Cambridge A Level Economics 9708 — 2002 May/June Paper 4 · Variant 1

This question paper consists of 4 printed pages. SP (CW) S08202/3 © CIE 2002 [Turn over CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS 9708/4 PAPER 4 Data Response and Essays (Extension) MAY/JUNE SESSION 2002 2 hours 15 minutes Additional materials: Answer paper TIME 2 hours 15 minutes INSTRUCTIONS TO CANDIDATES Write your name, Centre number and candidate number in the spaces provided on the answer paper/ answer booklet. Answer Question 1 and any two questions from Section B. Write your answers on the separate answer paper provided. If you use more than one sheet of paper, fasten the sheets together. INFORMATION FOR CANDIDATES The number of marks is given in brackets [ ] at the end of each question or part question. You may answer with reference to your own economy or other economies that you have studied where relevant to the question.

2 9708/4/M/J/02 Section A Answer this question. Question 1 An economic report on Belgium The following information was taken from a bank report on Belgium dated August 2000. Stronger activity, rising oil and commodity prices and a weak currency have brought accelerating inflation. Cost and demand pressures, however, should be restrained as the effects of higher oil prices fade and wage increases are limited by legislation. Belgium is one of the most open economies in Europe. As a percentage of national income, exports and imports of goods are about three times the European average of 25%. Exports have been prominent in the increased economic growth in the last year. Trade and current accounts have remained in surplus and increased growth in output has led to an improvement in public finances, which may result in the budget deficit being eliminated this year. In July 2000 annual inflation rose to 2.8% from under 1% in July the previous year, but (given the availability of spare capacity and the restraint imposed on wages by new legislation) labour costs have been prevented from increasing. Job creation in the public sector has assisted the growth in employment, which should result in a further growth in consumption as personal disposable incomes rise. Table 1 Key Variables Table 2 Composition of GDP average forecasts 1993-97 1998 1999 2000 2001 2002 growth in real GDP (%) 1.7 2.7 2.5 3.7 3.5 3.0 inflation (%) 2.1 1.0 1.1 2.5 2.2 2.3 1980 1990 1999 exports as % of GDP 62 71 76 composition of GDP by sector (%) agriculture 2 2 1 industry 36 30 28 services 62 68 71

3 9708/4/M/J/02 [Turn over (a) Is the information on inflation in the text supported by the figures in the tables? [3] (b) Identify the evidence in the article that might be used to give support to the passing of legislation to limit wage increases. [3] (c) (i) Describe the changes in the composition of GDP by sector between 1980 and 1999. [2] (ii) Discuss whether these changes might be typical of a developed economy. [6] (d) Use the article to discuss the advantages and disadvantages to Belgium of having one of ‘the most open economies in Europe’. [6] Section B is on page 4.

4 9708/4/M/J/02 Section B Answer any two questions. 2 ‘The demand for goods and services is often influenced by advertising or involves choices based on impulse. This means that the economic theory of demand is irrelevant.’ Discuss whether you agree with this argument. [25] 3 ‘Huge scale is at the heart of everything the giant US retail company Wal-Mart does. Its biggest stores are ten times the size of an average UK store.’ (a) Explain the advantages that a retail organisation might derive from large size. [12] (b) Discuss whether the development of large companies is always a benefit to a society. [13] 4 (a) Explain the differences between the likely structure of employment in a developing economy and that of a developed economy. [12] (b) Apart from employment, discuss what economic changes are likely in a developing economy if it experiences economic growth. [13] 5 (a) Explain how wage rates are determined in a perfectly competitive market. [10] (b) Discuss why wage rates might be different in practice from those in a perfectly competitive market. [15] 6 (a) Explain what determines the level of investment in an economy. [10] (b) In August 2000 the Dutch government was concerned that increases in aggregate demand were putting too much pressure on the economy. Discuss how effective fiscal policy alone might be in reducing this pressure. [15] 7 ‘Economic analysis is preoccupied with efficiency.’ (a) Explain what economists mean by the term ‘efficiency’. [10] (b) Discuss how governments might use the concept of efficiency in deciding economic policy. [15] Copyright Acknowledgements: Question 1. Text and Table: Barclays Bank Country Report: Belgium. Barclays Bank August 2000. Question 3. Extract: The Godfather of U.S. supermarkets makes a special offer the UK shoppers can’t refuse. The Independent, 21 July 2000. Cambridge International Examinations has made every effort to trace copyright holders, but if we have inadvertently overlooked any we will be pleased to make the necessary arrangements at the first opportunity.

CAMBRIDGE INTERNATIONAL EXAMINATIONS JUNE 2002 GCE Advanced Level SYLLABUS/COMPONENT :9708 /4 _ ECONOMICS (DATA RESPONSE AND ESSAY (EXTENSION)) P84 University of CAMBRIDGE SP Local Examinations Syndicate

Page 1 = Mark Scheme [ Syllabus | Paper A Level Examinations — June 2002 L__ 9708 4 General Comments: The essay questions in section B cary a maximum mark of 25. Try not to ‘punch! marks, but use the whole mark range. Hf there is any doubt in your mind, give the benefit of doubt to the candidate. The difference in grades should be assessed on the ability of the candidate to demonstrate the various objectives of the examination listed in the syllabus and not purely on the ability to itemise further facts from the content of the syllabus. Marks should be awarded for the ability to demonstrate that aim b) of the syllabus has been achieved as well as aim a) - which refers to content knowledge. It is the objective of the examination, as listed in the syllabus, to assess both these aims. An overall guide for marks for individual questions is given below, these are from a total of 25. They may be applied proportionally of course to parts of questions where the total is less than 25: Mark 1- 9 (Linked to Jevel one in individual question notes). 4-5 where the answer is mostly imelevant and only contains a few valid points made incidentally in an imetevant context. 6-9 where the answer shows some knowledge but does not indicate that the meaning of the question has been properly grasped. Basic errors of theory, or an inadequate development of analysis may be evident. Mark 10-13 (Linked to level two in individual question notes). 10 -11 where there should be evidence of an ability to identify facts, some ability at graphs, fair ability to apply known laws to new situations, Expect an accurate although undeveloped explanation of the facts relating to the question together with an explanation of the theory, and evidence of some ability to discriminate and form elementary judgements. But do not expect a clear logical presentation. There will not be much evidence of the ability to recognise unstated assumptions, nor to examine the implications of a hypothesis, nor of the ability to organize ideas into a new unity. 12-13 where the answer has a more thorough relevance to the question but where the theary is incompletely explained. 14-17 (Linked to level 3 in individuat question notes). 14 ~15 Expect a good knowledge of the facts and theory of the question, clear evidence of the ability to use the facts and theory with accurate reference to the question that may have presented the candidate with a novel application. There shoukd also be evidence of the ability to examine the implications of the question and an attempt to distinguish between facts and value judgements. Clear statements, supported by reasoned arguments should be given and there shouki be some attempt at a conclusion to the question. There should clearly

Page 2 Mark Scheme Syllabus | Paper A Level Examinations — June 2002 708 4 | be a reasonable structure to the whole answer. Do not expect too many extra llustrative points which are not explicitly referred to in the question, do not expect too much critical comment, and do not expect any recognition of, or comment on unstated assumptions 16 - 17 for an answer showing a weil reasoned understanding of the question's requirements and of the relevant theory: the analysis shouki be sound though the illustration and development may not be very full. 18 - 25 (Linked to ievel 4 in Individual question notes). 48 -20 Expect a thorough knowledge of the facts and theory with an excellent ability to describe and explain this in a precise, logical, reasoned manner. Expect an ability to query some of the assumptions in the question and clear evidence to distinguish between fact and value judgements and to draw some conclusions on the matter being discussed. Conclusions should be formed and expressed within a sound structured answer so that the whole is well presented. New illustrations and examples apposite to the material discussed should be introduced as further evidence of the ability to recognise the principles of the question and their application to relevant current situations. 21 - 25 for an answer which, given the time constraint, could not be improved significantly: it will have clear analysis, ample illustration and a good attempt at considered evaluation. Be positive in your marking awarding marks for what is there without being too much influenced by omissions. Marks should not be deleted for inaccuracies. Corresponding maximum marks for sub-sections. Total Mark 10 3 5 7 410 Total Mark 12 4 6 8 12 Total Mark 13 4+ 6+ 8+ 13 Total Mark 15 5 8 1 45

Page 3 Mark Scheme Syllabus | Paper A Level Examinations — June 2002 9708 | 4 Comments on individual questions. 1a} Figures for inflation in the text range from 1% to 2.8% (89-00). The table is different. However, the text is for the year ending July, the table the average for the calendar year. The text also says inflation has been accelerating, the table does not really support this. It declined from the average between 93-97 in 98, and then only rose slightly in 99. The figure for 00 is a forecast. (3 marks) There is some indication in the table that inflation accelerates although mainly this is in the forecast figures. Allow this interpretation. b) There is weak currency, pressure from demand could lead to inflation, job creation in the public sector has made increased employment possible. (3) ¢) i) Agriculture low, and stilt declining, industry declining and services increasing. ii) Could comment on the decline in the importance of industry and the growth of services. Could compare this with developing countries where agriculture is higher, and the services are often not recorded because they are local, or unpaid. (6) d) Definition of open economy. Advantages from text — exports fed to growth, surplus on trading accounts, public finances healthy, elimination of budget deficit, increased tourism, as a result increased incomes and employment. Disadvantages ~ effect of increased oil and commodity prices, imported inflation. (6) 2. Candidates should form a structured answer which first debates whether demand is influenced by advertising or impulse buying. They should then describe how demand is determined according to economic theory and discuss whether their conclusions to the first part of the argument lead them to support the conclusion given in the assertion. 14) For a thorough explanation of the terms, a clear analysis of the two parts fo the argument, with a discussion of the conctusion of the assertion. 18-25 No reference to utility — max L3 £3) For a competent explanation which does not fully analyse the two parts and does not fully develop a discussion leading to a conclusion but makes some attempt at evaluation. 14-147 12) For an accurate though undeveloped explanation with some attempt at analysis but only limited evafuation. 10-13 11) For an answer which shows some knowledge but does not indicate that the question has been fully grasped, or where the answer contains irrelevancies and errors of theory. 1-9 3a} Explanation of advantages of increased size, economies of scale in terms of profits, funds for investment, returns to shareholders. 14) Fora reasoned and clear explanation with accurate development of theory. 9— 12 No reference to retailing — max L3 L3) For a fair but undeveloped explanation. 7-8 12) For a limited but acceptable attempt to consider the theory but with little reference to the particular changes mentioned in the question. 5-6 11) For an answer which has some basic correct facts but includes irrelevancies and errors of theory. 1-4

}— Page 4 | Mark Scheme Syllabus | Paper [ ‘AS Level Examinations — June 2002 9708 4 b) The quote suggests that the growth in the company is not simply an amalgamation of small units with no effect on the area. Rather, itis the expansion of the existing trading practices in one area. They could then discuss the benefits of this in terms of employment, income generation, effect on development of area, growth of local economy and the costs in terms of changes in the environment, increased traffic growth, extra pollution, destruction of existing facilities. 4) For a reasoned and clear evaluative comment 9-13 L3) For a fair but undeveloped comment & a conclusion drawn 7-8 £2) For a limited but acceptable attempt to consider the possible results of development 5-6 LI) For an answer which has some basic correct facts but includes irrelevancies and errors of theory 1-4 4a) Comment on differing importance of agriculturefindustry/services. Comment on levels of training required, levels of income. Level 4) For a sound explanation with good illustrations and a clear understanding of the principles involved 9-12. Level 3) For a competent explanation 7-8 Level 2) For a correct description but undeveloped comment with limited attempt to elaborate the description. 5-6 Level 1) For an answer that has some basic correct facts but includes irrelevancies and errors of theory 1-4 b). Discussion of changes in social! factors, health, education, housing, incomes, Conn Ont eigk environmental changes. Coats Ove WL, an COA Ep ned, L4) For a reasoned and clear evaluative comment 9-13 3) For a fair but undeveloped comment 7-8 L2) For @ limited but acceptable attempt to consider the possible results of development and a conclusion drawn 5 - 6 L1) For an answer which has some basic correct facts but includes irreflevancies and errors of theory 1-4 5. a) Explanation of theory either in terms of supply and demand or in terms of marginal revenue productivity. 14) For a sound explanation of the analysis using marginal revenue productivity and a clear understanding of the principles involved. 8-10 L3) For a competent comment of marginal revenue with limited development or Moy UZ a sound explanation of demand and supply . 6-7 fer YS ony L2) For a limited explanation and undeveloped comment 4-5 £1) For an answer which has some basic correct facts but includes irrelevancies and erors of theory 1-3

Page 5 Mark Scheme Syllabus | Paper | AS Level Examinations - June 2002 9708 | 4 | b} Recognition of the fact that most markets are imperfect which, in theory, would affect the shape of the demand/supply curves. In practice candidates should also discuss institutional factors such as the role of government fegistation and possible effect of demands for increased income by organised groups such as unions. L4) For a reasoned and clear evaluative comment 12-16 L3) For a fair but undeveloped comment 9-11 2) For a limited but acceptable attempt to consider the possibie effects 6 - 8 11) For an answer which has some basic correct facts but includes imelevancies and errors of theory 1-5 6. a) Discussion of determinants of investment. (income, interest rates) L4) For @ sound explanation of the analysis and a clear understanding of the principles involved. 8-10 13) For a competent comment with limited development 6-7 L2) For a undeveloped comment 4-5 11) For an answer which has some basic correct facts but includes irrelevancies and errors of theory 1-3 b) Discussion of fiscal policy and methods by which fiscal policy might reduce demand. Consideration of the effectiveness of reducing demand by this method. L4) For a reasoned and clear evaluative comment 12-15 2) For a limited but acceptable aftempt fo consider the possible effects 6 - 8 Roly, tro bao, 11} For an answer which has some basic correct facts but includes irélevancies ASceak une. and errors of theory 1-5 7a) Explanation of productive and allocative efficiency. 14) For a sound explanation with good application and a clear understanding of the principles involved — diagrams will probably be used but are not required by the question 8-10 : L3) For an accurate but less developed explanation 6-7 L2) For a correct explanation of one of the concepts but some errors in the other concept, not necessaniy logically presented, or with some diagrammatic errors 4-6 £1} For an answer which has some basic correct facts but includes irrelevancies and errors of theory 1-3 b) Aliocative efficiency can be used to produce the best allocation of resources for the whole society, which includes consumers. Consumers needs have to be balanced against those of producers. Productive efficiency can result in optimum output but this does not mean that lower prices necessarily follow. Candidates could debate what is meant by ‘consumers needs’ - it may be an increased range of products and/or lower prices and/or better quality or improved services. L4) For a reasoned and clear evaluative comment 12-15 L3) For a fair but undeveloped comment 9-1T L2) For a limited but acceptable attempf to consider the possible effects 6 - 8 L1) Foran answer which has some basic correct facts but includes irrelevancies and errors of theory 1-5 Connd diame Car AD eewatiinte ty L3) For a fair but undeveloped comment 9-11 omen Bitean