economies of scale
● Technical economies of scale
● Risk-bearing economies of scale
● Procurement economies of scale
An explanation of how Zhang may benefit up to 2

from economies of scale marks
A diagram showing economies of scale up to 2
marks


● Diseconomies of scale

Application of diseconomies of scale to Zhang and his corner shop, for example:
● Communication issues between the two shops
● Transportation issues between the two shops
● Supervision issues between the two shops

Analysis of the effect of diseconomies of scale to Zhang, for example:
● An increase in average total costs as the scale of production increases

Evaluation that Zhang may experience diseconomies of scale, for example:
● Depends upon the distance between the shops
● Depends upon the quality of staff/manager that he is able to employ

A judgement of the causes of diseconomies of scale that Zhang may experience from the
operation of both shops

Chapter 12 Objectives of business
1 c. MR = MC
2 a. The divorce between ownership and control
3 a. The aim to make enough profit to satisfy the shareholders
4 Maximisation objectives may include:
● Profit maximisation
● Sales revenue maximisation
● Sales volume maximisation
● Growth maximisation
● Utility maximisation
● Long-run profit maximisation
Two maximisation objectives explained 4 marks

One maximisation objective explained AND one 3 marks
maximisation objective identified
One maximisation objective explained OR two 2 marks
maximisation objectives identified
One maximisation objective identified 1 mark
5 Non-maximisation objectives may include:

● Profit satisficing
● Sales revenue satisficing
● Sales volume satisficing
● Growth satisficing
● Utility satisficing
● Long-run profit satisficing
● Social welfare and corporate social responsibility
Two non-maximisation objectives explained 4 marks

One non-maximisation objective explained AND 3 marks
one non-maximisation objective identified
One non-maximisation objective explained OR 2 marks
two non-maximisation objectives identified
One non-maximisation objective identified 1 mark

● Type of ownership
● Type of product/service
● Motivation of owners
● Competition
● State of the wider economy



7 a Profit maximisation is the point where MC = MR. It is the objective that seeks to make as
much profit as possible for a firm (or to make the smallest loss).



● Corporate social responsibility (CSR)

● Application of the benefits of focusing on CSR to a business

Analysis of the benefits to a firm of focusing on CSR, for example:
● An increase in reputation, which may lead to longer run maximisation objectives
● A competitive advantage over other firms in the market (non-price competition)
● Compliance with (or avoidance of) expected legislation

Evaluation of the benefits to a firm of focusing on CSR, for example:
● Depends upon the competitiveness of the market
● Depends upon the resources available to the firm
● Depends upon the legislation in the market
● Depends upon the actions/objectives of other firms in the market
Evaluation of the costs to a firm of focusing on CSR, for example:

● The costs of CSR
● The objectives of other stakeholders of the firm, such as owners and customers
A judgement of the benefits to a business of focusing on CSR

D Essay question
8

Knowledge (3 marks) likely to include:

● Profit maximisation
● Other business objectives

● Application to business objectives (may include a graph explaining profit maximisation)

Analysis of profit maximisation as a business objective, for example:
● Analysis of the need to maximise profits to maintain shareholder capital within a company
● Analysis of the consequences of not pursuing profit maximisation on a company

Evaluation that profit maximisation may not be the primary objective for a company, for
example:
● Shareholders may not have an objective to pursue profits
● Short-run vs long-run profit maximisation
Evaluation that other objectives may be more important than profit maximisation, for example:
● Depends upon the objectives of other stakeholders
● Depends upon the competitiveness of the market
● Depends upon the resources available to the firm
● Depends upon the legislation in the market
● Depends upon the actions/objectives of other firms in the market
A judgement of the extent to which the primary objective of every company must be to maximise
profit for the shareholders

Part 4 Market structures

Chapter 13 Market structure: perfect competition
1 b. Monopolistic competition
2 d. Homogeneous products
3 d. The firm will produce at the lowest point of the AC curve
4 a. The firm will produce at AR = AC
5 Characteristics may include:
● Can make supernormal profits in the SR
● No supernormal profits in the LR
● No barriers to entry
● Homogeneous products
● The firm is a price taker
● Many firms in the market
Two characteristics explained 4 marks

One characteristic explained AND one 3 marks
characteristic identified
One characteristic explained OR two 2 marks
characteristics identified
One characteristic identified 1 mark
6 The firm maximises profits by accepting the price as set in the market and producing up to the
point where MR = MC. The firm’s average revenue (which is equal to price) is greater than its
average cost. The firm is therefore making supernormal profits at this price.
An explanation of equilibrium price and output up to 2

in short-run perfect competition marks
A diagram showing equilibrium price and up to 2
output in short-run perfect competition marks
7 Allocative efficiency is achieved where P = MC.

An explanation of how allocative efficiency is up to 2
achieved under perfect competition in the short marks
run
A diagram showing how allocative efficiency up to 2
is achieved under perfect competition in the marks
short run

8 a Homogeneous means that buyers of the good see all products in the market as being

identical, and will not favour one firm’s product over another.
A full explanation of homogeneous 2 marks

A vague or partial explanation of 1 mark
homogeneous
b The industry long-run supply curve is horizontal at the price level, which is the minimum
point of the long-run average cost curve.
An explanation of perfect competition in the up to 2

long run marks
A diagram showing perfect competition in the up to 2
long run marks
c Ways may include:

● Being first to market
● Charging a higher price than average cost
One way explained 2 marks

Chapter 14 Market structure: monopoly

1 a. Supernormal profit
2 a. Few barriers to entry
3 c. Competition and Markets Authority
4 Characteristics may include:
● There is a single seller of a good
● There are no substitutes for the good, either actual or potential
● There are barriers to entry into the market
● Price discrimination
● Supernormal profits

One characteristic explained OR two 2 marks
characteristics identified

5 A price maker is a firm that is able to choose the selling price for its good or service, as it
faces a downward-sloping demand curve. In monopoly, the firm, assuming it is a profit-
maximising firm, will choose to produce where MC = MR.

An explanation of why a monopoly may be a up to 2
price maker marks
A diagram showing why a monopoly may be a up to 2
price maker marks
6 X-inefficiency occurs when a firm has higher average costs due to a lack of competition.
A full explanation of X-inefficiency 2 marks

A vague or partial explanation of X- 1 mark
inefficiency
7 Advantages may include:

● The ability to innovate/complete research and development
● Economies of scale can allow lower costs and prices
● Can be evidence of a successful industry/firm
● Can make the firm/industry internationally competitive
● Can support loss-making services
● Can be more efficient
Two advantages explained 4 marks

One advantage explained AND one advantage 3 marks
identified
One advantage explained OR two advantages 2 marks
identified
One advantage identified 1 mark

8 a Nationalised means that a firm is in public (government) ownership).
A full explanation of nationalised 2 marks

A vague or partial explanation of nationalised 1 mark
b A natural monopoly is a monopoly that arises in an industry in which there are such
substantial economies of scale that only one firm is viable.
An explanation of a natural monopoly up to 2

marks
A diagram showing a natural monopoly up to 2
marks

c


● Regulatory bodies
● Privatisation

● Application to the market for tap water

Analysis of the effects of a regulatory body on a market, for example:
● To control prices
● To limit price increases
● To regulate quality
● To act as an ombudsman

Evaluation that a regulatory body may not have a beneficial effect on the market, for example:
● A focus on cost saving as opposed to quality
● The cost of setting up and operating the regulatory body
● Regulatory capture
A judgement of the importance of setting up regulatory bodies in the privatised tap water market


● Natural monopoly
● Nationalisation

● Application to the market for tap water and UK economy

Analysis of the disadvantages to the UK economy of operating the tap water market as a national

nationalised monopoly, for example:
● Require government spending — opportunity cost
● May be uncompetitive/inefficient
● May stop new entrants into the market
● Prices may be too high

Evaluation that the disadvantages may not affect the UK economy, for example:
● Depends upon the nature of the product
● Depends upon the state of the economy
● Depends upon the cost to the UK government
● Depends upon the long-term plans for the industry
A judgement of the most likely/important possible disadvantage to the UK economy of operating

the tap water market as a natural nationalised monopoly
D Essay question
9


● Characteristics of monopoly:
o There is a single seller of a good

o There are no substitutes for the good, either actual or potential
o There are barriers to entry into the market
o Price discrimination
o Supernormal profits

● Application of the characteristics of monopoly to the search engine market and Google

Analysis of the characteristics of monopoly that Google demonstrates, for example:
● Has the largest share of the market
● Differentiates service offered — brand identity
● Many barriers to entry — legal, logistical, marketing, operational
● High sunk costs
● Google earns considerable (supernormal) profits

Evaluation of the characteristics of monopoly that Google does not demonstrate, for example:

● Many other search engines — not a single seller
● Search engine service may be seen as a homogeneous service
● Are Google’s profits actually supernormal? In the technology market these may be considered
normal profits
● No price discrimination — free service to users
Evaluation that Google may demonstrate characteristics of other market structures, for example:
● Oligopoly — few dominant sellers (Bing, Yahoo, etc.)
● Monopolistic competition
● Perfect competition
A judgement of the extent to which Google demonstrates the characteristics of operating in a

monopoly market
Chapter 15 Monopolistic competition, oligopoly and

contestable markets
1 b. Lidl developing a fish counter because Tesco stores already have them
2 c. Homogeneous products
3 b. 64%
4 c. Barometric price leadership
5 Short-run equilibrium under monopolistic competition has a downward-sloping demand curve
and a corresponding marginal revenue curve. If the firm is aiming to maximise profits, it will
choose the level of output such that MR = MC.
An explanation of short-run monopolistic up to 2

competition marks
A diagram showing short-run monopolistic up to 2
competition marks
6 The model relates to an oligopoly in which firms try to anticipate the reactions of rivals to
their actions. Suppose the price is currently set at P — the firm is selling Q and is trying to
decide whether to alter price. Below this price, demand is likely to be price inelastic.
However, above this point demand is likely to be price elastic.
An explanation of the kinked demand curve up to 2

marks
A diagram showing the kinked demand curve up to 2
marks

7 a A three-firm concentration ratio is a measure of the market share of the largest three firms

in an industry.
A full explanation of a three-firm concentration 2 marks

ratio
A vague or partial explanation of a three-firm 1 mark
concentration ratio
b Characteristics may include:

● Many barriers to entry (or perceived barriers)
● Sunk costs — buildings/screens etc.
● Little brand differentiation — same films
● Many barriers to exit (or perceived barriers)
● Asymmetric access to technology
● Slow entry into and exit from the market (limited scope for hit and run entry to market)

One characteristic explained OR two characteristics 2 marks
identified
D Essay question
8


● Oligopoly

● Application to the UK cinema industry, for example:
o Dominated by three brands: Cineworld, Odeon and Vue

o Almost 70% three-firm concentration ratio

● Analysis of characteristics of oligopoly that the UK cinema industry displays, for example:
o Non-price competition, e.g. snack promotions, branding

o Barriers to entry — sunk costs, film distribution costs, etc.
o Inter-dependant decision making, e.g. over showing times
o Sticky prices

Evaluation that the UK cinema industry is not an oligopoly, for example:

● Depends upon the competition in the area (geographic)
● Price competition — prices varied to attract customers
Evaluation that the UK cinema industry may be another market structure, for example:
● A monopoly in certain geographic areas
● Monopolistic competition — many independent cinemas in market
● Perfect competition — if compared to other ways of watching new films, such as online
streaming
A judgement of the extent to which the UK cinema industry may be considered to be an oligopoly

Part 5 The labour market

Chapter 16 The demand for labour
1 c. When demand for a factor of production comes from the use of output produced by that
factor, not for the factor itself
2 a. Costs of workers divided by output
3 c. An increase in the price of the product produced by labour
4 The additional revenue received by a firm as it increases output by using an additional unit of
labour input, i.e. the marginal physical product of labour multiplied by the marginal revenue
received by the firm.
An explanation of marginal revenue product up to 2

theory marks
A diagram showing marginal revenue product up to 2
theory marks

● Price of the product
● Demand for the product
● Productivity of labour


6 a The demand for sports therapy workers is a derived demand because the workers
themselves are only demanded for the service that they can produce.
A full explanation of why the demand for sports 2 marks

therapy is a derived demand
A vague or partial explanation of why the demand 1 mark
for sports therapy is a derived demand


● Marginal product theory

● Application to the demand for sports therapy workers

Analysis of how marginal revenue product theory can explain the demand for sports therapy
workers, for example:
● Impact of a change in the demand for sports therapy
● Impact of a change in price of sports therapy
● Impact of a change in the productivity of sports therapy workers
Chapter 17 The supply of labour

1 b. The demand for the product
2 d. A decrease in wages and an increase in quantity
3 Wages are determined at the intersection of labour demand and labour supply. This determines
the equilibrium wage rate for an industry.
An explanation of wage determination in a up to 2

competitive market marks
A diagram showing how wages are determined up to 2
in a competitive market marks
4 Economic rent is a payment received by a factor of production over and above what would be
needed to keep it in its present use.
An explanation of economic rent up to 2

marks
A diagram showing economic rent up to 2
marks
5 Transfer earnings is the minimum payment required to keep a factor of production in its
present use.
An explanation of transfer earnings up to 2

marks
A diagram showing transfer earnings up to 2
marks

6 a


● Demand for labour
● Supply of labour
● Transfer earnings
● Economic rent

● Application to the demand for and supply of checkout operators
● Application to the supply of and demand for film stars

Analysis of why checkout operators are paid less than film stars, for example:
● Larger supply of checkout operators compared with film stars — skills, talent required, etc.
● Marginal revenue product of checkout operators compared with film stars
● Analysis of elasticity of supply and demand in each occupation — economic rent and transfer
earnings
b As the demand for checkout operators falls, the demand for their services also falls,
shifting the demand curve to the left, and therefore decreasing wages and quantity.
An explanation of the effect of decreasing up to 2

demand for checkout operators on the demand marks
for checkout operators
A diagram showing the effect of decreasing up to 2
demand for checkout operators on the demand marks
for checkout operators
Chapter 18 The interaction of labour markets

1 c. It will pay higher wages than in a competitive labour market
2 b. There is a trade union and a monopsony employer of labour
3 a. The loss of labour from a country
4 A monopsony will produce where MC = MR, using its market dominance over the labour
market and pushing wages down.

An explanation of the impact of a monopsony on up to 2
a market marks

A diagram showing the impact of a monopsony up to 2
on a market marks
5 A trade union will restrict supply below certain wage rates, pushing wages up in a market.
An explanation of the impact of a trade union on up to 2

a market marks
A diagram showing the impact of a trade union up to 2
on a market marks

● Training
● Education
● Infrastructure (public transport etc.)
● Trade union reform
● Information provision


7 a An employer who is the single buyer of a labour in a market or industry.
A full explanation of a monopsony employer 2 marks

A vague or partial explanation of a monopsony 1 mark
employer


● Supply of labour to a market/industry

● Application to the market for teachers

Analysis that a low wages impacts the supply of teachers to the market, for example:

● Impact of low wages on the supply curve for teachers
● Opportunity cost of training/becoming a teacher

Evaluation that low wages is not the greatest impact, for example:
● Wage elasticity of supply of teachers
● Sunk costs of becoming a teacher
Evaluation that other factors will have a greater impact than low wages, for example:
● Working conditions
● Cost of training
● Skills required
● Media coverage of the profession
A judgement of whether low wages are likely to have the greatest impact on the supply of
teachers to the market
D Essay question
8

● Government intervention into the labour market
● Methods of improving labour market flexibility, for example:
o Training, skills and information provision

o Trade union reform

● Application of the labour market in the UK
● Examples of UK labour markets

Analysis of how government intervention may improve labour market flexibility, for example:
● Impact of government intervention on the supply curve for labour

● Evaluation of why government intervention may not improve labour market flexibility
● Evaluation of the effectiveness of other methods of improving labour market flexibility other
than government intervention.
A judgement of whether government intervention is the best method of improving labour market
flexibility in the UK

Section 2 Macroeconomics

Part 6 Aggregate demand and aggregate supply
Chapter 19 The circular flow of income and aggregate
demand
1 d. Exports
2 a. C + I + G + (X – M)
3 c. A decrease in savings
4 Gross domestic product (GDP) is the total level of economic activity carried out in an
economy during a given period.
A full explanation of gross domestic product 2 marks

A vague or partial explanation of gross domestic 1 mark
product
5 The AD curve is downward sloping suggesting that there is an inverse relationship between
AD and the price level.
An explanation of the relationship between AD up to 2

and the price level marks
A diagram showing the relationship between AD up to 2
and the price level marks

● Decrease in consumption
● Increase in savings
● Increase in taxation
● Decrease in investment
● Decrease in government spending
● Increase in imports
● Decrease in exports


7 a


● Income

● Application to AD/GDP

Analysis of the effect of a decrease in consumer income, for example:
● Reduction in AD
● Shift of the AD curve to the left
● Decrease in GDP

● Income

● Application to AD/GDP

Analysis of the effect of a decrease in consumer income, for example:
● Reduction in AD
● Shift of the AD curve to the left
● Decrease in GDP

Evaluation that a decrease in consumer income will not lead to a fall in GDP, for example:
● Other factors many also change, e.g. taxation, government spending, international
competitiveness
● Depends upon the size of the decrease in consumer income
● Depends upon the income elasticity of demand of domestically purchased goods
A judgement whether a decrease in consumer income will always lead to a fall in GDP

Chapter 20 Aggregate supply and the interaction of
aggregate demand and supply

1 c. Increased spending on imports
2 a. An increase in AD will not lead to an increase in real GDP
3 d. It is impossible to state
4 Macroeconomic equilibrium occurs at the intersection of AD and SRAS in the short run, and
between AD and LRAS in the long run. It is where AD = AS.
A full explanation of macroeconomic 2 marks

equilibrium
A vague or partial explanation of 1 mark
macroeconomic equilibrium
5 As SRAS increases there is an extension of AD leading to an increase in GDP and the price
level.
An explanation of the effects of an increase in up to 2

SRAS on macroeconomic equilibrium marks
A diagram showing an increase in SRAS on up to 2
macroeconomic equilibrium marks

● Productivity of the factors of production (land, labour, capital)
● Increased factors of production (land, labour, capital)
● Increased capital investment
● Improvements in enterprise and innovation


7 a

● AD

● Application of the building of HS2 to AD

Analysis of the effect of the building of HS2, for example:
● Increase in investment leading to an increase in AD
● Increase in government spending leading to an increase in AD
● Shift of the AD curve to the right
● Increase in GDP


● LRAS

● Application of the building of HS2 to LRAS

Analysis of the effect of the building of HS2, for example:
● Increase in investment leading to an increase in LRAS
● Increase in infrastructure around HS2, leading to an increase in LRAS
● Shift of the LRAS curve to the right
● Possible increase in GDP
Chapter 21 The multiplier and the accelerator

1 b. 0.7
2 d. Investment
3 a. Negative output gap
4 The national income multiplier is the ratio of a change in equilibrium real income to the
autonomous change that brought it about.
A full explanation of the national income 2 marks

multiplier
A vague or partial explanation of the national 1 mark
income multiplier

5 Effect could be positive or negative:
● A positive effect will show an increase in AD
● A negative effect will show a decrease in AD

An explanation of the effect of the accelerator on up to 2
aggregate demand marks
A diagram showing the effect of the accelerator up to 2
on aggregate demand marks
6 Diagram could show:

● A macroeconomic equilibrium diagram including AD, SRAS and LRAS, with a point of SRAS
above LRAS
● A macroeconomic equilibrium diagram including AD and Keynesian AS, with an equilibrium
point above full employment

● An economic cycle with a point above the trend level of growth
A positive output gap may occur if there is an increase in aggregate demand when the economy is
already at full employment.
An explanation of a positive output gap up to 2

marks
A diagram showing a positive output gap up to 2
marks

7 a Reasons may include:
● A fall in AD, e.g. reduced consumption, increased savings, lack of confidence, etc.
● A negative external shock to aggregate demand, e.g. a recession in a trading economy
A full explanation of one reason 2 marks

A vague or partial explanation of one reason 1 mark


● Negative output gap

● Application to the UK economy

Analysis of the possible negative consequences, for example:
● A decrease in AD, leading to a decrease in real GDP and possibly a reduction in the price level

Evaluation that a negative output gap may not have negative consequences, for example:

● The ability for AD to increase without inflationary pressure:
o Depends upon the size of the gap

o Depends on the state of other economies
o Depends upon future expectations of macroeconomic performance
A judgement of positive and negative consequences on the UK economy of a negative output gap

Part 7 Economic policy objectives

Chapter 22 Economic growth
1 c. £112,000
2 a. Two quarters of negative economic growth
3 c. A shift to the right of LRAS
4 Long-run economic growth is the expansion of the productive capacity of an economy.
Short-run economic growth is an increase in actual GDP.
An explanation of the difference between the up to 2

long-run and short-run economic growth positive marks
output gap
A diagram showing the difference between the up to 2
short-run (a right shift in the AD curve) and the marks
long-run economic growth (a right shift in the
LRAS curve) positive output gap
5 Stages include:
● Recovery
● Boom
● Recession
● Slump
Two stages explained 4 marks

One stage explained AND one stage identified 3 marks
One stage explained OR two stages identified 2 marks
One stage identified 1 mark

A nominal value is a value of an economic variable based on current prices, taking no account
of changing prices through time.
An explanation of economic growth, either long up to 2

run or short run marks
An explanation of nominal economic growth up to 2
marks

7 a Reasons may include:

● Increased employment
● Increase in tax revenue
● Increased consumption/quality of life
● To increase government spending
● To reduce poverty
A full explanation of one reason why the Chinese 2 marks

government has a policy of economic growth
A vague or partial explanation of one reason why 1 mark
the Chinese government has a policy of
economic growth


● Economic growth

● Application to the Chinese economy

Analysis of possible negative consequences of slowing economic growth, for example:
● Reduced levels of consumption
● Reduced tax revenue, leading to a possible decrease in government spending
● Increasing unemployment
● Downward pressure on the price level

Evaluation that a slowing of economic growth may not have negative consequences, for example:
● Control of inflation
● May lead to an increase in government spending
● May prevent an economic boom (which could lead to a recession)
● Depends upon the extent of the slowdown
A judgement of the possible consequences for China of a slowing of economic growth in the
Chinese economy

D Essay question
8


● Causes of economic growth, including:
o Increase in components of AD
o Increase in components of AS


Analysis of the causes of economic growth, for example:
● An increase in AD, leading to possible increases in real GDP and price level
● An increase in LRAS, leading to a possible increase in real GDP and a possible decrease in the
price level

Evaluation that the given causes may not have the effects on the UK economy, for example:
● Increases in AD may not lead to an increase in real GDP (classical LRAS, or economy at full
employment)
● Increases in AD may only have an inflationary effect
● Increase in LRAS may not lead to an increase in real GDP (or effect the price level) if there is a
negative output gap

● Depends upon the size of the economic growth
● Depends upon future expectations of the macroeconomy
A judgement of the main causes of economic growth in the UK economy
Chapter 23 Development
1 a. Primary
2 a. GDP per capita
3 Sustainable development is about meeting the needs of the present generation without
compromising the ability of future generations to meet their needs.
A full explanation of sustainable development 2 marks

A vague or partial explanation of sustainable 1 mark
development

● Exchange rate issues
● The informal sector

● Accuracy of data
● Income distribution
● Does not include social indicators
● Does not take into account differences in population size between countries


Sustainable development is about meeting the needs of the present generation without
compromising the ability of future generations to meet their needs.
A full explanation of the relationship between 3 marks

economic growth and sustainable development
Understanding of economic growth AND 2 marks
sustainable development
Understanding of economic growth OR 1 mark
sustainable development
D Essay question
6


● Development
● Components of the human development index (HDI), for example:
o Life expectancy
o Education index
o GNI per capita/standard of living

● Application of the HDI as a measure of development

Analysis of the usefulness of the HDI, for example:

● Impact of life expectancy on development
● Impact of education on development
● Impact of GNI per capita/standard of living on development

● Evaluation of why the components of the HDI are not a useful measure of development
● Evaluation of other, more useful measures of development
A judgement of the usefulness of the HDI as a measure of development
Chapter 24 Employment
1 c. Economically inactive
2 d. It includes people who are actively seeking work but not eligible for unemployment benefit
3 b. Structural
4 Unemployment refers to people who are economically active but not in employment.
A full explanation of unemployment 2 marks

A vague or partial explanation of unemployment 1 mark

● Efficient use of labour resources in the economy
● Reduced payment of unemployment benefits
● Increased taxation revenue
● Increase in AD leading to economic growth

6 Possible causes include:

● Structural unemployment – unemployment arising because of changes in the pattern of
economic activity within an economy

● Cyclical unemployment – unemployment that arises during the downturn of the economic
cycle, such as a recession

● Demand-deficient unemployment – unemployment that arises because of a deficiency of
aggregate demand in the economy, so that the equilibrium level of output is below full
employment
● Seasonal unemployment – unemployment that arises in seasons of the year when demand is
relatively low

Two causes explained 4 marks

One cause explained AND one cause identified 3 marks
One cause explained OR two causes identified 2 marks
One cause identified 1 mark

7 a The full employment level of real GDP corresponds to a situation in which the economy
is operating at its full capacity level, utilising its resources (including workers) effectively.
A full explanation of full employment 2 marks

A vague or partial explanation of full 1 mark
employment


● Full employment

● Application to the Australian economy

Analysis of the possible positive effect of full employment, for example:
● Increased levels of employment, leading to increased consumption and increased AD
● Reduction in inequality/poverty
● Reduction in de-skilling in the economy (hysteresis)
● Increase in taxation revenue
● Decrease in the payment of unemployment benefits

Evaluation of possible negative effects of full employment, for example:
● Upwards pressure on the price level
● Opportunity cost of focusing on one macroeconomic objective
A judgement of the possible effects of full employment on the Australian economy

D Essay question
8


● Causes of unemployment, including:
o structural unemployment
o cyclical unemployment
o demand-deficient unemployment
o seasonal unemployment


Analysis of the causes of unemployment, for example:
● The impact on AD
● The impact on the output gap
● The impact on LRAS

● Evaluation of the causes of unemployment and their effects on the UK economy
● Evaluation that one cause is greater in impact than another cause
A judgement of the main causes of unemployment in the UK economy
Chapter 25 Inflation
1 b. Disinflation
2 c. The RPI uses a different basket of goods to the CPI
3 b. 4.76%
4 Inflation is an increase in the overall level of prices in an economy.
A full explanation of inflation 2 marks

A vague or partial explanation of inflation 1 mark

● Business and consumer confidence
● To avoid an economic boom
● Exported goods could become uncompetitive


6 Causes may include:

● Demand-pull inflation
● Cost-push inflation


7 a Deflation is a fall in the average level of prices (negative inflation).
A full explanation of deflation 2 marks

A vague or partial explanation of deflation 1 mark


● Deflation


Analysis of possible consequences of deflation in the UK economy, for example:
● Deferred spending
● Increase in the level of real debt
● Reduced real profits for businesses
● Reduced confidence from businesses and consumers
● Cost of debt increases

Evaluation that the consequences of deflation may not occur, for example:

● Depends upon the level of deflation
● Depends upon the state of the rest of the economy
● Depends upon the timescale
● Depends upon other factors influencing the economy
A judgement of the possible consequences of deflation in the UK economy
Chapter 26 The balance of payments

1 c. Transfers of ownership of fixed assets
2 c. The balance of payments monitors transactions between the UK and the rest of the world
3 b. An export
4 Primary income represents earnings accruing to domestic citizens on past investment abroad
(less income earned by overseas residents who own assets in the UK).
A full explanation of primary income 2 marks

A vague or partial explanation of primary 1 mark
income

● To avoid leakages from the circular flow
● To allow economic growth
● To increase AD (or to reduce the effects of AD decreasing for another reason)
● To monitor international competitiveness


● Too high spending on imports
● Inflationary pressure, pushing up export prices and making them uncompetitive
● Domestic production is uncompetitive on the international market
● Poor domestic quality
● Lack of domestic production facilities
● Lack of domestic natural resources
● Rapid economic growth


7 a The value of imports of visible products into a country exceeds the value of exports of

visible goods out of a country.
A full explanation of a deficit in trade in goods 2 marks

A vague or partial explanation of a deficit in 1 mark
trade in goods


● UK balance of payments

● Application to the UK balance of payments position

Analysis of possible consequences of a deficit in trade in goods/balance of payments overall, for
example:
● Reduced AD
● Lower GDP
● Reduced pressure on the price level
Analysis of possible consequences of a surplus in trade in goods, for example:

● Increased AD
● Economic growth
● Increased pressure on price level

Evaluation that the consequences may not occur, for example:
● Depends upon the level of imports/exports
● Depends upon the size of the deficit/surplus
A judgement of the possible consequences of the UK balance of payments position

Chapter 27 Exchange rates

1 c. £1 was worth $0.90 and is now worth $1.05
2 a. A floating exchange rate system
3 d. A decrease in imports and an increase in exports
4 An exchange rate is the price of one currency in terms of another.
A full explanation of the exchange rate 2 marks

A vague or partial explanation of the exchange 1 mark
rate
5 The price is determined through the interaction of the demand for the currency and the supply
of the currency. The price is found at the interaction (equilibrium) point between demand and
supply.
An explanation of how the price of a currency is up to 2

determined in a floating exchange rate system marks
A diagram showing how the price of a currency up to 2
is determined in a floating exchange rate system marks

● Less need for reserves of currency
● Can be used to correct imbalances
● Can help to bring the economy into macroeconomic equilibrium
● Lowers the risk of currency speculation

identified
identified

7 a A fixed exchange rate system is a system in which the government of a country agrees to
fix the value of its currency in terms of that of another country.
A full explanation of a fixed exchange rate 2 marks

system
A vague or partial explanation of a fixed 1 mark
exchange rate system

b


● Exchange rate systems

● Application to a pegged exchange rate system between the krone and the euro

Analysis of the possible advantages of a pegged exchange rate system, for example:
● May give confidence to business
● May encourage investment
● Allows planning for the future
Analysis of the possible disadvantages of a pegged exchange rate system, for example:
● Opportunity cost of pursuing other macroeconomic objectives
● May cause macroeconomic disequilibrium
● May lead to a current account imbalance
● May dominate monetary policy

● Evaluation that the advantages may not occur
● Evaluation that the disadvantages may not occur
A judgement of the possible advantages and disadvantages to Denmark of pegging the value of
the krone to the euro
D Essay question
8


● Exchange rates
● Depreciation of a currency
● Balance of payments
● Imports and exports


Analysis of the consequences of a depreciation of the pound, for example:
● Imports may become more expensive, which may lead to an increase in demand for domestic
goods, increasing AD
● Exports may become less expensive, leading to an increase in AD
● Increased international competitiveness

Evaluation that the consequences may not occur in the UK economy, for example:
● Increases in AD may not lead to an increase in real GDP (classical LRAS, or economy at full
employment)
● Depends upon the size of the depreciation
A judgement of the likely consequences to the UK economy of a depreciation of the pound
Chapter 28 Trends in macroeconomic indicators

There are no end-of-chapter questions for Chapter 28.
Chapter 29 Income distribution and welfare

1 c. The Gini coefficient
2 b. Household income is below 60% of median adjusted household income
3 d. 43.1
4 Income is the flow of wages, salaries and other income in a period, whereas wealth is the stock
of accumulated assets.
A full explanation of the difference between 2 marks

income and wealth
A vague or partial explanation of the difference 1 mark
between income and wealth

● To improve the standard of living
● To reduce poverty
● May improve the marginal propensity to consume
● To aid development


● Access to education
● Ownership of factors of production
● Inheritance
● Unemployment
● Taxation policies
● Geographic differences

D Essay question
7


● Poverty
● Inequality

● Application of the consequences of poverty to an economy

Analysis of the consequences of poverty, for example:
● Poor standards of living
● Poor levels of education
● Poor levels of healthcare
● Social exclusion
● Increasing levels of crime

Evaluation of how significant the consequences may to an economy:

● Depends upon the level of poverty
● Depends upon the level of state provision for people/families in poverty
A judgement of the most significant consequences of poverty in an economy

Part 8 Implementing policy

Chapter 30 Fiscal policy
1 c. National insurance payments
2 a. Surplus
3 a. Changes to government revenue and expenditure that happen without direct intervention
4 Discretionary fiscal policy is a situation in which the government uses its discretion to
intervene in the economy in an attempt to stabilise it.
A full explanation of discretionary fiscal policy 2 marks

A vague or partial explanation of discretionary 1 mark
fiscal policy
5 At low rates of tax revenue increases, but beyond a certain point the revenue begins to fall. If
an economy has been operating with a tax rate above this point then a reduction in the tax rate
will actually increase the revenue raised by the tax.
An explanation of the relationship between the up to 2

taxation rate and the amount of government marks
revenue raised through taxation
An explanation of the Laffer curve up to 2
marks
6 Effects may include:

● An increase in taxation is likely to decrease consumption leading to a decrease in AD and real
GDP
● An increase in taxation may also disincentivise investment also leading to a decrease in AD and
real GDP
An explanation of the likely effect of an increase up to 2

in taxation marks
An explanation of the likely effect of an increase up to 2
in taxation — decrease in AD marks

7 a Government spending on public goods, such as the National Health Service.
An explanation of expenditure on public services 2 marks

AND an appropriate example
An explanation of expenditure on public services 1 mark
OR an appropriate example

b


● Fiscal policy

● Application to the UK economy:
o Expenditure for public services will grow above inflation until 2023
o Fuel duty (taxation) was frozen for the ninth year in a row
o A new tax (from April 2020) on large digital firms revenue

Analysis of possible effects of fiscal policies, for example:
● Increased government expenditure, leading to an increase in AD
● Increased taxation leading to a decrease in AD

Evaluation that the effects may not lead to changes in the economy, for example:
● Depends upon the level of taxation/government expenditure
● Depends upon the relative size of the proposed changes
A judgement of both the likely effects and the largest effect of the fiscal policies outlined in the
data
D Essay question
8


● Fiscal policy:
o Use of taxation
o Use of government spending

● Application to the macroeconomic objective of economic growth

Analysis of the effects of fiscal policy, for example:

● Increased government expenditure, leading to an increase in AD and short-run economic
growth
● Decreased taxation, leading to an increase in AD and short-run economic growth

Evaluation that the given causes may not lead to economic growth in the economy, for example:
● Increases in AD may not lead to an increase in real GDP (classical LRAS or economy at full
employment)
● Depends upon the size of the changes to fiscal policy
● Depends on the output gap
● Growth may occur only in the short run
A judgement of the effectiveness of fiscal policy is achieving the government macroeconomic

objective of economic growth
Chapter 31 Monetary policy

1 c. An increase in savings and a decrease in borrowing
2 c. Aggregate demand
3 Quantitative easing is a process by which liquidity in the economy is increased when the
central bank purchases assets from the commercial banks.
A full explanation of quantitative easing 2 marks

A vague or partial explanation of quantitative 1 mark
easing
4
● An increase in the interest rate can lead to an increase in savings and a decrease in
consumption, leading to a decrease in AD and inflation.
● A decrease in the interest rate can lead to a decrease in savings and an increase in consumption,
leading to an increase in AD and a reduction in inflation.
An explanation of how changes in the interest up to 2

rate can be used to affect inflation in an marks
economy
A diagram of how changes in the interest rate up to 2
can be used to affect inflation in an economy marks
5 Interest rates are the reward for savings and the cost of borrowing.
Exchange rates are the price of one currency in relation to another currency.
If UK interest rates are high relative to elsewhere in the world they will attract overseas
investors, increasing the demand for pounds. This will tend to lead to an appreciation in the
exchange rate — which in turn will reduce the competitiveness of UK goods and services,

reducing the foreign demand for UK exports and encouraging UK residents to reduce their
demand for domestic goods and buy imports instead.

Explanation of the relationship between interest 4 marks
rates and exchange rates
Identification of the relationship between interest 3 marks
rates and exchange rates
Understanding of interest rates AND exchange 2 marks
rates
Understanding of interest rates OR exchange 1 mark
rates

6 a Effects may include:
● Increased savings
● Decreased borrowings
● Appreciation of the currency
● Increased imports
● Decreased exports
An explanation of two effects 2 marks

An explanation of one effect 1 mark


● Interest rates

● Application to the government’s objective of low and stable inflation

Analysis of possible consequences of an increase in interest rates in the UK economy, for
example:
● Increased savings leading to a decrease in consumption, and a decrease in AD and a possible
decrease in the price level

● Decreased borrowings leading to a decrease in consumption, and a decrease in AD and a
possible decrease in the price level

● Appreciation of the currency leading to an increase in imports/decrease in exports, and a
decrease in AD and a possible decrease in the price level

Evaluation that the consequences of an increase in interest rates in the UK economy may not

occur, for example:
● Depends upon the level of increase of interest rates, only 0.25%
● Depends on the position of AD on the LRAS curve
A judgement of the effectiveness of the Monetary Policy Committee’s decision to increase

interest rates to achieve the government’s objective of low and stable inflation
Chapter 32 Supply-side policy

1 d. Government spending on benefits
2 d. Deregulation of a large industry
3 Supply-side policies are a range of measures intended to have a direct impact on aggregate
supply — and specifically the potential capacity output of the economy.
A full explanation of supply-side policies 2 marks

A vague or partial explanation of supply-side 1 mark
policies
4 An increased government focus on education can affect the macroeconomy by causing an

increase in LRAS, leading to an increase in long-run economic growth (the potential growth of
an economy) and possibly both an increase in real GDP and a reduction in the price level.
An explanation of how an increased government up to 2

focus on education can affect the macroeconomy marks
A diagram of how an increased government focus up to 2
on education can affect the macroeconomy marks
5 Privatisation may lead to an increase in productivity, leading to an increase in LRAS and in

long-run economic growth. This could increase real GDP and lead to a possible reduction in
the price level.
An explanation of how privatisation may affect up to 2

aggregate supply in an economy marks
A diagram of how privatisation may affect up to 2
aggregate supply in an economy marks

D Essay question
6


● Supply-side policies, including:
o Privatisation and deregulation

o Improved labour market flexibility
o Reforms of the tax and benefit system
o Investment in infrastructure, education, training, research and development
o Subsidies
o Competition policy
o Immigration control

● Application to the achievement of economic growth

Analysis of supply-side policies, for example:
● An increase in LRAS, leading to a possible increase in real GDP and a possible decrease in the
price level

Evaluation that supply-side policies may not achieve economic growth, for example:
● An increase in LRAS may not lead to an increase in real GDP (or effect the price level) if there
is a negative output gap

● Depends upon the effectiveness of the policy
● Depends upon the state of the macroeconomy
A judgement of the effectiveness of supply-side policies to achieve the economic growth
Chapter 33 The Phillips curve and policy conflicts

1 b. Non-accelerating inflation rate of unemployment
2 d. Unemployment and the rate of inflation
3 The natural rate of unemployment is the rate of unemployment in which there is only frictional
and structural unemployment, as real wages will have adjusted to the equilibrium level.
A full explanation of the natural rate of 2 marks

unemployment
A vague or partial explanation of the natural rate 1 mark
of unemployment

4 When the demand for labour is high, firms will be prepared to bid up wages in order to attract
labour. To the extent that higher wages are then passed on in the form of higher prices, this
would imply a relationship between unemployment and inflation: when unemployment is low,

inflation will tend to be higher, and vice versa.
An explanation of the relationship between up to 2

unemployment and inflation in the long run marks
A diagram showing the relationship between up to 2
unemployment and inflation in the long run (the marks
Phillips curve)

5 a Objectives may include:
● Low unemployment
● A sustainable balance of payments position
Two macroeconomic objectives of government, 2 marks

apart from economic growth and low and stable
inflation, identified
One macroeconomic objective of government, 1 mark
apart from economic growth and low and stable
inflation, identified


● Macroeconomics objectives of government

● Application of the conflict between economic growth and low and stable inflation

Analysis of possible consequences of a conflict between economic growth and low and stable
inflation, for example:
● Increased short-run economic growth leading to an increase in AD and an increase in inflation
(classical LRAS model or section of Keynesian model)

● Monetary policy to reduce inflation leading to a reduction in AD and a reduction in short-run
economic growth

Evaluation that is not a conflict between economic growth and inflation, for example:

● Long-run economic growth may lead to a decrease in inflationary pressure
● Depends upon the type of economic growth
A judgement of whether there is always a conflict between the macroeconomic objectives of

government for economic growth and low and stable inflation
D Essay question
6


● The Phillips curve
● Inflation
● Unemployment

● Application of the Phillips curve for macroeconomic policy-makers

Analysis of the usefulness of the Phillips curve, for example:
● Understanding the relationship between inflation and unemployment
● Understanding of the natural rate of unemployment and implications of being above or below
this point
● Impact on setting targets for inflation and unemployment

● Evaluation of why the Phillips curve may not be useful
● Evaluation of other, more useful techniques for managing the macroeconomy
A judgement of the usefulness of the Phillips curve for macroeconomic policy-makers

Part 9 The global context

Chapter 34 International trade
1 International trade involves engaging in exporting and importing activity.
A full explanation of international trade 2 marks

A vague or partial explanation of international 1 mark
trade
2 Disadvantages may include:

● Increasing imports of cheaper foreign goods — increasing imports and decreasing AD
● May lead to the closure of domestic industry
● Cultural issues
● Intellectual property rights risks
Two disadvantages explained 4 marks

One disadvantage explained AND one 3 marks
disadvantage identified
One disadvantage explained OR two 2 marks
disadvantages identified
One disadvantage identified 1 mark

● Increasing imports of cheaper goods — increasing standard of living
● Promoting development
● Encouraging AD/economic growth (increasing exports)
● Exploiting comparative and absolute advantages

identified
identified

4


● International trade

● Application to the US economy, for example;
o US steel industry

Analysis of possible disadvantages of international trade, for example:
● Increasing imports of cheaper foreign goods — increasing imports and decreasing AD
● May lead to the closure of domestic industry
● Cultural issues
● Intellectual property rights risks

● Evaluation over which disadvantage is the greatest.
● Evaluation that international trade may not be a disadvantage to the US economy
A judgement of the possible disadvantages to the US economy of international trade
Chapter 35 Globalisation
1 c. It can produce pasta relatively more efficiently than another country
2 b. More competition from global brands
3 b. The same volume of exports will purchase a lower volume of imports
4 The Marshall–Lerner condition is the condition that devaluation will have a positive effect on
the current account only if the sum of the elasticities of demand for exports and imports is
negative and numerically greater than 1.
A full explanation of the Marshall–Lerner condition 2 marks

A vague or partial explanation of the Marshall– 1 mark
Lerner condition
5 Ways may include:

● Easier movement of goods and services
● Absolute and comparative advantage
● Division of labour
● Economies of scale
● Easier movement of labour
● Easier movement of capital
● Easier movement of technology/innovation


6 The theory of comparative advantage argues that there may be gains from trade arising when

countries specialise in the production of goods or services in which they have a comparative
advantage.
Benefits may include:

● Increase in AD
● Economic growth
● Increased taxation revenue
● Improvements in technology
● Consumption beyond the PPF
Explanation of a benefit of international trade to 4 marks

an economy using comparative advantage theory
Explanation of a benefit of international trade to 3 marks
an economy
Identification of a benefit of international trade 2 marks
to an economy
Understanding of comparative advantage 1 mark

7 a The primary sector is the sector of the economy that deals with extraction, farming and
production of natural resources.
A full explanation of the primary sector 2 marks

A vague or partial explanation of the primary 1 mark
sector
b A negative trade balance is a situation where imports exceed exports.
A full explanation of a negative trade balance 2 marks

A vague or partial explanation of a negative trade 1 mark
balance


● Globalisation

● Application to the Togo economy

Analysis of the possible positive consequences, for example:

● Easier movement of goods and services
● Absolute and comparative advantage
● Division of labour
● Easier movement of labour
● Easier movement of capital
● Easier movement of technology/innovation

Evaluation of the possible negative consequences, for example:
● A negative trade balance, leading to a reduction in AD
● Loss of domestic industry
● Loss of cultural diversity
A judgement of the likely consequences of globalisation on the Togo economy

D Essay question
8


● Comparative advantage
● International trade

● Application to international trade patterns

● Analysis of how comparative advantage may explain international trade patterns

● Evaluation of why comparative advantage may not explain international trade patterns
● Evaluation of factors, other than comparative advantage that may explain international trade
patterns
A judgement of the extent to which comparative advantage explains international trade patterns
Chapter 36 Trade policies and negotiations

1 c. Introducing a customs union
2 d. A common external tariff
3 a. The replacement of more expensive domestic production or imports with cheaper goods
produced by trading partners within the trading bloc

4 A free trade area is a group of countries that agree to remove tariffs, quotas and other

restrictions on trade between the member countries but have no agreement on a common
barrier against non-members.
A full explanation of a free trade area 2 marks

A vague or partial explanation of a free trade 1 mark
area
5 Trade creation is the replacement of more expensive domestic production or imports with
cheaper output from a partner within the trading bloc.
An explanation of trade creation up to 2

marks
A diagram showing trade creation up to 2
marks
6 Trade diversion using a tariff is the replacement of cheaper imported goods by goods from a
less efficient trading partner within a bloc.
An explanation of trade diversion using a tariff up to 2

marks
A diagram showing trade diversion using a tariff up to 2
marks
7 Benefits may include:

● To avoid dependence on imports
● To avoid ‘unfair’ competition
● To protect an ‘infant’ industry
● To avoid unemployment
Benefit Benefit
one two
Good explanation 3 marks 3 marks
Limited explanation 2 marks 2 marks
Identified 1 mark 1 mark

8 a Economic union is a set of trading arrangements that are the same as for a common
market, but additionally there is a common currency (or permanently fixed exchange rates
between the member countries).
A full explanation of economic union 2 marks

A vague or partial explanation of economic 1 mark
union

b


● Economic union

● Application to Albania and the EU

Analysis of the advantages of membership of the EU, for example:
● Trade creation
● Free movement of goods, services and labour
● EU regulations

● Evaluation that Albania may not experience the advantages of EU membership
● Evaluation over which advantage is likely to be most important
● Evaluation that EU membership has more disadvantages than advantages for Albania
A judgement of the potential advantages to Albania of membership of the EU economic union

D Essay question
9


● Free trade
● The World Trade Organization (WTO)

● Application of the role of the WTO

Analysis of the role of the WTO in promoting freer world trade, for example:
● Encouraging free trade
● Encouraging globalisation
● Encouraging the negotiation of trade agreements
● Settling disputes between nations

Evaluation of why the WTO may be unsuccessful in promoting freer trade, for example:

● Political influences
● Can increase prices, especially in less developed economies
● WTO rules can favour large multinational organisations over smaller producers
Evaluation of other, more important organisations/ways of promoting freer trade.
A judgement of the role of the WTO in promoting freer world trade

Part 10 The financial sector

Chapter 37 Money and interest rates
1 c. A flow of wealth
2 a. Scarce
3 c. Prices multiplied by income equals money multiplied by velocity
4 As money supply increases, the price level will also increase (or vice versa).

money supply and price level
between money supply and price level
5 Narrow money (M0) is the notes and coins in circulation and as commercial banks’ deposits at
the Bank of England.
Broad money (M4) is narrow money plus sterling wholesale and retail deposits with monetary
financial institutions such as banks and building societies.
The relationship is that broad money includes narrow money.

narrow and broad money
between narrow and broad money
6 It is expected that the demand for money will be lower when the rate of interest is relatively
high, as the opportunity cost of holding money is high. People will be more reluctant to forgo
the rate of return that has to be sacrificed by holding money.
When the rate of interest is relatively low, this will be less of a concern, so the demand for
money will be relatively high. This suggests that the money demand (MD) curve will be
downward sloping.
An explanation of how interest rates may be up to 2

determined using the theory of liquidity preference marks
A diagram showing how interest rates may be up to 4
determined using the theory of liquidity preference marks
7 The rate of interest represents the cost of borrowing the funds needed in order to finance the
investment. The higher the rate of interest, the less investment projects will be seen as being
profitable. If the firm is intending to finance its investment from past profits, the interest rate is
still pertinent, as it then represents the return that the firm could obtain by purchasing a
financial asset instead of undertaking the investment.

An explanation of how interest rates may be up to 2
determined using the theory of loanable funds marks

A diagram showing how interest rates may be up to 4
determined using the theory of loanable funds marks

8 a Characteristics may include:
● Portability — contactless involves only a card or a portable electronic device
● Divisibility — contactless can pay any amount
● Acceptability — many shops accept contactless payment
● Durability — cards are reasonably durable and electronic devices even more so

identified
b Characteristics may include:

● Acceptability — some shops do not accept contactless and only ever for transactions below a
ceiling imposed by the bank (for example £30)
● Scarcity — contactless payment can be forged with relative ease

identified
Chapter 38 The financial sector

1 d. To facilitate taxation
2 d. A high level of competition in developing countries’ financial markets
3 The role of savings may include:
● Individuals need to undertake saving, and businesses and individuals need to be able to borrow.
It is through financial markets that savings can be mobilised for the investment.
● Individuals (and firms) wish to save for various reasons. It may be that a household needs to
accumulate funds for future spending. This may partly depend upon where an individual is in
the life cycle. When young, there may be a need to save in order to have a deposit on a house.
Savings may also be needed to support people in retirement. The financial sector offers
opportunities for people to earn a return through saving, and therefore have funds for later
purposes. At current rates of interest, the returns may not provide a strong incentive for this.

The role of investment may include:
● The other side of the coin is that firms — and households — wish to borrow. Financial markets
therefore provide opportunities to obtain loans. This was seen in the circular flow model, where

the savings behaviour of households enables firms to borrow in order to finance their
investment.
Explained the role of savings AND investment in 4 marks

promoting economic development
One role explained AND one role identified 3 marks
Identified the role of savings AND investment in 2 marks
Identified the role of savings OR investment in 1 mark
4 The Harrod–Domar model is an attempt to determine how equilibrium could be achieved in a

growing economy.
An economy can remain in equilibrium through time only if it grows at a particular rate. This
unique stable growth path depends on the savings ratio and the productivity of capital. Any
deviation from this path will cause the economy to become unstable. The model emphasises
the importance of savings in the process of economic growth, and led to the conclusion that a
country seeking economic growth must first increase its flow of savings.
Savings are crucial in enabling investment to be undertaken — always remembering that some
investment will have to be used to replace existing capital that has worn out. Investment then
enables capital to accumulate and technology to be improved. The accumulation of capital
leads to an increase in output and incomes, which leads to a further flow of savings, and the
cycle begins again.
A full explanation of the Harrod–Domar model 3 marks

A partial explanation of the Harrod–Domar model 2 marks
Identification of the elements of the Harrod– 1 mark
Domar model

5 a Microfinance are schemes that provide finance for small-scale projects in less developed
countries (LDCs). Needs may include:
● Informal borrowing often has high interest rates in LDCs
● A lack of credit information about individuals in LDCs
● Insecure property rights in developing countries
An explanation of microfinance in LDCs up to 2

marks
An explanation of the need for microfinance in up to 2
LDCs marks

b


● Financial sector

● Application to promoting economic development

Analysis of possible reasons for the financial sector in promoting economic development, for
example:
● To provide facilities for savings
● To provide facilities to borrow
● To facilitate investment

● Evaluation that the financial sector is not important in promoting economic development
● Evaluation that other factors may be more important in promoting economic development
A judgement of the importance of the financial sector in promoting economic development

D Essay question
6


● The financial sector
● Developing economies

● Application to economic growth in developing countries

Analysis of the benefits of a developed financial sector, for example:
● To provide facilities for savings
● To provide facilities to borrow
● To facilitate investment

● Evaluation that the benefits of a developed financial sector may not be applicable for economic
growth in a developing country

● Evaluation of the costs of a developed financial sector to a developing country
● Evaluation of other, more important, systems required for economic growth in a developing
country
A judgement of the importance of a developed financial system in achieving economic growth in

a developing country
Chapter 39 The central bank and financial regulation

1 d. Managers of fiscal policy
2 c. The World Bank
3 Functions may include:
● As banker to the government
● To manage the government’s programme of borrowing
● To manage the government’s foreign exchange reserves
● As the issuer of notes and coin
● As managers of monetary policy
● As a regulator of the financial system
Two functions explained 4 marks

One function explained AND one function 3 marks
identified
One function explained OR two functions 2 marks
identified
One function identified 1 mark
4 Purposes may include:

● To protect consumers
● To ensure financial stability
● To maintain confidence in the financial sector
Two purposes explained 4 marks

One purpose explained AND one purpose 3 marks
identified
One purpose explained OR two purposes identified 2 marks
One purpose identified 1 mark
5 The International Monetary Fund (IMF) was set up with a specific brief to offer short-term
assistance to countries experiencing balance of payments problems. The IMF continues to play
an important role in maintaining the stability of the interconnected global financial system. In
particular, it has provided loans to prevent sovereign default.

A full explanation of the role of the IMF 2 marks

A vague or partial explanation of the role of the 1 mark
IMF

6 a Financial regulation might have been used to protect consumers from the mis-selling of
PPI by introducing regulations to restrict the sale of PPI or to enable better provision of
information to consumers over the details of PPI. Financial regulation may also have been
used to restrict which financial institutions were allowed to sell PPI.
A full explanation of how financial regulation 2 marks

might have been used to restrict the sale of PPI
A vague or partial explanation of how financial 1 mark
regulation might have been used to restrict the sale
of PPI


● Financial regulation

● Application to the market for PPI

Analysis of possible benefits to the UK economy of increased PPI financial regulation, for
example:
● Increased consumer protection
● Avoid mis-selling
● To ensure confidence in the financial sector
● To ensure financial stability

● Evaluation that financial regulation in the market for PPI may be ineffective
● Evaluation that financial regulation in the market for PPI may have more costs than benefits:
o Depends upon the level of regulation

o Depends upon other factors influencing the economy
A judgement of the benefits to the UK economy of increased PPI financial regulation

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Answers to end-of-chapter questions

OCR A Level Economics (Fourth Edition)

Part 1 Introduction to microeconomics

Correctly labelled axis 1 mark

b 25 bananas = 50 cereal bars

AO1 Knowledge 3 marks

Knowledge (3 marks) is likely to include:

Application (4 marks) is likely to include:

● Choices about staying at school/college or working/taking an apprenticeship etc.

● Other uses of time

© Hodder & Stoughton Limited 2019 1

OCR A Level Economics (Fourth Edition)

● Comparisons with other possible qualifications, such as apprenticeships

● Parental influence to take A Level Economics

Evaluation (7 marks) is likely to include:

● There was no/little actual choice

● Did not do enough research into the choices

Chapter 2 The allocation of resources, specialisation and

A full explanation of an incentive 2 marks

5 Differences may include:

Two differences explained 4 marks

© Hodder & Stoughton Limited 2019 2

● A basic legal framework

OCR A Level Economics (Fourth Edition)

An explanation of a barter system AND a 2 marks

C Stimulus response question

A full explanation of the division of labour 2 marks

Knowledge (1 mark) is likely to include:

Application (1 mark) is likely to include:

Analysis (3 marks) is likely to include:

● Reduction in wasted resources (from poor work)

© Hodder & Stoughton Limited 2019 3

OCR A Level Economics (Fourth Edition)

© Hodder & Stoughton Limited 2019 4

OCR A Level Economics (Fourth Edition)

A full explanation of the relationship 2 marks

6 Factors may include:

● The price of meals at another restaurant

Two factors explained 4 marks

An explanation of how the demand may reduce at up to 2

An explanation of an inferior good AND a 2 marks

© Hodder & Stoughton Limited 2019 5

OCR A Level Economics (Fourth Edition)

● Fashions/trends — for dog-cleaning services

Identification of a factor that may affect demand 1 mark for

Correctly labelled axis 1 mark

A full explanation of the relationship 2 marks

© Hodder & Stoughton Limited 2019 6

● The technology of production

OCR A Level Economics (Fourth Edition)

● The price of related goods, such as plastic bottles

● Firms’ expectations about future prices of bottled water

Two factors explained 4 marks

An explanation of how the supply may reduce at up to 2

An explanation of producer surplus up to 2

C Stimulus response question

An explanation of how the supply may reduce at up to 2

b Factors may include:

Two factors explained 4 marks

© Hodder & Stoughton Limited 2019 7

OCR A Level Economics (Fourth Edition)

An explanation of how a shift in demand to the up to 2

C Stimulus response question