XI Eco P2 Mock 2 Mark scheme

Section A
1 (a) (i) Calculate and compare the change in the trade balance between 2008–9 and
2012–13 of the Northern Territory with that of Australia. [4]

Both improved (1), Northern Territory (NT) has an increased surplus (1), Australia goes from
deficit to surplus (1), supporting calculation NT A$1454 to A$3193, Aus A$-41 665 to A$12
303 (2)

Comparative points without accurate calculation can be rewarded, but the points must relate
to the ‘balance’, not the change in imports or exports alone.

(ii) Explain why exports and imports are often measured at constant prices. [2]

Constant prices exclude the effect of inflation (1), more accurate in real terms or shows the
volume of trade.

(b) Explain two additional pieces of information that would be useful in judging
Australia’s international financial position. [4]

From net income, net transfers, capital account, financial account, foreign reserves, exchange
rate, terms of trade or alternatives, identification (1), plus 1 mark for explanation of identified
point (1)

(c) Analyse the change in average weekly earnings in Australia in real terms between
2008–9 and 2012–13. [4]

For an understanding of meaning of ‘real terms’ (1 mark) Real earnings will rise (1), earnings
rise more rapidly than inflation (1), supporting calculation 14.6% v. 11.2% (2)

(d) With the help of the text and the table, discuss the economic prospects of the
Northern Territory. [6]

Good prospects: trade in tourism (income elastic), minerals and oil, rising surplus, relatively
low inflation rate, higher real wages, growth of working population.

Poor prospects: rise in unemployment, dependence on narrow range of production, variable

For the identification of points that could affect the economic prospects of the Northern
Territories (2 max.)

For explanation of why the identified points are relevant to the economic prospects. (2 max.)

For comment on the economic prospects of the Northern Territories, for example a reasoned
summary or conclusion. (up to 2 marks)

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 Section B

EITHER

2 (a) Explain the differences in the features of a market economy and a planned
economy. [8]

Individual actions and consumer sovereignty dominate in the market economy. Motivation is
self interest. Private ownership, the profit motive and the operation of market forces are
central features. In a planned economy there are government ownership, planning bodies and
the state direction of resources. Motivation is public interest. Decisions by the government
dominate economic activity.

Explanation of the features of a market economy up to 4 marks

Explanation of features of a planned economy up to 4 marks

(b) Discuss the desirability of the direct provision of goods and services by the
government. [12]

The desirability depends upon the nature of the goods and services. Private goods and
services may be most efficiently supplied by the market. However in cases of market failure
the government may intervene. Public goods and merit goods may not be provided or be
under-provided by the market. This would include defence and education and would justify
the direct provision by the government. Intervention in the provision of private goods
however may result in inefficiency and reduced welfare. Governments may also use this as a
way to tackle monopoly, fair prices and essential goods.

Discussion of merit and public goods up to 6 marks

Discussion of private goods up to 4 marks}to max

Discussion of other government motives for provision up to 4 marks}of 6 marks

OR

3 (a) Explain the meaning of the term ‘equilibrium price and quantity’ in the market
for a good or service, and show how a new equilibrium position is established when
there is a decrease in demand. [8]

For knowledge and understanding of equilibrium price and equilibrium quantity.

Candidates need to show good understanding that equilibrium price and quantity is a position
in the market where there is ‘no tendency to change’. This can be illustrated and explained
with the use of a supply and demand diagram.

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For application showing the process through which equilibrium is established when there is a
decrease in demand. (Up to 4 marks)

Candidates are expected to provide a supply and demand diagram showing a shift in the
demand curve to the left, the consequent excess supply that this will cause together with the
downward movement of price and quantity to re-establish equilibrium.

(b) Discuss whether attempts to help poorer consumers through the introduction of a
maximum price for necessities can ever be successful. [12]

For analysis showing the impact of a maximum price below equilibrium, the consequent
shortage and the likely emergence of black markets. (Up to 8 marks)

In this case, there will need to be an alternative system of resource allocation, such as
rationing.

For evaluative comment making a judgement about whether this can ever be successful.
(Up to 4 marks)

Section C

Answer one question.

EITHER

4 (a) Explain the difficulties of measuring inflation accurately. [8]

Inflation is a sustained rise in the general price level and is measured by an index of
consumer (retail) prices. The accuracy of the index can vary with the effectiveness of the data
collection, the construction and coverage of the index and the extent to which it is updated.
Changes in quality cause problems as well.
For understanding inflation and its measurement up to 3 marks. For identifying some
difficulties up to 3 marks For explaining the basis of the difficulties up to 2 marks [8]

(b) Discuss whether inflation is necessarily harmful. [12]

Changes in the general price level give rise to problems in terms of uncertainty and planning,
menu and shoe leather costs, redistributional and international effects. The rate of inflation
(particularly compared to rivals), its trend and whether it is anticipated affect the severity of
the problems it causes. A low rate of inflation may be desirable as an incentive to producers
and a stimulus to the economy. It is often advocated in preference to deflation.
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For identifying some of the disadvantages up to 3 marks. For explaining some of the
disadvantages up to 3 marks. For analysing the different possible conditions up to 3 marks.
For discussing the benefits of inflation up to 3 marks. [12]

OR

5 (a) Using examples, explain the instruments of monetary policy and supply-side
policy. [8]

Monetary policy refers to changes in the money supply, interest rates and the exchange rate.
It also includes changes to credit regulation. An increase in the money supply and a fall in the
rate of interest for example might be used to stimulate the economy and bring unemployment
down.

Supply side policy refers to any policy that attempts to increase the aggregate supply of
goods and services to an economy. There are many instruments of supply side policy such as
reductions in tax rates to increase the supply of factors of production, schemes to improve the
training of labour to enhance skills and re-location grants to improve the geographic mobility
of labour. There is a wide range of other instruments.

Please note that supply-side policy has been expanded on the new syllabus.

For knowledge and understanding of the instruments of monetary policy (up to 2 marks)

and application with an example of how these instruments might be used in an economy (up
to 2 marks) 4 maximum

For knowledge and understanding of the instruments of supply-side policy (up to 2 marks)

and application with an example of how these instruments might be used in an economy (up
to 2 marks) 4 maximum

(b) Discuss the advantages and disadvantages of supply-side policy and consider its
effectiveness in an economy that is facing a labour shortage. [12]

Supply-side policy works through achieving increases in aggregate supply. The advantages
include the fact that non-inflationary growth can be achieved together with improvements in
the productivity of the factors of production. The disadvantages include the opportunity cost
of the funds needed to improve the supply–side and the fact that many improvements take a
long time to take effect.

For analysis showing how supply side policy might be used to solve a labour shortage (up to
6 marks)

For the advantages of supply-side policy (up to 4 marks)

and disadvantages of supply-side policy (up to 4 marks) 6 marks maximum

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8 marks maximum for analysis

For evaluative comment on ‘effectiveness’ in an economy facing a labour shortage. (4)

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