Identify the two types of costs that make up social cost.
[2] Jun 21
Private costs (1) External costs (1).
Identify two of the three resource allocation decisions. [2] Nov 21
Two from: • what to produce • how to produce • who to produce for
Identify two determinants of price elasticity of supply. [2] Nov 21
Two from: • ability to store • level of stocks • perishability • production time • level of spare capacity • cost of
altering supply • time period under consideration – short/long run
Define market disequilibrium. [2] Nov 21
When quantity demanded does not equal quantity supplied (2). When there are shortages (1) or surpluses (1) of a
product.
Explain two causes of a shift to the right in the demand curve for fish. [4] Jun 21
Logical explanation which might include: • Rise in the price of a substitute for fish (1) people will switch away from
buying e.g. chicken to buying fish (1). • Fall in the price of a complement for fish (1) people will buy more of the
complement (1). • A rise in income (1) people will be able to afford to buy more fish (1). • A report stating eating
fish is good for health / changes in tastes (1) people may buy more fish to try to increase their life expectancy (1). •
Increase in population size (1) more people to buy fish (1). • A successful advertising campaign (1) may persuade
more people to buy fish (1).
Explain two advantages of a market economic system. [4] Nov 21
Logical explanation which might include: Consumer sovereignty (1) with consumers deciding what goods and
services are produced (1). Low prices (1) due to competition (1). High quality (1) due to innovation (1). Consumer
choice (1) variety of products produced (1). Greater efficiency (1) due to the profit motive (1). Automatic
adjustment to changes in demand and supply / quick response to changes in demand and supply (1) via changes in
price / with use of the price mechanism / increase consumer satisfaction (1).
Analyse, using a demand and supply diagram, the effects on the world price of oil of the discovery of new
reserves of oil. (6) Nov 21
Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or P and Q (1). Original demand and
supply curves correctly labelled (1). New supply curve shifted to the right (1). Equilibriums – shown by lines P1, P2 /
Q1, Q2: or marking the equilibrium points E1 and E2 (1). Up to 2 marks for written comments: Discovery of new oil
will enable an increase in supply (1) price will be lower (1).
Analyse how the price mechanism answers the three key resource allocation questions. [6] Nov 21
Coherent analysis which might include:
Definition of price mechanism e.g. where forces of demand and supply determine the prices of goods and services
(1) in a market economy (1).
What to produce (1) the price mechanism acts a signal/the price mechanism acts as an incentive on what to
produce (1) rations goods and services (1) price will rise for products in higher demand (1) encouraging more to be
made (1).
How to produce (1) e.g. more labour-intensive/more capitalintensive methods of production will be used (1) if
wages fall/if cost of capital goods fall (1).
Who to produce for (1) those whose services are most in demand will have the highest income (1) will be able to
buy the most (1)
Analyse, using a production possibility curve (PPC), the opportunity cost to an economy of producing more
consumer goods. [6] Nov 21
Up to 4 marks for the diagram: Axes correctly labelled with capital/consumer goods (1). Curve drawn as a
curve/line sloping downward to the axes (1). Movement along the curve/along the axes (1). Reduction in capital
goods/increase in consumer goods shown by numbers or letters or arrows (1). Up to 2 marks for coherent analysis
which might include: Opportunity cost is the (next) best alternative forgone (1) resources used to produce
consumer goods cannot be used to produce capital goods (1). Producing more consumer goods now may mean
fewer consumer goods in the future (1) as there may be fewer capital goods to make them (1).
Discuss whether or not indirect taxation can reduce market failure. [8] Nov 21
In assessing each answer, use the table opposite.
Why it might:
• demerit goods are overconsumed and cause external costs • demerit goods and other products causing external
costs can be taxed • indirect taxation on demerit goods can discourage their consumption • merit goods are
under-consumed and create external benefits • indirect tax revenue can be used to subsidise or produce merit
goods • public goods would not be produced by the private sector as they have the characteristics of non-rival and
nonexcludable • indirect tax revenue can be used to finance the production of public goods
Why it might not:
• difficult to measure external costs • demerit goods may be overtaxed, changing from being overconsumed to
being under-consumed • demand for some demerit goods is price inelastic • indirect taxes may fall more heavily
on the poor • demand may just shift to imports if other countries do not impose indirect tax or have lower tax
rates • tax revenue may not be used to promote the consumption of merit and public goods
Discuss whether a government should provide subsidies to families to spend on housing. [8] Jun 21
In assessing each answer, use the table opposite.
Why it might:
• will increase the spending power of families who receive it • may increase quantity supplied • may give low-
income families access to a basic necessity, reducing poverty • may enable families to spend more on e.g.
education • may increase employment / reduce unemployment, creating jobs building housing / increase labour
mobility • may increase quality of housing and so improve health
Why it might not:
• rich can already afford housing • some families may not spend it on housing • may be inflationary, demand
increasing for housing and e.g. furniture, carpets • opportunity cost • taxes may be raised to finance subsidy •
building more houses may result in environmental damage
