Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level. Published

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1 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/11 Paper 1 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

2 9708/11 Cambridge International AS/A Level Mark Scheme Question Answer Marks 1 A 1 2 A 1 3 D 1 4 B 1 5 C 1 6 C 1 7 A 1 8 B 1 9 C 1 10 D 1 11 C 1 12 C 1 13 D 1 14 D 1 15 D 1 16 B 1 17 C 1 18 A 1 19 A 1 20 D 1 21 A 1 22 B 1 23 B 1 24 C 1 25 C 1 26 B 1 27 C 1 28 B 1 UCLES 2017 Page 2 of 3

3 9708/11 Cambridge International AS/A Level Mark Scheme Question Answer Marks 29 B 1 30 D 1 UCLES 2017 Page 3 of 3

4 Cambridge International Examinations Cambridge International Advanced Subsidiary Level ECONOMICS 9708/12 Paper 1 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

5 9708/12 Cambridge International AS Level Mark Scheme May/June Question Answer Marks 1 C 1 2 D 1 3 C 1 4 A 1 5 B 1 6 A 1 7 A 1 8 C 1 9 D 1 10 C 1 11 B 1 12 B 1 13 D 1 14 B 1 15 C 1 16 A 1 17 B 1 18 A 1 19 D 1 20 A 1 21 B 1 22 C 1 23 C 1 24 C 1 25 B 1 26 B 1 27 D 1 28 D 1 UCLES Page 2 of 3

6 9708/12 Cambridge International AS Level Mark Scheme May/June Question Answer Marks 29 A 1 30 D 1 UCLES Page 3 of 3

7 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/13 Paper 1 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

8 9708/13 Cambridge International AS/A Level Mark Scheme Question Answer Marks 1 D 1 2 B 1 3 A 1 4 D 1 5 A 1 6 A 1 7 C 1 8 C 1 9 C 1 10 B 1 11 B 1 12 A 1 13 B 1 14 D 1 15 B 1 16 C 1 17 C 1 18 A 1 19 D 1 20 B 1 21 D 1 22 A 1 23 A 1 24 C 1 25 D 1 26 A 1 27 C 1 28 C 1 UCLES 2017 Page 2 of 3

9 9708/13 Cambridge International AS/A Level Mark Scheme Question Answer Marks 29 A 1 30 D 1 UCLES 2017 Page 3 of 3

10 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/21 Paper 2 Data Response and Essay MARK SCHEME Maximum Mark: 40 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 7 printed pages. UCLES 2017 [Turn over

11 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(a)(i) For a diagram showing an increase in supply or a decrease in demand. (1 mark) For an accompanying explanation giving possible reasons for the shift in supply or demand. (1 mark) 2 The fall in price could be caused by either an increase in supply or a decrease in demand. 1(a)(ii) 1(b) For an explanation that the fall in the price of oil has resulted in a fall in export revenues (1 mark) and a fall in the demand for the peso (1 mark). (2 marks maximum) For a clear diagram of production possibility curves. (Up to 2 marks) For an explanation of the increased possibility of the production of capital goods or the development of human capital that will generate growth in the economy. (Up to 2 marks) Maximum of 2 marks if no diagram. 2 The context of the case study makes it clear that the fall in the price of oil has resulted in a fall in Colombia s export revenues. This has resulted in a fall in the demand for the peso. 4 The prospects of the end of the rebel insurgency will allow the Colombian government to spend less on the military. Resources can be diverted to the production of capital goods or to enhanced training of labour that will shift the PPC outwards. This is the peace dividend UCLES 2017 Page 2 of 7

12 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(c) 1(d) For explaining how each component is affected with due reference to the data. Consumption has fallen because of the fall in incomes and the rise in taxes. (Up to 2 marks) Investment has fallen because of the fall in activity (Puerto Gaitan). (Up to 2 marks) Government expenditure has fallen because of the fall in government revenues. (Up to 2 marks) Net exports have fallen because of the fall in oil prices and export revenues. (Up to 2 marks) (6 marks maximum) (If only 3 components are explained, then 5 marks maximum) At least two factors must be explained for full marks. For any one factor explained (Up to 4 marks) (6 marks maximum) 6 Candidates need to interpret the data to explain how each of the four components has been affected. 6 The relevant factors include the price elasticity of demand for Colombia s exports and imports and whether the Marshall-Lerner condition is fulfilled. The price elasticity of supply of Colombia s exports. The time period under consideration; J-curve effect. The reaction of Colombia s competitors in world trade. UCLES 2017 Page 3 of 7

13 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 2(a) For knowledge and understanding of the meaning of a merit good (Up to 3 marks) and a public good (Up to 3 marks). (4 marks maximum) For application showing understanding of the reasons that profit can be made in the supply of merit goods, but not in the supply of public goods. (4 marks maximum) 8 The goods should be distinguished through the qualities of excludability, diminishability and rejectability. The explanation should be based upon the free-rider problem that occurs in the supply of public goods. UCLES 2017 Page 4 of 7

14 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 2(b) For analysis that explains: The way in which an indirect tax is used to reduce the consumption of alcohol with due reference to the strengths and weaknesses of this approach. (Up to 6 marks) The way in which an awareness campaign is used to reduce the consumption of alcohol with due reference to the strengths and weaknesses of this approach. (Up to 6 marks) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of each approach (Up to 3 marks) and for reaching a conclusion on which approach is likely to be most effective. (1 mark). (4 marks maximum) 12 A demerit good should be explained in terms of incomplete information of the harm that it can cause. An indirect tax is designed to reduce supply and increase price. An awareness campaign is designed to decrease demand for the demerit good. Evaluative points include the following: the fact that the demand for alcohol might be price inelastic the fact that an awareness campaign might be costly the fact that an awareness campaign might take a long period to take effect UCLES 2017 Page 5 of 7

15 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 3(a) 3(b) For knowledge and understanding of the term equilibrium (Up to 3 marks) and where it occurs in the context of the market for a normal good.(up to 3 marks). (4 marks maximum) For application showing how price allocates resources when there is an increase in demand. (4 marks maximum) For analysis that explains: How maximum prices operate when imposed below equilibrium. (Up to 2 marks) The difficulties that arise when maximum prices operate during a period of high inflation. (Up to 6 marks) (8 marks maximum) For evaluation: commenting on whether difficulties can be overcome (Up to 3 marks) and for reaching a conclusion on the likelihood that this will be successful. (1 mark) (4 marks maximum) 8 Equilibrium in a market occurs where there is no tendency for price or quantity to change. In the market for a normal good, it occurs where the demand and supply curves intersect. If there is an increase in demand the demand curve will shift to the right causing an excess demand for the normal good. This will cause market forces to raise equilibrium price and quantity. 12 The difficulty in imposing maximum prices below equilibrium is that shortages will occur. These shortages will become more pronounced as inflation occurs unless the maximum prices are continually moved upwards. Other difficulties include the administrative costs and the extent to which the price legislation can be policed. The problems could be overcome, e.g. with rationing, but whether this will be successful depends upon a number of factors. UCLES 2017 Page 6 of 7

16 9708/21 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 4(a) 4(b) For knowledge and understanding of demand-pull inflation (up to 3 marks) and cost-push inflation (up to 3 marks) (4 marks maximum) For application showing how a decline in an economy s exchange rate can cause cost-push inflation (Up to 3 marks) and demand-pull inflation. (Up to 3 marks). (4 marks maximum) For analysis that explains: The aims and objectives of supply side policies with appropriate examples. (Up to 6 marks) How the methods adopted are designed to solve the problem of inflation with due reference to the strengths and weaknesses of these methods. (Up to 6 marks) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of different supply side policies (Up to 3 marks) and for reaching a conclusion on their likely effectiveness. (1 mark). (4 marks maximum) 8 A fall in the exchange rate will lead to a fall in the price of exports and a rise in the price of imports. This will lead to a rise in net exports and this will increase aggregate demand that could result in inflation. The rise in the price of imports will increase import prices and this might increase input costs leading to cost-push inflation. 12 Supply side policy is designed to increase the aggregate supply curve of the economy. Methods that might be adopted include measures to increase the supply of capital goods measures to increase the labour supply to prevent upward pressure upon costs Evaluative comment might include: the expense of supply side policy the fact that it might take a long time to be effective UCLES 2017 Page 7 of 7

17 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/22 Paper 2 Data Response and Essay MARK SCHEME Maximum Mark: 40 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 8 printed pages. UCLES 2017 [Turn over

18 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(a) For a clear diagram(s) showing understanding of the concept of a production possibility curve with correctly labelled axes and appropriate output choices (1 mark) For an appropriate representation of the change in Iceland (1 mark) For an appropriate representation of the change in Ireland (1 mark) 3 Figure 1 shows a rise in the GDP of Iceland and a fall in the GDP of Ireland. One way in which this could be shown would be a shift outwards of Iceland s PPC and a shift inwards of Ireland s PPC. Alternatively, this could be represented as a movement from within the curve towards the frontier in Iceland or a movement from the frontier to a point inside the frontier in Ireland. Either representation is acceptable. 1(b)(i) The price level is higher in 2015 than in 2007 (1 mark) 1 1(b)(ii) For recognition that a fall in the value of the Krona will lead to a rise in the price of Iceland s import (1 mark) and an explanation of how this could cause cost-push inflation in Iceland. (Up to 3 marks) 4 maximum For recognition that a fall in the value of the Krona will lead to a fall in the price of Iceland s exports (1 mark) and an explanation of how this could cause demand-pull inflation in Iceland. (Up to 3 marks). 4 maximum (6 marks maximum) 6 The collapse of the Krona could cause cost-push and/or demand-pull inflation. As the Krona collapses this makes imports more expensive. This might feed into increased costs for Icelandic companies as they import raw materials and components. In addition, there might be increases in the cost of living as imports might comprise foodstuffs and so on. In addition, the fall in the Krona would reduce the price of Iceland s exports and increase the price of her imports that would lead to a rise in net exports and aggregate expenditure causing inflationary pressures. Give due credit to those answers that make good, appropriate use of the aggregate demand and aggregate supply framework although this is not essential for full marks. UCLES 2017 Page 2 of 8

19 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(c) At least two factors must be explained for full marks. For an explanation of any factor that might determine whether a devaluation would turn a deficit into a surplus (Up to 3 marks) (4 marks maximum) 4 The fall in the value of the Krona has resulted in a change in the price of Iceland s exports and imports. Exports have fallen in price and imports have increased in price. The impact of this Upon the current account depends Upon factors such as the time period under consideration, the price elasticity of demand for Iceland s imports and exports and the price elasticity of supply of Iceland s exports. Also relevant is whether the currencies of other countries lose value against the Krona. Candidates need to explain at least two factors for full marks. Marks will be awarded for development of each factor. The J-curve, the Marshall-Lerner condition and whether Iceland has the capacity to expand exports will be developed in high scoring answers. Identification of relevant factors with no explanation (1 mark only) Please note that this question concerns the factors that determine the impact of devaluation Upon a country s current account. There are no marks for explaining that export prices fall and import prices rise after devaluation. UCLES 2017 Page 3 of 8

20 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(d) For an explanation of the costs of managing an exchange rate (Up to 4 marks) For an explanation of the benefits of managing an exchange rate (Up to 4 marks) (5 marks maximum for costs and benefits) For a reasoned conclusion on whether the costs outweigh the benefits. (1 mark) 6 Iceland s exchange rate system is under the control of the Icelandic authorities. It is a managed exchange rate system. This means that Iceland has the option to vary the exchange rate to suit economic circumstances. The devaluation of the Krona has resulted in a current account surplus, falling unemployment and a budget surplus. These are the benefits of a managed exchange rate, but there are also costs. In order to manage the exchange rate, it is necessary to hold large quantities of foreign exchange reserves and these may not be sufficient to manage the exchange rate. In addition, in order to maintain a particular exchange rate it might be necessary to sacrifice other economic objectives. Iceland had to raise interest rates to very high levels and this would have resulted in some costs to consumers and businesses. This question does not require specific reference to Iceland. More general explanations of the costs and benefits of managing an economy s exchange rate are acceptable. Identification of a cost with no explanation (1 mark only) Identification of a benefit with no explanation (1 mark only) UCLES 2017 Page 4 of 8

21 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 2(a) For knowledge and understanding of the role of the factor enterprise: For bearing the risk of production (Up to 2 marks) For organising the other factors of production (Up to 2 marks) (4 marks maximum) For application: An accurate demand and supply diagram will show an increase in demand, a rise in price and an extension in supply. The diagram will have an accompanying explanation of how enterprise, motivated by profit, allocates more resources to the production of this good. (4 marks maximum) 8 The factor enterprise has two roles in a market economy. One is taking the risk of production, the other is organising the other factors in the production process. The reward for contributing to production is profit. If there is a rise in the demand for a good in a market economy, its price will rise. The factor enterprise will respond by expanding production in pursuit of more profit. The quantity of goods in the market will expand along the industry supply curve. An accurate diagram will have axes and curves labelled correctly, the shift in the demand curve will be correct and there will be an extension in the quantity supplied. In awarding marks for application allow Up to 3 marks for the diagram. One mark should be reserved for an explanation of the role of enterprise in allocating resources to the production of the good. Please note that some knowledge and understanding of the role of enterprise might be shown in the candidate s explanation of how enterprise responds to an increase in the demand for a good. They might, for example explain how enterprise manages the other factors as the demand for a good increases. UCLES 2017 Page 5 of 8

22 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 2(b) 3(a) For analysis of any method of increasing the provision of merit goods such as direct provision or subsidies explaining the strengths and weaknesses of each approach selected (Up to 6 marks for each method) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of each approach (3 marks) to reach a conclusion concerning which policy is more likely to be effective (1 mark) (4 marks maximum) For knowledge and understanding of the concept of cross elasticity of demand: For an accurate formula (Up to 2 marks) For recognition that substitutes have a positive coefficient (1 mark) and that complements have a negative coefficient (1 mark) (4 marks maximum) For application: Using the formula to show why two goods with a positive coefficient are substitutes. (Up to 2 marks) Using the formula to show why two goods with a negative coefficient are complements (Up to 2 marks) (4 marks maximum) 12 A number of methods are used to increase the supply of merit goods in a mixed economy. These include direct provision, producer subsidies and education campaigns to increase the demand for the merit good. Each has advantages and disadvantages based Upon for example, the cost of provision, the time period under consideration and the difficulty in implementation. The mark scheme indicates that candidates need to explain two methods to obtain full marks for the analysis. This should include the strengths and weaknesses of each approach. They then need to provide evaluative comment to reach a conclusion on which method is likely to be most effective. 8 Candidates need to display a strong grasp of the central concept and be able to apply it to explain how economists distinguish between substitutes and complements. An accurate formula is one that refers to the % change in quantity and price of the two goods. Allow credit for those candidates who do not provide the formula, but have a clear expression of what cross elasticity measures. Understanding of the measure is essential. UCLES 2017 Page 6 of 8

23 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 3(b) 4(a) For analysis of the usefulness to a business when setting its price of any measure of elasticity with due reference to its strengths and weaknesses (Up to 6 marks per type of elasticity of demand) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of at least two measures of elasticity (3 marks) to reach a conclusion concerning which measure is most useful (1 mark) (4 marks maximum) For knowledge and understanding of: Fiscal Policy (Up to 2 marks) and Monetary Policy (Up to 2 marks) (4 marks maximum) For application: Showing how fiscal policy can be implemented to increase aggregate demand (Up to 2 marks) Showing how monetary policy can be implemented to increase aggregate demand (Up to 2 marks) (4 marks maximum) 12 Candidates can refer to price, cross or income elasticity of demand. They must consider at least two measures. Many will explain how price elasticity is useful in predicting how total revenue will change as price changes depending Upon the price elasticity. Others might explain how businesses might find cross elasticity useful as the price of complements and substitutes change. Income elasticity might be useful if incomes are changing and businesses consider whether to change the price of normal or inferior goods. Two measures are necessary for the full marks available for the analysis 8 Fiscal policy is sometimes called budgetary policy. It involves varying government spending and taxation to affect economic variables through changes in aggregate demand. Monetary policy refers to any government action to manage aggregate demand through control of the quantity of money, the rate of interest or credit terms. It is usually operated through the central bank. Appropriate use of diagrams should be awarded due credit, but is not essential for full marks for application. UCLES 2017 Page 7 of 8

24 9708/22 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 4(b) For analysis of how supply-side policy can be applied to correct inflation in an economy with due consideration of the likely success of this approach. (Up to 6 marks) of how fiscal policy can be applied to correct inflation in an economy with due consideration of the likely success of this approach. (Up to 6 marks) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of each approach (3 marks) to reach a conclusion concerning which policy is more likely to be successful (1 mark) (4 marks maximum) 12 The term supply-side policy refers to any action taken by governments to influence aggregate supply. This could include action such as improving education and training, changing tax rates to affect economic activity and improving infrastructure. A shift in the aggregate supply curve to the right reduces inflationary pressure as aggregate demand can be satisfied with an increase in real output rather than an increase in prices. Contractionary fiscal policy will shift the aggregate demand curve to the left and reduce inflationary pressure. The weaknesses of supply-side policy include the pressure on the government budget and the long-time period before it takes effect. The weakness of fiscal policy is that higher tax rates can provide a disincentive effect and reduced government expenditure may cause social unrest. UCLES 2017 Page 8 of 8

25 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/23 Paper 2 Data Response and Essay MARK SCHEME Maximum Mark: 40 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 6 printed pages. UCLES 2017 [Turn over

26 9708/23 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(a)(i) 1(a)(ii) 1(a)(iii) The trend in the value of the Kwacha is declining or downward (1 mark) For an explanation of the fall in the demand and the price of copper as a result of China s slowdown (1 mark) For an explanation of how the fall in the price of copper has resulted in a fall in the demand for the Kwacha and a fall in the Kwacha s value as the demand for the currency is less than the supply. (Up to 2 marks) Up to 4 marks for an explanation of cost-push inflation in the context of Zambia s economy For recognition that a fall in the value of the Kwacha will make Zambia s imports more expensive. (1 mark) For an explanation that this will lead to rising costs for Zambia s producers and consumers (Up to 2 marks) For clear recognition that this represents cost-push inflation (1 mark) Allow credit for explanations of demand-pull inflation if consistent with the context of the extract. 1 3 The slowdown of China s economy has reduced the demand for minerals including copper. The result is a fall in the price of copper shown in Fig.1. Zambia s export earnings have fallen leading to a fall in the demand for the Kwacha and a fall in its value. 4 The change in the value of the Kwacha is likely to cause cost-push inflation through the rise in import prices. There will be a rise in the price of imported raw materials and components used by Zambian businesses and pressure Upon the components of Zambian household expenditure. Theoretically, the decline in the Kwacha could generate demand-pull inflation, but given the context of the extract, this is unlikely. UCLES 2017 Page 2 of 6

27 9708/23 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 1(b) For identification of all the components of aggregate demand: For C+I+G+X-M (1 mark) Or Consumption + Investment + government spending + net exports (2 marks) For explaining: (2 marks maximum) how consumption might be affected (1 mark) how investment might be affected (1 mark) how government spending might be affected (1 mark) how net exports might be affected (1 mark) (4 marks maximum) 6 The notation for aggregate demand is worth only one mark. If the components are named then two marks are available. China s declining demand for copper is likely to: reduce consumption because household incomes fall reduce investment because business activity declines increase government spending because welfare payments to the unemployed rise or through countercyclical government spending Or it may reduce government spending because as tax receipts will fall and the government will tighten its belt. Either is accepted as long as an explanation is included Net exports will fall in the short-run, but may rise in the long-run as the Kwacha declines. An explanation of the likely changes is necessary to score a mark here. 1(c) For identifying and explaining the relevant economic theory (1 mark) For a discussion of the costs and benefits of diversification (Up to 3 marks) For a discussion of the costs and benefits of specialisation (Up to 3 marks) (5 marks maximum) For a reasoned conclusion on whether specialisation or diversification is more effective. (1 mark) 6 Diversification of the Zambian economy implies that specialisation on copper production should be abandoned and other sectors developed. This runs counter to the principle of comparative advantage which suggests that economies should specialise in producing goods and services that have the lowest opportunity costs. Some candidates might develop arguments that justify diversification, but these should be assessed in terms of underlying economic theory. UCLES 2017 Page 3 of 6

28 9708/23 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 2(a) 2(b) For knowledge and understanding of the concept of income elasticity of demand For statement of what the concept measures (1 mark) For an accurate formula (Up to 2 marks) For elaboration e.g. in terms of elastic/inelastic (1 mark) (4 marks maximum) For application: showing how inferior goods react when incomes rise. (2 marks) showing how necessary goods react when incomes rise (2 marks) (4 marks maximum) For analysis of any policy available to business to increase sales when incomes are falling with due reference to the strengths and weaknesses of the policy. (Up to 6 marks for each policy) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of each policy (Up to 3 marks) to reach a conclusion concerning which policy is most likely to be successful. (1 mark) (4 marks maximum) 8 Candidates need to display a firm understanding of the concept of income elasticity of demand and how it is used by economists to distinguish between inferior and necessary goods as incomes rise. 12 Policies that are available include reducing the price of the good, advertising to increase demand and switching production to inferior goods. Reward attempted evaluation. For example, it might be difficult to maintain sales through price cuts if demand is inelastic. Advertising might be expensive. Switching production to inferior goods might be difficult if the business has invested in capital. Allow a mark for the conclusion offered if it is based Upon the evaluative comment. UCLES 2017 Page 4 of 6

29 9708/23 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 3(a) 3(b) For knowledge and understanding of: profit as the reward to the factor enterprise for organising the factors of production and taking the risk of production (4 marks maximum) For application: That shows how, motivated by profit, entrepreneurs allocate resources in response to price signals in a market economy. (4 marks maximum) For analysis containing: an explanation of the way in which resources are allocated in a planned economy with due reference to the strengths and weaknesses of allocation in this type of economy (Up to 6 marks) an explanation of the way in which resources are allocated in a market economy with due reference to the strengths and weaknesses of allocation in this type of economy (Up to 6 marks) (8 marks maximum) For evaluation that assesses and compares the relative strengths and weaknesses of the allocation of resources in each economy (Up to 3 marks) and reaches a conclusion on which type of economy allocates resources most effectively (1 mark). (4 marks maximum) 8 In this question we are looking for knowledge and understanding of the role of profit as reward to enterprise for the undertaking of the risk and organisation of production and the way in which enterprise responds to price changes in order to receive the reward of profit. Diagrams may be used, but are not essential for full marks. 12 Candidates need to be aware of the way in which resources are allocated in each type of economy and the strengths and weaknesses of each. These include the lack of production of public goods in a market economy. Also, the underproduction of merit goods and the overproduction of de-merit goods. The weakness of a planned economy includes the lack of price signals with the result that there are often shortages and surpluses in the market. UCLES 2017 Page 5 of 6

30 9708/23 Cambridge International AS/A Level Mark Scheme Question Answer Marks Guidance 4(a) 4(b) For knowledge and understanding of the four functions of money: Medium of exchange (1 mark) Store of value (1 mark) Unit of account (1 mark) Standard of deferred payment (1 mark) (4 marks maximum ) For application showing how each function will be affected by a high rate of inflation (4 marks maximum) For analysis containing: an explanation of the way in which monetary policy can be used to solve the problem of inflation with due reference to the effectiveness of such a policy (Up to 4 marks) an explanation of the way in which monetary policy can be used to solve the problem of deflation with due reference to the effectiveness of such a policy (Up to 4 marks) (8 marks maximum) For evaluation that assesses and compares the likely effectiveness of monetary policy in solving inflation with its likely effectiveness in solving deflation (3 marks) and reaches a conclusion on whether it is likely to be effective in solving only one or both problems (1 mark) (4 marks maximum) 8 If the functions are presented as a list with no explanation 1 maximum for the knowledge and understanding element. Only a brief explanation of how each function of money is affected is required. 12 Monetary policy is any action taken by the monetary authorities to change the quantity of money, the rate of interest or credit terms. It is usually operated by the central bank of an economy. When faced with inflation it is likely that the central bank will limit the money supply, raise the rate of interest and tighten credit controls. When faced with deflation these measures would be reversed. Whether the policy is likely to be effective depends Upon the extent to which spending is sensitive to changes in the money supply, the rate of interest and credit terms. If only inflation or deflation considered then 4 maximum. UCLES 2017 Page 6 of 6

31 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/31 Paper 3 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

32 9708/31 Cambridge International AS/A Level Mark Scheme Question Answer Marks 1 B 1 2 D 1 3 A 1 4 B 1 5 B 1 6 B 1 7 C 1 8 C 1 9 D 1 10 A 1 11 B 1 12 D 1 13 D 1 14 D 1 15 D 1 16 A 1 17 A 1 18 A 1 19 A 1 20 D 1 21 C 1 22 A 1 23 A 1 24 B 1 25 B 1 26 C 1 27 A 1 28 A 1 UCLES 2017 Page 2 of 3

33 9708/31 Cambridge International AS/A Level Mark Scheme Question Answer Marks 29 B 1 30 C 1 UCLES 2017 Page 3 of 3

34 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/32 Paper 3 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

35 9708/32 Cambridge International AS/A Level Mark Scheme Question Answer Marks 1 B 1 2 C 1 3 D 1 4 A 1 5 C 1 6 A 1 7 A 1 8 A 1 9 A 1 10 D 1 11 C 1 12 A 1 13 C 1 14 C 1 15 A 1 16 C 1 17 B 1 18 B 1 19 D 1 20 C 1 21 D 1 22 B 1 23 C 1 24 B 1 25 D 1 26 B 1 27 D 1 28 C 1 UCLES 2017 Page 2 of 3

36 9708/32 Cambridge International AS/A Level Mark Scheme Question Answer Marks 29 C 1 30 D 1 UCLES 2017 Page 3 of 3

37 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/33 Paper 3 Multiple Choice MARK SCHEME Maximum Mark: 30 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 3 printed pages. UCLES 2017 [Turn over

38 9708/33 Cambridge International AS/A Level Mark Scheme Question Answer Marks 1 B 1 2 A 1 3 D 1 4 A 1 5 A 1 6 C 1 7 B 1 8 A 1 9 D 1 10 B 1 11 B 1 12 D 1 13 D 1 14 A 1 15 C 1 16 D 1 17 A 1 18 C 1 19 A 1 20 C 1 21 A 1 22 C 1 23 B 1 24 D 1 25 D 1 26 D 1 27 B 1 28 C 1 UCLES 2017 Page 2 of 3

39 9708/33 Cambridge International AS/A Level Mark Scheme Question Answer Marks 29 B 1 30 C 1 UCLES 2017 Page 3 of 3

40 Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/41 Paper 4 Data Response and Essays MARK SCHEME Maximum Mark: 70 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the series for most Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some Cambridge O Level components. IGCSE is a registered trademark. This document consists of 9 printed pages. UCLES 2017 [Turn over

41 9708/41 Cambridge International AS/A Level Mark Scheme LEVELS OF RESPONSE MARKING DESCRIPTIONS Please also see the mark scheme for each part of each essay, detailing the ranges of marks to be awarded for each Level, and some illustrative content. Level L4 L3 L2 Knowledge and understanding detailed knowledge of relevant facts and theory perceptive understanding of the specific requirements of the question throughout the answer adequate knowledge of relevant facts and theory a reasoned understanding of the question's requirements shown in the answer identifies some relevant facts and/or theory the answer overall has a general relevance to the question, showing some understanding Application Analysis Evaluation relevant, apposite illustrations and specific examples are introduced to add depth and fullness to the answer recognises the underlying economic concepts and principles and applies these in relevant situations to develop the answer some appropriate relevant illustration or examples seen but they may be quite general or not very full applies theory and facts with accurate reference to the question to develop the answer illustration may not be fully relevant and is superficial or overgeneralised an accurate application of some related theory or fact(s), with little or no development detailed, precise and purposeful description, explanation and analysis using appropriate economic terms and concepts correctly and fluently draws clear, reasoned conclusions a sound, well-structured answer straightforward, satisfactory analysis: generally clear statements, supported by reasoned arguments including some specific economic terms and concepts draws some conclusions a functionally organised answer some analysis present but limited by omissions, error(s), irrelevant details or unclear communication conclusions may not be drawn from it a disorganised answer critical evaluation of the issues, considering relevant information and economic principles distinguishes between facts, hypotheses and/or value judgements challenges assumptions of the question or model partly complete evaluation of the issues in terms of either relevant information or economic principles attempt to distinguish between facts, hypotheses and/or value judgements attempt to comment on assumptions some evidence of an ability to evaluate, discriminate, or to make basic judgements, considering some relevant information L1 shows some relevant knowledge the answer indicates that the question has not been correctly understood barely relevant, minimal or tangential illustration basic errors of theory or of fact with inadequate development any analysis present is likely to have major errors, omissions or be mostly irrelevant minimal or no evidence of the evaluation skills of criticism, judgement or discrimination in the answer UCLES 2017 Page 2 of 9

42 9708/41 Cambridge International AS/A Level Mark Scheme Question Answer Marks Section A: Data Response 1(a) group of companies/countries acting together to fix output and prices selling the same good 3 Any 3 1(b) It is not obviously a cartel but there is a market leader (Saudi Arabia) over 35% world supply output constant with evidence from Fig.1 1(c) comment on Fig.2 output has increased in 2013/14 (from text) on D/S diagram S curve would move out price would fall information consistent with theory 4 5 1(d) Winner in the short-run: It has reduced the dependence on OPEC s oil supplies reduces imports and has begun to export resulting in an improved balance of trade / BOP. Increased earnings in the USA leading to increased consumption multiplier effect recovery from financial crisis. (Maximum 4 marks) Loser in the long-run: Cost of fracking may become higher (very expensive equipment) so costs become greater than world oil price hence Saudi Arabia wants to allow the price to fall further. Opposition to fracking (negative externalities) environmental lobby tries to curb supplies. US$ may become too strong if its economy strengthens leading to more expensive oil for importing countries and a possible loss of markets to rival suppliers in OPEC and Russia. (Maximum 4 marks) 8 UCLES 2017 Page 3 of 9

43 9708/41 Cambridge International AS/A Level Mark Scheme Question Answer Marks Section B: Essays The Essays are to be assessed using the Levels of Response approach, process and grid. The grid is generic so answers to all Essays are assessed against a common set of criteria. The mark scheme below includes some indicative content describing the most likely approaches and relevant arguments candidates may make in their answers, but there will be a large variety of relevant, valid responses seen. The mark scheme below also includes the mark bands to be used for each level for each question. 2(a) 2(b) Indifference curve theory shows the quantities of two goods bought as price changes; it requires a separate diagram for each good to show the quantity bought at each price. Utility theory compares the total and marginal utility to the price, the quantity bought can be shown on the same diagram. Level 4 (9 12 marks): for a sound explanation of both budget lines and indifference curves and a clear link to the separate demand curve, sound explanation of link between utility, price and demand, with accurate clear diagrams and a clear understanding of the principles involved. Level 3 (7 8 marks): for an accurate reference to the question but with a more limited explanation, perhaps omitting a clear explanation of utility or a clear link to the demand curve, or with minor errors in the analysis or in the diagrams. Level 2 (5 6 marks): for a briefer explanation of the equilibrium position but with no link to the demand curve; or with inaccurate diagrams and weak explanation. Level 1 (1 4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory. Inferior goods would result in a different outcome when prices change from the outcome of a normal good, but they do not invalidate the underlying assumptions of the theory. Indifference curve theory can show more precisely why the difference occurs using income and substitution effects. Advertising does not necessarily invalidate the theory but it could be that persuasive advertising results in more being purchased at a higher price this could still be explained using the theory as either utility is perceived as changing, or can be shown using the indifference curve diagrams. The assumptions have not changed. Level 4 (9 13 marks): for a reasoned and clear discussion, logically presented dealing with income, substitution, inferior and advertising. Level 3 (7 8 marks): for a fair but undeveloped discussion probably concentrating on income, substitution of inferior goods or persuasive advertising, but still with a conclusion. Level 2 (5 6 marks): for a briefer discussion of both inferior and advertising. Level 1 (1 4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory UCLES 2017 Page 4 of 9

44 9708/41 Cambridge International AS/A Level Mark Scheme Question Answer Marks 3(a) 3(b) Description of transactions, precautionary and speculative with a suggestion as to the most important. It is likely that transactions would be the most important, but expect a reason for the choice. Level 4 (9 12 marks): for a sound description and a clear understanding of the principles involved together with a reasoned conclusion for the choice of most important. Level 3 (7 8 marks): for a competent comment with limited development of 3 reasons up to 7. Competent comment with a choice of most important but no explanation of why 8. Level 2 (5 6 marks): for a correct description but undeveloped comment with no attempt to decide on the most important. Level 1 (1 4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory. Discussion of the theory that low interest rates encourages borrowing and spending, production and employment, higher interest rates deter borrowing, Higher than expected inflation could result in a rise in interest rates to stop prices rising further because of pressure from demand. Level 4 (9 13 marks): for a sound discussion and a clear understanding of the principles involved and a reasoned conclusion. Level 3 (7 8 marks): for a competent comment with limited development, probably a brief mention of the possible link between inflation and interest rates. max 7 without a conclusion. Level 2 (5 6 marks): for a limited but acceptable attempt to consider the links. Level 1 (1 4 marks): for an answer that has some basic correct facts but includes irrelevancies and errors of theory UCLES 2017 Page 5 of 9

45 9708/41 Cambridge International AS/A Level Mark Scheme Question Answer Marks 4 Candidates should comment on the fact that in the factor market there may be a precise outcome in perfect competition but that wages are not solely determined by supply and demand when there is imperfect competition. They should then discuss how the outcome may be changed in the imperfectly competitive model to accommodate trade unions and the government. 25 Level 4 (18 25 marks): for a critique of the statement and a thorough explanation of the analysis of wage determination with a clear comparison of perfect and imperfect markets, mentioning trade unions and the government. There should be a conclusion and a well-structured answer. Must have MRP to reach L4. Level 3 (14 17 marks): for a weaker critique of the statement but a competent explanation of imperfect market wage determination together with a conclusion. Level 2 (10 13 marks): for a correct but undeveloped analysis with only a brief comparison and no real conclusion. Level 1 (1 9 marks): for an answer that shows some knowledge but does not indicate that the question has been fully grasped or where the answer is mostly irrelevant. UCLES 2017 Page 6 of 9