All Combined Economics Paper 4

2
Section A
Answer this question.
1
Banks have to merge to reap economies of scale.
The Deputy Prime Minister of Singapore said To be strong, banks need to be big; to become large
enough Singapore banks will have to merge. He argued that Singapores banks need to be large
to compete with foreign banks, especially as they are a core part of Singapores economy. The
industry is characterised by economies of scale. Small banks do not have the resources to
compete either in quality of service or in returns to shareholders, and their costs are higher.
The Deputy Prime Minister pointed out that the largest international bank had an estimated 100
million customers but the largest of Singapores five banks had just five million customers.
Switzerland, which had a GDP and population about twice that of Singapore, had only two big
banks after merger. The Netherlands had just three banks, while even Australia had only four.
Even though a merger among Singapores five banks would still create a small entity by
international standards, there would be advantages. However, the Deputy Prime Minister assured
Parliament that a merged bank would not be allowed to use its market power to engage in
monopolistic or anti-competitive practices. Any such bank would still have to provide affordable
banking to low-income Singaporeans.
(a) (i) The Deputy Prime Minister stated that banking is characterised by economies of scale.
Define the term economy of scale. [2]
(ii) Give two examples of economies of scale that might occur in banking. [2]
(iii) Identify two other general reasons, apart from economies of scale, which the Deputy
Prime Minister gave for a merger. [2]
(b) Identify and explain the possible disadvantage of a merger which was discussed in
Parliament. [3]
(c) (i) The banking industry in both the Netherlands and Australia could be described as
oligopolistic. What evidence in the article supports this view? [2]
(ii) What else would characterise an oligopolistic market? [4]
(d) How convincing is the argument in favour of the banking merger presented by the Deputy
Prime Minister? [5]
9708/04/M/J03
3
Section B
Answer two questions from this section.
2 It was reported in June 2001 that Vietnam was on the verge of liberalising state control of the arts
by allowing privately run museums.
(a) Explain the sources of market failure. [12]
(b) In the light of the existence of market failure, discuss whether the operation of museums can
be left to the private sector. [13]
3 Between 1995 and 2000 there was a change in work patterns in Mauritius. Fewer people worked
in agriculture and fisheries as the country diversified away from its staple crop, sugar, and more
worked in restaurants and hotels as the tourist industry increased. However, in 2000 the
government stated that the economy still suffered from an inadequately trained workforce with a
lack of skills.
How far can the economic theory of wages explain the implications of this situation for the wages
of an agricultural labourer and a hotel manager? [25]
4 There are often reports in the press that company profits have not risen as much as in previous
years. As a result the company receives adverse criticism.
(a) Explain what a company might do if it wished to try to increase its profits. [13]
(b) Discuss what alternative objectives a company might have apart from profit maximisation.
[12]
5 One tenth of the worlds population live in developing countries. Many of those live on less than
US$2 day, and the average life expectancy is less than 50 years.
(a) Explain what other indicators might be used, apart from those above, to classify a country as
developing rather than developed. [10]
(b) Describe the policies that might be used by the government of a developing country to
remedy the situation described above, and assess how easy it would be to implement those
policies. [15]
6 (a) Use the multiplier process to explain the effect of an increase in investment by firms on output
and prices in an economy. [13]
(b) Discuss the ways in which a government might influence private investment in order to try to
ensure sufficient economic growth in a country. [12]
7 Most governments aim for full employment and stable prices. Which of those two aims should
your government seek to achieve in the coming year and how might this choice affect the other
aim? [25]
9708/04/M/J03
2
Section A
1 The following is adapted from an article which appeared in a newspaper in August 2002.
Lower earnings in the US could endanger economic recovery.
Although the recession has ended, the wage rates of more than 100 million workers in the US
below management level have remained unchanged for over a year, and this is endangering
consumer spending. The effect on spending is particularly noticeable because there has been a
loss of overtime hours, which has decreased earnings. In addition, 1.7 million jobs have been lost
in the past year and the unemployment rate is now 5.9%.
Employers faced with falling profits have cut their costs. They have stopped paying for health
insurance for their employees. These charges are now deducted from their employees earnings,
which further reduces consumer spending. Some workers have tried to resist downward pressure
on their earnings. 2700 workers in a food company were on strike for six weeks. At the end of the
strike the company did agree to pay for the health insurance rather than pass the cost onto the
workers. However, in a weak economy with unemployment rising, the bargaining power of other
wage earners has diminished.
On the other hand, not everyone fears that consumer spending is likely to fall. According to the US
Governments Commerce Department, a broader measure of personal income, which includes
items such as social security benefits and unemployment benefits as well as wages, has shown
an increase. Some argue that this increase is enough to generate a recovery in the economy. But
if a broader picture is to be taken then any income earned from the stock market should also be
included, as this is a huge source of income in the economy. Since the late 1990s this source has
shrunk considerably.
It is, therefore, uncertain whether all these changes balance each other out or whether there will
be a sufficient increase in consumer spending to generate a recovery. It also partly depends on
how the workers view the changes in their earnings and how long they think the current situation
will last.
(a) US workers experienced a fall in disposable income. Identify three reasons from the article
why this occurred. [3]
(b) (i) Why was the cost of health insurance passed onto the employees by some employers?
[2]
(ii) Why might the food company have agreed to continue paying for their employees health
insurance? [3]
(c) Discuss the reasons for the disagreement about the likely changes in consumer spending.
[6]
(d) Analyse how lower earnings could endanger economic recovery. [6]
UCLES 2004 9708/04/M/J/04

3
Section B
Answer any two questions.
2 (a) Explain what is meant by the income and substitution effects of a price change and discuss
why these might be different for different types of goods. [12]
(b) Discuss whether marginal utility theory is a realistic piece of economic analysis in explaining
consumer demand. [13]
3 Discuss the similarities and differences between a firms behaviour in perfect competition and
oligopoly. [25]
4 In 2002 in the UK public sector fire-fighters threatened to go on strike because they stated that
their earnings were very low compared with other workers. In the same year Robbie Williams, a
singer from the UK, signed the largest ever recording deal in the music industry, worth millions of
pounds.
Discuss whether the economic theory of wages can explain how workers in a vital industry such
as the fire-fighting service can have lower pay than workers in a less vital industry such as
entertainment. [25]
5 In many cities the level of traffic congestion is causing increased concern.
(a) Discuss whether the existence of traffic congestion in cities might be considered as evidence
of market failure. [12]
(b) Analyse what might be done when market failure does exist. [13]
6 The rise in interest rates might not have the desired effect of curbing the existing inflation
reported a newspaper in 2002.
(a) Explain what effect a rise in interest rates might have on the level of total expenditure. [12]
(b) Discuss what policies apart from interest rate changes a government might use to control
inflation. [13]
7 (a) Explain what indicators suggest that an economy is developing rather than developed. [12]
(b) In Johannesburg in 2002 there was an international conference, the World Summit on
Sustainable Development, to discuss the use of the worlds resources and the best ways
governments can help to promote environmentally friendly development.
Analyse how the policies adopted by a developed economy may affect the standard of living
in a developing economy. [13]
UCLES 2004 9708/04/M/J/04

2
Section A
1 The following extract is adapted from an article that appeared in 2003.
Diversification in Botswana
The Botswana government wishes to use the wealth that the country obtains from diamonds to
diversify its economy. Botswana is the worlds largest producer of diamonds, which accounted for
77% of the countrys export earnings and 45% of GDP in 2002.
The diamond industry is controlled by one company, Debswana, which is a partnership between
De Beers (a private sector company) and the Botswana government. Each owns 50% of
Debswana but De Beers keeps 75% of the profits.
Botswana has various incentives for investors. The corporate tax rate is one of the lowest in Africa
at 15% and profits can easily be sent back to the home country because there are no exchange
controls. Wage rates are relatively low and the workforce is the most educated in Africa.
Botswana is also perfectly located to become a financial hub for the 200 million people in the 14
African countries in the Southern African Development Community.
However, there are problems for investors. Usable water is in short supply and transport costs are
high. Labour is also in short supply because the population is only 1.7 million and life expectancy
is only 39.
Despite its problems, Botswana remains an example of prosperity in conflict-ridden Africa. US

President George W Bush said Botswana has demonstrated sure, sound economic administration
and a commitment to free market principles.
(a) Identify two advantages of Botswana for foreign investors. [2]
(b) What evidence is there in the article that Botswana is a developing country? [4]
(c) What type of market structure exists in the Botswana diamond industry? Use the article to
explain your answer. [3]
(d) President Bush said Botswana has demonstrated a commitment to free market principles.
What did he mean, and does the article support this view? [5]
(e) Discuss the advantages to a developing economy if it becomes more diversified. [6]
UCLES 2005 9708/04 M/J/05

3
Section B
2 Economic theory often produces a definite outcome but in reality events are much less certain.
(a) Explain the economic theory of wage determination in perfect competition. [12]
(b) Discuss whether this theory is useful in explaining how wages are determined in reality. [13]
3 In 2002 there was a dangerous virus in China which caused many deaths. By July 2003 China
had eliminated the virus and, as a result, there was a revival in tourism and consumer spending.
Retail sales rose at the fastest pace for six months.
(a) Explain the effect of a rise in consumer spending on Chinas national income. [12]
(b) Why might a government wish to promote an increase in tourism? [13]
4 In August 2003 the US dollar rose in value against the euro as reports showed that Europes
economy failed to grow and Germany even fell into a recession.
(a) Explain what the above statement means. [12]
(b) Discuss what policies the German government might use to combat the recession. [13]
5 Gillette, the worlds largest razor maker, announced in August 2003 that its annual profits had
risen by 15%. In the same period, its sales increased by 11% as there was increased demand for
its Sensor3 and Mach3Turbo razors and a reduction in the price of Duracell batteries, which
Gillette produces. However, Gillette faces strong competition from Energizer Holdings, which sells
batteries and Schick razors. Energizer introduced a new four-blade razor in September 2002 and
increased its advertising and product promotion. Gillette lost US market share and announced it
planned to increase expenditure on marketing.
Explain how firms are said to behave in oligopolistic markets and discuss how far this is supported
by the above statement. [25]
6 Discuss the assertion that the market system is not able to allocate resources efficiently. [25]
7 (a) Explain two methods of calculating gross domestic product used in national income statistics.
[10]
(b) How useful are national income statistics for indicating changes in living standards? [15]
UCLES 2005 9708/04 M/J/05

2
Section A
1 United Nations Development Programme Report
A report stated that the average GDP per capita in Namibia in 2001 was US$7120,
and the country was 124th out of 175 countries in the Human Development Index of
the United Nations. While some countries had experienced a boom in the 1990s, 50
nations, half of them in Africa, were worse off in 2001 than in 1990, with more
people going hungry and life expectancy falling. In those countries, prices of crucial
exports had fallen, foreign aid had declined and the number of people with
HIV/AIDS had increased. The same report also stated that in Africa 40% of the
people live on less than $1 a day. This was contrasted with the amount of subsidy
given to European farmers, who received $43 a day for each cow they owned.
The values of the Human Development Index for selected African countries were:
Botswana 0.614
Ghana 0.567
Malawi 0.387
Mozambique 0.356
Namibia 0.627
South Africa 0.684
Zambia 0.368
Zimbabwe 0.496
The average value of the index for sub-Saharan Africa was 0.468.
In contrast, the top five countries in the index were:
Norway 0.944
Iceland 0.942
Sweden 0.941
Australia 0.939
Netherlands 0.938
The world average was 0.722.
(a) Explain what is meant by GDP per capita. [2]
(b) (i) Identify the reasons given in the extract for the worsening conditions in African countries.
[4]
(ii) Discuss how far the situation in Africa in the 1990s might have been the result of what
was happening in other countries. [4]
(c) Describe the economic features that might exist when a country experiences a boom. [4]
(d) If you were asked to comment on the relative standards of living in Europe and Africa how far
would the information given be of use to you? [6]
UCLES 2006 9708/04/M/J06

3
Section B
2 Governments, unlike the private sector, can create some of the necessary conditions for the
efficient allocation of resources. It is, therefore, best if there is as much government involvement in
the economy as possible. Discuss whether you agree with this opinion. [25]
3 The gain in happiness when someone gets an extra dollar is much smaller when the person is rich
than if they are poor. So money transferred from rich to poor raises total happiness and
governments should seek to make such transfers.
(a) Explain what is meant by the Law of Diminishing Marginal Utility and consider whether the
statement above is a correct application of it. [12]
(b) Discuss what policies a government might use in order to decrease poverty in its country.
[13]
4 Large organisations face no competition. There is, therefore, no choice. Small competitive
businesses are a better means of providing for consumers needs.
Do you agree with this argument? [25]
5 Sometimes the development of a project in an urban area is encouraged by a government. At

other times the priority is to support rural areas.
(a) Explain what benefits might be obtained by encouraging investment in rural areas. [12]
(b) Discuss whether it might be better to conserve, rather than exploit, the resources of a country.
[13]
6 (a) Explain how changes in interest rates might influence investment. [10]
(b) If investment increases it will cause an increase in output. If output increases it will cause an
increase in investment. Discuss whether both these statements can be true. [15]
7 (a) Explain whether there is a link between the marginal revenue product of labour and the wage
rate in an occupation. [10]
(b) The price of a firms product is above the average total cost. Discuss whether the firm should
stop production if its price falls. [15]
UCLES 2006 9708/04/M/J06

2
Section A
1 Employment in Turkey
A large proportion of the work that women do in Turkey consists of traditional activities and is
unpaid. Of those Turkish women who are in employment, 72% work in agriculture (compared with
a world average of 49%). In total, Turkeys agricultural sector still employs 48% of the workforce
(compared with 17% in the US and 3.9% in France).
In Turkey, the greatest social inequality between the sexes lies in the level of education. 26% of
the women are illiterate, compared with 7.5% of the men. There is mass migration to cities, which
offer more jobs and services, but the less educated women are not able to take up these
opportunities.
There are more non-industrial jobs than industrial jobs in the cities and as many as 66% of all
lower-class urban families depend on non-industrial, unskilled work for their livelihood.
Turkey continues to face economic challenges including a large informal economy, large income
inequalities, a large inefficient government sector, and relatively high unemployment. Birth rates
and death rates are declining. The age structure, in which there are many young people, will
continue to cause difficulties in the labour market as young people become old enough to seek
jobs. Since 1970 the population of Europe has multiplied by 1.2 but in Turkey it has multiplied by
2.5. Many Turkish people seek work in other countries where they think the job opportunities are
better.
Table 1 Economic data about Turkey
% of GDP from agriculture 11.7

% of GDP from industrial sector 29.8
% of GDP from service sector 58.5
% of population below poverty line 20

% of population living on under US $2 a day 18
1999 2000 2001 2002 2003

% Unemployment rate 7.6 6.6 8.5 10.4 9.0
(a) Explain what is meant by GDP. [3]
(b) From the information give two reasons why Turkeys GDP is lower than it could be. [2]
(c) Name three influences on the supply of labour. [3]
(d) How might labour migration to the cities affect GDP? [4]
(e) Discuss whether there is sufficient evidence in the extract to indicate that Turkey should be
classified as a developing country. [8]
UCLES 2007 9708/04/M/J/07

3
Section B
2 (a) Explain what is meant by productive and allocative efficiency. [12]
(b) The decision to privatise Kenya Railways and Uganda Railways has met with interest among
international rail operators as it is thought that profits could be made and current commercial
losses could be avoided.
Discuss how the privatisation of an industry might affect efficiency in the allocation of
resources. [13]
3 (a) Explain how the analysis of wage determination in perfect competition leads to an
equilibrium. [12]
(b) Discuss how governments and trade unions can affect the equilibrium in a labour market. [13]
4 Some people say they are better off living in a rural area, where there is less congestion and
pollution. Others prefer cities for the employment and the variety of leisure activities available.
If there are such differences of opinion of living standards in one country, is there ever any
chance of accurately comparing living standards between countries? [25]
5 In 2004 the US Federal Budget deficit rose to a record $412 billion.
(a) Budget deficits are affected by fiscal policy. Explain how multiplier analysis might be used to
predict the effects of changes in fiscal policy. [12]
(b) Discuss whether a budget deficit should necessarily be a source of concern. [13]
6 These statements come from the same journal article:
World population has grown to 6.5 billion, with an increase of more than 4 billion since 1950.
The number of people starving has increased in the last 10 years. 31.6% of the urban
population live in slums and 42 countries face food emergencies.
Urbanisation could be a solution to poverty, disease and malnutrition owing to economies of

scale that arise.
Source: Royal Society of Arts Journal, August 2005
(a) Explain whether the growth of population is likely to have been faster in developing countries
than in developed countries. [10]
(b) Discuss whether you agree with the idea that urbanisation necessarily produces economies
of scale and is, therefore, a solution to poverty. [15]
7 How far do you agree with the proposition that the main aims of economic government policy
should be low unemployment and low tax rates? [25]
UCLES 2007 9708/04/M/J/07

2
Section A
1 The North Sea oil industry
The UK drills for oil in the North Sea. In 1999, production was at 4.5 million barrels a day.
However, as the oil in the easily accessible oil fields was used up, production fell steadily from
1999 until it reached 3.3 million barrels a day in 2005.
Nevertheless, in 2006, many in the oil industry did not consider it to be in decline. Indeed, some
of the industrys problems were associated with an expanding industry, not a declining one. The
managers complained, for example, about the shortage of skilled labour and the high rents of the
oil rigs. Investment increased by 30% in 2006 and it was hoped that production would rise in
2007.
The UK government was keen to keep production high as the industry supported 250 000 jobs
and had a large impact on the trade balance of the UK. One way to keep production high is to
explore for new oil fields. Another way is to use every drop of oil from the existing oil fields.
Sometimes a large company leaves an oil field which still has substantial amounts of oil because
although it is technically possible to extract the oil, it is not profitable to do so. However, a smaller
company is often able to drill profitably for the oil when it is unprofitable for a large company.
In view of this, the UK government encouraged smaller and more enterprising firms. In 2005, 152
licences to drill were given to 99 companies. These new licences gave companies exclusive
rights to develop the more inaccessible oil fields for six years rather than four years as before.
Furthermore, the government also changed the rules on access to pipelines which are often
owned by large companies so that smaller companies could get their oil to the market more
easily.
The Chancellor of the Exchequer (Minister of Finance) also made changes. In 2002, he raised
the tax on oil company profits to 40% from the usual company rate of 30%, and raised it again in
2005 to 50%. The justification given was that the oil companies made huge profits.
The industry is more dependent than ever on large expensive technological advances and
innovation. Most of the governments reforms recognised this.
Fig. 1 North Sea oil industry: production and price
production
oil price
4.5 80
4.0 60
barrels
US$ per
per day 3.5 40
barrel
(million)
3.0 20
0
1999 2000 01 02 03 04 05
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3
(a) How might the North Sea oil industry have an impact on the national income of the UK? [4]
(b) From the information given, consider whether the North Sea oil industry appears to be
declining or expanding. [6]
(c) What evidence is there that might explain why the North Sea oil industry is still prepared to
increase investment? [4]
(d) Discuss whether the increase in the number of small firms drilling for oil contradicts the usual
economic explanation of the existence of small firms. [6]
Section B
2 The government in Namibia stated that electricity prices should cover cost and should also be
based on the principle of allocative efficiency.
Discuss whether this approach to pricing can be supported in theory. [25]
3 In some countries the power of trade unions has decreased. In other countries, trade unions have
organised major strikes resulting in employees refusing to work.
(a) Is the existence of a trade union likely to be the main factor that affects the supply of labour?
[10]
(b) Discuss how the theory of wage determination through market forces might need to be
altered when trade unions exist in an industry. [15]
4 Large firms necessarily become monopolistic. Monopolies adopt practices that are undesirable.
Therefore, large firms should be regulated by governments.
Discuss whether there is any truth in this argument. [25]
5 The solution to unsatisfactory economic development and growth is to focus on economic theory,
scientific advances, new technology and market forces.
(a) Explain what is meant by economic development. [10]
(b) Discuss whether you agree with this statement. [15]
6 (a) It is feared that if the government increases taxes the level of national income will fall.
Explain whether this is necessarily true. [10]
(b) Discuss whether a fall in the level of national income is a good indicator that there has also
been a decline in the standard of living in the country. [15]
7 (a) For what purposes do people demand money? [10]
(b) Discuss the effect of an increase in the supply of money on interest rates and national
income. [15]
UCLES 2008 9708/04/M/J/08

2
Section A
1 Private Sector Money and Development
The amount of money that workers employed in foreign countries send home is worth US$200
billion a year and, therefore, the potential benefits of this to developing countries are huge. In
some countries the amount of money sent home by those working abroad is very significant when
compared with official development aid. For example, in Bangladesh and Kenya, recent figures
were:
Kenya 2004 Bangladesh 2005

Money sent home by workers US$464 m US$2.2 bn
Money given in aid US$625 m US$1.4 bn
Even small amounts of money sent by individuals can have an impact on development. The
primary education of many children is paid for by money sent home by relatives working abroad.
Some governments actively encourage workers to send money home. India has offered non-
resident Indians special investment opportunities, perhaps influenced by the example of China
where investment from Chinese living abroad has been a big factor in the development of the
economy. The same story is true for Ghana and Nigeria, which are developing remittance
partnerships with the UK to make it easier and cheaper for people from those countries working
in the UK to send money home.
Further, the money could be worth even more if it is directed not just within the family but into
community projects. In Mexico, local governments are matching any private money from abroad
invested in community development with their own funds.
However, money is not the simple solution to poverty. The director of an economic research
centre rejects the idea that income is the most significant contributor to well-being. Instead, in the
research centre, attention is being turned to measures that seem to have little to do with
economists traditional indicators about production and consumption. When asked to rank what
was important to them, poorer people said religion, relationships and inner peace were more
important than income.
(a) Explain whether the money sent to Kenya by Kenyans working in the UK would be included
in Kenyas GDP. [2]
(b) Analyse why many people from developing countries might go to work in developed
countries. [5]
(c) How far does the article support the view that economic development is largely the result of
private actions rather than government policy? [5]
(d) Discuss the suggestion that traditional indicators about production and consumption are of
little use as measures of welfare. [8]
UCLES 2009 9708/04/M/J/09

3
Section B
2 In many cities worldwide, newspaper publishers compete with each other. Some types of
newspapers are sold, but publishers also produce others that are distributed free of charge. Many
people and companies pay to advertise in the free newspapers.
(a) Explain the different ways that economists classify profits and consider whether it is possible
to make a profit from a newspaper that is distributed free. [12]
(b) Discuss how a firm might compete in a market. [13]
3 Discuss what might cause inequalities in wage rates in an economy. [25]
4 Airbus, a large aircraft manufacturing company, announced in 2007 that its goal was to increase
its $475 million research budget by 25 % in order to try to develop a more environmentally friendly
aircraft that had lower fuel consumption.
(a) Explain why Airbus is likely to be in an imperfect rather than a perfect market structure. [10]
(b) Economics textbooks sometimes criticise firms in imperfect competition as being against the
public interest. What does this mean, and how far does the Airbus announcement prove the
textbooks wrong? [15]
5 In 2006 it was reported that a countrys unemployment rate had remained steady and that its
central bank, through its interest rate policy, had prevented an increase in inflation despite a
sharp rise in oil prices.
(a) Explain what might cause unemployment. [12]
(b) Discuss how interest rate policy might prevent a rise in inflation. [13]
6 In 2007 a report stated classrooms with teachers, clinics with nurses, clean water and working
toilets are the key to ending global poverty. Only governments are in a position to provide these
services on the scale required.
Discuss whether governments should abandon their traditional macroeconomic aims in favour of
the alternatives in the above statement. [25]
7 A World Bank report in 2007 commented on the continuing need for major spending worldwide on
infrastructure on everything from roads and railways to water and electricity generation.
(a) Explain the effect on national income when there is an increase in spending on infrastructure.
[10]
(b) Discuss whether an efficient allocation of resources can be obtained only if large-scale
investment is undertaken by the public sector rather than the private sector. [15]
UCLES 2009 9708/04/M/J/09

2
Section A
1 Interest rates, inflation and growth
Between 1 July and 1 October 2007, the GDP of the US rose at an annual equivalent rate of 4.0%.
This was faster than the forecast rate of 3.1%. The rise was caused by an increase in consumer
spending and by rising exports.
By November 2007, however, there were increased signs of a housing market slump, a rise in
oil prices and a fall in the value of the US dollar. These changes presented the Federal Reserve
(the US central bank) with a problem about interest rates.
The Federal Reserve had already cut interest rates in October 2007 and it reduced the interest rate
again in November in order to help defend the US economy against the worsening housing market.
Further interest rate cuts were thought unlikely, as there was anxiety over the rising price of oil,
which by November 2007 had reached a record level. The Federal Reserve said recent increases
in energy and commodity prices may result in further inflation.
A difficult balance: conflicting policy objectives
Americas housing market . . . so the Federal Reserve acted

is slumping . . . to cut borrowing costs
25 5.5
20 4.5
15
annual 3.5
10
% %
5 2.5
change
0
1.5
5
10 0.5
88 00 07 03 04 05 06 07
year US interest rate
Fig. 1: House price index Fig. 2: US interest rate
. . . and so does the falling

dollar 1.5
1.4
but soaring oil prices pose
an inflation threat . . . 100 1.3
90
80 1.2
$
70
1.1
60 $ per
50 1.0
40 barrel
30 0.9
20
10 0.8
00 01 02 03 04 05 06 07 00 01 02 03 04 05 06 07
year dollars to the euro
Fig. 3: US crude oil price Fig. 4: Dollars to the Euro

UCLES 2010 9708/41/M/J/10
3
(a) Name two components of aggregate demand not mentioned in the first paragraph of the
extract. [2]
(b) Calculate the percentage increase in the GDP of the US between 1 July and 1 October
2007. [2]
(c) Why does Fig. 4 refer to a falling dollar when the trend of the line is upward? [2]
(d) Discuss the likely effectiveness of a reduction in interest rates as a solution to a housing
market slump. [6]
(e) To what extent does the data support the view that the US economy was facing conflicting
policy objectives? [8]
Section B
2 (a) Explain what is meant by an efficient market equilibrium. [12]
(b) Discuss how the market mechanism might fail in the allocation of resources. [13]
3 In 2007 the cost of a single ticket on London trains bought at the time of travel was 4. The same
ticket bought in advance was 2.50 if used up to 19.00 hrs and 2 after 19.00 hrs. Children could
travel free at any time, and those over 60 could travel free after 09.00 hrs.
(a) Explain what is meant by price discrimination and analyse what evidence there is of price
discrimination in the above statement. [12]
(b) Discuss how the output and pricing policy adopted by a firm might differ depending on the
market structure in which it operates. [13]
4 The level of wage rates is not satisfactorily explained by economic theory because that theory
concentrates on perfect competition while most labour markets are imperfect.
Discuss whether this claim is true. [25]
5 For some years governments of developed countries have been promoting Fair Trade, which
means paying a fair price for primary products bought from African developing countries. Now the
governments in developed countries, anxious to conserve resources, are complaining that the
transport of products around the world increases pollution and should be limited. They support
instead the purchase of goods produced at home. These are often more expensive to produce.
African farmers may be left with products that their local people do not eat.
(a) Explain what might determine whether a country is classified as developed or developing.
[12]
(b) Discuss whether the old and the new approaches to trade of the developed countries would
help achieve the conservation of resources. [13]
UCLES 2010 9708/41/M/J/10 [Turn over

4
6 (a) A firm undertakes a major investment. Analyse why in a closed economy without a government
the increase in national income from this investment might be higher than in an open mixed
economy. [12]
(b) Discuss the policies that a government might use to influence the level of investment in an
economy. [13]
7 Economic analysis adequately explains how a rational consumer determines a pattern of

consumption from a given income in a perfect market with no advertising. It does not explain the
more common case of what happens if income changes or if there is advertising. The theory is,
therefore, of little merit.
Do you agree with these assertions? [25]
Copyright Acknowledgements:
Question 1 The Times Business Section; page 44-4; 01/11/2007
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
University of Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of
Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
UCLES 2010 9708/41/M/J/10

2
Section A
1 Income, Spending and Prices in the US
Table 1 Some economic indicators for the US economy
personal consumer consumer

income spending prices
Nov 2008 fell 0.4% fell 0.8% fell 2.1%
Dec 2008 fell 0.2% fell 1.0% fell 1.0%
Jan 2009 rose 0.2% rose 1.0% rose 0.3%
Feb 2009 fell 0.2% rose 0.2% rose 0.4%
Consumer spending in the US fell by 0.8% in November 2008 and by a further 1% in

December. December 2008 was the sixth consecutive month in which consumers
cut back on their spending. Between October and December 2008 spending fell by a
record 8.9%. Consumers were in a mood to increase their savings but not to go out and
spend. Generally, thats a good thing, but not when everyone does it at the same time. 5
By January 2009, the savings rate in the US had reached the highest it had been for
14 years. This increase in savings was caused by low consumer confidence and the fear
of higher unemployment.
Declining consumer spending is a particularly troubling sign for the US economy, because
spending accounts for more than two-thirds of GDP. GDP fell by 3.9% between October 10
and December 2008, the sharpest decline in 26 years.
This decline in spending resulted in

a proposed $888 billion stimulus plan from the government, including about
$278 billion in tax cuts,
companies reducing their workforce to cut costs because of falling revenue, 15
the expectation that business investment, which accounts for about one-tenth
of US GDP, would decline during 2009.
(a) What evidence is there in the data that the economic situation in the US improved after
December 2008? [3]
(b) How far is there any consistent link in the data between
(i) changes in personal income and consumer spending and
(ii) changes in overall prices and consumer spending? [5]
(c) Explain why a fall in spending might be expected to lead to a fall in business investment. [4]
(d) Do you agree that a rise in savings is generally a good thing, but not when everyone does it
at the same time (line 5)? [8]
UCLES 2010 9708/42/M/J/10

3
Section B
Answer two questions.
2 In 2007 the UK Competition Commission indicated that failure in the market mechanism would
result in both winners and losers.
(a) Explain why producers are usually the winners and consumers are usually the losers when
the market fails. [12]
(b) Discuss what the government might do when there are losers because the market mechanism
has failed. [13]
3 In March 2009, the government of France agreed to pay 250 million Euros to the car manufacturer
Renault, which employed 63 000 workers, on condition that it would not reduce the number of
French jobs or factories. General Motors, a US car manufacturer which employed 600 000 workers,
said that it needed $2 million in government aid to avoid bankruptcy.
(a) Describe the characteristics and likely pricing policy of the market structure in which a car
manufacturer is likely to operate. [12]
(b) Discuss whether economic theory supports the idea that governments should encourage all
large organisations. [13]
4 (a) Analyse whether an increase in the wage rate always leads to an increase in the number of
hours worked by an individual. [10]
(b) A government stated that pay increases in the coming year should be kept to a minimum.
Discuss whether the main determinants of wage rates are factors such as trade unions and
the government rather than market forces. [15]
5 Economic theory emphasises the idea of an equilibrium position. Discuss whether the idea of an
equilibrium is a useful and practical way of explaining the behaviour of a consumer. [25]
6 (a) Explain the causes of unemployment. [12]
(b) Explain what is meant by liquidity preference and discuss how it might be affected by an
increase in unemployment. [13]
7 Developing countries have a low standard of living, yet many have much wealth in natural resources
which multi-national companies would like to exploit.
Discuss which is the better way of increasing the standard of living: to allow multi-national
companies to exploit all the natural resources, or for the government to increase expenditure on
education and health. [25]
UCLES 2010 9708/42/M/J/10
2
Section A
1 Income, Spending and Prices in the US
Table 1 Some economic indicators for the US economy
personal consumer consumer

income spending prices
Nov 2008 fell 0.4% fell 0.8% fell 2.1%
Dec 2008 fell 0.2% fell 1.0% fell 1.0%
Jan 2009 rose 0.2% rose 1.0% rose 0.3%
Feb 2009 fell 0.2% rose 0.2% rose 0.4%
Consumer spending in the US fell by 0.8% in November 2008 and by a further 1% in

December. December 2008 was the sixth consecutive month in which consumers
cut back on their spending. Between October and December 2008 spending fell by a
record 8.9%. Consumers were in a mood to increase their savings but not to go out and
spend. Generally, thats a good thing, but not when everyone does it at the same time. 5
By January 2009, the savings rate in the US had reached the highest it had been for
14 years. This increase in savings was caused by low consumer confidence and the fear
of higher unemployment.
Declining consumer spending is a particularly troubling sign for the US economy, because
spending accounts for more than two-thirds of GDP. GDP fell by 3.9% between October 10
and December 2008, the sharpest decline in 26 years.
This decline in spending resulted in

a proposed $888 billion stimulus plan from the government, including about
$278 billion in tax cuts,
companies reducing their workforce to cut costs because of falling revenue, 15
the expectation that business investment, which accounts for about one-tenth
of US GDP, would decline during 2009.
(a) What evidence is there in the data that the economic situation in the US improved after
December 2008? [3]
(b) How far is there any consistent link in the data between
(i) changes in personal income and consumer spending and
(ii) changes in overall prices and consumer spending? [5]
(c) Explain why a fall in spending might be expected to lead to a fall in business investment. [4]
(d) Do you agree that a rise in savings is generally a good thing, but not when everyone does it
at the same time (line 5)? [8]
UCLES 2010 9708/43/M/J/10

3
Section B
2 In 2007 the UK Competition Commission indicated that failure in the market mechanism would
result in both winners and losers.
(a) Explain why producers are usually the winners and consumers are usually the losers when
the market fails. [12]
(b) Discuss what the government might do when there are losers because the market mechanism
has failed. [13]
3 In March 2009, the government of France agreed to pay 250 million Euros to the car manufacturer
Renault, which employed 63 000 workers, on condition that it would not reduce the number of
French jobs or factories. General Motors, a US car manufacturer which employed 600 000 workers,
said that it needed $2 million in government aid to avoid bankruptcy.
(a) Describe the characteristics and likely pricing policy of the market structure in which a car
manufacturer is likely to operate. [12]
(b) Discuss whether economic theory supports the idea that governments should encourage all
large organisations. [13]
4 (a) Analyse whether an increase in the wage rate always leads to an increase in the number of
hours worked by an individual. [10]
(b) A government stated that pay increases in the coming year should be kept to a minimum.
Discuss whether the main determinants of wage rates are factors such as trade unions and
the government rather than market forces. [15]
5 Economic theory emphasises the idea of an equilibrium position. Discuss whether the idea of an
equilibrium is a useful and practical way of explaining the behaviour of a consumer. [25]
6 (a) Explain the causes of unemployment. [12]
(b) Explain what is meant by liquidity preference and discuss how it might be affected by an
increase in unemployment. [13]
7 Developing countries have a low standard of living, yet many have much wealth in natural resources
which multi-national companies would like to exploit.
Discuss which is the better way of increasing the standard of living: to allow multi-national
companies to exploit all the natural resources, or for the government to increase expenditure on
education and health. [25]
UCLES 2010 9708/43/M/J/10
2
Section A
1 High taxes do not help in a recession
In 2009, there was an economic recession in many countries. One aspect of the recession was that
unemployment rose. Governments paid large subsidies to a number of industries to try to stop the
rise in unemployment. This increased the governments debt and affected its other expenditure.
In an attempt to recover part of the extra expenditure, some governments had a policy of increased
income tax rates on people who had high salaries.
However, critics of this policy argue that higher tax rates do not work. They say that the proportion
of revenue received from top taxpayers falls and does not rise as taxes increase and the
higher taxes cause damaging effects on the economy. It is better they say to decrease taxes.
The decrease in taxes brings the government more revenue, not less revenue. Their opinion is
supported by evidence from the past as is seen in the effect on tax receipts of changing tax rates
in the US as shown in Fig. 1.
FIG. 1 CUTTING TAXES RAISES REVENUE
Top-rate income tax cuts What the top 1% paid in tax

Proportion of total tax revenue
Ronald Reagan 30%
US President: 19811989 27.5%
25
17.6%
20
70% 28% 15
1981 1988
(Source: The Times, May 7 2009 p. 28.)
It is suggested that this opposite policy of reducing tax rates is better. Lower tax rates actually
boost both the economy and tax revenues. For example, Russia, Latvia and Estonia reduced their
highest tax rate and replaced a complicated system of taxes with a single income tax rate of 10%.
They enjoyed a huge economic boost as a result.
Another aspect of the recession was that businesses found it difficult to borrow money from the
commercial banks. In order to try and make borrowing easier and help businesses, some central
banks lowered their interest rates. The central banks also bought government bonds in an attempt
to increase the supply of money in the economy.
(a) Explain what is meant by a recession. [3]
(b) The article states that higher tax rates do not work.
(i) What does the article mean by this statement? [3]

(ii) Is there enough evidence in the article to justify this statement? [6]
(c) Discuss why the actions of the central banks mentioned in the article might have been
expected to ease the recession. [8]
UCLES 2011 9708/41/M/J/11
3
Section B
2 Discuss whether economic efficiency can be improved if governments are involved in the regulation
and provision of goods and services when there is market failure. [25]
3 (a) Analyse, with the aid of a diagram, whether there is a link between diminishing marginal
returns and economies of scale. [12]
(b) Discuss whether the objectives of a firm in a perfectly competitive market are likely to be
different from the objectives of a firm in an imperfect market structure. [13]
4 Do you agree that the wage of labour is determined by the market like any other price? [25]
5 (a) Explain what is meant by GDP and describe the alternative methods by which it is calculated.
[12]
(b) GDP figures tell us many things except that which makes life worthwhile. They tell us nothing
about education, health and quality of life. They are, therefore, of little value. Discuss the
extent to which you agree with this argument. [13]
6 (a) Explain how the impact of the Keynesian multiplier process will change if a free-market closed
economy becomes a mixed economy with foreign trade. [12]
(b) Analyse how a change to the equilibrium level of income resulting from the multiplier process
might lead to unemployment or inflation. [13]
7 The main way a developing country could become a developed country is for government policy to
concentrate on the protection of domestic industry and investment in infrastructure. Do you agree
that this is the best policy? [25]
UCLES 2011 9708/41/M/J/11

2
Section A
1 Emerging economies and the way out of a recession
During the recession of 2009 several economists forecast that some emerging (fast developing)
economies would perform better than the developed economies. One indicator of this, they said,
was the strength of the exchange rate of the currency of some emerging economies against the
US dollar. For example, between November 2008 and July 2009, the Brazilian currency rose 11.4%
against the dollar and the Indonesian currency rose 10.2%. Another indicator was the forecast
growth rate in GDP as shown in Table 1.
Table 1: Forecast growth rate in GDP for selected countries
Forecast Growth Rate in GDP

2009 % 2010 %
US 2.7 +1.4
UK 3.5 +0.3
Germany 4.3 +0.3
Japan 6.5 +0.4
Hong Kong 5.9 0.3
China +6.0 +7.0
Singapore 7.5 +1.9
Brazil 1.5 +2.7
Columbia 1.0 +1.5
India +5.0 +6.4
Indonesia 1.3 +0.6
Emerging economies are often dependent on exports to achieve an increase in GDP. Some
economists suggested that it would be better for their economic growth if these countries were to
concentrate on domestic demand rather than exports.
China, in particular, they said could lead the world out of the recession if it relied increasingly on
domestic demand. Indeed, the Chinese government encouraged a shift from export-led industries
to programmes aimed at improving the Chinese infrastructure in order to create jobs and thus
increase consumption of Chinese goods. Banks were encouraged to make borrowing easier in
order to create more credit for consumers and businesses. The government started a massive
fiscal stimulus and increased its forecast of GDP to a growth rate of 8.3% in 2009 and 10.9% for
2010 (previous forecast figures were 6.0% and 7.0% as in Table 1).
However, other economists do not accept that there should be an emphasis on domestic demand.
They argue that trading links are the strongest evidence of the emerging economies ability to
grow. They state no emerging market that adopted an export-led growth model has subsequently
needed to break away from it including China. Chinas exports as a percentage of GDP are
32% compared with only 13% for the US. Smaller Asian countries are even more dependent
on exports; Singapores ratio of exports to GDP is 234%, Hong Kongs is 169%. It will be difficult
for economies such as these to increase domestic demand and reduce their dependence on
export-led growth.
(Source: Financial Times: June 12 2009. Table source: Economist p105 April 1824 2009)
UCLES 2011 9708/42/M/J/11
3
(b) The article says that banks were encouraged to make borrowing easier.
Explain what this might mean and why the government might have thought this was necessary.
[3]
(c) Is there enough evidence in the article to support the view that there has been an improvement
in the economic situation of emerging economies? [6]
(d) Identify the two policy approaches suggested by economists in the article and discuss
whether there is a conflict between them. [8]

4
Section B
2 The use of cars causes market failure. To achieve an efficient use of resources it would be better if
governments intervened to affect both the production and the use of cars.
Explain the meaning of the terms market failure and the efficient use of resources and analyse
whether economic theory can be used to support this argument. [25]
3 (a) Discuss whether demand schedules and budget line diagrams are similar in the way they
represent the effect of
(i) a rise in the price of a good

(ii) a rise in a consumers income. [12]
(b) Analyse what is meant by the equi-marginal principle of consumer demand and whether it
can be linked to the derivation of a market demand curve. [13]
4 (a) Discuss whether it is always advantageous for a firm to grow in size. [12]
(b) Explain the economic theory of profit maximisation for a firm and consider whether firms are
likely to follow this theory in fixing their price and output. [13]
5 In imperfect competition, labour markets can lead to worker exploitation in terms of the wage rates
they receive compared with wage rates in perfect competition. Discuss this opinion. [25]
6 (a) An increase in investment will raise national income but an increase in the desire by consumers
to save will reduce national income.
Explain why this is the case. [12]
(b) To increase national income, interest rates should be lowered; indeed lowering interest rates
is the only policy available to increase national income.
Discuss whether you support this opinion. [13]
7 (a) As an economy develops, the relative importance of different sectors of production changes.
Explain, with examples, why the pattern of employment might change as an economy
develops. [12]
(b) Discuss whether increases in economic growth are necessarily beneficial to an economy.[13]
Question 1 Table 1 The Economist; 1824 April 2009.
UCLES 2011 9708/42/M/J/11

2
Section A
1 Emerging economies and the way out of a recession
During the recession of 2009 several economists forecast that some emerging (fast developing)
economies would perform better than the developed economies. One indicator of this, they said,
was the strength of the exchange rate of the currency of some emerging economies against the
US dollar. For example, between November 2008 and July 2009, the Brazilian currency rose 11.4%
against the dollar and the Indonesian currency rose 10.2%. Another indicator was the forecast
growth rate in GDP as shown in Table 1.
Table 1: Forecast growth rate in GDP for selected countries
Forecast Growth Rate in GDP

2009 % 2010 %
US 2.7 +1.4
UK 3.5 +0.3
Germany 4.3 +0.3
Japan 6.5 +0.4
Hong Kong 5.9 0.3
China +6.0 +7.0
Singapore 7.5 +1.9
Brazil 1.5 +2.7
Columbia 1.0 +1.5
India +5.0 +6.4
Indonesia 1.3 +0.6
Emerging economies are often dependent on exports to achieve an increase in GDP. Some
economists suggested that it would be better for their economic growth if these countries were to
concentrate on domestic demand rather than exports.
China, in particular, they said could lead the world out of the recession if it relied increasingly on
domestic demand. Indeed, the Chinese government encouraged a shift from export-led industries
to programmes aimed at improving the Chinese infrastructure in order to create jobs and thus
increase consumption of Chinese goods. Banks were encouraged to make borrowing easier in
order to create more credit for consumers and businesses. The government started a massive
fiscal stimulus and increased its forecast of GDP to a growth rate of 8.3% in 2009 and 10.9% for
2010 (previous forecast figures were 6.0% and 7.0% as in Table 1).
However, other economists do not accept that there should be an emphasis on domestic demand.
They argue that trading links are the strongest evidence of the emerging economies ability to
grow. They state no emerging market that adopted an export-led growth model has subsequently
needed to break away from it including China. Chinas exports as a percentage of GDP are
32% compared with only 13% for the US. Smaller Asian countries are even more dependent
on exports; Singapores ratio of exports to GDP is 234%, Hong Kongs is 169%. It will be difficult
for economies such as these to increase domestic demand and reduce their dependence on
export-led growth.
(Source: Financial Times: June 12 2009. Table source: Economist p105 April 1824 2009)
UCLES 2011 9708/43/M/J/11
3
(b) The article says that banks were encouraged to make borrowing easier.
Explain what this might mean and why the government might have thought this was necessary.
[3]
(c) Is there enough evidence in the article to support the view that there has been an improvement
in the economic situation of emerging economies? [6]
(d) Identify the two policy approaches suggested by economists in the article and discuss
whether there is a conflict between them. [8]

4
Section B
2 The use of cars causes market failure. To achieve an efficient use of resources it would be better if
governments intervened to affect both the production and the use of cars.
Explain the meaning of the terms market failure and the efficient use of resources and analyse
whether economic theory can be used to support this argument. [25]
3 (a) Discuss whether demand schedules and budget line diagrams are similar in the way they
represent the effect of
(i) a rise in the price of a good

(ii) a rise in a consumers income. [12]
(b) Analyse what is meant by the equi-marginal principle of consumer demand and whether it
can be linked to the derivation of a market demand curve. [13]
4 (a) Discuss whether it is always advantageous for a firm to grow in size. [12]
(b) Explain the economic theory of profit maximisation for a firm and consider whether firms are
likely to follow this theory in fixing their price and output. [13]
5 In imperfect competition, labour markets can lead to worker exploitation in terms of the wage rates
they receive compared with wage rates in perfect competition. Discuss this opinion. [25]
6 (a) An increase in investment will raise national income but an increase in the desire by consumers
to save will reduce national income.
Explain why this is the case. [12]
(b) To increase national income, interest rates should be lowered; indeed lowering interest rates
is the only policy available to increase national income.
Discuss whether you support this opinion. [13]
7 (a) As an economy develops, the relative importance of different sectors of production changes.
Explain, with examples, why the pattern of employment might change as an economy
develops. [12]
(b) Discuss whether increases in economic growth are necessarily beneficial to an economy.[13]
Question 1 Table 1 The Economist; 1824 April 2009.
UCLES 2011 9708/43/M/J/11

2
Section A
1 Government economic policies
The following is a summary of the economic performance of five European countries at the start of
2010 together with the policies each government proposed.
Greece: Size of Economic Government Unemployment

economy growth rate debt rate
(GDP) (2009) (% of GDP)
209 bn 2% 124% 9.7%

Whats the economic situation? The economy shrank by a smaller amount than the
European average in 2009 and the unemployment rate was below the European
average. The public finances were a source of concern with government debt of
124% of GDP.
Suggested policies: no pay rises in the public sector; raising the retirement age
from 61 to 63; increasing taxes on fuel, tobacco, alcohol and property.
Ireland: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
143 bn 7.25% 46% 11.8%

Suggested policies: reducing public spending; stabilising the banking sector.
Italy: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
1 333 bn 4.8% 115% 8.5%

Suggested policies: encouraging economic growth; creating greater competition
through supply-side measures.
Portugal: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
141 bn 2.7% 76% 10.4%

Suggested policies: raising the retirement age; reducing public spending.
Spain: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
912 bn 3.6% 49% 19.5%

Suggested policies: raising the retirement age from 65 to 67; reducing public
spending; raising taxes; increasing measures to stop tax evasion.
UCLES 2012 9708/41/M/J/12

3
(a) Is this information on the size of the economy (GDP) enough to conclude that the average
person in Italy is better off than the average person in Ireland? Briefly explain your answer.
[3]
(b) (i) The economic growth rates are shown to be negative. Explain what economic theory
suggests might happen to the level of unemployment in an economy if the growth rate
figure is negative. [4]
(ii) What evidence is there from the information whether there is any link between the
economic growth rates and unemployment? [3]
(c) In 2010 there was much concern about the weakness of the economic situation in Greece
compared with the other European countries shown. How far can the data be used as
evidence to support that concern? [4]
(d) Discuss the possible effects on economic growth and unemployment in the Spanish economy,
of the policies suggested by the Spanish Government. [6]

4
Section B
2 (a) Explain, using a budget line diagram, whether
(i) the substitution effect of a price change and

(ii) the income effect
would be similar for a normal good and an inferior good. [12]
(b) Discuss the extent to which the law of diminishing marginal utility may be used to determine
the market demand for a good. [13]
3 (a) Distinguish between perfect competition and monopolistic competition. [12]
(b) Discuss whether oligopoly is likely to be the most realistic market structure in a mixed
economy. [13]
4 In 2010 the directors of a major UK chocolate firm, worth over 10 billion, recommended that
its shareholders accept a takeover offer from a large US food firm. The firm would not then be
controlled in the UK. It was feared that some production in the UK would cease.
(a) Analyse what economic theory suggests might be the outcome of such a takeover for the
enlarged firm and its workers. [12]
(b) Discuss the possible macroeconomic outcomes for a domestic economy of such a takeover
by a foreign firm. [13]
5 Discuss whether the higher wage rates paid in some occupations occur solely because some
trade unions have a stronger bargaining power than others. [25]
6 Population is increasing more rapidly in developing countries that can least afford it if they wish to
encourage economic growth.
(a) What are the main characteristics of a developing country? [12]
(b) If a developing country wishes to become developed, the main aim of its government should
be to control the growth of its population. Discuss this opinion. [13]
7 Explain the difference between productive and allocative efficiency and discuss the suggestion
that it is only possible to achieve such efficiencies through government intervention. [25]
Copyright Acknowledgments:
Page 2 Source: Sunday Times 14.02.10
UCLES 2012 9708/41/M/J/12

2
Section A
1 Small and Medium Enterprises in Malaysia
Malaysia has a market-orientated economy and the political stability that is crucial for investors.
It also has a well-developed infrastructure, a productive workforce and prices are still competitive.
Small and medium sized enterprises (SMEs) are very important in Malaysia. In the manufacturing
sector SMEs are those enterprises which have fewer than 150 full-time employees and in the
services sector SMEs are those which have fewer than 50 full-time employees. SMEs provide
employment for about 56% of the countrys workforce. They contribute 43.5% of the value of
Malaysias output and 19% of the value of its exports.
Table 1 and Table 2 provide further information about the contribution of SMEs to the Malaysian
economy.
Table 1: % Distribution of Enterprises in Malaysia by Sector
Agriculture % Manufacturing % Services %

SMEs 99.2 89.3 96.7
Large Enterprises 0.8 10.7 3.3
Total 100.0 100.0 100.0
Table 2: Value of Output by Sector in US$
Agriculture Manufacturing Services Total

Value of Total Output US$m 6.2 166.6 109.7 282.5
Value of SME Output US$m 2.6 58.1 62.1 122.8
% Value of Total Output from SMEs 41.9 34.9 56.6 43.5
SMEs are recognised as an important source of economic growth and their development has been
given priority by the government. 72% of government development programmes, worth US$178
million, were provided for SMEs in 2008. A further US$156 million was provided in 2009.
With these funds, the government has introduced several programmes for SMEs including the
provision of loans, technical advice and information on prices, production and technology.
Government programmes also help producers identify the products markets require and
understand changes in consumer tastes. The aim of the programmes is to encourage a better
performance from SMEs.
Initially, Malaysia protected local enterprises. However, realising the huge potential that foreign
investment could bring, government policy has changed and now encourages programmes that
welcome more direct foreign investment.
UCLES 2012 9708/42/M/J/12

3
(a) The article begins by stating that Malaysia is a market-orientated economy. Identify evidence
in the article that
(i) supports this opinion; and

(ii) contradicts this opinion. [4]
(b) State two indicators which can be used to measure the performance of firms. [2]
(c) The article states that the aim of the government programmes is to encourage a better
performance from SMEs.
Discuss how two of the government policies mentioned might be used to encourage a better
performance from SMEs. [6]
(d) The article says that the development of SMEs has been given government priority as they
are important to the economy. How far does the information support this statement? [8]
Section B
2 When buying goods not everyone buys the same standard product. There are some who want a
cheap product even though it might be of poor quality, while there are those who are willing to pay
more for a luxury or an individually-made product. Customers search for value but value is not just
in the price.
(adapted from New York Times in the Observer 21.02.10)
(a) Explain the theoretical link between utility, price and the demand for a product. [12]
(b) Discuss whether the economic analysis of a rational consumer estimating demand based
on value (utility) is valid not only for standard products but also for poor quality and luxury
products. [13]
3 (a) Explain why there may be different levels of profit within perfect competition and between
perfect competition and monopoly. [12]
(b) Discuss whether the average variable cost has any significance in a perfectly competitive
market structure in determining (i) the output produced by a firm and (ii) the profit of a firm.
[13]
4 Wage rates in some non-essential occupations, such as entertainment, are very high while wage
rates in essential occupations, such as public sector hospital nurses, are much lower. This is unfair.
Analyse how economic theory can explain these differences in wage rates and consider whether
you agree with the conclusion of this statement. [25]

4
5 As part of the measurement of GDP governments calculate the level of investment expenditure.
(a) What determines the level of investment and how do changes in investment expenditure
affect GDP? [12]
(b) Assess the difficulties of using GDP as an economic indicator. [13]
6 It is sometimes stated that the economic growth rates of developed countries are higher than
those of developing countries.
(a) Explain why developing countries often aim to increase economic growth. [12]
(b) Assess the likely effectiveness of the types of policy the government of a developing country
might use if it wished to increase economic growth. [13]
7 It is important to achieve economic efficiency in the use of resources. This can only be done if the
private sector is increased in size. Government intervention in the economy should, therefore, be
minimised.
To what extent do you support this argument? [25]
Section A Question 1 Source 1. World Report International Ltd 2, Old Brompton Rd, South Kensington London SW7 3DQ 020 7629 6213 23.04.10;
Source 2. National Statistics Conference Malaysia 2006 internet access
UCLES 2012 9708/42/M/J/12

2
Section A
1 Government economic policies
The following is a summary of the economic performance of five European countries at the start of
2010 together with the policies each government proposed.
Greece: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
209 bn 2% 124% 9.7%

Whats the economic situation? The economy shrank by a smaller amount than the
European average in 2009 and the unemployment rate was below the European
average. The public finances were a source of concern with government debt of
124% of GDP.
Suggested policies: no pay rises in the public sector; raising the retirement age
from 61 to 63; increasing taxes on fuel, tobacco, alcohol and property.
Ireland: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
143 bn 7.25% 46% 11.8%

Suggested policies: reducing public spending; stabilising the banking sector.
Italy: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
1 333 bn 4.8% 115% 8.5%

Suggested policies: encouraging economic growth; creating greater competition
through supply-side measures.
Portugal: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
141 bn 2.7% 76% 10.4%

Suggested policies: raising the retirement age; reducing public spending.
Spain: Size of Economic Government Unemployment

(GDP) (2009) (% of GDP)
912 bn 3.6% 49% 19.5%

Suggested policies: raising the retirement age from 65 to 67; reducing public
spending; raising taxes; increasing measures to stop tax evasion.
UCLES 2012 9708/43/M/J/12

3
(a) Is this information on the size of the economy (GDP) enough to conclude that the average
person in Italy is better off than the average person in Ireland? Briefly explain your answer.
[3]
(b) (i) The economic growth rates are shown to be negative. Explain what economic theory
suggests might happen to the level of unemployment in an economy if the growth rate
figure is negative. [4]
(ii) What evidence is there from the information whether there is any link between the
economic growth rates and unemployment? [3]
(c) In 2010 there was much concern about the weakness of the economic situation in Greece
compared with the other European countries shown. How far can the data be used as
evidence to support that concern? [4]
(d) Discuss the possible effects on economic growth and unemployment in the Spanish economy,
of the policies suggested by the Spanish Government. [6]

4
Section B
2 (a) Explain, using a budget line diagram, whether
(i) the substitution effect of a price change and

(ii) the income effect
would be similar for a normal good and an inferior good. [12]
(b) Discuss the extent to which the law of diminishing marginal utility may be used to determine
the market demand for a good. [13]
3 (a) Distinguish between perfect competition and monopolistic competition. [12]
(b) Discuss whether oligopoly is likely to be the most realistic market structure in a mixed
economy. [13]
4 In 2010 the directors of a major UK chocolate firm, worth over 10 billion, recommended that
its shareholders accept a takeover offer from a large US food firm. The firm would not then be
controlled in the UK. It was feared that some production in the UK would cease.
(a) Analyse what economic theory suggests might be the outcome of such a takeover for the
enlarged firm and its workers. [12]
(b) Discuss the possible macroeconomic outcomes for a domestic economy of such a takeover
by a foreign firm. [13]
5 Discuss whether the higher wage rates paid in some occupations occur solely because some
trade unions have a stronger bargaining power than others. [25]
6 Population is increasing more rapidly in developing countries that can least afford it if they wish to
encourage economic growth.
(a) What are the main characteristics of a developing country? [12]
(b) If a developing country wishes to become developed, the main aim of its government should
be to control the growth of its population. Discuss this opinion. [13]
7 Explain the difference between productive and allocative efficiency and discuss the suggestion
that it is only possible to achieve such efficiencies through government intervention. [25]
Copyright Acknowledgments:
Page 2 Source: Sunday Times 14.02.10
UCLES 2012 9708/43/M/J/12

2
Section A
1 Macroeconomic decisions: microeconomic effects.
In 2011 many countries experienced a recession. Most industries, even monopolies, in those
countries saw a decline in demand, consumer spending and profits. However the decline was less
severe in some firms, for example those in the food and beverage industry, than for others, for
example those in the leisure industry. This fall in consumer spending and in consumer confidence
might have been caused by anticipated job losses as governments announced reductions in public
sector expenditure.
Governments decided to reduce expenditure because they had very large budget deficits. Apart
from public sector employment reductions the macroeconomic measures they introduced included
fewer subsidies, tax increases and a more restrictive monetary policy.
Tax increases did not help businesses. For example they made it more necessary for firms to
make the control of any credit they gave a priority, and to monitor their cash flow very carefully.
Increasing prices to match indirect tax increases in order to retain profit levels was not always
possible when consumer demand was reduced. The alternative of reducing costs was also a
problem. Some argued that firms operating with a high proportion of fixed costs found the market
conditions increasingly difficult as their revenues failed to recover and the possibility for further
cost reductions became more limited. Others thought that firms with a higher proportion of variable
costs faced greater difficulties.
Some governments also reduced investment allowances and subsidies to firms. These tax-free
allowances enabled firms to deduct some of the investment cost from what they had to pay in tax.
However, a reduction in the allowances had no effect on those industries that did not invest in new
equipment. It did harm small and medium-sized enterprises that wanted to buy new machinery, or
undertake research in order to become more efficient, or improve their products.
The situation was not helped by increased restrictions imposed by the government on banks
ability to lend. These restrictions meant borrowing for house purchases was more difficult and this
again reduced consumer expenditure.
(adapted from The Guardian)
(a) Use the information to explain how macroeconomic changes can be linked to microeconomic
decisions. [5]
(b) Analyse with the aid of a diagram, showing costs and revenue for a monopoly, what is likely to
happen to the firms profits when there is a fall in demand in the industry due to a recession.
[5]
(c) Suggest, using the concept of income elasticity of demand, why the decline in profits was less
severe during the recession in the food industry than in the leisure industry. [4]
(d) Do you support the opinion in the information that a recession is likely to be worse for firms
with a high proportion of fixed costs than firms with a higher proportion of variable costs? [6]
UCLES 2013 9708/41/M/J/13

3
Section B
2 It is important that an economy makes the most efficient use of its resources. This can only be
done if firms are allowed to increase in size. Government regulation of firms should, therefore, be
minimised.
Discuss whether you agree with this statement. [25]
3 (a) Explain how the quantity of labour employed and the wage rate are determined by a firm in a
perfectly competitive labour market. [12]
(b) Discuss why wage rates might be different in practice from those in a perfectly competitive
labour market. [13]
4 Governments often suggest that there has been an improvement in the standard of living in their
economy and support their statement by referring to a range of economic indicators. One of the
indicators they use is GDP.
Discuss whether GDP is a reliable indicator of changes in the standard of living in an economy.
[25]
5 (a) What distinguishes a developed economy from a developing economy? [12]
(b) Developing economies are often keen to encourage industrial development in rural areas.
Developed economies, by contrast, often prevent industrial development in rural areas.
Discuss why there might be this difference in policies. [13]
6 (a) Explain how a fall in interest rates might influence the level of investment and, as a result,
national income. [12]
(b) Discuss, with reference to liquidity preference theory, whether interest rates are the main
determinant of consumers demand for money. [13]
7 (a) A newspaper reported that unemployment had risen for the third consecutive month. What
might be the cause of a rise in unemployment? [12]
(b) Discuss whether achieving a fall in the level of unemployment should be the main
macroeconomic aim of a government. [13]
UCLES 2013 9708/41/M/J/13

2
Section A
1 Macroeconomic decisions: microeconomic effects.
In 2011 many countries experienced a recession. Most industries, even monopolies, in those
countries saw a decline in demand, consumer spending and profits. However the decline was less
severe in some firms, for example those in the food and beverage industry, than for others, for
example those in the leisure industry. This fall in consumer spending and in consumer confidence
might have been caused by anticipated job losses as governments announced reductions in public
sector expenditure.
Governments decided to reduce expenditure because they had very large budget deficits. Apart
from public sector employment reductions the macroeconomic measures they introduced included
fewer subsidies, tax increases and a more restrictive monetary policy.
Tax increases did not help businesses. For example they made it more necessary for firms to
make the control of any credit they gave a priority, and to monitor their cash flow very carefully.
Increasing prices to match indirect tax increases in order to retain profit levels was not always
possible when consumer demand was reduced. The alternative of reducing costs was also a
problem. Some argued that firms operating with a high proportion of fixed costs found the market
conditions increasingly difficult as their revenues failed to recover and the possibility for further
cost reductions became more limited. Others thought that firms with a higher proportion of variable
costs faced greater difficulties.
Some governments also reduced investment allowances and subsidies to firms. These tax-free
allowances enabled firms to deduct some of the investment cost from what they had to pay in tax.
However, a reduction in the allowances had no effect on those industries that did not invest in new
equipment. It did harm small and medium-sized enterprises that wanted to buy new machinery, or
undertake research in order to become more efficient, or improve their products.
The situation was not helped by increased restrictions imposed by the government on banks
ability to lend. These restrictions meant borrowing for house purchases was more difficult and this
again reduced consumer expenditure.
(adapted from The Guardian)
(a) Use the information to explain how macroeconomic changes can be linked to microeconomic
decisions. [5]
(b) Analyse with the aid of a diagram, showing costs and revenue for a monopoly, what is likely to
happen to the firms profits when there is a fall in demand in the industry due to a recession.
[5]
(c) Suggest, using the concept of income elasticity of demand, why the decline in profits was less
severe during the recession in the food industry than in the leisure industry. [4]
(d) Do you support the opinion in the information that a recession is likely to be worse for firms
with a high proportion of fixed costs than firms with a higher proportion of variable costs? [6]
UCLES 2013 9708/43/M/J/13

3
Section B
2 It is important that an economy makes the most efficient use of its resources. This can only be
done if firms are allowed to increase in size. Government regulation of firms should, therefore, be
minimised.
3 (a) Explain how the quantity of labour employed and the wage rate are determined by a firm in a
perfectly competitive labour market. [12]
(b) Discuss why wage rates might be different in practice from those in a perfectly competitive
labour market. [13]
4 Governments often suggest that there has been an improvement in the standard of living in their
economy and support their statement by referring to a range of economic indicators. One of the
indicators they use is GDP.
Discuss whether GDP is a reliable indicator of changes in the standard of living in an economy.
[25]
5 (a) What distinguishes a developed economy from a developing economy? [12]
(b) Developing economies are often keen to encourage industrial development in rural areas.
Developed economies, by contrast, often prevent industrial development in rural areas.
Discuss why there might be this difference in policies. [13]
6 (a) Explain how a fall in interest rates might influence the level of investment and, as a result,
(b) Discuss, with reference to liquidity preference theory, whether interest rates are the main
determinant of consumers demand for money. [13]
7 (a) A newspaper reported that unemployment had risen for the third consecutive month. What
might be the cause of a rise in unemployment? [12]
(b) Discuss whether achieving a fall in the level of unemployment should be the main
macroeconomic aim of a government. [13]
UCLES 2013 9708/43/M/J/13

2
Section A
1 Supermarket power
One supermarket chain in a European country is responsible for about 30% of the market share of
grocery sales. Recently its strategy has been to open smaller supermarkets in local areas rather
than concentrate on large stores on the edge of towns. The expansion in local areas is not always
welcomed.
Residents miss the diversity of different types of shops, farmers and suppliers complain that the
supermarket pays little for their products, and small local shops fear its growth. A senior manager
from the supermarket agreed that suppliers were made to suffer the main effects of the economic
recession as the supermarket insisted on substantial reductions in prices from its suppliers. The
supermarket gains the benefit of bulk buying and the large sales to the supermarket are a major
source of revenue for the suppliers.
However, if the supermarket were to cancel its order it would leave the supplier facing difficulties.
Suppliers sometimes, therefore, have little choice but to reduce their prices. The supermarket is
able to act as a monopsonist, particularly when purchasing supplies from meat and poultry farmers,
milk producers and wine growers. Some consumers choose not to shop at the supermarket
because they believe some of its policies towards suppliers are unfair.
In 2012, the supermarkets defence was that it planned to create 20 000 new jobs which would
help the economy. The Prime Minister said the supermarket is the biggest private sector employer
in the country and its commitment to creating jobs is fantastic news at a difficult time for the
economy. However, a report in January 2012 stated that the supermarket did not pay what was
regarded as a living wage to all its employees. This was despite the fact that its chief executive
was paid the equivalent of US$ 10.9 million in 2011.
The company reported that it planned substantial expenditure to improve its existing shops and
open new ones. It needed the profits from its monopsony position to fund this new investment.
Some consumers said that the expansion would eventually be likely to harm all shoppers, by
reducing options and driving other businesses out of the market.
Source: London Evening Standard 2012; Daily Telegraph 2012
(a) (i) Explain what is meant by an economy of scale. [3]

(ii) Explain how economies of scale are likely to affect the price and output of a firm such as
the supermarket. [4]
(b) In the article the supermarket states that it helps the economy. Is this usually an aim of large
businesses? [5]
(c) The article says the supermarket acts as a monopsonist. Analyse what this means and
consider whether the article can be used as evidence to support the opinion that a monopsony
is beneficial. [8]
UCLES 2014 9708/41/M/J/14

3
Section B
2 There is concern about conservation of the environment, prevention of waste and efficient use
of resources. Economic theory is clear on how to allocate resources efficiently in a market but in
reality such allocation is a problem.
Discuss this opinion. [25]
3 A consumers demand is sometimes influenced by advertising and sometimes influenced by

impulse buying. This means that the economic theories of consumer demand based on utility are
of no relevance to a firm trying to determine its likely revenue.
4 (a) Explain how a profit-maximising firm will choose the quantity of labour it employs. [12]
(b) Governments sometimes aim to reduce the level of unemployment. Discuss whether this
necessarily results in a conflict between this aim and other government macroeconomic aims.
[13]
5 (a) Explain what is meant by a countrys national income multiplier and two reasons why the
value of the multiplier might fall. [12]
(b) Discuss how a fall in national income might affect a countrys standard of living. [13]
6 (a) In a time of recession some people fear that their continued employment is uncertain. Explain
how, according to liquidity preference theory, this might affect their demand for money. [12]
(b) Discuss how, in a closed economy, a fall in interest rates might affect consumers and
producers. [13]
7 (a) It is sometimes claimed that the population of a developing country is always large. Is a large
population the distinguishing feature of a developing country? [12]
(b) Discuss whether economic growth is necessarily beneficial to a developing economy. [13]
UCLES 2014 9708/41/M/J/14

2
Section A
1 Telecommunications in India
In India, until the late 1990s the Government held a monopoly on all types of telecommunication
(telecom). The industry had a small-sized market. In the twenty-first century the industry switched
to private sector ownership. The telecom industry then experienced rapid growth, less restrictive
regulations, greater technological developments, reduced costs of equipment and competition.
Telecom became one of the major contributors to Indias economic growth and one of the fastest-
growing industries in India.
When it was in the public sector, the telecom industry recorded only a marginal increase in
customers on average 1.92% a year. After privatisation and the relaxation of regulations, the
annual increase reached 36.9% in 2009. By 2009 India was second in the world only to China in
terms of wireless network customers.
The industry emerged as crucial to Indias economic growth because of its multiplier effect and the
fact that it is beneficial to other industries. The contribution of the industry to Indias GDP has more
than doubled to 2.83% in 2007 from 1.0% in 1992.
Much of this growth was caused by a large increase in cell (mobile) phone customers which grew
at a rapid rate from 10 million in 2002 to 392 million in 2009. There is a direct correlation between
the growth in cell phone customers and the growth in GDP per capita in developing countries,
which tend to have a high percentage of the population living in rural areas.
The Indian telecom industry now has intense competition and continuous price wars from a
growing number of telecom service providers.
The government has been applying suitable fiscal and promotional policies to boost domestic
demand to help Indian firms.
Fig. 1 The significance of the Telecom Industry to India
Increases GDP, government

revenues & employment
its in the country
e nef
e ct B
Indian Dir
Telecom
Industry Ind
irec
tB Lowers transaction costs,
ene
fits better access to
information, healthcare
and educational services.
Increases productivity of
business through voice
and data services
UCLES 2014 9708/42/M/J/14

3
Table 1: The significance of the Telecom Industry to India
20045 20056 20067

GDP at factor cost 28 439 32 006 37 175
(2007 prices)
Indian Rupees billion
Total Telecom Revenue 716 867 1053

Indian Rupees billion
Contribution of Telecom 2.52% 2.71% 2.83%

to Indias GDP
Source: http://www.dnb.co.in
(a) Table 1 shows GDP at factor cost. What is the difference between GDP at factor cost and
GDP at market prices? [2]
(b) (i) The extract says that Indias telecom industry was crucial to growth because of its
multiplier effect. With the help of a numerical example explain what economists mean by
the multiplier effect. [5]
(ii) Use the information to explain how Indias telecom industry had a beneficial effect on the
Indian economy. [5]
(c) Consider how far the success of Indias telecom industry has been because of the change
from public sector monopoly to private sector competition. [8]

4
Section B
2 The analysis of marginal utility as an explanation of consumer equilibrium can only be related to
the purchase of one good, cannot be used if incomes increase, and is not applicable if advertising
causes a change in tastes. It is, in practice, not a useful guide to consumer behaviour.
Assess this opinion. [25]
3 The profitability of firms is a measure of their efficiency. The higher the profit, the greater the
efficiency. High profits should, therefore, be encouraged.
Do you support this argument? [25]
4 (a) Some top executives and some sports people are paid very high salaries. It is argued that this
is inevitable as people are paid the market rate for the job. Use economic analysis to support
this opinion. [12]
(b) It is argued that the wage determination in imperfect markets leads to exploitation. It is
therefore necessary and beneficial if the government intervenes in the determination of wage
rates. Discuss whether there is any truth in this argument. [13]
5 It was reported in 2012 that consumers should not be encouraged to save more and reduce
their debts. Increased saving would result in a Keynesian paradox of thrift which would not help
economic growth. Instead consumers should spend money on new purchases.
(Source: The Times. 2011)
(a) Explain and comment on what is meant by the paradox of thrift. [12]
(b) Discuss what is meant by economic growth and consider whether spending money on new
purchases would necessarily help economic growth. [13]
6 (a) Explain the possible causes of unemployment and explain which is responsible for most of
the unemployment in your country. [12]
(b) When a government wishes to lower unemployment its only method of reducing it is by the
use of fiscal policies.
Do you agree with this opinion? [13]
7 (a) Too much labour but not enough capital. Is this the most significant difference between a
developing and a developed economy? [12]
(b) Discuss whether GDP is a reliable measure of the difference in living standards between
developing and developed economies. [13]
Question 1 http://www.dnb.co.in/IndianTelecomIndustry/OverviewTI.asp accessed 12.03.12

Question 5 The Times. Times Modern 20.10.11 p5
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
UCLES 2014 9708/42/M/J/14

2
Section A
1 Supermarket power
One supermarket chain in a European country is responsible for about 30% of the market share of
grocery sales. Recently its strategy has been to open smaller supermarkets in local areas rather
than concentrate on large stores on the edge of towns. The expansion in local areas is not always
welcomed.
Residents miss the diversity of different types of shops, farmers and suppliers complain that the
supermarket pays little for their products, and small local shops fear its growth. A senior manager
from the supermarket agreed that suppliers were made to suffer the main effects of the economic
recession as the supermarket insisted on substantial reductions in prices from its suppliers. The
supermarket gains the benefit of bulk buying and the large sales to the supermarket are a major
source of revenue for the suppliers.
However, if the supermarket were to cancel its order it would leave the supplier facing difficulties.
Suppliers sometimes, therefore, have little choice but to reduce their prices. The supermarket is
able to act as a monopsonist, particularly when purchasing supplies from meat and poultry farmers,
milk producers and wine growers. Some consumers choose not to shop at the supermarket
because they believe some of its policies towards suppliers are unfair.
In 2012, the supermarkets defence was that it planned to create 20 000 new jobs which would
help the economy. The Prime Minister said the supermarket is the biggest private sector employer
in the country and its commitment to creating jobs is fantastic news at a difficult time for the
economy. However, a report in January 2012 stated that the supermarket did not pay what was
regarded as a living wage to all its employees. This was despite the fact that its chief executive
was paid the equivalent of US$ 10.9 million in 2011.
The company reported that it planned substantial expenditure to improve its existing shops and
open new ones. It needed the profits from its monopsony position to fund this new investment.
Some consumers said that the expansion would eventually be likely to harm all shoppers, by
reducing options and driving other businesses out of the market.
Source: London Evening Standard 2012; Daily Telegraph 2012
(a) (i) Explain what is meant by an economy of scale. [3]

(ii) Explain how economies of scale are likely to affect the price and output of a firm such as
the supermarket. [4]
(b) In the article the supermarket states that it helps the economy. Is this usually an aim of large
businesses? [5]
(c) The article says the supermarket acts as a monopsonist. Analyse what this means and
consider whether the article can be used as evidence to support the opinion that a monopsony
is beneficial. [8]
UCLES 2014 9708/43/M/J/14

3
Section B
2 There is concern about conservation of the environment, prevention of waste and efficient use
of resources. Economic theory is clear on how to allocate resources efficiently in a market but in
reality such allocation is a problem.
3 A consumers demand is sometimes influenced by advertising and sometimes influenced by

impulse buying. This means that the economic theories of consumer demand based on utility are
of no relevance to a firm trying to determine its likely revenue.
4 (a) Explain how a profit-maximising firm will choose the quantity of labour it employs. [12]
(b) Governments sometimes aim to reduce the level of unemployment. Discuss whether this
necessarily results in a conflict between this aim and other government macroeconomic aims.
[13]
5 (a) Explain what is meant by a countrys national income multiplier and two reasons why the
value of the multiplier might fall. [12]
(b) Discuss how a fall in national income might affect a countrys standard of living. [13]
6 (a) In a time of recession some people fear that their continued employment is uncertain. Explain
how, according to liquidity preference theory, this might affect their demand for money. [12]
(b) Discuss how, in a closed economy, a fall in interest rates might affect consumers and
producers. [13]
7 (a) It is sometimes claimed that the population of a developing country is always large. Is a large
population the distinguishing feature of a developing country? [12]
(b) Discuss whether economic growth is necessarily beneficial to a developing economy. [13]
UCLES 2014 9708/43/M/J/14

2
Section A
1 A fuel shortage slows Indias economic growth
India has struggled to provide enough electricity to power its industry. New power stations have
been built but the country cannot get enough fuel, mainly coal, to run the power stations. About
55% of Indias electricity is generated by the use of coal. India has one of the worlds largest
reserves of coal but has not been able to exploit it. The state-owned Coal India, which has a
monopoly control of 80% of production, is required by government policy to sell coal at a 70%
discount below the market price.
There has been almost no new investment in coal production by either the Government or the
private sector according to industrialists who struggle with the daily loss of electric power. Coal
production increased by 1% in 2012 while electricity-generating capacity increased by 11%. Some
coal is imported but this has now become very expensive as Indias chief supplier, Indonesia, has
doubled prices of its coal.
Attempts to open new areas to mining have met with strong opposition from environmental
regulators who have blocked the plans because, it is claimed, the development would destroy
dense forests.
The electricity sectors problems have contributed to a second year of decreasing economic growth
for India. The growth rate was 10% in 2010 but only an estimated 7% in 2012. A complex system
of price controls has resulted in retail electricity prices being lower than the cost of producing
power, which has caused large losses at state-owned electricity-generating industries.
Businesses report that frequent losses of electric power have forced them to lower production and
spend significantly more on diesel fuel to run back-up generators. Analysts say that the reduced
rate of economic growth could have been avoided if policymakers had addressed the problems of
electricity shortage, weak infrastructure and restrictive regulations.
The gap between demand and supply for electricity increased between 2010 and 2012 as shown
by Table 1.
Table 1: Electricity use in India, 2010 12
Excess of electricity units Excess of electricity units

demanded over units supplied demanded over units supplied
20102011 20112012
Normal use 8.5% 10.3%
Peak use 9.8% 12.9%
Source: Adapted from The New York Times
(a) Define economic growth and identify two reasons for Indias decreasing economic growth. [4]
(b) Analyse whether the increase in electricity-generating capacity in 2012 overcame the
problems reported by businesses. [3]
(c) Consider whether the above evidence about Coal India conflicts with the economic analysis
of a monopoly. [5]
(d) Use evidence from the information given to analyse whether the government policy towards
Coal India has been only disadvantageous to businesses and to economic growth in India. [8]
UCLES 2015 9708/41/M/J/15
3
Section B
2 International conferences have been held to discuss the effects of global warming and to persuade
governments to agree to improve efficiency in the use of resources by limiting the amount of
harmful gases produced by their country.
Explain what is meant by an efficient use of resources and discuss whether efficiency can only be
achieved if governments are involved. [25]
3 With a perfect market and a given income, economic analysis explains how a rational consumer
decides the quantities of which products to demand. It cannot, though, explain what happens
when incomes change or when businesses in imperfect markets manipulate prices.
Discuss whether you agree with this opinion about the economic analysis of consumer behaviour.
[25]
4 (a) How does economic analysis explain the level of wage rates in a perfectly competitive labour
market? [12]
(b) Here are two press statements.
A government announced that it would limit the top level of pay for senior executives in private
industries by imposing a maximum wage.
The trade union for transport workers decided to call a strike unless its members were
awarded a higher rate of pay.
Source: The Telegraph Business, March and October 2012
Discuss how the economic analysis of wage determination would be changed by the
announcement of the government and the decision of the trade union. [13]
5 (a) Explain why manufacturers differentiate their products and describe the characteristics of two
market structures where product differentiation occurs. [12]
(b) Analyse and consider the extent of the link between marginal cost, diminishing returns and
economies of scale. [13]
6 In 2013, a new aircraft, the Boeing 787 Dreamliner, was assembled in the United States (US).
United Airlines, an American private company, ordered 50 of these aircraft, each costing over
US$200 million.
(a) Imagine that the US was a closed economy with no government intervention. Analyse why
the increase in national income from this investment in new aircraft might be different than if it
were an open, mixed economy. [12]
(b) Discuss the policies that a government might use to influence the level of investment in an
economy. [13]

4
7 In 2012, a table for Gross Domestic Product (GDP) per head showed that only three of the worlds
ten richest countries had populations above 7 million. These were the United States: 315 million;
the United Arab Emirates: 8.2 million; and Switzerland: 8 million.
(a) Explain how GDP is calculated and show how GDP at market prices is different from net
national income at factor cost (basic prices). [12]
(b) Classifications often distinguish between developed (rich) and developing (poor) countries.
Consider in what sense a developing country is said to be poor and discuss whether the best
way to become developed (rich) would be to reduce the size of its population. [13]
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Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.
UCLES 2015 9708/41/M/J/15

2
Section A
1 Food scarcity: a world crisis
In 2012, families in poorer countries were forced to have days without food each week. A report by
a large childrens charity claimed that such days were now a part of life for up to 24% of families in
India, 27% in Nigeria and 14% in Peru.
One of the reasons for this was the changing condition of demand and supply in world cereal
markets as shown in Fig. 1.
Fig. 1: World cereal market
Production Consumption Surplus Deficit
2 300
2 200
Million 2 100
Tonnes 2 000
1 900
1 800
02
03
04
05
06
07
08
09
10
11
12
20
20
20
20
20
20
20
20
20
20
20
Years
Source: Adapted from The Observer, 14/10/2012
Droughts and heatwaves in 2012 reduced production in some of the worlds leading cereal
producers such as the United States (US), Ukraine and Australia. This shortage was combined
with the increase in demand for corn to make biofuels. In 2012, more corn was used for ethanol
production to fuel cars in the US than was used for animal feed. As a consequence, prices of meat
and dairy products rose as farmers found it more expensive to feed cattle, pigs and poultry. This
was particularly noticeable, as a general rise in incomes resulted in an increased consumption of
meat. Stocks of cereals were used to reduce the shortages.
During 2012, the world cereal harvest was expected to be 3% lower than that of 2011. More
significantly, it was expected to be 4% lower in per capita terms because the worlds population
increased by 80 million in 2012.
The changes in the cereal market affected developing and developed economies in different
ways. On average, people living in the US spend 9% of their income on food, while those living
in the developing world spend between 50% and 70% of their income on food. World cereal
prices rose between 10% and 25% in 2012, but in countries affected by drought in Africa, such as
Mozambique, they more than doubled.
A charity organisation has forecasted that rice and wheat prices will double again in the next
20 years with disastrous consequences for the poor.
Sources: Adapted from The Observer and The Independent, October 2012
UCLES 2015 9708/42/M/J/15

3
(a) Identify three reasons why there was a problem with the world cereal market in 2012. [3]
(b) Explain whether the changes in the world cereal market would have been likely to increase
the profits of all farmers. [4]
(c) To what extent does evidence in the article support the argument that developing and
developed countries are affected differently by rising cereal prices? [5]
(d) Choose two government macroeconomic aims and consider how the changes in the world
cereal market in 2012 might have affected a governments ability to achieve those aims. [8]
Section B
2 (a) Describe how consumer theory suggests a rise in income will cause a consumers demand to
change for a normal good and for an inferior good. [12]
(b) Explain the difference between structural, cyclical and seasonal unemployment and discuss
whether a general rise in income in a country would have the same effect on each of these
types of unemployment. [13]
3 (a) A firm in a perfectly competitive market and a firm with a monopoly both seek to maximise
their profit. Explain, with the help of a diagram, why the levels of price and output might be
different in the two markets. [12]
(b) Discuss whether it is always true that a firm, rather than maximising its profits while remaining
small, will seek to grow in size. [13]
4 Wage determination in the factor market is just like price determination in the product market. It is
entirely dependent on the forces of supply and demand.
Do you agree with this statement? [25]
5 Lack of consumer spending causes recessions. Recessions do not improve a countrys standard
of living. It is always better, therefore, to encourage consumer spending for this improves a
countrys standard of living.
(a) What is a recession and is it always caused by a lack of consumer spending? [12]
(b) Discuss what policies a government may use to try and end a recession. [13]

4
6 The table shows figures for annual GDP growth rates at market prices for three developing
countries, Bangladesh, Ethiopia and Malawi, and three developed countries, Greece, UK and
USA.
GDP growth rates (%)
2009 2010 2011
Bangladesh 5.7 6.1 6.7

Ethiopia 8.8 9.9 7.3
Greece 3.1 4.9 7.1
Malawi 9.0 6.5 4.3
UK 4.0 1.8 0.8
USA 3.5 3.0 1.7
Source: The World Bank
(a) Describe what is meant by economic growth and consider if it is always advantageous. [12]
(b) Explain what is meant by a developing country and a developed country and consider whether
the table supports the idea that GDP growth rates are a good indicator of development. [13]
7 The free market is not the way to achieve a sustainable, efficient use of economic resources.
Even the famous economist Adam Smith recognised that there was a need for some government
involvement.
Discuss whether government involvement in the economy might overcome the weaknesses of the
free market system. [25]
UCLES 2015 9708/42/M/J/15

2
Section A
1 Consumer exploitation?
Economists often speak of price discrimination. Some would argue that price discrimination
exploits consumers. Others say that it is related to demand and supply and is acceptable in a
market economy.
When you buy a rail ticket the price you are asked to pay may well depend on the departure time,
the route, the rail operator, whether you have a discount railcard, whether you buy an economy
ticket or a first-class ticket and whether you buy the ticket on the Internet or at a ticket office.
Similar price variations occur when booking hotel rooms and when buying theatre tickets. In hotels,
the same room is cheaper on some days of the week or at certain times of the year than others.
In theatres, it is cheaper to buy a ticket for an afternoon performance than a ticket for a Saturday
evening. It is also cheaper to sit in the seats further from the stage than in those seats nearer the
stage.
Some football clubs also adopt a similar approach with what they call price-categorisation. There
are three categories of price depending upon whether the football team is playing another team
with well-known players which is near the top of the league or whether the team is in the middle
or near the bottom of the league. To charge more for a game against a top team is asking the
buyer to believe that the game will be better than a game against a lower-placed team. However,
excitement and entertainment are sometimes just as great with the lower-placed team. Football
clubs also often charge lower ticket prices to children attending football matches with an adult.
The rail operator and the football club justify the charges by saying that they require the extra
revenue in order to improve the facilities and infrastructure and cover increased costs. The railway
track needs replacing; the football stadium needs continual maintenance. Some would argue,
however, that it is simply an attempt to maximise profit. Interestingly, not all the more expensive
tickets are sold as people do not buy them.
Source: Adapted from Telegraph Sport, January 2013
(a) What is meant by price discrimination? [2]
(b) Identify one example of price discrimination and one example of non-price discrimination in
the article. Explain the reason for each of your choices. [4]
(c) Draw and explain a diagram for price discrimination. [4]
(d) The article says that price discrimination is related to demand and supply and is acceptable
in a market economy. Is there any relationship between price discrimination and demand and
supply? [4]
(e) The article says that price discrimination exploits consumers. The implication is that it should
not be allowed. Do you agree with this assertion? [6]
UCLES 2015 9708/43/M/J/15

3
Section B
2 Economic theory often refers to the concept of equilibrium.
(a) Identify two areas of microeconomic theory that use the concept of equilibrium and explain
how in each case that equilibrium is achieved. [12]
(b) Discuss whether economic efficiency is always at its highest if the equilibrium is achieved
without any government involvement. [13]
3 The aim of all firms is to grow in size, overcome diminishing returns and gain economies of scale.
(a) Explain whether the idea of diminishing returns contradicts the concept of economies of scale.
[12]
(b) Do you agree that, whatever the market structure, the main aim of a firm is to grow in size?
[13]
4 During the recession of 20112012, competition among high street shops changed. Some well-
known shops closed and the labour market became more imperfect.
Analyse what economic theory predicts will happen to the level of wages when competition is
reduced in the labour market. [25]
5 (a) Briefly explain the differences between monetary policy, fiscal policy and supply-side policy
and whether they overlap in their effects. [12]
(b) The Finance Minister of a country said that Monetary policy remains the main tool for
responding to changes in the economic outlook at the moment.
Source: The Telegraph Business section, February 2012
Discuss whether monetary policy is always the main tool for responding to changes in the
economic outlook. [13]
6 Labour is a resource; the use of resources increases economic wellbeing. The main aim of the
government of a developing country keen to increase wellbeing should, therefore, be to support
an increase in the population of its country.
Discuss this argument and decide whether you agree with it. [25]
7 One macroeconomic indicator is the level of investment.
(a) What determines the level of investment? [12]
(b) Discuss how a large increase in the level of investment may affect an economy and whether
such an increase is always beneficial. [13]
UCLES 2015 9708/43/M/J/15

2
Section A
1 Changes in the Chinese economy
China is an emerging economy. The proportions of workers employed by sector between 1990 and
2012 are shown in Fig. 1.
Fig. 1: Working population in China by sector 19902012
100
90 18.5
24.8 27.5 31.4
80 34.6 36.1
70 21.4
23.0 Tertiary
60 22.5
23.8 Secondary
% 50 28.7 30.3
Primary
40
60.1
30 52.2
50.0 44.8
20 36.7 33.6
10
0
1990 1995 2000 2005 2010 2012
Iron ore is used for steel making. By 2013, China was the largest iron ore importer in the world. The
main suppliers were Australia, Brazil, India and South Africa. China also needed other raw materials
such as aluminium and copper. As a proportion of GDP, China bought four to ten times more of these
than other countries and was responsible for much of the global increase in their demand during the
two decades before 2013.
The iron and steel industry in China was stimulated by strong domestic demand, particularly from the
construction, manufacturing and automotive industries, all of which had expanded production.
But during 2013 the outlook for Chinas economy was less bright. There was a sharper than expected
fall in export growth in China, while imports actually fell. Growth in industrial output was also slower
and this, together with increased output from new iron ore mines in Australia, seemed likely to cause
a reduction in iron ore prices. It was thought that the potential change in industrial output in China, the
worlds second-largest economy, would worsen the outlook not only for mining companies but also for
other producers worldwide.
Statistics for the annual rate of inflation in China indicated that in 2013 prices of key products such
as iron ore fell, causing the rate of inflation to fall and creating the prospect of price deflation. An
economist said falling prices are bad for the economy. Some economists feared that the future growth
of building and urbanisation would be at a significantly slower rate. The result, it was thought, would be
that any economic growth would be more likely to be caused by consumption and not by investment.
This change to consumption from investment would mean that the demand for raw material inputs would
fall significantly, as previous demand was a consequence of Chinas growth through an investment
approach. Of course, items such as cars, washing machines and computers all require a substantial
amount of raw materials, so the demand for some inputs would still increase.
Sources: China Labour Bulletin, accessed 29 April 2014, and Daily Telegraph, 10 June 2013
UCLES 2016 9708/41/M/J/16

3
(a) Identify the trends in working population in China and consider whether they are what might
be expected in an emerging economy. [5]
(b) The article states that falling prices are bad for the economy. Analyse whether falling prices
necessarily harm an economy. [5]
(c) Does the article give enough evidence to lead you to conclude that the changes in the
Chinese economy would be bad for countries that trade with China? [4]
(d) Using the article and your own knowledge, discuss what difference an investment approach
to growth and a consumption approach to growth might make to an emerging economy such
as China. [6]

4
Section B
2 In a complex modern economy there is no possibility of a perfect market system. A concentration

of market power always results and does not serve the public interest.
Do you agree with this opinion? [25]
3 (a) Given the prices of two goods, how does economic theory analyse what is meant by consumer
equilibrium? [12]
(b) Suppose the price of one of the goods falls. Use indifference curve analysis to discuss
whether consumers would always buy more of the good when its price falls. [13]
4 Wage rate inequalities are inevitable and can be justified.
Discuss whether this statement can be supported by economic theory. [25]
5 (a) Explain what is meant by diminishing returns and economies of scale, and consider whether
diminishing returns can occur only in perfect competition and economies of scale in imperfect
competition. [12]
(b) The theory of the firm that assumes perfect knowledge and the aim of profit maximisation
can be found only in perfect competition. In monopoly those assumptions do not apply.
Consider whether you agree with this statement. [13]
6 (a) Explain what is meant by the equilibrium level of national income, and consider whether it is
possible to have such an equilibrium and unemployment at the same time. [12]
(b) At a time of an election a government makes a promise that, if re-elected, it would aim to
increase the growth rate of the national income.
Discuss whether an increase in the growth rate is necessarily beneficial. [13]
7 Discuss which issues are at the heart of the debate about the quality of life in a country and what
indicators might be used to assess them. [25]
UCLES 2016 9708/41/M/J/16

2
Section A
1 Housing and Economic Growth in the UK
In 2013 a press article reported that there has been a marked improvement in the housing market.
Potential buyers of housing had been encouraged because the central bank had fixed interest rates
at an all-time low and also by a government scheme designed to give help to people wishing to buy
property. The scheme meant that buyers did not have to find such a large deposit.
This caused a positive outcome for the construction industry, with investment and employment rising.
However, it pushed up property prices.
In 2013 the average price of a house was seven times the average wage. A study recommended that
the central bank should take steps to prevent house prices rising by more than 5% a year and should
limit the amount people could borrow relative to their incomes. There should be regional variations to
this limit, as property prices do not increase at the same rate in every region.
However, a deputy governor of the central bank said that limiting price rises would not solve the cause
of the problem, which was the lack of new property development. He found it surprising that the study
chose to focus exclusively on the demand side when the underlying problem was one of supply.
An economist said that the most effective intervention a government can make in the housing market
is to relax the planning system and make it easier and cheaper to build more homes. Increased supply,
leading to lower prices, would encourage demand. Others said that although there is talk of a large rise
in the price of houses, it is not uniform throughout the country and trying to influence the basic laws of
supply and demand is not the right way of tackling the problem.
The buying of housing gives rise to increased consumer spending and some argue that this helps the
economy. Although policies by the government and the central bank had increased consumer demand
and spending, such expenditure is quite different from the export-led growth model preferred by the
government. Analysts suggested that the demand and supply conditions causing the current situation
cannot last forever. When they end, the effect on the housing market (which by then will have many
people with very high debts) will be very bad for the economy. This can be seen in countries such as
Spain and the Netherlands, where property values are in decline.
Source: The Times, 14 September 2013
(a) Identify two government policies in the article that could encourage an increase in aggregate
demand. [2]
(b) The article states that there has been a marked improvement in the housing market.
Using the article and your own knowledge, explain how an economy might benefit from an
improvement in the housing market. [5]
(c) Using the evidence in the article, assess whether it contradicts the view that an increase in
house prices is an improvement for an economy. [6]
(d) The article contrasts a model of an increase in growth through consumer spending with a
model of an increase in growth through exports.
Choose two macroeconomic aims of a government and discuss how the two growth models
might have different effects on those aims. [7]
UCLES 2016 9708/42/M/J/16
3
Section B
2 Government economic policy is based on the idea that people cannot be trusted to choose what is
good for them but instead sometimes choose things that are harmful to themselves or detrimental
to the environment (or both). Therefore a free market cannot allocate resources efficiently.
Do you support this argument? [25]
3 With the help of diagrams, use indifference analysis to:
(a) explain what is meant in economic theory by consumer equilibrium and how it is related to a
consumers demand curve. [12]
(b) discuss how this equilibrium might be affected by a government fiscal policy that raises taxes
on goods. [13]
4 (a) In perfect competition in the short run, wage rates in some occupations will be higher than in
others.
Explain the economic analysis underlying this. [12]
(b) Do you agree that in an imperfect labour market any activity by trades unions designed to
increase wage rates would inevitably lead to unemployment in that market? [13]
5 The traditional theory of the firm assumes a single objective for the firm, namely the maximisation
of profit.
(a) Explain whether a firm with this objective necessarily always makes a profit. [12]
(b) Discuss how the objective in the traditional theory may be varied in different market structures.
[13]
6 Imagine you have been asked to produce a report about the quality of life in your country. Discuss
what would be important to include in your report and what economic indicators you would use in
order to reach a conclusion. [25]
7 (a) Explain how the age and employment structure of a population in a developing country may
differ from those of a developed country. [12]
(b) Consider whether a developing country is likely to experience different types of unemployment
compared with a developed country. [13]
UCLES 2016 9708/42/M/J/16

2
Section A
1 Airport Expansion
In 2014, a proposal by Heathrow Airport Authority (HAA) in London recommended building an

extra runway at Heathrow, one of the worlds busiest airports. HAA acknowledged that it was an
initial proposal that needed more detailed work.
They claimed that, if built, the runway would deliver greater economic benefits and be a better
option for economic growth for the UK than any other proposal for new airport capacity. HAA was
not able to quantify the benefits with any precision but said they would range from 50 billion
to 156 billion (US$84 billion to US$262 billion) with a central estimate of over 100 billion
(US$168 billion). The majority would benefit the wider economy by creating jobs, encouraging
trade, boosting spending and improving public finances. The proposal would allow the airport to
be connected to more emerging markets and enable 40 new destinations to be served directly,
including some in India and China. Cargo volumes would double and UK competitiveness would
increase.
HAA added that more efficient vehicles, an increased proportion of passengers travelling by public
transport and new aircraft technology would mean that the extra flights would not exceed the
European Union pollution limits.
In order to build the new runway, major motorways would need to be altered. Many homes would
have to be demolished but the airport said they would pay the owners 25% above the propertys
market value. When it was built, car drivers wishing to take passengers to the airport would have
to pay a congestion charge.
Those opposing the new runway said that thousands of people would be forced out of their homes
and communities would be destroyed and, while waiting for a decision to be made, they would be
unable to sell their homes. 240 000 people would suffer from airport noise.
HAA said the runway would cost 15.6 billion (US$26.2 billion) to build, with the government
paying 1.2 billion (US$2.1 billion) towards the motorway alterations.
There were alternative proposals. The first was to build a completely new airport to the east of
Heathrow. The second was to add another runway to an existing airport, Gatwick, to the south of
Heathrow.
HAA argued that a completely new airport would take much longer to build and be more expensive
than an extra runway and would mean higher fares for passengers.
The owners of Gatwick Airport insisted that the new runway at Heathrow was not in the best
interest of passengers and that Gatwick would be better able to offer lower fares and connect to
emerging markets with longer-range aircraft. They said that their plans were cheaper 7.8 billion
(US$13.1 billion) and could be built quicker than the Heathrow option, with less disruption to
motorways. Noise from another runway at Gatwick would also affect fewer people 14 000, not
240 000.
Sources: Heathrow Airport website, accessed 24 May 2014, and Evening Standard, 13 May 2014
UCLES 2016 9708/43/M/J/16

3
(a) HAA said the new runway would benefit the wider economy. Explain why its claim might be
justified. [4]
(b) Explain why dropping off passengers could be classified as an externality and suggest one
method of addressing this externality. [4]
(c) Airport infrastructure is privately owned and makes money for its owners. Consider why in this
case the government would pay 1.2 billion towards the cost of motorway alterations. [5]
(d) Consider whether the information in the proposal by the HAA was mainly factual evidence or
opinion and comment on whether you would support the proposal. [7]
Section B
2 (a) Economists write about indifference analysis when studying consumer choice. Does this
theory of consumer behaviour mean that a consumer is always indifferent when choosing
between two products? [12]
(b) Discuss whether the use of a demand curve and budget lines are similar in the way they
represent what will happen if the price of a good falls. [13]
3 In 2014 an American multinational pharmaceutical drug developer and supplier made a bid to
take over a Swedish-British multinational drug company, but the board of that company refused to
accept the bid for its shares.
(a) Consider whether increasing a companys scale of production will always reduce its costs.
[12]
(b) Analyse what is meant by a contestable market and consider whether companies that supply
drugs are likely to be in a contestable market. [13]
4 Some workers are paid a basic rate and then paid additional commission based on the number
of products sold. In 2014, a European court ruled that a workers holiday pay should be based on
total pay including commissions and not just on the basic rate.
(a) Explain, according to economic analysis, the shape of a workers supply curve and suggest
how this court judgement might affect the number of hours worked. [12]
(b) Discuss whether a trades union can always increase the wage rate of its members without
affecting the level of employment. [13]

4
5 It was reported that Indias policymakers seem to be fighting a losing battle with inflation. Some
economists linked the persistent rise in prices to the pace of economic growth.
(a) Consider whether economic growth will always cause inflation. [12]
(b) Assess how appropriate it is to use economic growth as an indicator of how a countrys
standard of living compares with other countries. [13]
6 Equilibrium is a key concept in the study of economics. Explain what an equilibrium level of national
income means and discuss the relative merits of policies a government might use to cause the
equilibrium level to change in an open economy. [25]
7 Private sector developers have discovered potentially profitable supplies of gas and proposed a
new method of extracting it that involves drilling in some areas of natural beauty. They say it is
important that a countrys resources are used efficiently.
Consider whether they might mean the same as economists when they talk about the efficient
use of resources and whether it is possible in practice for private organisations to achieve such
economic efficiency. [25]
UCLES 2016 9708/43/M/J/16

Please note Question 1 has been removed from this question paper for copyright reasons.
3
Section B
2 In a free competitive market, a shortage causes price to rise, a surplus causes price to fall. In
some markets this does not happen because a minimum price is fixed by producers.
(a) With the aid of diagrams and examples, explain why prices rise when there are shortages and
fall when there are surpluses. [10]
(b) Discuss the factors that a group of companies might consider when deciding to fix a minimum
price in a market. [15]
3 (a) Explain what is meant by productive and allocative efficiency. [10]
(b) A firm should be encouraged to maximise profits because this makes it efficient. Discuss
whether this argument is true for a firm operating in an imperfect market. [15]
4 (a) Assume there is an open economy with a government sector. Explain the conditions for
equilibrium in the circular flow in such an economy. [10]
(b) Discuss how an increase in injections may affect the equilibrium level of national income. [15]
5 A governments macroeconomic aims are low inflation, low unemployment, balance of payments
equilibrium and economic growth. Individuals see their standard of living as more affected by a
well-paid job, low crime rates and a pleasant environment.
Discuss how far the government can meet the desires of individuals by satisfying its
macroeconomic aims. [25]
6 The aim of most developing countries is to become developed. If this aim is achieved, will it always
bring benefit to the population of the developing country? [25]
7 (a) Explain with the aid of examples how price discrimination can operate. [12]
(b) Discuss whether price discrimination can ever be of benefit to consumers. [13]
9708/4/O/N/02
2
Section A
1 The following information relates to Singapores economic recession of 2001.
20 000 workers to lose their jobs
About 20 000 workers may lose their jobs in 2001, nearly double the number who lost jobs last
year. They will be hit by the economic downturn and the restructuring in some sectors. The figure
is below that of 29 000 which occurred during the crisis of 1998. Job vacancies fell in the last year.
For every 76 jobs available, there were 100 people seeking work. The entry of new graduates into
the job market worsened the situation.
Straits Times 14.7.01
Government package of measures to help businesses, workers and jobs
The recession in the economy has been caused by a fall in external demand, and not an erosion
of Singapores cost competitiveness. Therefore, any big boost in government spending would not
help companies increase their business when all their major markets are declining because
growth in the United States, Japan and Europe has slowed sharply. Instead, a major package of
government measures is intended to focus on helping companies to reduce costs and boost the
job prospects of the workers. One of the aims of the measures is to help workers, especially the
older and the less educated, to keep their jobs or retrain to find new jobs. Companies will be given
financial incentives to recruit older workers and provide training programmes. The amount of
money the government is prepared to spend on this package is equivalent to about 1.4% of the
countrys GDP.
The Straits Times. 28.7.01
Table 1. Tax receipts of the Singapore government
January to May January to May

2000 2001 % change
(S$ million) (S$ million)
Income tax 4360 4760 +9 *

Property tax** 610 1010 +66
Indirect tax on goods & services 1100 950 14
Betting, lotteries 600 740 +24
Stamp duty on property 590 345 42
Estate duty 37 46 +24
Total 7297 7851 +7.5 ***
Notes
*The increase in income tax for the same period 1999-2000 was 40%
**There was an increase in property tax in 2001.
*** The increase for the same period 1999-2000 was 35%.
Straits Times 28.7.01
9708/04/O/N03
3
(a) Illustrate, using a demand and supply diagram, what happened in the market for labour in
Singapore in 2001. [2]
(b) Identify and explain what is said to be the cause of Singapores recession. [2]
(c) Explain briefly how an increase in government spending on public projects might help an
economic recovery. [5]
(d) Assess whether the evidence in Table 1 and its footnotes completely supports the statement
that there is a recession in the Singapore economy. [5]
(e) Discuss the usefulness of the measures proposed by the government as a remedy for the
economic recession. [6]
Section B
2 In 2001 in the UK a widespread disease among cattle and sheep closed off large parts of the
countryside. The government decided to give aid to agriculture but not to tourism, both of which
were badly affected. Comment on the governments actions in terms of allocative efficiency and
equity. [25]
3 In some economies in 2001 there was a decline in the number of people travelling by air.
Unemployment increased as many people lost their jobs in hotels, airline companies and tourist-
related industries. Similar jobs in other industries were advertised at reduced wage rates.
(a) Explain the different types of unemployment and suggest which type the above
unemployment might be. [10]
(b) Discuss how far economic analysis is of use in explaining the change in wage rates
mentioned above. [15]
4 Sony, the Japanese company, is involved in insurance and on-line banking as well as computers,
electronics, and computer games.
(a) Explain why a company might wish to produce a diverse range of products rather than
specialise. [10]
(b) Sony is a large company that can influence the price of its products. Discuss whether
imperfect market structures which allow such companies are beneficial. [15]
5 (a) What distinguishes a developing country from a developed country? [10]
(b) Do you agree that if a developing country becomes a developed country the problems that
face its population are solved? [15]
6 (a) Distinguish between monetary policy and fiscal policy. [12]
(b) Discuss how monetary policy might be used by a government in a time of inflation. [13]
7 How reliable are national income statistics as a means of comparing living standards between
countries? [25]
9708/04/O/N03
2
Section A
1 Airlines gamble on no-frills pricing.
European airlines including British Airways (BA), KLM and Lufthansa have done what almost no
American full-service airline has been willing to do. They have altered their fare structure to keep
customers from switching to low-cost competitors. Despite the airlines massive losses of $348
million on flights within Europe, BA has reduced some fares by almost 80%.
Many of the giant European airlines have very high costs that limit how aggressively they can
compete with smaller airlines, but BA has recognised the threat that low-cost competitors pose.
The low-price competitors carried 16 million passengers in 2001 a 26% increase from a year
earlier and it is expected that this will increase further and that they will carry a quarter of
European passengers by 2010. Despite the price cuts, the cheapest seats on BA are still more
expensive than those of the no-frills competitors on the same routes. The low-cost competitors do
not necessarily require pre-booking of seats, use smaller, cheaper airports, do not provide special
lounges for frequent flyers and do not offer free drinks and food. BA does offer these services and
some passengers state that they prefer the facilities that BA offers. BA also has to pay expensive
landing charges at the airports it uses.
Analysts wonder whether BA can sustain its new fare structure in view of continuing high costs. It
has not renegotiated wages or work rules with its unions. However, it has reduced its fleet size and
cut 10 000 jobs. One analyst said that the fare changes were necessary. The market has spoken.
Those who adjust to the market will profit; those who dont will continue to lose money.
(a) What evidence is there in the article to explain why BAs costs are higher than its
competitors? [3]
(b) The article says that the cheapest seats on BA are still more expensive than those of no-frills
competitors on the same route. Explain when price discrimination can occur and discuss
whether this is an example of price discrimination. [6]
(c) All airlines publish their fares so each has knowledge of the prices charged by competitors.
Does this mean that the market for airline seats is perfectly competitive? [4]
(d) Explain what is meant in the context of the article by the phrase the market has spoken. [3]
(e) Is there sufficient evidence in the article to suggest that recent changes in BAs policy might
lead to an increase in profits? [4]
UCLES 2004 9708/04/O/N/04

3
Section B
2 Discuss whether economic efficiency as described in text books is likely to be able to be achieved
in practice. [25]
3 (a) Explain what factors might determine the level of investment in an economy. [12]
(b) Analyse what effects an increase in investment might have on an economy. [13]
4 In 2002 an electrical goods company in the UK that uses mass production techniques made many
people redundant. It said that there had been meetings with the trade union but that it was moving
its production to Eastern Europe and would transport the products from there.
(a) Explain the economic considerations that might have led the company to make this decision.
[12]
(b) How far does this decision indicate that trade unions have very little influence over wages and
employment? [13]
5 Many countries are concerned to promote economic growth.
(a) Describe the other major objectives of a governments macro-economic policy. [12]
(b) Discuss whether an emphasis on economic growth is always beneficial. [13]
6 (a) What are the characteristics of a developing economy? [12]
(b) How useful is the GDP as a measure of the standard of living in a country? [13]
7 In each of the countries Ghana, Nigeria and Zimbabwe internet services are provided by only a
few large companies.
(a) Consider who might benefit when a market consists of only a few large companies. [12]
(b) Discuss why in some markets firms remain small while in others the market is dominated by
large companies. [13]
UCLES 2004 9708/04/O/N/04

2
Section A
1 Price of mobile telephone calls reduced by a third
In 2003 it was stated in the UK that a decision of the High Court would result in the price of mobile
(cell) phone calls being reduced by one third. It was said that the price cuts would save consumers
up to 700 million over three years. The reductions applied to all phone calls from one mobile
phone to another and from landlines to mobile phones.
Three of the four UK mobile phone networks Vodafone, T-mobile and Orange had been
fighting the imposition of the price cuts. They estimated that the decision would cost them
between 1.5 billion and 2 billion and warned that the costs would be recovered by raising the
price of the various styles of new phone handsets.
A spokesperson for one of these phone companies said People should not necessarily regard the
decision of the court as a good thing. The court did not state that mobile phone companies are not
entitled to cover their investment costs, only that we may not do so in the current manner. One
result will be that cross-subsidies will disappear and the price of a new handset will go up
considerably.
The courts decision meant that companies had to reduce the termination charge, sometimes by
as much as 50%. This is the charge when a call is made from one phone network to another.
Phone companies were accused of charging significantly more for such calls than for calls within
the same network without making this clear to consumers. A Consumer Association spokesman
said perhaps the phone companies will understand that they cannot continue to exploit
consumers with hidden charges. They must charge a fair price for all calls.
One analyst suggested that the Court decision would mean that the progress of new technology
would be held back and that the cost of text messages might also increase.
(a) What evidence is there in the article that the UK mobile phone companies operate in an
imperfect market structure? [3]
(b) Explain the statement one result will be that cross-subsidies will disappear and the price of a
new handset will go up considerably. [4]
(c) The article says the decision of the High Court will cost the companies 1.5 billion to 2
billion. Explain how the phone companies might react in order to retain their profit levels. [4]
(d) Explain with the aid of a diagram how the existence of termination charges would affect
consumer surplus. [3]
(e) Does the information lead you to agree with the spokesperson when he said that consumers
should not necessarily regard the decision as a good thing? [6]
UCLES 2005 9708/04 O/N/05

3
Section B
2 The French government stated that it was keen to achieve economic efficiency through policies
that encouraged a free market. Despite this, in 2003, it bought 30% of a private French industrial
group, which was facing bankruptcy. The company is one of Frances major engineering groups
and employs over 110 000 people.
(a) Explain what is meant by efficient resource allocation in a free market. [10]
(b) Would you agree that in some circumstances it is best to accept decisions such as that of the
French government and abandon the search for economic efficiency through the free market?
[15]
3 In some countries the power of trade unions has been restricted and the government has passed
legislation fixing the minimum level of wage rates.
(a) Explain how trade unions can be incorporated into the economic analysis of wage
determination. [12]
(b) Discuss the possible effects that trade unions might have on the economy of a country. [13]
4 (a) With the help of diagrams distinguish between normal profit and abnormal profit. [10]
(b) Discuss whether firms always want to maximise profits and are able to do so in the way
suggested by economic theory. [15]
5 How far do you agree that low interest rates and low inflation are the most important aims of
government policy in maximising economic welfare? [25]
6 With the approval of the Malaysian government, the Swedish company IKEA, the worlds largest
retailer of home furnishings, has invested $106 million in Malaysia in the past three years. It now
plans to open another large store in the country, employing 450 people, with expected sales of
approximately $50 million in the first year.
(a) Use multiplier analysis to explain what effect this investment might have on the Malaysian
(b) Discuss whether the activities of multi-national companies are always beneficial. [15]
7 There are so many difficulties in measuring living standards that we can never be sure that people
in one country are better off than those in another country. Comment upon this statement. [25]
UCLES 2005 9708/04 O/N/05

2
Section A
1 Volkswagen seeks pay freeze in Germany.
In 2004 Volkswagen (VW) dismissed a union demand for a 4% annual pay increase
and instead announced plans to reduce paid work breaks and increase flexible
working time. It said it had to reduce its spending on labour by 30% by 2011. For the
next two years, in order to preserve its 176 500 jobs in Germany, it had to avoid pay
rises, especially because of the fierce competition in the market for cars.
The expected profits of VW were cut in 2004 because of high production costs,
weak demand and high oil prices. The company wanted to expand flexible working
time arrangements, which would allow it to save money by allowing workers to
bank overtime hours when production is high and then stay at home when
production is low but get paid from the banked hours. They also wanted to reduce
the paid breaks and introduce a different pay system. Overtime rates would not be
paid until after 40 hours a week instead of the current 35 hours, and there would be
a demographic work programme in which younger workers could work more hours
early in their career but then retire earlier.
The company also wanted to introduce a bonus system based on the companys
financial performance which would replace the annual Christmas bonus payment.
The trade union called the proposals extreme, unrealistic and poorly thought out.
VW said it was changing its strategy so that it could compete more on price in order
to improve sales volumes. This would make it easier to cover its high fixed costs.
A spokesman said if prices go down, costs have to as well. The proposals would
not reduce current employees take-home pay. Its more about intelligent
reorganisation of the labour costs. VWs costs are up to 80% less at factories in
Argentina and the Czech Republic than in Germany. The costs are too high in our
German factories.
(a) Identify three factors that VW says are responsible for the reduction in expected profits. [3]
(b) (i) Explain the difference between a fixed cost and a variable cost. [2]
(ii) Consider which cost category is suitable for the wages paid by VW to its employees. [4]
(c) VW stated that they wished to compete more on price. Is that a suitable response to the
factors identified in (a)? [5]
(d) Discuss whether it is reasonable to conclude that costs are too high in VWs German
factories on the basis of the comparison given with Argentina and the Czech Republic. [6]
UCLES 2006 9708/04/O/N/06

3
Section B
2 (a) Explain what is meant by the term economic efficiency. [10]
(b) Does the price mechanism allocate scarce resources efficiently? [15]
3 My higher income will make me happier in the short run. In the long run I will become accustomed
to it and my happiness will return to the previous level. There is no point, therefore, in earning
higher income.
(a) Explain the Law of Diminishing Marginal Utility and discuss whether it supports the idea that
higher incomes increase happiness. [12]
(b) Discuss how governments might achieve a more equal distribution of income. [13]
4 In 2004 the Chinese government approved a deal with BAT (formerly British American Tobacco) to
enable them to become the first foreign manufacturer of cigarettes in China for at least 50 years.
BAT said that it would invest $1.5 million in China and that it would take about two years before the
factories were running efficiently. It is estimated that China has 300 million smokers and is the
worlds most important cigarette market.
(a) Cigarette manufacture takes place in an imperfect market. Distinguish between the imperfect
markets of monopolistic competition and oligopoly. [13]
(b) Discuss how BATs investment might be likely to affect its profits in the short and long run.
[12]
5 (a) Explain what indicators would suggest that a country is developed rather than developing.
[12]
(b) It is sometimes stated that the policies of farm subsidies and international protectionism
pursued by developed countries have caused damage to the economies of developing
countries.
Discuss whether the policies of governments in developed countries necessarily harm

developing countries. [13]
6 (a) Explain what determines the demand for money. [10]
(b) In some countries it is said that the use of credit cards by many people has resulted in huge
debts as people spend far more than they earn. Discuss what might be the consequences of
a large increase in consumer spending. [15]
7 Government economic policy should be aimed at the needs of citizens employment, health,
education and a good environment. It should not concentrate on the balance of payments or gross
domestic product.
Discuss whether there is any truth in this statement. [25]

UCLES 2006 9708/04/O/N/06
2
Section A
1 Tourism and the local workers
Here are two accounts of the tourist industry in Africa.
Article 1
The Gambia, on the west coast of Africa, is ranked 160th out of 173 on the United Nations
Human Development Index. Over half the population live on less than one US dollar a day
and survive on subsistence agriculture and cannot compete with subsidised American
farmers.
However, things are changing as The Gambia expands its tourist sector, which is now a
significant part of the national economy, accounting for 7.8 % of GDP. It employs 5000
directly and creates work for 6000 others. Large European tour operators play a vital role in
marketing, assuring quality, and providing flights and accommodation. Tourism has the major
advantage that developed countries cannot place tariff barriers on tourist exports. Tourists
spend on average US$40 to US$50 a day on meals, souvenirs, crafts and tours. One third is
spent in the informal sector, where income is not recorded, providing a livelihood for taxi
drivers, craft workers and local guides.
However, there are disadvantages. Tourism is highly seasonal, and tour operators negotiate
low prices which keep profit margins low so low, in fact, that many hotels have closed
because they could not cover costs.
Article 2
A union official in Tanzania said that the tourism sector is expanding in Tanzania but the
return to the countrys economy is low and the benefit to the workers is about 0.5 % of the
total industrys income. In the hotels the lowest wages are around US$50 a month, from
which tax and rent have to be deducted. Someone who has been working 5 years or more
receives no extra pay or promotion. Contracts are short-term lasting for a year.
Hotel operators oppose workers joining trade unions. Most tour operators come from outside
Tanzania. Only 10 % of each US dollar earned by the tourist industry remains in the country,
and most of that goes to the management not the workers. Top managers are usually foreign
workers paid two or three times as much as a Tanzanian manager.
(a) What evidence is there that The Gambia is a developing country? [4]
(b) What does Article 1 mean when it says that tourism created work for 6000 others? [3]
(c) Article 2 mentions the low pay of hotel workers. Why might many hotel workers receive low
pay? [5]
(d) Does the evidence provided enable you to conclude that tourism merely exploits resources
and is of little benefit? [8]
UCLES 2007 9708/04/O/N/07

3
Section B
Answer any two questions from this section.
2 We do not ask consumers what they want. They dont know. We decide what they will need and
will want. Akio Morita, founder of the Sony electronics company.
(a) Explain how, according to utility theory, consumers allocate their expenditure between
different products as prices change. [12]
(b) Discuss whether markets are dominated more by the producer or by the consumer. [13]
3 In 2005 London Energy stated that as a company it invested millions of pounds in improving
efficiency to reduce costs. However, as world energy prices had increased significantly, it had
been forced to increase the price it charged the customer.
(a) Explain how an increase in expensive investment by a company might result in a reduction in
costs. [12]
(b) London Energy has ceased to be a monopoly supplier in its region. Analyse how price and
output might change as a market structure becomes more competitive. [13]
4 The World Bank has given a loan to support the Ugandan governments road development
programme. Improved roads into economically productive rural areas will have a major impact on
the countrys economy.
(a) Explain why projects such as road building are often undertaken by the government, rather
than by the private sector. [10]
(b) Use economic analysis to discuss why there will be a major impact on the economy from the
road development programme. [15]
5 The Chairman of a national bank stated It is important to rely on a range of qualitative and
quantitative data to assess the economic health of the nation.
Explain what data might be employed in this assessment and discuss how useful it is likely to be.
[25]
6 (a) Explain why there might be rapid economic growth in a country. [10]
(b) Discuss whether it is best to use all factors of production as fully as possible. [15]
7 Analyse why the aims of government policy might conflict with each other and discuss which of
the aims ought to be given priority. [25]
UCLES 2007 9708/04/O/N/07

2
Section A
1 Poverty and Economic Growth
At a time when there has been rapid economic growth in some parts of the world, there are many
countries in Africa in which severe poverty and infectious diseases are still widespread.
In dealing with the poverty in developing countries much is written about the need for aid from the
rich developed countries. The high profile given to aid hides the fact that financial, human and
other resources are continuously taken from developing countries by these wealthy nations which
are seeking their own economic growth.
Economic growth in the last 50 years has occurred at the same time as a widening gap both
between rich and poor people in a country and between rich and poor countries. Economic
growth and development should be reconsidered to include a more even progress in areas such
as basic living conditions, access to health care and education.
Despite the economic growth, almost half the worlds population still lives in poverty on less than
US$2 a day. This reveals a weakness in the argument that economic growth is the solution to
poverty.
Fig. 1 Global income distribution
distribution of income
richest
The richest fifth receives 82.7 %

of total world income.
11.7 % of income
world Each horizontal

population band represents
an equal fifth of
2.3 % of income
arranged
the worlds people.
by income
1.9 % of income
poorest
The poorest fifth

1.4 % of income receives 1.4 % of
total world income.
UCLES 2008 9708/04/O/N/08

3
(a) Explain briefly what is meant by economic growth. [3]
(b) Explain the possible link between developed and developing countries in achieving growth.
[5]
(c) Analyse whether Fig. 1 supports the statement that almost half of the worlds population still
lives in poverty on less than US$2 a day. [5]
(d) The extract concludes with the statement that there is a weakness in the argument that
economic growth is a solution to poverty. Discuss whether this is a correct conclusion from
the evidence given. [7]
Section B
2 Economic analysis of resource allocation assumes consumers are rational. Where advertising
exists, this analysis is of little value. Do you agree with this argument? [25]
3 (a) Explain how a knowledge of its long-run average costs might be useful to a profit-maximising
firm. [10]
(b) Discuss whether firms always want, and are able, to maximise profits as suggested by
economic theory. [15]
4 In India the post is delivered partly by private courier firms and partly by the government-owned
India Post. The government is keen to increase its share of the market.
(a) Explain why a government might wish to increase its control over private firms. [10]
(b) Discuss whether an increase in government control necessarily improves efficiency in an

organisation. [15]
5 The economic theory of wages assumes first that there is a perfect market and secondly that the
market will reach a stable equilibrium. It therefore has little relevance to a commercial world full of
change and uncertainty.
Discuss whether you agree with this opinion. [25]
6 In some countries the rate of unemployment has remained low for several years.
(a) Explain what causes unemployment. [12]
(b) Discuss whether the reduction of unemployment should always be the main aim of
government policy. [13]
7 (a) Explain the factors influencing the level of investment in an economy. [10]
(b) Discuss the extent to which national income is determined by private investment. [15]
UCLES 2008 9708/04/O/N/08

2
Section A
1 Counting the Cost
India has transformed itself from a primarily agricultural economy into a major industrial one in
less than 60 years. Some argue that industrialisation results in increased wealth and a better
standard of living. Certain areas of India are better suited to this industrialisation than others. The
state of Orissa is one.
Orissa is a state of contrasts 48 % of its people live below the poverty line; it is the most heavily
indebted Indian state; its literacy level is below the national average; the level of infectious
disease is high and malnutrition is alarming; it is subject to natural disasters such as floods. But it
has unrivalled natural resources including one of Asias largest deposits of coal, large areas of
forest and extensive mineral reserves. These attract big industrial companies. A new steel plant
has been established which will produce six million tonnes of steel a year.
In Orissa, a balance has to be achieved between potential profits and benefits from
industrialisation and its cost to the people and the environment. The steel company is recruiting
from local engineering colleges and is able to offer employment and new opportunities. People
have increased incomes. Farm workers earn less than half what the factory pays its workers. One
worker said I used to work on the land and was at the mercy of the weather. Now I do not have
to pray for rain. The company also employs my sons and we are much better off.
However, the factory is not labour-intensive and is unlikely to employ the huge numbers of people
seeking work. Also, mining and infrastructure development destroyed some of the forest.
Industrial production results in soil erosion and pollutes the air with the dark smoke from factory
chimneys which causes acid rain. The rivers have also become contaminated with toxic waste
which is posing a threat to wildlife, such as elephants, tigers and deer, as well as to local people.
The industrialisation meant that some people lost their homes and had to be resettled elsewhere.
The new houses had safe water provision and drainage, unlike some of the original homes, but
people complained about the poor way the houses were built. In 2007, 13 were killed during a
protest about the lack of compensation for the loss of their homes.
(a) What is meant by industrialisation? [2]
(b) Why might some argue that the economic costs of the exploitation of the natural resources in
Orissa are too high? [5]
(c) Comment on whether the development of the steel plant is likely to have been a benefit for
the workers in Orissa. [5]
(d) It is said that the standard of living in Orissa continues to be very low. Discuss whether the
evidence you have been given is sufficient to support this view. [8]
UCLES 2009 9708/41/O/N/09

3
Section B
2 There has been much discussion recently about the effect of climate change and the efficient use
of economic resources. Discuss whether the efficient allocation of resources can be achieved
only if governments are involved in the process. [25]
3 BG is a rapidly growing energy company with operations in 25 countries engaged in the

exploration, production and distribution of natural gas and oil. This requires complex chains of
physical infrastructure, major investment funds and detailed commercial agreements with
different countries.
(a) Explain why economies of scale might be significant in an industry such as gas supply. [12]
(b) Discuss whether companies that supply energy are likely to operate in contestable markets.
[13]
4 Workers in the public sector are sometimes paid less than workers in the private sector.
Discuss why wage rates differ. [25]
5 Some Japanese economists have argued that higher interest rates would, unusually, improve
Japans economic growth.
(a) Explain why it might be said that this link between interest rates and economic growth is
unusual. [12]
(b) Discuss whether economic growth is good for an economy. [13]
6 There is no point in calculating figures for GNP. They are never an accurate estimate of welfare,
and people are more concerned about crime, pollution and health than GNP.
7 (a) Explain what distinguishes a developing country from a developed country. [12]
(b) When a country achieves developed status does this mean that it has solved all its
economic problems? [13]
UCLES 2009 9708/41/O/N/09

2
Section A
1 Resources wasted on bottled water
In developed countries drinking bottled water has become fashionable; the practice of carrying a
small bottle of water is very common. However, it costs much more than water from a tap but
often cannot be distinguished from such tap water. Some brands contain the same chemicals as
tap water which people think they have paid to avoid.
There is now a campaign to stop selling bottled water in restaurants and supply only tap water. A
spokesman said in the UK, in 2006, 3 billion litres of bottled water were sold. They were
advertised as pure as a mountain stream or cleansed for 2 million years beneath a Siberian
glacier. Buying such water is a vanity. It is flown around the world to the UK from Norway,
France, Japan and Fiji. It is bottled in glass that is mostly thrown away and is very heavy to
transport, or in plastic that never decomposes. From a restaurants point of view selling water is
almost free money. The profit mark-up is higher than on wine. The New York Ritz-Carlton hotel
even has a water list alongside the wine list.
A UK government minister said it is morally unacceptable to spend millions of pounds on

imported bottled water when we have pure cheap drinking water and when one of the crises
facing other countries is the supply of water.
By contrast, in developing countries there is often no tap water. 40% of the worlds population
lack basic sanitation and 1 billion people do not have safe drinking water.
It would, therefore, be better for everyone and a better use of resources if the developed world
stopped spending money on bottled water, drank the safe tap water instead and used the money
to improve water supplies in developing countries.
Environmentalists believe that the packaging, transportation and disposal of bottled water
products creates unnecessary carbon dioxide emissions. It has been proposed that the
government should introduce taxes to pay for the damage to the environment, either directly on
the sale of each bottle of water or on the disposal of the plastic bottle.
A spokesperson for the bottled water industry said that critics were forgetting that the industry
generated income and that an estimated 20 000 jobs depended on the sales of bottled water. In
2007, annual sales in the UK were worth 2 billion.
(a) (i) Briefly explain how a rational consumers equilibrium may be achieved using marginal
utility theory. [4]
(ii) Use the article to consider whether consumers who purchase bottled water are acting
rationally and maximising their satisfaction. [4]
(b) Analyse the effects that restricting the sales of bottled water might have on the UK economy.
[5]
(c) Discuss whether the information provided is sufficiently factual and complete to justify
government regulation of the bottled water industry. [7]
UCLES 2009 9708/42/O/N/09

3
Section B
2 In 2007 BHP Billiton, a large mining group, made a bid to take over Rio Tinto, the worlds third
largest mining group. Such a takeover would create the largest producer of copper and
aluminium in the world.
(a) Explain whether increasing its scale of production will always reduce a companys costs. [12]
(b) BHP Billiton and Rio Tinto have monopoly powers and are mining a natural resource.
Discuss why the governments of the countries in which these companies operate might
become concerned about this. [13]
3 By 2007, the telecommunications business had become dominated by fewer organisations. One
of them, Cable and Wireless, announced there would be 3000 job losses. Another, Tiscali,
announced 800 job losses and BT, the UK telecoms giant, announced a 450m major investment
and restructuring resulting in thousands of job cuts.
Analyse whether the above is what marginal revenue product theory predicts will happen when a
labour market becomes less competitive and large investment takes place. [25]
4 (a) Explain what is meant by the transactions, precautionary and speculative demands for
money. [10]
(b) An employee moves to another job because it pays more. However, the old job was paid
weekly and the new job is paid monthly. At the same time interest rates are increased.
Discuss how these changes would affect the employees transactions, precautionary and
speculative demands for money. [15]
5 (a) Explain whether low GDP is a good indicator that a country has a low standard of living. [12]
(b) Discuss whether the main aim of a government should be to have a policy on population
growth if it wishes to increase the standard of living in its country. [13]
6 (a) In some countries there has been fear of economic recession in recent years. Explain the
main characteristics of an economic recession. [10]
(b) Discuss the policies that might be used to bring an economic recession to an end. [15]
7 The economy of South Africa is growing faster than its potential growth rate. The Governor of the
central bank of South Africa said This is why we have inflation. We need to deal with inflation as
it does not lead to job creation. Interest rates are the only tool available to control inflation.
Do you agree with the Governors opinion on inflation? [25]
UCLES 2009 9708/42/O/N/09

2
Section A
1 The Success of Supermarkets
In some countries supermarkets dominate food shopping. In the UK 75% of the food bought for
home use comes from supermarkets. A third of that comes from one supermarket, Tesco. Tesco
makes billions of pounds profit, one third of which goes to the government in taxes. It employs
110 000 people in the UK and many more in developing countries.
In the past, UK shoppers queued to buy expensive food from many small shops with limited
choice and restricted opening times. Now, in supermarkets, they have the benefit of a wide choice,
reasonable prices, international dishes, organic produce, fair trade items, clear labels of the
contents of the products and, because of intense competition between the supermarkets, some
open 24 hours.
However, the media complain that supermarkets are not competitive but monopolies. They say
their profits are too high, they have caused small shops to close and forced suppliers in developing
countries to accept low prices and to pay low wages.
It must be remembered that supermarkets grew because they gave the customer what they wanted
and aimed at certain types of shoppers. One supermarket, which started as a small shop, insisted
on selling only high quality products while another offered customers low prices.
Supermarkets also adapted to changing market trends. One began to supply products with its own
brand name which were sold more cheaply because there were no advertising costs. A further
brilliant idea in expanding their business was the introduction of a store loyalty card. Shoppers
with a loyalty card are given discounts which encourages them to continue to shop in the same
supermarket.
The most successful supermarkets expanded their businesses by buying large sites to build huge
stores. (They are criticised for such building, especially if it destroys parts of the countryside or
environment.) They expanded into non-food products to fill these stores, making it possible for
consumers to buy many household items from clothes to kitchen utensils to electrical goods in the
same shop. Supermarkets have also recently introduced on-line shopping and home deliveries.
Many small shops have closed. There are bound to be casualties in retailing. How can the blame
for that be the fault of the supermarket? Their size should not be a concern. It is, after all, the
consumer who decides where to shop and what to buy.
(a) How has the type of market structure in food retailing in the UK changed? [3]
(b) To what extent does the article support the view that the consumer is sovereign in food
retailing? [4]
(c) Explain what the various objectives of a firm might be. [5]
(d) Do you agree with the conclusion of the article that the size of a firm should not be a source
of concern? [8]
UCLES 2010 9708/41/O/N/10

3
Section B
2 In 2009 there were huge fires in Australia which destroyed much property and countryside.
The government promised to allocate a large amount of money and resources to help with the
restoration of the area.
(a) With the help of diagrams explain what is meant by efficiency in the use of resources. [12]
(b) Discuss the economic implications of the governments approach to the situation. [13]
3 (a) Explain what is meant by internal economies of scale, and analyse the link between economies
of scale and a firms long run average cost curve. [12]
(b) Discuss whether there is a relationship between the marginal cost curve of the firm and the
supply curve of the industry to which it belongs. [13]
4 Recently, employers in some countries have employed foreign workers instead of local workers.
The local workers argue that they should have priority over foreign workers and also that more
products should be produced at home rather than being imported.
(a) Explain, with the help of a marginal revenue productivity diagram, why an employer might
prefer to switch to foreign workers. [12]
(b) Discuss whether it would be beneficial for a country to give priority to its local workers. [13]
5 National income statistics are used to calculate a countrys GDP. The table shows the GDP for five
countries for 2008.
Country GDP $m
USA 14 580 000

India 3 319 000
Singapore 244 000
Mauritius 14 060
Swaziland 5 626
Discuss how far the table might be used to determine whether one country has higher living
standards than another. [25]
6 Explain what is meant by an equilibrium level of national income and discuss why this equilibrium
might change in a developing country. [25]
7 Economic analysis states that the aims of the government include economic growth and economic
efficiency.
(a) Explain how achieving economic growth might conflict with other government macroeconomic
aims. [12]
(b) Is economic efficiency better achieved by the market mechanism rather than by government
microeconomic policy? [13]
UCLES 2010 9708/41/O/N/10

2
Section A
1 The Success of Supermarkets
In some countries supermarkets dominate food shopping. In the UK 75% of the food bought for
home use comes from supermarkets. A third of that comes from one supermarket, Tesco. Tesco
makes billions of pounds profit, one third of which goes to the government in taxes. It employs
110 000 people in the UK and many more in developing countries.
In the past, UK shoppers queued to buy expensive food from many small shops with limited
choice and restricted opening times. Now, in supermarkets, they have the benefit of a wide choice,
reasonable prices, international dishes, organic produce, fair trade items, clear labels of the
contents of the products and, because of intense competition between the supermarkets, some
open 24 hours.
However, the media complain that supermarkets are not competitive but monopolies. They say
their profits are too high, they have caused small shops to close and forced suppliers in developing
countries to accept low prices and to pay low wages.
It must be remembered that supermarkets grew because they gave the customer what they wanted
and aimed at certain types of shoppers. One supermarket, which started as a small shop, insisted
on selling only high quality products while another offered customers low prices.
Supermarkets also adapted to changing market trends. One began to supply products with its own
brand name which were sold more cheaply because there were no advertising costs. A further
brilliant idea in expanding their business was the introduction of a store loyalty card. Shoppers
with a loyalty card are given discounts which encourages them to continue to shop in the same
supermarket.
The most successful supermarkets expanded their businesses by buying large sites to build huge
stores. (They are criticised for such building, especially if it destroys parts of the countryside or
environment.) They expanded into non-food products to fill these stores, making it possible for
consumers to buy many household items from clothes to kitchen utensils to electrical goods in the
same shop. Supermarkets have also recently introduced on-line shopping and home deliveries.
Many small shops have closed. There are bound to be casualties in retailing. How can the blame
for that be the fault of the supermarket? Their size should not be a concern. It is, after all, the
consumer who decides where to shop and what to buy.
(a) How has the type of market structure in food retailing in the UK changed? [3]
(b) To what extent does the article support the view that the consumer is sovereign in food
retailing? [4]
(c) Explain what the various objectives of a firm might be. [5]
(d) Do you agree with the conclusion of the article that the size of a firm should not be a source
of concern? [8]
UCLES 2010 9708/42/O/N/10

3
Section B
2 In 2009 there were huge fires in Australia which destroyed much property and countryside.
The government promised to allocate a large amount of money and resources to help with the
restoration of the area.
(a) With the help of diagrams explain what is meant by efficiency in the use of resources. [12]
(b) Discuss the economic implications of the governments approach to the situation. [13]
3 (a) Explain what is meant by internal economies of scale, and analyse the link between economies
of scale and a firms long run average cost curve. [12]
(b) Discuss whether there is a relationship between the marginal cost curve of the firm and the
supply curve of the industry to which it belongs. [13]
4 Recently, employers in some countries have employed foreign workers instead of local workers.
The local workers argue that they should have priority over foreign workers and also that more
products should be produced at home rather than being imported.
(a) Explain, with the help of a marginal revenue productivity diagram, why an employer might
prefer to switch to foreign workers. [12]
(b) Discuss whether it would be beneficial for a country to give priority to its local workers. [13]
5 National income statistics are used to calculate a countrys GDP. The table shows the GDP for five
countries for 2008.
Country GDP $m
USA 14 580 000

India 3 319 000
Singapore 244 000
Mauritius 14 060
Swaziland 5 626
Discuss how far the table might be used to determine whether one country has higher living
standards than another. [25]
6 Explain what is meant by an equilibrium level of national income and discuss why this equilibrium
might change in a developing country. [25]
7 Economic analysis states that the aims of the government include economic growth and economic
efficiency.
(a) Explain how achieving economic growth might conflict with other government macroeconomic
aims. [12]
(b) Is economic efficiency better achieved by the market mechanism rather than by government
microeconomic policy? [13]
UCLES 2010 9708/42/O/N/10

2
Section A
1 The Quality of Food and Consumer Choice
New discoveries about the link between diet and health have led to increased demand for
higher-quality foods. Government policies on labelling also influence how the markets for food
develop. Labelling increases consumers knowledge, which affects their purchasing patterns. Food
producers have responded to these changes by drawing attention to the health aspects of their
products.
On the demand side of the market, consumers choose food in order to obtain utility, part of which
comes from their belief in the value of food to maintain or improve their health. The healthier the
food, the more benefit to the consumer. However, as with demand in general, consumers will
reduce the amount they are willing to pay for each additional unit of a food.
On the supply side of the market, producers provide higher-quality food if it is profitable to do so
or if they are required to do so. Often, to increase quality needs extra research, which is costly. In
general the marginal cost of providing an increase in food quality is likely to be represented by an
upward-sloping curve. Producers may cover these extra costs by product differentiation.
All this assumes that both buyers and sellers are fully informed about the nature of the product and
that market price reflects all the costs borne and benefits enjoyed by society. However, it should be
remembered that
sellers are better informed about quality than consumers,

consumers may have misunderstandings about the risks of different foods and
information about food quality may have the characteristics of a public good.
(a) The article says that consumers will reduce the amount they are willing to pay for each
additional unit of a product. Why do they do this? [4]
(b) Explain what is meant by product differentiation and how it might benefit producers. [3]
(c) Two food products are offered for sale. The producers of one carry out research to make it
safer and increase its price to pay for the research. The producers of the other try to keep
their share of the market by lowering its price.
Show the effects of these changes using a budget line diagram. [4]
(d) The article says that producers have responded to changes in demand and now draw attention
to the health aspects of their food products
Does the evidence indicate that the market will always achieve the best allocation of resources
in food production? [9]
UCLES 2010 9708/43/O/N/10

3
Section B
2 (a) Explain the significance of the distinction between fixed and variable cost for the pricing and
output decisions of a firm. [12]
(b) Discuss whether the pricing and output decisions of a firm are determined solely by an
estimate of revenue and cost. [13]
3 It is suggested that there are so many benefits from large-scale production that all firms should be
encouraged to grow in size and there should be no government restriction on such growth. Do you
agree with this opinion? [25]
4 Do you agree that the higher wages paid in some occupations occur just because some trade
unions have a stronger bargaining position than others? [25]
5 (a) Explain what you consider to be three economic issues in the country in which you live and
analyse which is the most significant. [12]
(b) Discuss what measures might be recommended to try to deal with the most significant issue.
[13]
6 Hurricanes can occur in some parts of the world. Major flooding is caused, crops are ruined and
the wind destroys homes and factories. Peoples standard of living is severely affected. Some
blame climate change for unusual weather conditions.
(a) Explain how a country might measure its standard of living. [12]
(b) Discuss how far a countrys standard of living is determined by factors beyond its control. [13]
7 (a) Some African countries are richer in natural resources in the form of minerals and land
than some developed countries. Why then are these same African countries referred to as
developing countries? [12]
(b) Use the concept of the multiplier to discuss how an increase in investment in a developed
country might affect both the developed country and developing countries. [13]
UCLES 2010 9708/43/O/N/10

2
Section A
1 Unemployment and Spending
In 2009 a recession occurred in America and Europe where unemployment rose. As well as seeing
their incomes fall as employers cut wages and jobs, households also saw the value of their homes
and savings shrink dramatically. This led to a swift reaction from consumers who reduced spending
and increased savings, and planned to live within their income.
The change in consumer spending habits, as shown in Fig. 1, in both America and the European
countries in the Euro area, caught retailers and manufacturers by surprise. In response companies
tried to increase revenues by using advertising and sales promotions, often without success.
Fig. 1: Annual % change in volume of retail sales
10.0
7.5
5.0
2.5 Key:
+
0 US
Euro area
2.5
5.0
7.5
1999 2001 2003 2005 2007 2009
Sources: US Census Bureau; Eurostat
There was a trend towards buying environmentally-friendly products and healthy foods although
consumers became less willing to buy them at the higher prices at which they were normally sold.
Producers launched lower-priced products to avoid losing customers.
Interestingly, while sales of luxuries such as long-haul holidays declined, consumers looked for
something less expensive to make them feel good. Purchases of cosmetic items, such as skincare
products and fragrances, increased in the recession. Paying by cash, instead of by credit card,
gained popularity. 80% of consumers surveyed said they preferred to pay by cash rather than by
credit card.
Consumers also began to place more trust in recommendations, searching for information on
products in reviews on websites, rather than buying by brand name alone. The recession has
made consumers more likely to demand value for money.
UCLES 2011 9708/41/O/N/11

3
(a) In which year in the US did retail sales stop increasing? [1]
(b) Compare the trend in sales between the US and the Euro area between 1999 and 2001. [3]
(c) Draw a budget line diagram and explain how it might be used to illustrate
(i) lowering the price of a product and

(ii) a fall in income. [4]
(d) Briefly explain the equi-marginal principle of utility and consider whether it still applies if
consumers pay more by cash and less by credit card. [4]
(e) Unemployment is often said to be a disadvantage for all businesses. Assess whether the
article provides evidence to support this opinion. [8]
UCLES 2011 9708/41/O/N/11 [Turn over

4
Section B
2 The removal of imperfections in the market leads to an increase in efficiency in the allocation of
resources. Discuss whether you agree with this view. [25]
3 (a) Explain what is meant by normal and abnormal profit and when such profits might occur. [12]
(b) Discuss what economic theory suggests are the characteristics and possible behaviour of
firms in an oligopolistic market. [13]
4 Assess the opinion that the difference in the supply of labour is the only reason explaining the
difference in wage rates between occupations. [25]
5 (a) Two economic indicators are Gross Domestic Product (GDP) at market prices and
Net National Income (NNI) at factor cost. Explain what is meant by an economic indicator and
the differences between the two indicators mentioned. [12]
(b) Discuss whether GDP is the best indicator which can be used to compare the standard of
living in a developing country with that in a developed country. [13]
6 (a) Explain the main macroeconomic aims a government might have and analyse which would
be the most important for your country. [12]
(b) Discuss whether it is possible to aim for all the main macroeconomic objectives without
causing conflicting outcomes. [13]
7 It is reported that some countries are concerned about the expected increase in the proportion of
older people beyond working age and also about the rise in the number of immigrants.
(a) Explain how these expected changes might have an impact on the private and public
expenditure in such countries. [12]
(b) Evaluate the policies a government might use to influence the distribution of income in an
economy. [13]
Question 1 Consumer Psychology ; www.economist.com/displaystory.dfm?story_id=13415207 accessed on 31/08/09 19.30; The Guardian 29/08/09 p.3
UCLES 2011 9708/41/O/N/11

2
Section A
1 A comparison of the Japanese and UK economies
By the start of 2009, Japans economy had suffered its worse contraction for over 50 years. The
worlds second-largest economy saw a fall of 15.2% in Gross Domestic Product (GDP) between
2008 and 2009. Japans economy is dependent on exports, which fell by a record 26% in the last
quarter of 2008, forcing companies to cut production as they had much spare capacity. Business
investment declined by 10.4% during 2008. Weaker domestic consumer demand was also a cause
in the fall of GDP in 2008 but this declined by only 1.1%, much less than business investment
demand. However, by March 2009 industrial production started to increase and there were hopes
that the economy would start to grow again.
In the UK, between 2008 and 2009, GDP fell by 5.7%. It was thought that it would take some time
to reverse the recession. Export orders continued to decline sharply and this, an industry leader
said, is a particular concern as we are not seeing much of a boom in exports from the weakness
of sterling. Also, manufacturers had cut costs, reduced the number of people employed and
experienced reduced profits. However, they still had excess stocks and it was not thought likely
that investment would increase quickly. Consumer spending declined as consumers were unsure
of the future. With rising unemployment, likely tax increases and a lack of credit facilities from
the banks, the decrease in spending was hardly surprising. The inability of consumers to obtain
credit caused a decline in house building, which had further negative effects on employment in the
construction industry.
Fig. 1: Annual % change in Japans GDP Fig. 2: Annual % change in UKs GDP
10
6
5
0 3
5 0
10
3
15
20 6
2005 2006 2007 2008 2009 2005 2006 2007 2008 2009
Source: Japan Cabinet Office Source: Thomson Datastream
(a) Why is GDP an important economic indicator? [3]
(b) Use Figures 1 and 2 to compare the change in the GDP of the UK and Japan between 2005
and 2009. [4]
(c) The article states the sharp decline in export orders is a particular concern as we are not
seeing much of a boom in exports from the weakness of sterling.
Analyse what this means. [5]
(d) Discuss whether the evidence suggests that the changes in GDP in Japan and the UK were
caused by similar events. [8]
UCLES 2011 9708/42/O/N/11
3
Section B
2 (a) Explain the link between a consumers expenditure and the equi-marginal principle of utility.
[12]
(b) Analyse what is meant by economic efficiency and assess whether efficiency is always
achieved in a market. [13]
3 (a) Consider whether small firms should be encouraged in an economy. [12]
(b) Economic theory states that large firms have lower average costs than small firms.
Discuss whether this statement is necessarily true. [13]
4 The market is the fairest means of wage determination.

To what extent do you support this opinion? [25]
5 (a) Explain what is meant by government macroeconomic policies and government microeconomic
policies. Illustrate your answer with two types of policy from each. [12]
(b) Consider how government economic policies might be used to help a country out of a
recession. [13]
(b) Assess, using the concept of liquidity preference, the possible links between an increase in
the supply of money, the rate of interest and investment. [13]
7 Some economies are said to be developing while others are developed. Explain the difference
between the two and discuss whether the problems of a developing economy would be solved if it
achieves developed status. [25]
UCLES 2011 9708/42/O/N/11

2
Section A
1 Farmers, consumers and climate change
Some people have become concerned about the amount of poisonous gases and carbon emissions
being produced. They say it will lead to a change in climate which will have an economic effect.
When buying products, consumers sometimes ask what country has it come from? They are
concerned about the long-term economic effects of the exploitation of resources. Some argue
that carbon emissions caused by transport should be reduced. They think people should buy local
products, even though they may be more expensive, and not buy those which have been sent long
distances.
The situation is not as straightforward as they suggest. Research by one university shows, for
example, that carbon emissions produced by growing flowers in the powerful Kenyan sun and
flying them to the UK can be less than one-fifth of the carbon emissions from producing and
transporting flowers from Holland. Holland is much nearer to the UK, but uses greenhouses that
need to be lit and heated.
Transport does have an environmental and social cost but most of that cost comes from domestic
road travel. Air-freight to the UK from Africa accounts for less than 0.1% of UK carbon emissions,
and the 1m a day that UK shoppers spend on food from Africa is vital to ease the poverty of
millions of Africans.
It is said that the worlds poorest people in developing countries, least responsible for climate
change, are most under threat. In Bangladesh, excess rains and floods mean that farmers can no
longer grow their crops. One family said that for the past seven years crops failed because of the
floods and they could not buy clothes or food, or pay for education.
In many African countries small farms are the largest private sector activity. They provide jobs
and enable growth of rural businesses. Agriculture accounts for about 30% of Gross Domestic
Product (GDP) in sub-Saharan Africa, at least 40% of its exports and up to 80% of employment.
Agricultural production is subject to unpredictable weather, which creates economic uncertainty.
A more stable farm economy could overcome that uncertainty by creating jobs and associated
small-scale manufacturing such as food processing.
An African farmer said the idea of supporting African farming has been forgotten in favour of
reducing the carbon emissions of the developed world by abandoning the trade with developing
countries on which local people have come to depend. It is made worse by the fact that the local
people do not eat the crops that are grown for export, so the food cannot be sold locally.
(a) Explain what is meant by a developing country. [4]
(b) Explain why some suggest that consumers in a developed country should buy local products
and not products from developing countries. [2]
(c) Marginal utility theory explains how a rational consumer behaves. Briefly explain this idea and
consider whether buying a more expensive product contradicts this theory. [6]
(d) Is there any evidence in the article to support the opinion that the poorest people in developing
countries are most under threat from climate change? [8]
UCLES 2011 9708/43/O/N/11

3
Section B
2 There is little difference between perfect and imperfect markets. They all have profit maximisation
as an aim, they all are subject to competition and they all exploit resources for the producers
benefit and not the consumers.
To what extent do you agree with this statement? [25]
3 Car companies employ thousands of people and are an important part of the international trade of
some countries. During the recession in 2009 some governments gave subsidies to consumers to
encourage them to replace their old cars with new ones.
(a) Explain what effects an increase in consumer expenditure and an increase in government
subsidies might have on national income. [12]
(b) Discuss whether diverting expenditure to the car industry might conflict with other
macroeconomic government objectives. [13]
4 (a) In a perfectly competitive labour market, is the demand for a workers services the main factor
influencing the wage rate of that worker? [12]
(b) Analyse how the wage rate paid might change if labour and product markets move from being
perfectly competitive to being imperfectly competitive. [13]
5 In 2009 the International Monetary Fund (IMF) said that it expected global economic growth to fall
below zero making it the worst performance in most of our lifetimes.
(a) Explain how economists measure a countrys economic growth rate. [12]
(b) Assess the effectiveness of economic growth as an indicator of how a countrys standard of
living compares with other countries. [13]
6 (a) Explain the three reasons, according to the liquidity preference theory, why people demand
money. [12]
(b) Use the liquidity preference theory to discuss the possible consequences of an increase in
the supply of money. [15]
7 Economists talk about the need for resources to be used efficiently. Explain what they mean by
this and discuss whether it is possible in practice to achieve such efficiency. [25]
UCLES 2011 9708/43/O/N/11

2
Section A
1 Budget deficits
The recent world recession has resulted in an increased government budget deficit in many
European countries. Fig. 1 shows budget deficits and economic growth rates for 2010 together
with expected economic growth for 2011 for selected countries.
Fig. 1
UK Germany
budget economic budget economic
deficit growth rates deficit growth rates
% of GDP % of GDP
2.1%
10.4% 1.2%
5.0% 1.2% 1.6%
2010 2010 2011 2010 2010 2011
Portugal Hungary
budget economic budget economic
deficit growth rates deficit growth rates
% of GDP % of GDP
2.8%
8.0%
4.1%
0.5% 0.7% 0%
2010 2010 2011 2010 2010 2011
Below are two opinions about budget deficits.
First opinion
Budget deficits should be reduced quickly by immediate reductions in public spending. An economy
needs to grow and reductions in public spending encourage growth in the private sector. If the
economy grows, wages will rise. Consumers feel safe to borrow and consume more. Investors will
expect better returns if growth increases and they will also know that the deficit has been reduced
by cuts in public spending and not by tax increases.
Second opinion
In 2009 there was a massive reduction in demand by the private sector in some countries. To
offset the reduction in private spending, some governments believed they should increase public
spending. This would cause a larger budget deficit and provide a stimulus to demand. Businesses
need increased demand to invest and innovate. Increased demand causes a multiplier effect on
national income. Demand is central to the debate about budget deficits.
UCLES 2012 9708/41/O/N/12

3
Below is a newspaper comment on these two opinions.
By 2010 the falling value of some countries currencies stimulated international demand for their
tradable goods, resulting in manufacturing growth. Some argued that this growth in exports meant
it was possible for the government to decrease its spending to reduce the budget deficit.
Others argued that this growth in exports would be insufficient and raised the question where
would demand for the economys output then come from? They said it would not come from
the public sector because the decrease in government spending would put people out of work,
ruin small businesses and damage some larger ones. It would not come from the private sector
because interest rates on borrowing in some countries had been at record low levels for some time
but this had failed to stimulate demand. They believe it is better to wait until an economy grows
and repay the deficit by reducing public spending gradually. (Source: The Observer 13/06/10)
(a) The data refers to a government ..... budget deficit. Explain what this means. [2]
(b) Use Fig. 1 to consider whether there is a link between the size of the budget deficit and
economic growth. [4]
(c) Explain how the falling value of some countries currencies stimulated international demand
for their tradable goods, resulting in manufacturing growth. [4]
(d) Use the evidence given to discuss the similarities and differences in the two opinions and
consider which you think is more appropriate to overcome a recession. [10]

4
Section B
2 (a) Explain how the law of diminishing marginal utility might be used to construct a consumers
demand curve for a product. [12]
(b) Analyse how budget lines may be used to illustrate what happens for both a normal good
and an inferior good when the price of the good increases at the same time as a consumers
income increases. [13]
3 (a) Explain why a firms short-run average cost curve is usually drawn as a U shape and explain
the link between the short-run average cost curve and the long-run average cost curve of
a firm. [12]
(b) It is said that perfectly competitive firms and monopolies aim to maximise profits. Discuss
whether price, output and profit levels are, therefore, likely to be the same in perfectly
competitive firms as in monopolies. [13]
4 The differences in wage rates paid in different occupations are caused entirely by the differences
in the elasticity of supply of labour. The way, therefore, to overcome the differences in wage rates
is to increase the training available to workers.
Discuss whether economic analysis supports this argument. [25]
5 (a) Explain what is meant by an inflationary gap. [12]
(b) Discuss the effectiveness of the policies a government might use to reduce an inflationary
gap. [13]
6 Whether a country can be classified as developed depends on the value of its GDP and the higher
the GDP the better it is for the country.
Assess this opinion. [25]
7 (a) Explain what is meant when it is said that there might be inefficiencies in the production of
goods and in the allocation of resources. [12]
(b) Discuss whether the best way to overcome market failure is to control private enterprise by
means of taxation. [13]
Question 1 Figure 1: The Guardian 12/06/10 p. 34 and The Observer 13/06/10
UCLES 2012 9708/41/O/N/12

2
Section A
1 Income from migrant workers
The recent financial crisis has slowed down economic growth worldwide but the number of migrants
seeking work in another country is still increasing. One reason for this is that the countries from
which workers leave may have experienced a severe recession making workers willing to travel
abroad to do unpopular jobs that others avoid. A further reason is that many migrants move to
join other members of their family which helps explain why migration, once established, is hard to
reverse.
Workers going abroad are particularly important for the Philippines, where 25% of the labour
force work overseas. Doctors go abroad to work as nurses; teachers go to work as housemaids.
In addition, local centres train workers to enable overseas work. For example, workers train to
clean cabins on cruise ships in the hope that they will be able to earn four times the local wage
for cleaning. The workers send money home (migrant remittances) to support their families. This
money can provide food, clothing, housing, pay for educational expenses or for investment in small
enterprises.
Migrant remittances could become even more important to a country because experts predict
that aid and foreign direct investment in developing countries could be halved as a result of the
20092010 financial crisis.
There is a debate about the use of migrant labour. For employers, there is an advantage in
employing cheap foreign labour in order to reduce costs. However, the consequence of using
foreign labour is that domestic workers are being replaced. There is also little or no incentive for
manufacturers to mechanise their production processes because it is cheaper to use labour than
invest in capital-intensive machinery.
The flow of money from migrant workers has been rising by as much as 33% each year in some
areas, but the rate of growth is beginning to slow down. In 2007, the World Bank predicted that, by
2009, the amount sent home by the worlds 150 million international migrants could fall by about
1%. Mexico, the third biggest recipient of migrant remittances in the world, estimated in 2007 it
would receive $23.8bn but that this would fall in 2008 by almost 8%.
In 2010, a different organisation produced the following table of migrant remittances.
Table 1: Money sent home by migrant workers to selected countries (US$ billion)
Country 2006 2007 2008 2009

US$ bn US$ bn US$ bn US$ bn
India 26.9 27.0 45.0 55.0
China 22.5 25.7 40.5 n/a
Philippines 12.7 14.4 16.4 17.3
Mexico 25.6 26.1 25.1 21.2
Bangladesh 5.5 6.6 9.0 10.7
UCLES 2012 9708/42/O/N/12

3
(a) What might be concluded about the Philippines economy from the information given? [4]
(b) How far is the information in the fifth paragraph of the article supported by the evidence in
Table 1? [4]
(c) Assess whether it is beneficial for the receiving country to use migrant labour. [5]
(d) Discuss the overall effect of the outflow of workers on the economy of their home country. [7]
Section B
2 A study found that demand for tickets for exhibitions at a major art gallery had unitary price
elasticity.
(a) Explain how the concept of diminishing marginal utility may be used to construct a demand
curve for the product and whether that analysis still applies in the case of demand for tickets
for the exhibitions. [12]
(b) Discuss whether the law of diminishing returns contradicts the concept of economies of scale.
[13]
3 (a) Explain what is meant by an oligopoly market and why prices might fluctuate less in an
oligopoly market than in a perfectly competitive market. [12]
(b) Discuss whether a firm in monopolistic competition is more likely to act in the public interest
than a firm that is a monopoly. [13]
4 Some workers producing non-essential luxury goods or services are paid very highly. The wage
rate is not related to the economic value of a good or service but more to social factors or fashion.
The economic theory of wages is, therefore, of little use in explaining wage differentials.
Assess this argument. [25]
5 It is said that the lack of investment funds for private companies from banks leads to temporary
closures of factories which then become permanent and cause long-term unemployment. This
loss of output will lead to a possible recession.
Analyse each part of this argument and discuss whether you agree with it. [25]

4
6 (a) Explain how the age and employment structures of the population of a developing country are
likely to differ from those of a developed country. [12]
(b) You are told that a country has problems relating to overcrowding, unemployment and
pollution.
Discuss whether the existence of such problems necessarily means that the country must be
a developing country. [13]
(b) Too much money causes inflation. Discuss the main macroeconomic aims of the government
and consider whether it should give priority to the limitation of inflation in achieving economic
well-being. [15]
Question 1 Adapted from an Extract from The New York Times published in the Observer 6.6.10.
Question 1 http://www.ifad.org/remittances/maps/brochure.pdf.
Question 2 Innovation in Arts and Cultural Organisations; Hasan Bakhshi and David Throsby
Question 2 NESTA (National Endowment Science Technology and the Arts) INTERIM RESEARCH REPORT 1 December 2009).
Question 5 Sunday Telegraph 07.02.10.
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2
Section A
1 The virtual economy is set to make billions
There has been a rapid growth in companies that sell virtual goods on the Internet. The goods do
not exist, they are only pictures on a screen used to play computer games. One game for example
puts the consumer in the position of a farmer. Items for the farm, such as farm animals, crops and
farm buildings, can be purchased. However, the farm buildings and the crops and animals are not
real. They are only computer graphics on the consumers home computer.
One firm has spent US$10m in the last ten years promoting these games. Its director said In
the last two years we have seen the revenue of firms in this industry go from nothing to tens and
hundreds of millions of dollars.
The director of another firm said We have two different revenue sources. The first is the sale of
the virtual goods for the games, the second is the revenue from other firms who wish to advertise
within the game.
Some items are acquired by consumers because they accumulate points by completing an activity
within the game, such as harvesting a crop. Other items can be purchased to speed up the game.
Part of the motive, said one consumer who spends about US$10 a month on virtual goods, is to
impress your friends and let them see all the virtual goods you have won or bought. It has now
become a popular thing to do. Central to the increased popularity of the games is the fact that the
virtual goods can be purchased through social networking sites such as Facebook and MySpace.
Fig. 1: Facebooks Membership
Jul 10 500 million

500 million Feb 10 400 million
400
300
200 Aug 08 100 million
100 Dec 04 1 million
Dec 2004 Jul 2010
Proof of the attraction of this market is the fact that the social networking sites are negotiating with
the virtual goods firms to get a percentage of the revenue every time a consumer purchases a
virtual tractor or crop.
The promoters of the virtual goods say it enables consumers to buy products without the rush and
crowds of shops. They are easy to buy and that is why people are prepared to buy products that
do not exist.
The firms claim that tens of millions of people buy the virtual products. In December 2009 one of
the firms sold part of its business to another firm for US$113 million, whilst another was valued at
US$400 million.
The director of one virtual goods firm said the industry is one of the most exciting developments of
2009, it is in the early stages of growth but it is growing fast.
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3
(a) Identify two reasons given why people purchase virtual goods. [2]
(b) (i) What indicators may be used to determine whether a firm is large or small? [4]
(ii) Is the evidence given enough for you to determine whether the firms that sell virtual
goods are large or small? [4]
(c) The article says that customer numbers are increasing rapidly. What is likely to happen to the
total fixed costs and total variable costs of the virtual goods company as this occurs? [4]
(d) From the evidence given, discuss whether it is wise for a firm to spend money advertising
products that do not exist through sites such as Facebook on the internet. [6]
Section B
2 The achievement of equilibrium in a market rests solely on the ability to measure marginal utility.
This is not possible and, therefore, equilibrium in a market can never be achieved. Discuss this
argument. [25]
3 (a) With the help of diagrams, analyse how a firm can experience both diminishing returns and
economies of scale. [12]
(b) Monopolies create a deadweight loss. They should always be discouraged.
4 The economic analysis of wage determination states that all wages rates in different occupations
will in the long run become the same and equal to the average product of labour.
Discuss this statement. [25]
5 In 2010 a number of governments were concerned that they had large budget deficits. A group of
economists recommended that the deficit should be reduced by public spending cuts rather than
tax increases.
(a) Explain what is meant by a budget deficit and why a large deficit might be a source of concern.
[12]
(b) Discuss the similarities and differences of using spending cuts or tax increases as a means of
solving budget deficits. [13]

4
6 (a) Explain the causes of unemployment and consider which cause is the most significant for a
country with which you are familiar. [12]
(b) The main guide to the economic development of a country is the proportion of its working
population engaged in the tertiary sector. Discuss whether this statement is true. [13]
7 The table below shows figures for GDP for two countries in 2000 and 2010.
Country GDP 2000 GDP 2010

$US billions $US billions
USA 9 825 13 271
India 469 929
Discuss whether the above figures are sufficient to conclude that the standard of living in the USA
is higher than the standard of living in India. [25]
Question 1 BBC news channel bbc/co.uk/1/hi/technology/8425623.stm accessed 30/12/09).

Figure 1 Facebook.com.
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2
Section A
1 Banks, supermarkets and oligopoly market power
Some banks have been accused of having a control over the market that enabled them to get
away with poor service, confusing products and dishonest claims about free banking. However, the
banks maintained that their size created economies of scale, the benefits of which were passed
on to consumers in the form of lower prices. A report stated that the banks claim was not correct.
Any benefits went mainly to shareholders and not to consumers. The banking industry, it said, had
many of the characteristics of an oligopolistic market. The report said that charges for services
were often difficult to determine and that obstacles which prevented customers switching accounts
to rival banks meant that the banking industry was not competitive. (Source: The Independent)
Another industry dominated by a few large firms is food retailing. Morrisons is such a firm with 420
stores. It is the fourth biggest supermarket in the UK with a 12.3% market share in 2011 (its three
main rivals had market shares of 30.3%, 16.9% and 16.5% based on the value of total sales).
Unlike its bigger competitors, Morrisons owns many of the factories from which it gets its food.
This vertical integration gives it an advantage over rivals. In addition, some of the products it sells
are made in its supermarkets. It started to produce its own products in order to save costs. The
stores have, for example, their own bakeries and butchers. The supermarket has plans to introduce
home deliveries, on-line ordering and take-away meals. Its aim is to grow further. It recognises
that it would take years to match the market share of its bigger rivals but it wants to be a more
dangerous competitor. (Source: The Sunday Telegraph)
Table 1: Sales and Market share of UK supermarkets and smaller shops
Supermarket Value of Sales Market Value of Sales Market % Sales

and shops December Share December Share change
2009 to % of 2010 to % of Dec. 2009
February 2010 total February 2011 total Feb. 2010
m Sales m Sales compared to
2010 2011 Dec. 2010
Feb. 2011
Tesco 7 102 30.4 7 352 30.3 3.5
Asda 3 973 17.0 4 095 16.9 3.1
Sainsburys 3 799 16.3 3 998 16.5 5.2
Morrisons 2 865 12.3 2 992 12.3 4.4
All other
5 630 24.0 5 851 24.0 3.9
food shops
Total 23 369 100.0 24 288 100.0 3.9
(Source: http://www.kamcity.com)
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3
(a) The supermarket claims that it benefits from integration. The banks maintain they have
economies of scale. Distinguish between integration and economies of scale. [4]
(b) Analyse how any increased integration might affect the costs of a supermarket. [4]
(c) Comment on the performance of Morrisons between 20092011 compared with its larger
competitors. [4]
(d) Is there enough evidence in the information to conclude that banking and food retailing are
oligopolistic markets? [8]
Section B
2 Choice is an essential part of the analysis in economic texts.
(a) Explain how economic analysis suggests that consumers make a choice when buying
products and how they react to price changes. [12]
(b) Discuss the possible choices a firm might face when deciding what business objective it
should have. [13]
3 The economic theory of wages can explain wage determination in a perfect market. This, however,
is of little use as all markets are imperfect and the theory has no relevance in such markets.
4 In 2011, an economic advisor recommended that low interest rates in a country should continue
because of the uncertainty about the ability of the economy to grow. (Source: The Independent)
(a) Explain the possible link between interest rates and the economic growth of an economy. [12]
(b) Discuss what other policies a government might use to encourage economic growth. [13]
5 The many difficulties involved in measuring living standards mean that it is never possible to be
certain that the people in one country are better off than those in another country.
How far do you agree with this comment? [25]
Please turn over for rest of the questions.

4
6 (a) Explain the possible causes of a rise in unemployment. [12]
(b) In 2011, a government announced that it would reduce the number of people employed in the
public sector and that pensions would be paid at age 65 rather than age 60.
Discuss how, according to the liquidity preference theory, a persons demand for money might
be affected by the above announcement. [13]
7 The increase in air travel has led to the pressure to build larger or extra airports. Airports create
jobs, provide the facilities for international trade and bring income to the country. They also can
cause noise pollution and sometimes destroy areas of natural beauty.
(a) Explain what is meant by efficiency in the use and the exploitation of resources. [12]
(b) Discuss whether the creation of income through such projects as the building of airports
should be left to the private sector. [13]
Question 1 The Independent 2.4.11.

Question 1 The Sunday Telegraph 26.12.10.
Question 1 Table 1 http://kamcity.com.
Question 4 The Independent 4.4.11.
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2
Section A
1 The objectives of firms
Unilever, a multinational global food manufacturer, with many branded products, has announced
a partnership with Oxfam, the international relief agency, to help farmers in developing countries.
Unilever welcomed the partnership and said that their objective was to double the size of our
business while halving our environmental impact. We want to do this by maximising the positive
social impact of our business. A major element of this is to promote better livelihoods by
incorporating 500 000 small farms in developing countries and small-scale distributors into our
supply chain. This way we hope to have a positive impact on the lives of people living in poverty.
Historically, companies in the food and drink industry have tried to improve efficiency and minimise
costs by reducing the number of international suppliers they use. However, Oxfam said that firms
are now starting to consider new ethical business models about how they source their produce.
There is a need to move away from a short-term focus on profit margins and consider long-term
objectives.
In 2011 a drugs company, GlaxoSmithKline, (GSK), manufactured a new medicine which had a
higher market price than a rival medicine from another company. The medicine was expensive
to research and produce. The expected annual revenue for the company from the sale of the
medicine was estimated to be around US$314m; the annual cost of hospital treatment with the
medicine for just one patient was around US$23 000. A government negotiated a new type of deal
with GSK. The company agreed that it would supply public sector hospitals with the medicine at
the same price as its rivals product. It would also return some of the revenue it received from the
hospitals if its product proved to be less successful than the rival product. The government said it
was introducing a value-based pricing model. A spokesperson for GSK said we are moving in the
direction where price is determined by value and value is determined by evidence.
(Source: The Sunday Telegraph)
(a) In what type of market structure is Unilever likely to be operating? Explain your answer. [3]
(b) Why might it be thought that there could be a conflict between Unilevers stated objective and
its policy concerning its suppliers? [5]
(c) GSKs new drug was expensive to research and develop. Why might a company conduct
research and development (R&D) if it is so expensive? [4]
(d) Discuss whether there is enough evidence in the information to conclude that the objective of
Unilever and GSK is not that of profit maximisation. [8]
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3
Section B
2 (a) Use the theory of marginal utility to analyse how a consumer will normally buy more of a
product at a lower price than at a higher price and explain how this theory can be used to
derive a market demand curve. [12]
(b) Economic texts examine market equilibrium. Discuss whether it is the consumer or the
producer who determines the equilibrium market price and whether consumers have the
same power in all types of market structure. [13]
3 (a) Analyse whether in a perfectly competitive labour market it is true that a profit maximising firm
will employ labour only up to the point where the marginal revenue product of labour is at its
maximum. [12]
(b) Discuss whether the marginal revenue productivity theory of wages is useful in explaining
wage determination in an imperfect market where there is a trade union. [13]
4 In the economic recession of 2011 many private sector firms were still able to announce that
they were successful and had made substantial profits. Large bonuses were paid to directors and
shareholders received large dividends.
Discuss whether it is better for an economy if the allocation of resources is left entirely to the
private sector operating through the market system. [25]
5 (a) Explain, using the concept of the multiplier, the possible link between a fall in interest rates
and an increase in national income. [12]
(b) Discuss whether the use of fiscal policy is the only effective means of stimulating economic
growth. [13]
6 While the overall aim may be to improve the economy, governments find that their macroeconomic
policies sometimes conflict with each other. Explain why some government economic policies may
conflict with each other and discuss which should be given priority. [25]
7 A country has a high level of unemployment and a low level of GDP. Discuss whether this situation
is a good indication that the country is a developing country. [25]
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2
Section A
1 The effect of oil price rises
In 2011, there were big increases in oil prices which led to comparisons with a period in the 1970s
when oil prices also rose steeply. In the 1970s, the macroeconomic policy used in the UK was to
increase budget deficits. By contrast, in 2011, the macroeconomic policy was to try to reduce the
budget deficit.
In the 1970s some thought the effect of oil price increases would be inflationary while others
thought the effect would be deflationary. The following points were made.
In the 1970s
consumers would have to spend more on oil but they would spend less on other things.
consumers would not spend their savings.
firms could pass on the increased cost of production, caused by higher oil prices, to
consumers.
oil prices were an important item used in the construction of the consumer price index.
oil producers and suppliers would not necessarily spend their increased revenues.
Table 1 below shows the rate of inflation in the UK in the 1970s.
Table 1: UK inflation rates in the 1970s
Year 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979
Inflation rate % 6.40 9.40 7.10 9.20 16.00 24.20 16.50 15.80 8.30 13.40
(Source for Table 1: http://www.whatsthecost.com)
In 2011, oil prices increased again. The question then was whether the outcome would be the
same as in the 1970s. Again some said there would be deflationary effects, while others predicted
inflationary effects. In addition to the points that were made about the 1970s price increase, these
further points connected with the economic context of 2011 were considered.
In 2011
oil prices rose by 50% compared with 240% in the early 1970s.
consumers faced potential unemployment in the private sector from low growth rates as
economies tried to recover from a world banking crisis and recession.
consumer spending on oil as a percentage of GDP was about 40% lower than its 1970s
level.
economies were less dependent on oil than in the 1970s.
workers in the public sector were worried about possible unemployment as the public
sector was reduced in size.
reduced government spending had a downward effect on employment in all sectors.
(Source: The Daily Telegraph)
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3
(a) The information mentions that some thought the effect of oil price increases would be
deflationary. Explain what economists mean by deflationary. [2]
(b) Refer to what actually happened to the rate of inflation in the UK as shown in Table 1:
(i) Explain which, if any, of the points made about the 1970s could have caused what is
shown in Table 1. [4]
(ii) In the 1970s the UK government had a macroeconomic policy of increasing the budget
deficit. Explain how this policy might have contributed to what is shown in Table 1. [6]
(c) From the information given consider whether the effect of the rise in oil prices in 2011 was
more likely or less likely to have been inflationary compared with the 1970s. [8]
Section B
2 (a) Explain how, according to marginal utility theory, consumers reallocate their expenditure
between different products as prices change. [12]
(b) In reality perfect competition is seldom found, and firms use advertising to persuade
consumers to buy their products.
Discuss whether imperfect competition means that markets are controlled only by producers
and the traditional idea that the consumer determines what happens in the market based
upon utility theory is no longer valid. [13]
3 (a) Do you agree with the view that in a perfectly competitive labour market wages are higher in
some occupations than others only because of the differences in the supply of labour? [12]
(b) A country has a minimum wage rate fixed by law. Discuss whether this can be included in the
economic analysis of the theory of wages in an imperfectly competitive labour market. [13]
4 Some companies claim that restrictive regulation by governments is the biggest threat to business
growth. (Source: The Independent)
(a) Explain what is meant by:
(i) a deadweight loss, and

(ii) price discrimination. [12]
(b) Discuss which is more beneficial, firms that remain small or firms that grow in size. [13]
5 Governments of developing countries often argue that the economy has improved while they have
been in power. Explain what economic indicators might be used to support their argument and
discuss the usefulness of that data in illustrating an improvement in a developing economy. [25]

4
6 Some governments place great emphasis on the aims of economic growth and keeping the level
of unemployment low. How far do you agree that these aims should be the most important of a
government? [25]
7 It is said that the market does not allocate resources efficiently and that market failures occur.
However, there need be no concern about market failure. All types of market failure can easily be
overcome if the government intervened in the price system.
Discuss this argument. [25]
Section A Question 1 ADAPTED: Roger Bootle; Comment: A continued high oil price will bring ups and downs ; Business Section; The Daily Telegraph;
Section A Question 1 ADAPTED: http://www.whatsthecost.com/historic.cpi; 27 July 2011.
Section B Question 4 ADAPTED: Business Section; The Independent; 4 April 2011.
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2
Section A
Employment in India
1 It is well known that many foreign countries have opened offices in India to take advantage of its
low-cost labour force. Less well known is the extent to which Indian firms employ other firms within
India to do their work. Compared with other economies most manufacturing firms in India are small
when measured by the number of permanent workers. However, they increase their labour force
by employing temporary workers from private employment agencies whenever they are needed.
Walk into any of Indias new shopping malls and many of the shop workers, caretakers and security
staff will be employed by companies other than those of the owners of the mall or the shops within
it. These workers are paid as little as half what the permanent workers earn and normally receive
few extra benefits, such as paid holidays. Although each state in India has its minimum wage, it
applies only to the permanent workers, not to temporary workers.
Fig. 1: Table 1:
Temporary workers as a percentage of all workers in India Percentage of all firms with
fewer than ten permanent
25% workers, in 2007
20 24.3%
China 4%
15 U.S. 11%
15.7% South Korea 13%
10 Poland 18%
Italy 26%
5 India 89%
0
2000 2004 2007
Source: Indian Labour Bureau; OECD
This employment model is also described as unsatisfactory by managers. They say that they
have to hire and train temporary workers who have no loyalty to the firm and that finding skilled
temporary workers is difficult. They say it restricts the growth of the firm and does not create
enough new jobs for the 12 million who enter the labour force each year.
Many economists assert that Indias labour laws will continue to restrict growth in the number
of jobs. This is not good for Indias economy overall, although it does allow private employment
agencies to profit from the supply of temporary workers.
Source: extract from New York Times, 2011
(a) Identify three reasons why temporary workers in India are disadvantaged compared with
permanent workers. [3]
(b) Is the evidence given sufficient to support the statement that most manufacturing firms in
India are small? [4]
(c) Distinguish between fixed cost and variable cost and consider how temporary workers and
managers would be classified. [3]
(d) Discuss whether the payment of low wages could be good for Indias economy. [10]
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3
Section B
2 (a) Analyse whether there is a difference between:

the way the effects of an increase in price can be represented using a budget line, and
the way the effects of an increase in price can be represented using a demand curve
based on marginal utility theory. [12]
(b) Discuss what is likely to happen to the equilibrium price and output if a perfectly competitive
firm were to become a monopolist. [13]
3 In the recession of 2012, some European firms declared that their profits were not as high as in
the previous year.
(a) Explain how, in theory, a firm might try to increase its profits. [12]
(b) Discuss what alternative objectives a firm might have apart from profit maximisation. [13]
4 (a) Employment is likely to decrease if wages fall.

Employment is likely to decrease if wages rise.
Consider whether these apparently contradictory statements are true in the analysis of the
demand for and supply of labour. [12]
(b) Discuss how wage rates might differ between a perfect and an imperfectly competitive market
for labour. [13]
5 An economist stated you cannot encourage economic growth, and cut spending and increase
taxes at the same time. (Source: The Times. 2011)
(a) Explain the costs and benefits of economic growth. [12]
(b) Discuss whether economic analysis can be used to support the statement of the economist.
[13]
6 Government economic policy should be directed to increasing the standard of living employment,
health, education and a sustainable environment. It should not concentrate on fixing prices, raising
taxes and regulating bank lending.
Discuss whether there is any truth in this statement. [25]
7 The transfer of some functions of the public sector to the private sector is the best way of ensuring
efficiency. It is, therefore, worthwhile.
Is this an argument with which you agree? [25]
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2
Section A
1 Integration and market supply
Article 1. Cisco is a telecommunications company that profited from the rapid growth of the Internet in
the 1990s by producing a wide range of equipment that became vital for companies providing internet
services. It is now a world leader in this area.
In 2012 Cisco announced its intention to acquire Lightwire Inc. another telecommunications company.
Cisco said that the acquisition would result in the integration of two comparable businesses. It would
allow it to meet customers demands for smaller and more powerful equipment and at the same time
customers capital and operating costs could be reduced. Cisco said Lightwires employees would
become Cisco employees.
Source: http://newsroom.cisco.com
Article 2. In Australia two big supermarket chains control up to 80% of grocery sales. They wish to
increase the percentage of products carrying their own supermarket label (own-brand) from the current
20% of stock to over 40%. Analysts say this aim implies that supermarkets will engage in integration
by taking over their suppliers and they are concerned about the effect on the 225 000 workers who
manufacture alternative brands. They are also concerned about the effects it will have on consumers,
competition and on Australias capabilities as a food exporting nation.
Many manufacturers rely on the two dominant supermarkets as a means of getting their products to
consumers. The supermarkets have adopted an aggressive attitude towards the manufacturers, for
example, by forcing them to accept lower profits for their products. It is argued that stronger supervision
by Australias Competition and Consumer Commission is required to monitor the supermarkets to
ensure fairness and prevent a misuse of market power.
Some manufacturers, as well as making their own products, also supply the supermarket with its own-
brand products which are usually cheaper for the consumer. This provides both volume and certainty
of sales for the manufacturer in the short run. However, it means that the manufacturer is effectively
competing with itself, risking its long-term competitiveness and cutting its own long-term profit margins.
This is because the supermarkets are less likely to stock the manufacturers brands once their own-
brand is established.
Analysts draw attention to the possible serious results of this for research and innovation. With reduced
long-term profitability, Australian manufacturers would not invest in research. Without innovation the
food processing sector will decline and also without such a sector Australias food exports will fall.
Australias long-term food security will be weakened as it becomes more dependent on food imports.
Source: http://www.theage.com.au
(a) Distinguish between the type of integration likely to occur in Australian supermarkets and the
integration intended by Cisco. [3]
(b) What is likely to happen to employment if both examples of integration occur? [3]
(c) The article concludes that Australias long-term food security will be weakened.
Analyse why this conclusion is made and discuss whether you support it. [4]
(d) Does the evidence in the article suggest that integration is beneficial? [10]
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3
Section B
2 The purchases a consumer makes are based upon marginal utility. It is this alone that determines
market equilibrium in perfect competition. Supply has no relevance.
Is this true? [25]
3 Discuss the similarities and differences between a firms likely price and output policy in perfect
competition and oligopoly. [25]
4 A huge company with a turnover of $99.3 billion paid its chief executive $10.9 million in 2011. At
the same time it was reported that the company did not pay what was regarded as a living wage to
all its employees.
(a) Use economic analysis to help explain why there can be wide differences in wage rates. [12]
(b) Discuss how this analysis could be adapted if a trade union intervened in the process of wage
determination. [13]
5 (a) Identify two government macroeconomic aims and analyse how a boom will bring beneficial
changes for consumers and producers. [12]
Lord Skidelsky, Keyness biographer, stated that Keynes believed that to cut government spending
was completely the wrong policy in a slump. (Source: The Times.)
(b) Discuss why cutting government spending might be considered to be the wrong policy in a
slump. [13]
6 (a) Use liquidity preference theory to explain why there is a demand for money. [12]
My higher income will make me happier. It will make other people unhappy.
(b) Discuss whether the main aim of government policy should be to achieve a more equal
distribution of income. [13]
7 (a) How effective is the measurement of economic growth as an indicator of how a developing
countrys standard of living compares with other countries? [12]
(b) Discuss whether economic growth would necessarily lead to a more efficient use of resources
in developing countries. [13]
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2
Section A
Tax rates and growth
1 It is suggested that lower tax rates will cause economic growth. If the marginal tax rate is cut
and disposable income rises, labour has more incentive to work additional hours to increase
their earnings, and entrepreneurs may invest in a new enterprise. The question is whether these
incentive effects are large. If they are, they could cause a sustained increase in economic activity
and growth. This idea is one of the key features of supply-side economic policy.
If, however, the incentive effects are small then the outcome would be quite different. Cutting taxes
would raise output in the short run by putting money in peoples pockets which would allow them
to increase their spending. This would cause a temporary inflationary demand-side effect. If the
effect is small, cutting taxes would not raise output on the supply side in the long run.
Since 1945, the top rate of income tax in the US has varied from more than 90% to less than
30%. There does not appear to be any consistent link between these tax rates and economic
performance. Tax rates were lower in the 1960s than the 1970s, and economic growth was higher
in the 1960s than the 1970s. However, tax rates were higher in the 1990s than the 2000s, and
economic growth was higher in the 1990s than the 2000s.
Of course, many other factors affect economic growth so a lack of a consistent link between tax
rates and economic growth does not prove that tax rate changes have little or no effect. A useful
measure of the supply-side effects is what happens to hours worked as a result of the marginal tax
rate change. Governments are also interested in the effects of tax changes because they wish to
calculate the amount of revenue they could collect.
If people work longer when the tax rate is reduced, then their income will rise. Those who believe
in supply-side economic policy say that this response to marginal tax rate changes is greater than
one. This implies that changes in government revenue will have a similar effect to changes in a
firms revenue if it has a price elasticity of demand greater than one.
However, a review of several income groups after recent tax changes concluded that the best
estimate of this response to tax rate changes ranges from 0.12 to 0.40 and is not greater than one.
There is an alternative proposed to tax rate changes as a means of raising revenue which is to
remove opportunities for tax avoidance.
Source: International Herald Tribune, 2012
(a) Explain what is meant by economic growth. [2]
(b) Explain why cutting tax rates is considered a supply-side policy. [3]
(c) Analyse, with the aid of a diagram, how the supply of labour might change as the marginal
rate of income tax falls. [4]
(d) Explain, using the information above, what would happen to government revenue if tax rates
were reduced, and the response to marginal tax rate changes is greater than one. [4]
(e) Discuss whether the evidence from the data shows that economic growth is improved by tax
reductions. [7]
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3
Section B
2 The link between marginal utility and price has a similar significance for the consumer as the link
between marginal cost and price for the producer.
Consider whether this statement is an accurate reflection of the economic analysis of consumer
and producer equilibrium. [25]
3 (a) Cunard is a company that operates large passenger liners providing transatlantic crossings
between the US and the UK. Larger cabins, or cabins with balconies are priced higher than
the smaller cabins. Also for any cabin, passengers purchasing the voyage in the US pay a
much lower price than passengers purchasing the voyage in the UK. Cunard insist that in
order to make the purchase in the US the passenger must have a US address.
Explain whether these are examples of price discrimination and consider whether price
discrimination can be justified. [12]
(b) Discuss whether firms operating in a market structure of monopolistic competition are less
efficient than those operating in perfect competition. [13]
4 (a) Explain what economists mean when they say that the labour market is imperfect rather than
perfect. [12]
(b) Does the use of the term imperfect mean that there is some failure in the labour market that
should be corrected by government intervention? [13]
5 In 2012, after a period of low demand in an economy, private consumption and investment
increased and there was economic growth. This was not entirely advantageous as the increase in
economic growth can conflict with other government objectives.
Explain why an increase in private consumption and investment might have led to an increase in
economic growth and consider whether you agree that this may conflict with other government
objectives. [25]
6 It is suggested that the use of credit cards has resulted in huge debts as people spend far more
than they earn.
(a) Explain whether the liquidity preference theory of the demand for money can be applied to
the use of credit cards. [12]
(b) Use the liquidity preference theory to discuss the possible consequences of an increase in
the supply of money. [13]

4
7 (a) The main characteristics of a developing country are a small service sector and a lack of
international trade.
(b) It was reported that in the last quarter of 2012 a developing economy had performed well
in terms of its GDP compared with other countries. Explain what this statement means and
discuss whether a comparison using GDP is a valid way of measuring economic performance
between countries. [13]
Question 1 International Herald Tribune: 17-18 March 2012. P14, 16
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2
Section A
1 Economic growth and happiness
Research in the United States has demonstrated that economic growth and improved wages
that usually accompany it improves happiness and well-being. The richer we are, the happier
we are. There is no maximum wealth level beyond which higher incomes cease to increase well-
being.
The best way to promote happiness is, therefore, to maximise economic growth and ensure that
as many as possible are able to enjoy higher incomes. Every tax change should be judged against
how it will affect GDP. Increasing taxes on higher incomes will reduce disposable income and not
increase well-being.
Recently, real wages have been falling. Faster growth is necessary to overcome this. Without
faster growth, people will become poorer and, therefore, unhappier. Further, without growth, it will
not be possible to keep spending more on essential services such as health care without cutting
expenditure in other areas.
The results of the research are not good news for those who argue that what makes people happy
is not what they earn in absolute terms, but what they earn compared with others. An opposing
opinion suggests that it is wise to reduce differentials in earnings. For example, high earners, such
as investment bankers, should be taxed more heavily.
The results are also not welcomed by those, including environmentalists, who say that it is stressful
and unsustainable for economies to focus on increasing their GDP. There should be careful
consideration of future economic development. The country should not develop certain resources
in case they increase carbon emissions and result in allocative inefficiency.
An example of this is found in the UK. There is a proposal to build a new runway at London
Airport. The new runway will enable the number of flights from the airport to be increased with
an estimated net private benefit from the expansion which is said to be 5 billion over 70 years.
Environmentalists say that the calculation ignores many costs, such as what will be the effect of
extra road journeys to and from the airport each year; what will be the effect on house prices; and
what will be the cost to the environment of increased emissions?
Increasing investment and the resulting increase in GDP do not always bring increased happiness
and welfare.
Source: Adapted from London Evening Standard, 2012; Daily Telegraph, 2013
(a) Briefly explain how, according to the article, an increase in economic growth increases
happiness. [4]
(b) With the help of a diagram, explain how an increase in indirect tax rates might affect a
consumers total utility. [4]
(c) Consider whether you support the opinion in the article that it is a good idea to increase taxes
on the rich. [4]
(d) Discuss whether consumer welfare is always increased if economic growth increases. [8]
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3
Section B
2 There was a period when many publicly owned enterprises were privatised. Investors said that
privatisation would increase competition, encourage greater efficiency and raise profits.
(a) Explain what is meant by economic efficiency. [12]
(b) Discuss how the privatisation of an industry might affect economic efficiency. [13]
3 (a) Analyse the relationship between the cost curves of an individual firm and the supply curve of
the industry. [12]
(b) In the long-run, average cost falls with increases in output and, therefore, larger firms are
always to be preferred to smaller firms. Do you agree with this opinion? [13]
4 The economic theory of wages has as its central idea the achievement of an equilibrium in a
perfect market. It is difficult to find a perfect market and it is unrealistic to speak of an equilibrium
when private enterprise is full of uncertainty.
Discuss whether this statement means that in explaining wage determination the theory has
nothing to offer. [25]
5 (a) Explain why the governments annual budget is an important instrument of economic policy.
[12]
(b) Analyse whether there is a link between the reasons given by the liquidity preference theory
as to why people demand money and the rate of interest. [13]
6 (a) Explain what are the main determinants of business investment. [12]
(b) If investment increases it will cause an increase in output. If output increases it will cause an
increase in investment.
Discuss whether both these statements can be true. [13]
7 People in developed countries suffer from pollution and overcrowding. However, people in
developing countries suffer from malnutrition and poverty.
Discuss whether it is correct to distinguish between developed and developing countries in this
way and consider how living standards can be compared between the two types of country. [25]
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2
Section A
1 Economic growth in China
In less than 30 years, China has seen a huge shift from being a mainly farming economy to a
thriving manufacturing economy. Since 2007, economic growth has continued despite uncertain
economic conditions and the global financial crisis. Some economists doubt Chinas ability to
sustain such economic growth, which has been achieved at a cost to the environment.
Fig. 1: GDP growth for China since 2001
50
GDP (Trillion yuan)
Real GDP growth rate per year
Target GDP growth rate per year
12 40
11
10
9 30
GDP
8
8% (trillion yuan)
7% 7.5%
7
growth
% 6 20
per year
5
3 10
0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Chinese Government work reports from 2001 to 2012, Su Jingbo / China Daily
As Chinas economy continues to grow, it has a new challenge: how will it deal with the shift of
the population from being mainly rural to being mainly urban? In 2030, it is estimated that about
220 cities in China will have at least one million residents. This will increase the pressure on natural
resources. Economic inefficiencies created by urban growth include air and water pollution, traffic
congestion, poor housing and overcrowding.
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3
Chinas leaders have responded by reducing the target GDP growth rate. They have also
concentrated on trying to improve the quality of Chinas economic growth and have focused on
sustainable urban planning, low-carbon development, promoting improved public transit systems
and improved water treatment.
National government policies can help correct market failures and set standards for environmental
problems such as air pollution. They can establish partnerships between city authorities, businesses
and the general public. Urban sustainability solutions do not just benefit the environment and
peoples quality of life; they are often highly profitable. Investment in rapid transit bus systems, for
example, results in lower energy consumption and lower costs.
Source: The Daily Telegraph supplement, 2012
(a) Fig. 1 shows Chinas real GDP growth rate. Explain what this means. [3]
(b) How far does Fig. 1 support the suggestion in the extract that Chinas growth has continued
despite uncertain economic conditions? [4]
(c) The article refers to economic inefficiencies. Explain the distinction between an economically
efficient situation and one which is inefficient. [5]
(d) Identify two market failures mentioned in the article and consider the methods that
governments might use to help overcome these market failures. [8]

4
Section B
2 Consumers decide what they wish to buy and as a result direct the market. Producers develop new
products, which they then promote by advertising, in order to maximise profits. Without producers
there would be no products to buy.
(a) Explain how economic theory predicts what a rational consumer decides to buy. [12]
(b) Discuss whether the market is dominated more by producers or by consumers. [13]
3 (a) Explain the meaning of, and the relationship between, diminishing returns, total product and
marginal cost. Use a diagram to illustrate your answer. [12]
(b) Firms undertake vertical and horizontal integration to grow in size. They achieve beneficial
economies of scale through growth.
Consider whether economies of scale are always caused by integration and whether,
therefore, there is no place for small firms in a modern economy. [13]
4 (a) Explain the motives for the demand for money according to the Keynesian liquidity preference
theory. [12]
(b) A worker is a weekly paid shop assistant. She is then promoted to a manager in a larger store
on a higher monthly salary. At the same time interest rates fall.
Discuss how these changes would affect the workers demand for money. [13]
5 The government of your country wants to know how the economy compares with other countries
economies.
Discuss which economic indicators it should obtain and how reliable they might be as a basis for
such a comparison. [25]
6 Businesses say that high interest rates are not desirable because they prevent investment.
Government ministers say that high interest rates are sometimes necessary because they
encourage saving and control inflation.
Discuss these two opinions and decide whether they are always true. [25]
7 (a) Distinguish between supernormal profit and economic rent and consider the circumstances
when each occurs. [12]
(b) Discuss whether you agree with the opinion that a trade union might be able to achieve higher
wages for its members but only by causing some unemployment. [13]
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2
Section A
1 The economy as a machine
The economy has been spoken about as if it were a machine. Its businesses are the engines of
job creation; they change inputs into outputs and generate profits. In this approach, markets are
assumed to be productively efficient, consumers rational, incentives are obvious and outcomes
certain. This means that any regulation of the market is undesirable because it hinders the
workings of the machine.
However, there is no evidence that markets are always efficient and there is no evidence of a
prosperous economy that does not also have strong regulation and an active government.
Recessions and economic downturns should have caused this machine idea of an efficient
economy to be discredited. Yet, this view still influences economic policy.
What is required is a theoretical framework for the economy that recognises that economies are
not simple and predictable but complex; that understands that intended outcomes do not always
happen. Consumers decisions are not precise but approximate. The economy should be thought
of as a garden, not a machine. In this idea the economy cannot be completely efficient but if
managed effectively it can work reasonably well.
Consider regulation. In the machine idea, regulation is an unfortunate interruption of the process
of income generation. The machine should be left to run on its own. Perfectly free markets are the
ideal. Less regulation will automatically lead to more prosperity. In the garden idea it is recognised
that the economy requires regulation. The control of harmful activities and the encouragement of
beneficial activities will enable the economy to become more efficient.
Consider spending. Government spending should not be thought of as a single action which uses
money as an engine uses fuel. Rather, it is part of a continuous process that circulates money
through spending. Also, some of this spending helps to develop the economy because it will be
spent on education, health and roads, although not all spending is equally useful.
It has been argued that the most prosperous economies are those that tax and spend the most.
Less spending cannot revive a weak economy, but more spending can. Employment is not
created by profits. It is a consequence of a circular process that starts with consumer demand
and spending. The customer is the true job creator and resources are allocated according to their
preferences.
Source: Adapted from the RSA Journal, Winter 2012
(a) The article says that markets are assumed to be productively efficient. What is meant by
productive efficiency? [3]
(b) Summarise the two main ideas about the working of the economy in the article. [4]
(c) Analyse how more spending can revive a weak economy. [6]
(d) Discuss whether the last sentence of the article conflicts with the earlier statements about the
need for a government. [7]
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3
Section B
2 Economic theory often uses the concept of the margin.
(a) Explain how the concept of the margin is used in consumer theory to derive a market demand
curve. [12]
(b) Discuss whether the use of the concept of the margin is important for a firm in deciding its
business objective. [13]
3 (a) Analyse, with the help of a diagram, the possible shape of the long-run average cost curve of
a firm and explain whether it is likely to be the same for small and large firms. [12]
(b) Two airlines were recently accused of colluding to exploit the consumer. An investigation was
established to see if this had happened.
Discuss why collusion can occur in one market structure but not in another market structure.
[13]
4 Briefly consider the causes of unemployment and then use the economic theory of the
determination of wage rates to discuss whether an increase in wage rates may substantially
increase long term unemployment in some industries but not in others. [25]
5 In 2012, many smaller specialised city centre retailers struggled against competition from large
supermarkets and online retailers. They were also badly affected by government fiscal policy.
(a) Explain how small retailers could be badly affected by government fiscal policy. [12]
(b) Economic theory suggests that competition is good. The statement from 2012 seems to imply
that it is not. Discuss this difference of opinions and consider which you support. [13]
6 In a number of countries interest rates have remained low for a long time. Some people have been
unhappy with the low rates but others have been pleased. However, high interest rates also cause
different reactions.
(a) Explain why different groups of people may differ in their reaction to the level of interest rates.
[12]
(b) Discuss whether a low interest rate can help a government achieve its macroeconomic aims.
[13]
7 Economic development and the exploitation of resources can result in structural change and
unemployment in some industries, increased environmental damage, overexploitation of fish
stocks, increased inequalities in the distribution of income and pressure on resources causing
inflation.
Explain what is meant by a developing economy and discuss whether it would be wise to conclude
from the above opinion that developing countries should, therefore, not seek to become developed.
[25]
UCLES 2015 9708/43/O/N/15
2
Section A
1 Unemployment and Government Policy
When considering alternative government policies in time of recession, it is worth remembering

that in the 1930s US recession it was feared that what Keynes called equilibrium at less than full
employment might become permanent.
Moreover, technological unemployment could also remain a permanent feature of the labour
market, especially among the less skilled and the elderly.
In 2013 there was another recession in the US. Unemployment stood at 6.7% of the workforce
rather than above 20% as it had been in the 1930s. However, the economic recession was far
from over in 2014. The US economy was 8% smaller than had been forecast for it. This led to a
repeat of the question of whether stagnation is inevitable and whether unemployment would be a
permanent feature.
The policies of the US government to solve the recession of 201314 included raising the minimum
wage to US$10.10 an hour, increasing benefits to the unemployed and increasing the money
supply. There was, however, little enthusiasm from some economists for more government action
in the form of government spending. They did not support a programme of creating public sector
jobs to combat unemployment, saying it was bureaucratic. Even if the right investment could be
decided, they feared the new jobs would demand skills that the unemployed simply did not have.
However, not everybody agreed. Others gave the example that in 2009, 39 states used
US$1.3 billion to create more than 260 000 jobs by subsidising private employers. Many of these
jobs went to people who were difficult to employ, including those who had been unemployed for a
long time. When the programme ended in 2010, 37% of the workers covered by the subsidy kept
their jobs. Those who favoured such public expenditure said that the private sector, if left to its own
devices, would not have hired such workers.
Supporters of public expenditure also said there were great benefits from government investment
in public works in a time of recession; in previous recessions, roads, bridges and public buildings
were built. And, if such investments took place again, it was argued, they would not be very
expensive. The cost of government borrowing was below the rate of inflation and the investment
would help reduce the nations debt.
To them it seemed foolish for the US central bank to stimulate the economy by encouraging
increased lending with low interest rates: that would be similar to the credit expansion that had led
to a financial crisis a few years before. They thought it would be better to rely on fiscal policy.
Source: New York Herald Tribune, 30 January 2014
(a) Briefly explain the difference between monetary policy and fiscal policy, and identify an
example of each policy from the article. [4]
(b) Explain what is meant by technological unemployment and suggest why it could be
permanent among the less skilled and elderly. [3]
(c) The article refers to equilibrium at less than full employment. Explain with the help of an
aggregate demand and aggregate supply diagram how an economy can be in equilibrium at
less than full employment. [5]
(d) Contrast the opposing views in the article about the policies a government should adopt in a
time of recession and consider what evidence is given to support each policy. [8]
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3
Section B
2 Adam Smiths eighteenth century idea of an invisible hand where the free market allocates
resources effectively and efficiently is false because the invisible hand cannot work in a complex
modern economy.
3 (a) Explain the meaning of an indifference curve and show to what extent indifference curves can
be used to determine a consumers demand curve for a product. [12]
(b) Consider whether indifference curves can be used to analyse the effects of a fall in the price
of a good on the demand for both a normal good and a Giffen good. [13]
4 In 2014, the average monthly salary in South Africa for an executive business manager in the
private sector was 60 000 rand; for a public sector nurse, 13 700 rand; for a cleaner, 3 600 rand.
These differences in wage rates can be entirely explained by the economic theory of the labour
market.
Discuss whether you agree with this conclusion. [25]
5 (a) Explain how an equilibrium position is determined for a firm and for an industry in perfect
competition in the short run and in the long run. [12]
(b) Outline the conditions that make price discrimination in a monopoly market possible and
discuss whether such discrimination is ever beneficial. [13]
6 (a) Explain three major government macroeconomic policy aims and describe why there may be
a conflict in trying to achieve them at the same time. [12]
(b) Governments are sometimes concerned with microeconomic issues, for example, planning
applications for large projects such as airports which have environmental implications.
Discuss how a governments decision on a microeconomic issue might have macroeconomic
implications. [13]
7 (a) Explain what is most in need of development in a developing economy. [12]
(b) Discuss how easy it is to compare the standard of living between developing and developed
countries. [13]
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2
Section A
1 Risks of reduced US monetary stimulus
The US Central Bank (the Federal Reserve) announced in January 2014 that it would reduce its
quantitative easing (QE) by cutting its monthly bond purchases by another $10 billion. It said that it
was optimistic that the economy is about to start growing faster and there is underlying strength in
the wider global economy. It had set interest rates near to zero.
This policy of the Federal Reserve contributed to a global shift in investments. Turkey, for example,
which depends heavily on foreign investment, tried to bolster its currency by raising its interest
rate to attract funds, but this did not work.
The Federal Reserve, however, was thought to be unlikely to adjust its own policy in response to
the problems in other countries unless it saw evidence that the problems were affecting the US
domestic economy. Indeed the problems in countries such as Turkey may have made it easier
for the Federal Reserve to reduce its expenditure on bonds. Investors seeking to limit their risks
were bidding up the price of US bonds, counteracting the effects of the Federal Reserves gradual
reduction in the volume of its own purchases.
The prospect of a future rise in US interest rates caused worrying declines in investment in
emerging markets. Chinas Deputy Finance Minister argued that the US has a responsibility beyond
its own domestic economic concerns, saying We hope that as the issuing country of the largest
reserve currency in the world the US should be mindful of the wider effects of its macroeconomic
policies.
The Deputy Finance Minister added that balance of payments problems in the developing
world are partly due to lack of domestic economic reform there. This was supported by a British
official who said that emerging economies had been helped by cheap money from the advanced
countries but this disguised the need to follow through on fundamental reforms in some countries.
Currencies of countries such as India, Indonesia, Turkey and Brazil have been under particular
pressure because of their current account deficits.
A US official said that strong US growth is good for the global economy and responded to criticism
of the Federal Reserves handling of QE: I think that what has been demonstrated is that weve
pursued a pro-growth policy that we believe is ultimately good for the global economy. Because
when the US economy is growing, it helps to provide momentum more broadly.
Source: International New York Times, 30 January 2014
(a) Explain what is meant by monetary policy and give two examples of monetary policy from the
article. [3]
(b) What is meant by the economy is about to start growing faster? Explain how a stronger
global economy could help to achieve this. [4]
(c) Consider how far the reason suggested in the extract could explain the pressure on the
currencies of India, Indonesia, Turkey and Brazil. [6]
(d) Suggest what effect the Federal Reserves decision to reduce its bond buying by $10 billion a
month could have on the US economy. [7]
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3
Section B
2 It has been said that the aim in the allocation of resources should be to achieve the greatest
happiness for the greatest number of people.
Discuss whether economics has anything to say about the best way to maximise welfare from the
use of resources. [25]
3 (a) A number of consumers are deciding whether to buy a product. How far does economic theory
explain the determination of the market demand curve for that product? [12]
(b) Discuss whether that theory is still valid if the producer decides to advertise the product, and
consider the effects of the advertising on the demand curve for the product. [13]
4 Explain what is meant by the equilibrium of a perfectly competitive firm and consider the view that
equilibrium is always achieved in perfect competition but never in a monopoly market. [25]
5 (a) Explain the causes of unemployment and consider what type of unemployment is the most
serious for the country in which you live. [12]
(b) Discuss whether government macroeconomic aims of full employment, economic growth and
price stability are likely to conflict with each other. [13]
6 (a) Some occupations that do not have pleasant working conditions, such as rubbish collection,
receive low pay, while those with pleasant conditions, such as senior managers, receive high
pay.
How far does economic analysis explain this situation? [12]
(b) Discuss what influence a trades union and a government can have in determining wage rates.
[13]
7 (a) Conventional estimates of national income indicated that average income per head between
2009 and 2013 was US$98 780 in Norway and US$36 900 in New Zealand. Consider whether
this means that the standard of living in Norway is nearly three times as high as in New
Zealand. [12]
(b) Norway and New Zealand are classified as developed countries. Make a judgement on what
are the important distinguishing differences between a developed country and a developing
country. [13]
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2
Section A
1 Interest rates and economic growth
In January 2014 Turkeys central bank agreed to a large increase in its main interest rate from
4.5% to 10% in order to try and strengthen Turkeys currency, the lira. Financial markets did not
react much to the increase.
The morning after the interest rate increase in Turkey there was an initial rise in the lira but by
the afternoon demand for the lira had fallen. The interest rate rise was an attempt by the Turkish
central bank to slow down inflation and increase the demand for the lira by offering a better
return. However, higher interest rates threatened to hinder economic growth by raising the cost of
borrowing. A spokesman from the Turkish Currency Exchange said that the Turkish economy was
not strong enough and if the lira was weak it would have an impact on all aspects of daily life.
A similar policy was adopted by the South African central bank, which increased its main interest
rate from 5% to 5.5%. This also failed to prevent a decline in the value of that countrys currency,
the rand. Some analysts said the increase in interest rates in South Africa was more to control
inflation than to support the exchange rate.
Currency traders also sold their holdings of currencies of other emerging countries such as
Russia and Argentina. The Russian currency, the rouble, fell 1% against the dollar in January
2014 to its lowest point since 2009. Currency traders were less inclined to deal with countries
that they regarded as being poorly governed or had major public protests. These included Russia,
Argentina, Ukraine and Thailand.
Some argued that the decline in developing countries currencies could adversely affect developed
economies such as the US, Europe and Japan because the developing countries would not
have the same purchasing power and would buy fewer imports. European countries have a great
dependency on exports to developing countries.
Meanwhile, policy makers in developing countries face a problem. They cannot raise interest rates
without endangering economic growth and in any case raising interest rates, it appeared, did
not convince currency traders that the high rates would be maintained in the long term. Instead
currency traders preferred to put money back into the developed countries, which were seen to be
less risky.
Source: International New York Times, 30 January 2014
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3
Table 1: Key economic indicators for selected countries, May 2014
Interest rate % Inflation rate % GDP growth %

Argentina 14.9 10.9 1.4
Brazil 11.0 6.3 1.9
Germany 0.25 1.3 2.5
Russia 7.50 7.3 0.9
South Africa 5.5 6.1 2.0
Turkey 10.0 9.3 4.4
UK 0.5 1.8 3.1
Source: http://www.tradingeconomics.com/ accessed 21 May 2014
(a) Explain what is meant when it is said that Turkey and South Africa hoped that an increase in
interest rates might strengthen their countrys currency. [2]
(b) Distinguish between monetary policy and fiscal policy and give two examples of fiscal policy.
[4]
(c) Discuss how far the information in Table 1 can be used to support the statements in the
extract about the links between high interest rates, inflation and economic growth. [6]
(d) How far does the experience of the countries mentioned in the extract support the view that
higher interest rates benefit macroeconomic performance? [8]

4
Section B
2 The price mechanism is the most effective and certain method for ensuring an efficient allocation
of resources to achieve maximum welfare.
Comment on this opinion. [25]
3 The use of indifference curves to establish a consumers equilibrium is purely a theoretical tool.
They show the relation between two goods; they do not show prices or income and, therefore,
cannot be used to determine a demand curve.
How far do you agree with this statement? [25]
4 (a) Assess the differences and the similarities in characteristics, pricing and output between
perfect competition and monopolistic competition. [12]
(b) Consider whether it is true that prices are always higher and output always lower under
monopoly conditions than they are under perfectly competitive conditions. [13]
5 (a) With the help of a diagram, explain how far the introduction of a minimum wage in an
occupation might affect the division between a workers transfer earnings and economic rent.
[12]
(b) Discuss how far wage differentials are caused in the real world solely by differences in market
demand and supply. [13]
6 (a) National income is the only determinant of the demand for money.
(b) Assess how alternative macroeconomic policies might affect the demand for money. [13]
7 (a) Consider whether the main distinguishing feature of a developing economy is a low level of
income per person. [12]
(b) Are the problems that arise in estimating changes over time in national incomes significantly
different depending on whether the countries are developing or developed? [13]
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2
Section A
1 Global Employment Trends
A report from the International Labour Organisation (ILO) in 2014 warns that young people are
likely to be hit hardest as global total unemployment continues to rise. 42.6 million people are
expected to enter the labour market every year but the forecast is that only 40 million net new jobs
will be created.
The ILO forecasts that millions more will be unemployed as companies choose to increase
dividends to shareholders rather than invest their profits by employing new workers. They expect
that the world unemployment rate (adults and youths) will be 6.1% in 2014, up from 5.5% in 2007.
The report puts the youth unemployment rate at 13.1%, almost three times the adult rate of 4.6%.
Young people will continue to be particularly affected by what the ILO describes as a weak and
uneven recovery in the world economy. In many advanced economies, the average duration of
unemployment has doubled compared with 2008.
The ILO warns that if countries fail to tackle the crisis of long-term youth unemployment, hopes
for sustainable growth will be destroyed. There will be a risk of further and perhaps deeper social
unrest, linked to widening inequalities of incomes.
For some countries the proportion of young people not in employment, education or training
(NEETS) continues to rise as shown in Fig. 1. Some of the worst rates are in countries affected
by the European financial crisis, as advanced economies in Europe try to find the right balance
between employment and other macroeconomic goals.
The ILO said that although emerging economies would continue to enjoy the lowest combined
(adults and youths) unemployment rate this year, growth in those economies has slowed down in
the past two years. Notably, Chinas growth rate of 10.5% per year in the last decade fell to 7.7%
in 2013. Changes in such growth rates have created changes in international markets for both
commodities and manufactured goods, which have also affected unemployment.
Fig. 1: Young people not in Employment, Education or Training (NEETS)

as a percentage of the population aged 1529
0 5 10 15 20 25 30 35 40
Turkey
Mexico
Spain
Greece
Ireland
US
UK
Australia 2007
Germany 2013
Source: The Guardian, 21 January 2014
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3
(a) What evidence is provided in the information for the statement that youth unemployment has
been hit hardest? [3]
(b) Explain two reasons why, according to the information, not enough jobs are being created
each year in the world. [4]
(c) Referring to the information and your own knowledge, explain why it is usually important to
tackle the problem of increasing long-term youth unemployment. [5]
(d) From the information given, do you agree that within the world economy recovery was both
weak and uneven? [8]
Section B
2 The best way to increase economic welfare is to encourage competition in a market system.
Consider whether you agree with this view. [25]
3 (a) If a firm is experiencing diminishing returns and diseconomies of scale, it means that its
output must be decreasing.
Explain whether this statement is true. [12]
(b) It is certain that firms maximise profits where marginal cost equals marginal revenue, and
that this is what all firms seek to do.
Discuss this assertion. [13]
4 (a) Discuss how wage rates are determined in a perfect market. [12]
(b) If the labour market is imperfect, is the determination of wage rates still better left to that
market? [13]
5 (a) Consider whether the main cause of economic growth is an increase in population, and hence
in labour supply. [12]
(b) Do you agree that a country should try to increase its rate of economic growth? [13]
6 (a) Assess how changes in interest rates might influence investment. [12]
(b) Some argue that increases in investment cause national income to increase. Others argue
that the reverse is true: an increase in national income brings about investment.
Discuss whether both these seemingly contradictory statements can be true. [13]
7 Governments want to increase the standard of living in their country.
Discuss whether the indicators used to measure the standard of living are reliable and consider
what policies a government might use to try to increase the standard of living in its country. [25]
UCLES 2016 9708/42/F/M/16
2
Section A
1 Finance Ministers and Economic Power

The power of Finance Ministers to make a difference to an economy is exaggerated. Political
parties would argue that Finance Ministers have the ability to form policies that lead to the creation
of jobs, the building of houses, and the encouragement of economic growth. The reality is that
Finance Ministers are usually at the mercy of the economy rather than in control of it.
The Finance Minister has a limited macroeconomic range of policy measures. Interest rates, bond
markets, international trade markets, company investment policies and changes in consumer
spending are far more important than Finance Ministers in shaping the economy and determining
tax revenues.
Consider monetary policy. This is often controlled by central banks. In 2015, there were low interest
rates across much of the world. These lower borrowing costs could encourage firms to invest and
this may result in increased employment. Statistics for unemployment and the level of interest
rates for India from 2010 to 2014 are given below in Fig. 1.
Fig. 1 India: unemployment rate and interest rate (20102014)
10 16 Key
India unemployment rate (%)
9.4 9.4
9 unemployment rate
India interest rate (%)
14 interest rate
8
12
7
6.3 10
6
5.2
5 4.9 8
4 6
Jan Jan Jan Jan Jan
10 11 12 13 14
In international trade markets some economies improved in 2015 because of the halving of the
crude oil price a benefit for companies and households with an effect on inflation that allowed
interest rates to stay low. However, part of the benefit of such a change in the general price level
would be short-term if oil prices recovered.
Another influence on the economy can be a high level of immigration which could increase
the working population and possibly increase employment and production. Immigration is not
controlled by the Finance Minister.
Some consider that the best hope for improving an economy is on the supply side. But supply-side
policies are also often the responsibility of ministers other than the Finance Minister and take a
long time to become effective.
A further economic boost could be a rise in house prices. House price rises encourage consumer
confidence and stimulate retail sales. Moving house often results in re-decoration, modernisation
and the purchase of household items. However, house price rises, or the corresponding rent
increases, can sometimes be out of proportion to wage rates and make it impossible for many
people to purchase property or to move.
Source: The Times, 18 April 2015
UCLES 2017 9708/42/F/M/17

3
(a) The information refers to supply-side policies. Explain, with two examples, what is meant by
supply-side policies. [4]
(b) Explain briefly the link between the rate of interest, investment and employment. Consider
whether this is supported by the information in Fig. 1. [4]
(c) The information refers to rising house prices and politicians sometimes say such a rise is a
sign of an improvement in the economy. Analyse how the economy is claimed to benefit from
rising house prices but can also benefit from falling oil prices. [6]
(d) Summarise the main argument of the information. Discuss whether there is sufficient evidence
in the information to support it. [6]
Section B
2 (a) Explain what is meant in economic theory by consumer equilibrium. [12]
(b) Discuss the conditions that would cause the demand for a good to (i) increase and (ii) fall
as a result of a fall in the price of the good. Use indifference curve analysis to support your
answer. [13]
3 (a) Some firms have power over their market. Explain what this means and consider why this
power might change in a contestable market. [12]
(b) Discuss the different aims a firm might have in order to continue with production. [13]
4 A politician remarked that the absence of trades unions would necessarily lead to an improvement
in all labour markets.
To what extent does economic analysis support this remark? [25]
5 (a) How might the employment composition and age structure of a developing country differ from
those of a developed country? [12]
(b) Apart from the employment composition and age structure, discuss what changes are likely
to occur in a developing country if it progresses towards developed status. Consider whether
these changes are always beneficial. [13]
6 (a) Consider how significant the level of income is in determining peoples demand for money,
according to liquidity preference theory. [12]
(b) Discuss whether an increase in the national income of a country is a reliable indication of an
improvement in the standard of living for the people in that country. [13]
7 A society that says it cares about efficiency needs to abandon the notion of a market system to
allocate resources. Markets only serve self-interest, they are never efficient.
Discuss whether this opinion is supported by economic analysis. [25]

UCLES 2017 9708/42/F/M/17
2
Section A
1 Collusion: Exploitation or benefit?
In 2011, two soap and detergent firms, Unilever and Procter & Gamble, were fined a total of
315 m (US$ 220 m) for fixing the price of washing powder in eight European countries. Procter &
Gamble is the worlds largest consumer products company. The two firms had colluded over prices
for more than three years. The collusion began when they agreed to implement an industry-wide
programme to improve the environmental impact of their products. They agreed to reduce the
amount of packaging they used but to keep the pr ices unchanged. Then, later, they collectively
agreed to raise prices in Belgium, France, Germany, Greece, Italy, Portugal, Spain and the
Netherlands. This collusion was against the European Union competition laws and was regarded
as unfair competition.
Some information from the 2010 Annual Report of Procter and Gamble (P&G) is shown in Table 1.
Table 1: Annual Report of Procter and Gamble
2006 2007 2008 2009 2010

Total Revenue
64 416 72 441 79 257 76 694 78 938
US$ million
Profits
8 684 10 340 12 075 13 436 12 736
US$ million
Distributed Profit per Share
1.1 1.28 1.45 1.64 1.80
US$ per share
The report states that No company in the world has invested more in market research than P&G.
We conduct over 20 000 research studies every year. Over the past 15 years, P&G had 125 notable
innovations more than our six largest competitors combined. P&G is the brand-building leader of
our industry with 50 brands that are among some of the worlds best-known household names
and which together make up 90% of P&Gs sales and more than 90% of profits.
P&G is creating the advantage of large scale by integrating across our different businesses and
markets, allocating resources more efficiently than any small business can do on its own.
(Source: Adapted from P&G Annual Report 2010)
(a) Explain what is meant by collusion and when it is most likely to occur in an industry. [4]
(b) Analyse, using Table 1, whether price fixing benefited Procter and Gamble. [4]
(c) Suggest why creating the advantage of large scale by integrating across its different
businesses might benefit a firm. [6]
(d) Is the evidence in the article sufficient to conclude that Procter and Gamble is working against
the public interest? [6]
UCLES 2013 9708/42/M/J/13

3
Section B
2 (a) Explain how a consumer allocates expenditure according to the principle of equi-marginal
utility and analyse how a change in income might affect that allocation. [12]
(b) Discuss how a government might achieve a more equal distribution of income. [13]
3 In 2011, as a result of a recession, the governments of some countries reduced the wages that
they paid to public sector workers. Trade unions organised mass demonstrations in protest.
Discuss how the economic theory of wage determination in perfect competition can be adapted to
explain such a situation. [25]
4 The combination of rapid economic growth and inflation is no coincidence.

(Source: The Times)
(a) Explain why rapid growth and high inflation might often occur at the same time. [12]
(b) Discuss what policies might be used by a government to control inflation. [13]
5 (a) Explain what changes might occur to the age distribution and occupational structure of a
population as an economy changes from developing to developed. [12]
(b) Assume that you have been given some statistics which indicate that a country has a high rate
of unemployment and a dependency on inter national trade. Discuss whether these statistics
are sufficient to indicate whether that country may be classed as developing or developed.
[13]
6 In 2011, one of the UKs largest multinational banks announced it would reduce the number of
people it employed by 43 000 the equivalent size of a small town. Unemployment in the UK
reached nearly 3 million in 2011.
(Source: adapted from The Times)
(a) Analyse what might cause an increase in unemployment in a country. [12]
(b) Discuss what impact an increase in unemployment is likely to have on an economy. [13]
7 The market system is not able to allocate resources efficiently.
UCLES 2013 9708/42/M/J/13

2
Section A
1 Collusion: Exploitation or benefit?
In 2011, two soap and detergent firms, Unilever and Procter & Gamble, were fined a total of
315m (US$ 220m) for fixing the price of washing powder in eight European countries. Procter &
Gamble is the worlds largest consumer products company. The two firms had colluded over
prices for more than three years. The collusion began when they agreed to implement an
industry-wide programme to improve their environmental impact by obtaining their raw materials
from sustainable sources. They also agreed to reduce the amount of packaging they used but to
keep the prices unchanged. Then, later, they collectively agreed to raise prices in Belgium,
France, Germany, Greece, Italy, Portugal, Spain and the Netherlands. This collusion was against
the European Union competition laws and was regarded as unfair competition.
Some information from the 2010 financial report of Procter & Gamble (P&G) is shown in Table 1.
Table 1: Annual Report of Procter & Gamble
2006 2007 2008 2009 2010
Total Revenue US$ million 64 416 72 441 79 257 76 694 78 938
Profits US$ million 8684 10 340 12 075 13 436 12 736
Distributed Profit per Share

1.1 1.28 1.45 1.64 1.80
US$ per share
The report states that No company in the world has invested more in market research than P&G.
We conduct over 20,000 research studies every year. Over the past 15 years, P&G had 125
notable innovations more than our six largest competitors combined. P&G is the brand-building
leader of our industry with 50 brands that are among some of the worlds best-known household
names and which together make up 90% of P&Gs sales and more than 90% of profits.
P&G is creating the advantage of large scale by integrating across our different businesses and
markets, allocating resources more efficiently than any small business can do on its own.
(Source: Adapted from P&G Annual Report 2010)
(a) Explain what is meant by collusion and when it is most likely to occur in an industry. [4]
(b) Analyse, using Table 1, whether price fixing benefited Procter & Gamble. [4]
(c) Suggest why creating the advantage of large scale by integrating across its different
businesses might benefit a firm. [6]
(d) Is the evidence in the article sufficient to conclude that Procter & Gamble is working against
the public interest? [6]
UCLES 2014 9708/04/SP/16

3
Section B
2 (a) Explain how a consumer should allocate expenditure in order to achieve maximum
satisfaction and analyse how a rise in income might affect that allocation. [12]
(b) Discuss how a government might achieve a more equal distribution of income. [13]
3 In 2011, as a result of a recession, the governments of some countries reduced the wages that
they paid to public sector workers. Trade unions organised mass demonstrations in protest.
Discuss how the economic theory of wage determination in perfect competition can be adapted to
explain such a situation. [25]
4 The combination of rapid economic growth and inflation is no coincidence.

(Source: The Times)
(a) Explain why rapid growth and high inflation might often occur at the same time. [12]
(b) Assess what policies might be used by a government to control inflation without harming
economic growth. [13]
5 (a) Explain what changes might occur to the age distribution and occupational structure of a
population as an economy changes from developing to developed. [12]
(b) Assume that you have been given some statistics which indicate that a country has a high
rate of unemployment and a dependency on international trade. Consider whether these
statistics are sufficient to indicate whether that country may be classed as developing or
developed. [13]
6 In 2011, one of the UKs largest multinational banks announced it would reduce the number of
people it employed by 43 000 the equivalent size of a small town.
(Source: Adapted from The Times)
(a) Analyse what might cause an increase in unemployment. [12]
(b) Evaluate the impact of an increase in unemployment on an economy. [13]
7 The market system is not able to allocate resources efficiently. Governments are always able to
achieve a better resource allocation than the market.
To what extent do you agree with this opinion? [25]
UCLES 2014 9708/04/SP/16

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2

Answer this question.

Answer two questions from this section.

(a) Explain the sources of market failure. [12]

Answer this question.

Lower earnings in the US could endanger economic recovery.

UCLES 2004 9708/04/M/J/04

Answer any two questions.

5 In many cities the level of traffic congestion is causing increased concern.

UCLES 2004 9708/04/M/J/04

Answer this question.

1 The following extract is adapted from an article that appeared in 2003.

Despite its problems, Botswana remains an example of prosperity in conflict-ridden Africa. US

(a) Identify two advantages of Botswana for foreign investors. [2]

UCLES 2005 9708/04 M/J/05

Answer two questions from this section.

(b) Why might a government wish to promote an increase in tourism? [13]

(a) Explain what the above statement means. [12]

UCLES 2005 9708/04 M/J/05

Answer this question.

1 United Nations Development Programme Report

In contrast, the top five countries in the index were:

The world average was 0.722.

(a) Explain what is meant by GDP per capita. [2]

UCLES 2006 9708/04/M/J06

Answer two questions from this section.

Do you agree with this argument? [25]

5 Sometimes the development of a project in an urban area is encouraged by a government. At

UCLES 2006 9708/04/M/J06

Answer this question.

Table 1 Economic data about Turkey

% of GDP from agriculture 11.7

% of population below poverty line 20

1999 2000 2001 2002 2003

(a) Explain what is meant by GDP. [3]

(c) Name three influences on the supply of labour. [3]

UCLES 2007 9708/04/M/J/07

Answer two questions from this section.

2 (a) Explain what is meant by productive and allocative efficiency. [12]

5 In 2004 the US Federal Budget deficit rose to a record $412 billion.

6 These statements come from the same journal article:

Urbanisation could be a solution to poverty, disease and malnutrition owing to economies of

Source: Royal Society of Arts Journal, August 2005

UCLES 2007 9708/04/M/J/07

Answer this question.

1 The North Sea oil industry

Fig. 1 North Sea oil industry: production and price

UCLES 2008 9708/04/M/J/08

Answer two questions from this section.

Discuss whether this approach to pricing can be supported in theory. [25]

Discuss whether there is any truth in this argument. [25]

(a) Explain what is meant by economic development. [10]

(b) Discuss whether you agree with this statement. [15]

7 (a) For what purposes do people demand money? [10]

UCLES 2008 9708/04/M/J/08

Answer this question.

1 Private Sector Money and Development

Kenya 2004 Bangladesh 2005

UCLES 2009 9708/04/M/J/09

Answer two questions from this section.

(b) Discuss how a firm might compete in a market. [13]

3 Discuss what might cause inequalities in wage rates in an economy. [25]

(a) Explain what might cause unemployment. [12]