Economics

Higher level
Paper 3

Candidate session number

-

1 hour 15 Minutes Candidate Name:

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INSTRUCTIONS TO CANDIDATES

● Write your name and session number in the space above.

● You are permitted access to a calculator for this paper.
● Do not open the examination paper until instructed to do so.
● Answer one questions in the space provided.
● Unless otherwise stated in the question, all numerical answers must be given exactly or
correct to two decimal places.
● You must show all your working.
● The maximum mark for this examination paper is [25 marks]
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Answer One question. Each question is worth [25 marks].

1. The table below is for the quantity demanded of and price for strawberries and ice cream in
the Helsinki metropolitan area in summer and winter:

Strawberries

Summer Winter

Quantity 350 5

Price 5 25

Ice cream

Quantity 1 250 250

Price 2.50 3.00

when the quantity is in thousands of litres and price in €/kg

(a) Calculate the price elasticity of demand for strawberries. [3]

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(b) With reference to the answer in part (a) give one reason for the value of the elasticity
calculated. [2]

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(Question 1 continued)
(c) Define the term income elasticity of demand (YED)
[2]

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(d) Distinguish between normal goods and inferior goods.

[3]

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(e) With reference to the table and your knowledge of economics, explain the possible effects of a
cold rainy summer on the quantity demanded of both strawberries and ice cream. [4]

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(f) The price elasticity of supply for strawberries in summer is 0.2, give one possible reason for this
value. [1]

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(Question 1 continued)

(g) Calculate the change in quantity supplied of strawberries in summer, if the price increases by
100%. [3]

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(h) Using the information in the table and other values calculated in part (g), draw and label the
diagram illustrating the change in market equilibrium between winter and summer for
strawberries. [4]
Price
€/kg

25

20

15

10

0 100 200 300 Quantity

(g) Give one reason why the price elasticity of supply in summer and winter is unlikely to be the
same. [2]

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2. The following information provides a simplified version of the calculation of a consumer pr
ice index (CPI).
In Alba, the rate of inflation is measured by the calculation of a CPI. The index is calculat
ed using the five product categories which are purchased by citizens of Alba as represent
ative of a “typical basket of goods”.
The weighting given to each product is based on the quantities of each product purchase
d by the average household in Alba per week.

Product Average price p Quantity of each product purchased b

category er unit in € y the average household per month

2018 2019

A 17.25 18.75 23

B 21.00 19.50 13

C 8.25 9.75 37

D 25.50 25.25 9

E 18.50 19.25 18

Assume that 2018 is the base year for the purpose of calculating the CPI.

(a) (i) Calculate the consumer price index (CPI) for Alba in 2019. [3]

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(ii) State two reasons why the typical basket of goods bought by citizens of Alba
may change over time. [2]

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 Alba has nominal GDP in billions of € given by the table below:

Year Nominal GDP

2018 237

2019 241

(b) (i) Using your answer from (a) (i), calculate the real GDP of Alba in 2018 and 2019 [2]

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(ii) Using your answer from (b) (i), calculate the economic growth of Alba 2018-19. [2]

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Alba has a population (in thousands) structure given in the table below:

Population

Under 16 918

16-64 3456

Over 64 1026

(c) (i) Calculate the real GDP/capita for Alba in 2019 [3]

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(ii) The Total Labour Force is 77% of the working age population of Alba. Using the
table on the previous page calculate the size of the Total Labour Force. [3]

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(iii) The unemployment rate is 4.2%, calculate the number of unemployed in Alba. [2]

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(d) Demand-deficient (cyclical) unemployment in Alba currently accounts for 1% of the

total labour force, sketch a labelled diagram of the labour market illustrating this. [4]

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(e) (i) Explain the term hidden (disguised) unemployment. [2]

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(ii) Explain what effect hidden unemployment may have the statistical level of
unemployment. [2]

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