Cambridge A Level Economics 9708 — 2008 Oct/Nov Paper 4 · Variant 1

This document consists of 3 printed pages and 1 blank page. IB08 11_9708_04/2RP © UCLES 2008 [Turn over *0697407618* UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level ECONOMICS 9708/04 Paper 4 Data Response and Essay (Supplement) October/November 2008 2 hours 15 minutes Additional Materials: Answer Booklet/Paper READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer Question 1. Section B Answer any two questions. You may answer with reference to your own economy or other economies that you have studied where relevant to the question. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

2 © UCLES 2008 9708/04/O/N/08 Section A Answer this question. 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 world’s 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 The richest fifth receives 82.7 % of total world income. The poorest fifth receives 1.4 % of total world income. 11.7 % of income 2.3 % of income 1.9 % of income 1.4 % of income Each horizontal band represents an equal fifth of the world’s people. richest poorest world population arranged by income

3 © UCLES 2008 9708/04/O/N/08 (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 world’s 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 Answer any two questions from this section. 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]

4 BLANK PAGE Copyright Acknowledgements: Question 1 © Solly Benatar; http://medicine.plosjournals.org/perlserv/?request=get-document&doi=10%2E137%2Fjournal%2Epmed%E0020400 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. 9708/04/O/N/08

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Level MARK SCHEME for the October/November 2008 question paper 9708 ECONOMICS 9708/04 Paper 4 (Data Response and Essays – Supplement), maximum raw mark 70 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began. All Examiners are instructed that alternative correct answers and unexpected approaches in candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills demonstrated. Mark schemes must be read in conjunction with the question papers and the report on the examination. • CIE will not enter into discussions or correspondence in connection with these mark schemes. CIE is publishing the mark schemes for the October/November 2008 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 Section A 1 (a) Explanation which mentions increase in real GDP, or increase in national income, productive capacity with brief comment. Could mention difference between actual and potential growth [3] (b) 2 way link – developed use developing countries resources, but also give aid. Both are supposed to help both types of economy. Use of resources brings income to developing nation and production and growth to developed nation. Aid encourages development and as a result products may be available for developed nation to import. Need not refer to extract to get full marks. [5] (c) No real proof from the chart. - no absolute figures - no definition of poverty - unsure about %s on chart - no comparative figures to substantiate the word ‘still’ - however may be true as % distribution on chart is quite uneven. Need a conclusion even if it is that the evidence is indecisive. Give credit if candidate mentions both sides of argument [5] (d) The conclusion is not necessarily correct. Growth in developed country may have decreased poverty as well as in the developing country. There is still poverty in both types of economy but may have been worse without growth. No evidence, only a bald statement, about widening differences. The information about $2 a day does give some weight to the argument but we do not know comparative costs of living. Look for reasoned argument with a conclusion. Could mention changes in the idea of what constitutes poverty. No use of evidence/information: max 3 [7] Section B General Comments for section B: The essay questions carry a maximum mark of 25. Try not to 'bunch' marks, but use the whole mark range. If 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 level one in individual question notes). 1–5 where the answer is mostly irrelevant and only contains a few valid points made incidentally in an irrelevant context. There will also be substantial omissions of analysis. 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.

Page 3 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 Mark 10–13 (Linked to level two in individual question notes). 10–11 where there is evidence of an ability to identify facts or some ability at graphs and/or a fair ability to apply known laws to new situations. There should be 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. 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 theory is incompletely explained. Mark 14–17 (Linked to level 3 in individual question notes). 14–15 where there is 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 should also be evidence, where appropriate, 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 should be some attempt at a conclusion to the question. There should be a reasoned structure to the whole answer. Do not expect too many extra Illustrative points which are not explicitly referred to in the question, do not expect too much critical comment on unstated assumptions 16–17 for an answer showing a well reasoned understanding of the question's requirements and of the relevant theory: the analysis should be sound though the illustration and development may not be very full. Mark 18–25 (Linked to level 4 in individual question notes). 18–20 where there is a thorough knowledge of the facts and theory with an excellent ability to describe, explain or analyse this in a precise, logical, reasoned manner. There should be an ability to query some of the assumptions in the question and clear evidence of an ability 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 apposite examples should be introduced as further evidence of an 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 marks for sub-sections. 1 2 3 4 Total Mark 10 1–3 4–5 6–7 8–10 Total Mark 12 1–4 5–6 7–8 9–12 Total Mark 13 1–4+ 5–6+ 7–8+ 9–13 Total Mark 15 1–5 6–8 9–11 12–15

Page 4 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 2 Candidates first need to consider whether economic analysis does presume what is stated. It usually does presume consumers are rational. Candidates should then discuss the role of advertising. Advertising might not mean a decrease in rationality. It might through better information make informed choices more likely. An overall conclusion is essential. L4 For an explanation of the terms in the statement, a clear analysis of the link between them, a discussion of the possible outcomes with a reasoned conclusion. [18–25] L3 For a competent explanation which does not fully analyse the terms or clearly see the progression, or lack of progression in the argument. There will be some discussion but the evaluation will not be fully developed or extensive. [14–17] L2 For an accurate though undeveloped explanation of some of the terms with some attempt at seeing the links between them but with very limited evaluation and no real conclusion. [10–13] L1 For an answer which shows some knowledge but does not indicate that the question has been fully grasped. The answer will have some correct facts but include irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–9] 3 (a) Comment on derivation of LRAC, economies of scale, effect on costs and therefore, on best productive output. L4 For a sound explanation with clear understanding of the principles involved and a clear link to profit-maximising presented. [8–10] L3 For a competent explanation but with limited development of the link to profit maximising. [6–7] L2 For a general explanation probably in descriptive form of economies of scale. [4–5] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–3] (b) Two parts to the answer. Do firms want to maximise profits, do they do so by equating mc and mr? First part involves discussion of alternative theories of the firm. The second involves a discussion of the practicality of using mc=mr. L4 For a reasoned discussion and clearly structured answer with conclusion on both parts. [12–15] L3 For a full discussion, probably of the first part, but little mention of the second part. [9–11] L2 For a limited but acceptable attempt to describe some alternative policies, little on the practicality and no conclusion. [6–8] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–5]

Page 5 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 4 (a) Government may be involved to provide unprofitable service or to prevent high profits although the service is provided, or to control practices that might be thought to be unsafe or detrimental to the consumer. No need to relate to India. L4 For a sound explanation with clear understanding of the principle involved . [8–10] L3 For a competent explanation but with limited development. [6–7] L2 For a general explanation probably in descriptive form. [4–5] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–3] (b) Efficiency needs to be defined. Discussion of efficiency and whether government involvement necessarily implies productive or allocative efficiency. There is a chance that allocative efficiency might be more likely, but it is problematic to calculate it. If unprofitable services are provided it is quite unlikely that productive efficiency will be achieved. L4 For a reasoned discussion and clearly structured answer with conclusion on both types of efficiency. [12–15] L3 For a full discussion possibly of one type of efficiency with only a limited attempt at a conclusion. [9–11] L2 For a limited but acceptable attempt which may not define efficiency, omit one type of efficiency, not have a conclusion, and not have any development of analysis. [6–8] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–5] 5 Candidates need to consider whether the theory does presume only that there is a perfect market and that a stable equilibrium will be achieved. (Theory allows for imperfections and does not prescribe a stable equilibrium in the imperfect market with trade unions.) Candidates then need to consider whether the conclusion in the statement is accurate. L4 For an explanation of the terms in the statement, a clear analysis of the link between them, a discussion of the imperfectly competitive case with a reasoned conclusion. [18–25] L3 For a competent explanation which does not fully analyse the terms or clearly see the progression, or lack of progression in the argument. There will be some discussion but the evaluation will not be fully developed or extensive. [14–17] L2 For an accurate though undeveloped explanation of some of the terms, probably mentioning imperfect competition but not dealing with the exact equilibrium, with very limited evaluation and no real conclusion. [10–13] L1 For an answer which shows some knowledge but does not indicate that the question has been fully grasped. The answer will have some correct facts but include irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–9]

Page 6 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 6 (a) Explanation of the various types of unemployment. L4 For a clear explanation with accurate development of at least four types of unemployment, cyclical, structural, frictional, seasonal, real-wage (classical), voluntary or well developed 3 types. [9–12] L3 For a clear explanation of at least three types or more than three with undeveloped explanation. [7–8] L2 For a limited attempt with little development. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–4] (b) Discussion of the different aims of government policy, both macro and micro could be mentioned, with a comment on their relative importance. L4 For a sound discussion with good explanation of the aims and a clear understanding of the relative choices with a conclusion. [9–13] L3 For a competent comment but with limited attempt at a comment on the relative importance. [7–8] L2 For a correct explanation but with no attempt at a consideration of the relative importance. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–4] 7 (a) Explanation on the m.e.c./m.e.i. against the rate of interest, consideration of longer term outlook, discussion on the importance of the rate of interest. L4 For a sound explanation with clear understanding of the principles involved. [8–10] L3 For a competent explanation but with limited development. [6–7] L2 For a general explanation probably in descriptive form. [4–5] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–3] (b) The link between investment and national income through the multiplier process should be explained. Candidates should discuss the role of private investment and consider its relative importance in terms of other elements of aggregate demand in the determination of national income. Allow for an answer which discusses political stability, natural resources, size of labour force, unrest and war. L4 For a reasoned discussion and clearly structured answer with links explained and the multiplier analysis or the alternative approach developed. [12–15] L3 For a full discussion of the different parts but without a clear link or without a good development of the multiplier or the alternative approach and only a limited attempt at a conclusion. [9–11]

Page 7 Mark Scheme Syllabus Paper GCE A LEVEL – October/November 2008 9708 04 © UCLES 2008 L2 For a limited but acceptable attempt which may not consider all the elements, not have a conclusion, and not have any development of analysis. [6–8] L1 For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. [1–5]