Sample exam questions (Part 1)

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1 Sample exam questions (Part 1) Student book page 50 Answers and mark scheme Question 1 (a) 2 marks for clear understanding, e.g. how to allocate scarce resources to try to satisfy unlimited human wants; 1 mark for some understanding, e.g. how to allocate goods. (2) (b) 2 marks for clear understanding, e.g. resources are the factors of production that can be used to produce goods and services; 1 mark for some understanding, e.g. resources are things like land and raw materials. (2) (c) Needs have to be satisfied in order to survive, e.g. food, drink and shelter (2 marks). Wants tend to be unlimited and most are not needed to survive, e.g. Allan does not need a new shirt or books, but he does want them (2 marks). (4) (d) 2 marks for clear understanding, e.g. opportunity cost is the next best alternative, which is given up in order to satisfy a want. 2 marks for reference to the data, e.g. Allan wants a new shirt and books if he buys the shirt, he will have to sacrifice the books. (4) Total: 12 marks Question 2 (a) 1 mark for each objective, such as survival, profit, growth (maximum 2 marks). (2) (b) For each part, 2 marks for clear understanding; 1 mark if some understanding. (i) Production is the use of resources to make goods and services (2 marks); 1 mark for some understanding, e.g. production is making things. (2) (ii) Productivity is output per worker (per time period) (2 marks); 1 mark for some understanding, e.g. productivity is how much is produced. (2) (c) Up to 4 marks for explanation, plus 2 marks for reference to the data. Specialisation enables workers and other factors of production to produce what they are best at (2 marks). By concentrating on one task or producing one good or service, the worker will produce more, so productivity will rise (2 marks). (Alternatively, award marks for a numerical example.) Janet is more productive at making cakes than Rosie, so it may increase productivity if Rosie switches to a different task/job, e.g. baking bread, and Janet makes all the cakes (2 marks). (6) Candidate analyses and evaluates the importance of productivity in competitive markets, in context. Candidate shows understanding of the role of productivity in competitive markets, in context. Productivity will affect costs. If productivity rises, the cost per unit of output will fall. This will enable the firm (Occasions) to reduce its prices and so compete more successfully with other firms. Other factors will also affect the firm s ability to compete. These include the quality of its cakes and the service provided by its staff, as well as the convenience of the location of the cake shop. In conclusion, productivity is very important in affecting Occasions ability to compete, but other factors such as quality, service and convenience are also important. (8) Question 3 (a) (i) = (1) (ii) = (own figure rule applies to part ii) (1) (b) Gross pay is pay before any deductions (1 mark). In the payslip, this is (1 mark). (2) (c) Up to 3 marks for each explanation, e.g. Tim the doctor has had more years of training and has become more qualified. He has a university degree whereas Damien doesn t need one to be a teaching assistant (3 marks). There is a much greater demand for doctors than teaching assistants. Doctors are vital to help people return to good health, but teachers could still teach without assistants (3 marks). (6) Candidate analyses and evaluates whether the National Minimum Wage is beneficial to workers. Candidate shows understanding of the role of the National Minimum Wage. 1

2 The National Minimum Wage raises the wage of low-paid workers, so it can be said to be fair to them. It reduces the inequalities between wages, and could mean less reliance on state benefits. It increases the standard of living of these workers and reduces poverty. On the other hand, it will not affect workers who are already unemployed, and they may stay in poverty. The National Minimum Wage may itself make workers unemployed. As the cost of labour rises, firms may reduce their demand for workers so some workers lose their jobs. In conclusion, the National Minimum Wage will be beneficial to low-paid workers provided they keep their jobs. (8) Total: 18 marks Question 4 (a) 2 marks for clear understanding, e.g. the quantity producers are willing and able to produce in a given period of time; 1 mark for some understanding, e.g. how much firms will provide. (2) (b) 2 marks for diagram and 2 marks for explanation. Diagram: 1 mark for correct diagram showing original equilibrium. 1 mark for supply curve shifted to the left and new equilibrium. Explanation: the tax rise will cause supply to fall (1 mark) so as the price rises, consumers will buy less air travel (1 mark). (4) (c) Assuming headline B is chosen: Diagram (3 marks) 1 mark for correct diagram showing original equilibrium. 1 mark for demand curve shifted to the right. 1 mark for new equilibrium showing higher price and quantity. Explanation (3 marks) the expected hot weather will encourage consumers to stay in the UK for their holidays, so the demand for UK tourism will rise (as shown on the diagram D to D 1 ). This will cause the price of UK holidays to rise (P to P 1 ) and the quantity sold will also rise (Q to Q 1 ). (6) Candidate analyses and evaluates the importance of changes in competitive markets, in context. Candidate shows understanding of the role of changes in competitive markets, in context. The move to vertical seating will affect productivity because more passengers will be carried per flight. The cost per passenger will fall and total costs will fall by 20%. This will enable Ryanair to reduce its prices and so compete more successfully with other firms. However, is this the best way to compete? Passengers may be unwilling to stand, and prefer to pay extra for comfort. Passengers will also consider other factors such as the service on board, convenience of airports and convenience of flight times. In conclusion, it may be worth a try for Ryanair, as it only applies to a limited number of seats and this might appeal to some passengers. Nevertheless, this does not mean it is the best way to compete as other factors, such as comfort and convenience, are very important. (8) 2

3 Sample exam questions (Part 2) Student book page 92 Answers and mark scheme Question 1 (a) No longer competitive and cheaper to produce in eastern Europe (2) (b) Description Unemployment caused by the permanent closure of car factories Unemployment caused by machines taking the place of labour Unemployment caused by lack of demand in a recession Unemployment caused by people who prefer to rely on state benefits for their income Type of unemployment Structural Technological Cyclical Voluntary (4) (c) Level 2 (4 6 marks) Candidate evaluates the effects of factory closure Up to three problems (or benefits) identified, or one or more problems (benefits) explained. High unemployment, knock-on (multiplier) effects of this on spending and therefore incomes of others, less sales for local businesses, some might close. References to the supply chain (which could be local) should be rewarded. House prices could fall, bad for current owners. Possible benefits include less external costs, e.g. pollution, congestion. (6) Candidate analyses and evaluates the effectiveness of the chosen measures. Measures to increase employment are explained. e.g. Training schemes provide workers with new skills so they can do other jobs (level 1). This makes them more mobile and able to move into newer industries although there may still not be opportunities in their local area (level 2). e.g. Raising aggregate demand through fiscal policy (level 1) or through a reduction in interest rates (marks for policy details) (level 1). People do spend extra income on luxuries so it could help car workers. However, they may buy more imports (level 2). e.g. VAT reduction makes the cars cheaper so consumers will buy more cars (level 1). This will increase employment of car workers, but maybe not those whose factory is now closed. Consumers may buy more imported cars (level 2). (8) Question 2 (a) 1 mark for some understanding, e.g. prices rising; 2 marks for a more precise definition, e.g. a persistent increase in the general price level. Accept a fall in the value / purchasing power of money and a rise in the cost of living. (2) (b) (i) It continued to rise (1 mark), at a slower rate (1 mark). (2) (ii) 1 mark for stating they would not be pleased; plus 1 mark for explanation, i.e. the price level has continued to rise so their income will buy less over the time period. (2) (c) Level 2 (4 6 marks) Candidate analyses the effects of a rise in interest rates. Candidate identifies one or more effects of a rise in interest rates. Higher rates reduce demand and thus there is less pressure on prices. Saving is more rewarding so people save more and spend less. Borrowing is more expensive so fewer people buy using credit. Mortgage interest rises, monthly outgoings rise, so disposable incomes fall. Cost of investment rises, businesses invest less. References to the effect on the exchange rate and therefore on exports and imports should be rewarded. (6) 3

4 (d) Level 3 (7 10 marks) An evaluative answer that recognises there may be benefits of low inflation as well as a discussion of the costs of inflation. Level 2 (4 6 marks) Some costs and/or benefits of inflation are explained. Up to three effects identified or one or two effects explained. Adverse effects on employment, the balance of payments, distribution of incomes can be discussed as well as the danger of hyperinflation, etc. Also shoe leather costs, menu costs, etc. Possible benefits of low rates include stimulus to investment, easier for relative prices to adjust in markets, borrowers and debtors gain (including government with national debt), value of assets rises (e.g. houses). Award evaluation marks where candidate points out that UK s target is 2% inflation, not zero inflation. (8) Question 3 (a) Excise duties, VAT (1 mark each) (2) (b) In each case, 2 marks for an accurate explanation, 1 mark if some understanding is shown. (i) An indirect tax is a tax on expenditure or a tax on goods and services. (2) (ii) A regressive tax is a tax which takes a greater proportion of a lower income. (2) (c) Level 2 (4 6 marks) Candidate demonstrates clear understanding of how taxes and government spending are used to reduce inequalities of income. Candidate demonstrates some understanding of how taxes or government spending are used to reduce inequalities of income. To reduce inequalities the government can use direct progressive taxes such as income tax (award marks for details, e.g. higher tax bands on higher incomes), inheritance tax. The government can reduce regressive taxes (award marks for explanation). The government can provide benefits for lower income groups, e.g. family tax credits. The government can provide services (merit goods) free of charge for consumers, e.g. healthcare and education (which represents a larger proportion of the income of low-income groups). (6) (d) Level 3 (7 8 marks) Draws conclusions based on reasoned argument. Level 2 (4 6 marks) Arguments for or against high taxation are analysed. Arguments for or against high taxation are applied to cigarettes. Arguments for include: The revenue argument, which can be expanded to include why it is a good revenue raiser (inelastic demand) and what the revenue might be used for. Answers might refer to the financial costs of care for smokers who have damaged their health. The demerit good argument a tax to discourage consumption. Lower tobacco tax could mean higher taxes elsewhere, e.g. income tax, and the problems this may cause. Arguments against include: The equity argument, i.e. this is a regressive tax. The effect on employment in the industry. Avoidance. Answers may refer to the table and suggest that smuggling is a likely outcome of such large differences in prices. (8) 4

5 Sample exam questions (Part 3) Student book page 140 Answers and mark scheme Question 1 (a) The answer lies between 5.5 and 6%, so allow any answer from 5.6 to 5.9. (1) (b) Give 1 mark for fallen or fell sharply at the end of the period; 1 more mark for any valid comment about this, for example: remained between for most of the period, or rose slightly in 2007 and then fell slowly in (2) (c) (i) Give 1 mark for the overall trend: while the interest rate fell sharply the exchange rate declined more gradually; the rise in the interest rate in 2007 had no real effect on the exchange rate; for most of 2008 the exchange rate was falling more quickly than the rate of interest. Max 2 marks. (2) (ii) Level 1 (3 4 marks) Candidates are able to explain the possible link between interest rates and the exchange rate. Level 2 (1 2 marks) Candidates either describe a link or can make a series of brief points. Rise in interest rates leads to a rise in exchange rates. Fall in interest rates leads to a fall in exchange rates. Fall in interest rates leads to an outflow of ( hot ) money so that the supply of pounds ( ) exceeds demand. People move their money in search of the highest rate of interest. Supply and demand diagram correctly explained. (4) (d) Level 2 (3 4 marks) Candidates are able to offer an explanation that refers to Figure 2. Answers at this level may refer to price elasticity of demand for exports and imports. Level 1 (1 2 marks) Candidates describe some links, which may or may not refer to Figure 2. Fall in exchange rate will make exports cheaper and imports more expensive. This should lead to a rise in exports and a fall in imports, leading to an improvement in the balance of payments. Initial decline in 2007 was slight and might not have had much effect, but the overall decline by over 20% points should have had a considerable effect. Effect will be most favourable if the price elasticity of demand for both exports and imports is elastic. (4) Total: 13 marks Question 2 (a) (i) Low inflation; rising levels of productivity; wide range of products at low prices; reduction in skilled labour shortages; etc. Allow any valid point. 1 mark for each correct point up to a max of 2. (2) (ii) 830,000 or 31.3%. Allow either answer. (1) (b) (i) 1 mark for the basic statement, for example: less trade means that fewer people are needed to make goods. 2 marks for a full explanation, for example: less trade means a decline not only in export industries, but also in firms reliant on imports, leading to a fall in employment in all countries. (2) (ii) 1 mark for a basic statement, for example: less trade means fewer jobs, and thus no income, and thus poverty. 2 marks for a full explanation, for example: less trade means fewer people employed. As most were on low pay, they have nothing to support them and thus fall into poverty. (2) (c) (i) Possible answers include: tariffs; quotas; embargos (bans); regulations. 1 mark for each correct answer up to a max of 2. (2) (ii) Level 2 (3 4 marks) Candidates are able to explain at least one reason why protectionism could increase. Level 1 (1 2 marks) Candidates give a list of possible reasons, and may describe one or more of these. A description of protectionist measures is not worth any credit. Onset of recession so countries protect their industries. Rise in unemployment so there is a need to protect jobs. 5

6 Countries unable to earn revenue from exports. Fear that cheap labour countries might dump goods. (4) (d) Level 3 (5 6 marks) Candidates are able to provide at least one point for and against the benefits of globalisation for developing countries, and come to a supported conclusion. Level 2 (3 4 marks) Candidates are able to explain points about the benefits or otherwise of globalisation for developing countries. Level 1 (1 2 marks) Candidates may give a list of points, or may describe what is meant by globalisation, or both. Benefits could include: open up markets to their goods; provide cheaper imports of capital goods; increase in world output means more demand for their goods; more trade has led to higher economic growth. Costs could include: has allowed the powerful to retain power/wealth, so many remain in poverty; exploitation of workers for low wages/ poor conditions; lack of education. Globalisation means developing countries have been able to export more goods (level 1) leading to more employment and increase in GDP (level 2). On the other hand, these jobs have often been low-paid and under poor conditions, leading to limited benefit to the poor (level 2). Evidence shows that although the latter may be true, the gains from trade have led to rising standards of living in developing countries, and more income has resulted in better education/ health, etc. Overall, the benefits have generally been greater than any costs (level 3). (6) Total: 19 marks 6