Cambridge A Level Economics 9708 — 2011 Oct/Nov Paper 4 · Variant 3

This document consists of 3 printed pages and 1 blank page. DC (NF) 36520/2 © UCLES 2011 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Level * 3 1 5 9 2 0 9 2 7 9 * ECONOMICS 9708/43 Paper 4 Data Response and Essays (Supplement) October/November 2011 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 9708/43/O/N/11 © UCLES 2011 Section A Answer this question. 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 world’s 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]

3 9708/43/O/N/11 © UCLES 2011 Section B Answer two questions. 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 worker’s 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 country’s economic growth rate. [12] (b) Assess the effectiveness of economic growth as an indicator of how a country’s 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]

4 9708/43/O/N/11 © UCLES 2011 BLANK PAGE Copyright Acknowledgements: Question 1 © Developments, Issue 46; Department for International Development; www.developments.org.uk. 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.

UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary Level and GCE Advanced Level MARK SCHEME for the October/November 2011 question paper for the guidance of teachers 9708 ECONOMICS 9708/43 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, which would have considered the acceptability of alternative answers. Mark schemes must be read in conjunction with the question papers and the report on the examination. • Cambridge will not enter into discussions or correspondence in connection with these mark schemes. Cambridge is publishing the mark schemes for the October/November 2011 question papers for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level syllabuses and some Ordinary Level syllabuses.

Page 2 Mark Scheme: Teachers’ version Syllabus Paper GCE AS/A LEVEL – October/November 2011 9708 43 © University of Cambridge International Examinations 2011 Section A 1 (a) Explanation of any suitable characteristics, for example, employment distribution, health, education, standards of living, sanitation, dependence on overseas aid. [4] (b) They are concerned about the total cost of production including the externality of carbon emissions. They argue that resources should be conserved and not exploited. This, they say, could be achieved by switching to local products. [2] (c) There should be a statement about the meaning of marginal utility (1); the relation of marginal utility to price (2); and a comment about buying more expensive products (3). The theory does not prevent the purchase of more expensive items. Fewer would be bought if the price were higher. It might be questioned whether buying the same product at a higher price was rational and whether the argument was reasonable. [6] (d) Developing countries depend on agriculture – some figures are given for some countries. Agriculture depends more on the weather than other sectors. Incomes are more volatile. An example is given. Developing countries have come to depend on trade with developed countries which is likely to be withdrawn. Developed countries are rich enough to go to other suppliers; developing countries would find it difficult to find other buyers. It is likely that the statement is true but there is only a little supporting evidence and some general background information. [8]

Page 3 Mark Scheme: Teachers’ version Syllabus Paper GCE AS/A LEVEL – October/November 2011 9708 43 © University of Cambridge International Examinations 2011 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. 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 organise 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 three 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.

Page 4 Mark Scheme: Teachers’ version Syllabus Paper GCE AS/A LEVEL – October/November 2011 9708 43 © University of Cambridge International Examinations 2011 Mark 18–25 (Linked to level four 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 12 1–4 5–6 7–8 9–12 Total Mark 13 1–4 5–6 7–8 9–13 2 Candidates should discuss the proposition. There are similarities. They may all have a profit motive – although there are alternative aims also. They may all be subject to competition – with contestable markets – depending on how monopoly is defined. Whether the producer has all the benefit is debateable. However, there are differences in the amount of control over prices, over abnormal profits, over information, over collusion, over branding and price discrimination. [25] L4 For a thorough analysis of the proposition with a consideration of the likenesses and differences and with a clear discussion and conclusion. [18–25] L3 For a competent explanation but which will probably concentrate on the differences with limited discussion of the comparability but still with a conclusion. [14–17] L2 For a correct but limited theoretical analysis which may concentrate on one side of the proposition or may present both sides but with little development. No conclusion. [10–13] L1 For an answer which contains inaccuracies and only a few correct points. [1–9] 3 (a) Explanation of the effect of an increase in consumer expenditure (C); increase in injections via subsidies, increase in national income; explanation of multiplier. [12] L4 For a sound explanation with good application and a clear understanding of the principles involved both of an increase in C and of govt. subsidies. [9–12] L3 For an accurate explanation of the multiplier but with a more limited comment on the possible overall balance. [7– 8] L2 For a weaker explanation of the multiplier or without a clear explanation of the effect of subsidies. [5– 6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1– 4]

Page 5 Mark Scheme: Teachers’ version Syllabus Paper GCE AS/A LEVEL – October/November 2011 9708 43 © University of Cambridge International Examinations 2011 (b) Candidates should discuss general macroeconomic objectives. Increasing demand might conflict with controlling prices overall and might have balance of payments repercussions if the new cars are imported. It should not conflict with decreasing unemployment or increasing growth. [13] L4 For a reasoned and clear discussion with the analysis logically presented and a conclusion drawn. [9–13] L3 For a fair but undeveloped discussion possibly concentrating on two aims only. [7–8] L2 For a limited discussion with little comment and no conclusion. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4] 4 (a) Discussion of influence of demand for labour on the wage rate paid. Better answers will use the marginal revenue product (mrp) theory, average or weaker answers will explain the idea through a standard demand curve – which will need to be related to the supply to fix the wage rate. [12] L4 For a sound explanation with good application and a clear understanding of the principles involved – diagrams will probably be used. [9–12] L3 For an accurate but less developed explanation. [7–8] L2 For an explanation of the analysis but not necessarily logically presented, or with some errors. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4] (b) Analysis of the change in wage rates when the market becomes imperfect. The marginal wage and average wage will not be identical and the wage rate will be pushed down. If the product market is also imperfect the average and marginal revenue will not be the same and this will affect the mrp. However, these changes may be modified either because the trade union influences the level of the wage rate or because it is fixed by the government. Candidates could discuss the effect of a minimum wage. [13] L4 For a reasoned and clear analytical comment. [9–13] L3 For a fair but undeveloped comment. [7–8] L2 For a limited but acceptable attempt to consider the possible effects. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4] 5 (a) Explanation of the calculation of the change in GDP/GNP and its link to growth rates [12] L4 For a sound explanation of the different methods and a clear understanding of the principles involved. [9–12] L3 For an accurate reference to the question but with a more limited explanation and minor errors in the analysis. [7–8] L2 For a correct explanation but undeveloped comment, not necessarily logically presented. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4]

Page 6 Mark Scheme: Teachers’ version Syllabus Paper GCE AS/A LEVEL – October/November 2011 9708 43 © University of Cambridge International Examinations 2011 (b) Consideration of the value of GDP but also of other factors which might be important which are not included directly in GDP – health, housing, education, crime, income distribution. Difficulties of comparing different cultures, climates. [13] L4 For a reasoned and clear discussion, logically presented. [9–13] L3 For a fair but undeveloped discussion but with accurate reference to the question. [7–8] L2 For a limited discussion with little comment. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4] 6 (a) Expect descriptions of the transactions, precautionary and speculative reasons behind the demand for money. Up to 6 for first two, 6 for speculative. [12] L4 For a sound explanation with good application and a clear understanding of the principles involved. [9–12] L3 For an accurate reference to the question but with a more limited explanation and minor errors in the analysis. [7–8] L2 For a correct explanation but undeveloped comment, not necessarily logically presented. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–4] (b) Discussion of effect of increase in supply on interest, with discussion of elasticity of liquidity preference. Effect of changes in interest on investment, with discussion of elasticity of investment schedule and extent of marginal propensity to save. Effect on international situation with changes in imports, exports, speculation and exchange rates. This could lead to changes in government policy. [13] L4 For a reasoned and clear discussion, logically presented. [9–13] L3 For a fair but undeveloped discussion but with accurate reference to the question. [7– 8] L2 For a limited discussion with little comment. [5–6] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1– 4] 7 Explanation of the meaning of allocative efficiency and productive efficiency with a discussion of the polices that might be used to approach allocative efficiency when the market does not reflect that situation – subsidies, regulation, taxes, prohibitions, ownership, provision of government services. It might be possible to achieve productive efficiency but more difficult to measure and achieve allocative efficiency. [25] L4 For a reasoned and clearly structured answer which gives an explanation of both types of efficiency and a discussion of the policy. A conclusion should be drawn. [18–25] L3 For a fair explanation but with a weaker or undeveloped discussion on policy but still with a conclusion. [14–17] L2 For an answer which concentrates on the explanation but does not explore the discussion and has no conclusion. [10–13] L1 For an answer which has some basic correct facts but includes irrelevancies and errors of theory. [1–9]