Cambridge A Level Economics 9708 — 2015 Oct/Nov Paper 4 · Variant 3

This document consists of 3 printed pages, 1 blank page and 1 Insert. DC (CW) 97082/3 © UCLES 2015 [Turn over Cambridge International Examinations Cambridge International Advanced Level * 6 6 3 1 6 7 0 0 5 5 * ECONOMICS 9708/43 Paper 4 Data Response and Essays (Supplement) October/November 2015 2 hours 15 minutes No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. 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. The number of marks is given in brackets [ ] at the end of each question or part question.

2 9708/43/O/N/15 © UCLES 2015 Section A Answer this question. 1 The economy as ‘a machine’ The economy has been spoken about as if it were a machine. Its businesses are ‘the engines of job creation’; they change ‘inputs into outputs’ and ‘generate profits’. In this approach, markets are assumed to be productively efficient, consumers rational, incentives are obvious and outcomes certain. This means that any regulation of the market is undesirable because it hinders the workings of the machine. However, there is no evidence that markets are always efficient and there is no evidence of a prosperous economy that does not also have strong regulation and an active government. Recessions and economic downturns should have caused this ‘machine’ idea of an efficient economy to be discredited. Yet, this view still influences economic policy. What is required is a theoretical framework for the economy that recognises that economies are not simple and predictable but complex; that understands that intended outcomes do not always happen. Consumers’ decisions are not precise but approximate. The economy should be thought of as ‘a garden’, not ‘a machine’. In this idea the economy cannot be completely efficient but if managed effectively it can work reasonably well. Consider regulation. In the ‘machine’ idea, regulation is an unfortunate interruption of the process of income generation. The machine should be left to run on its own. Perfectly free markets are the ideal. Less regulation will automatically lead to more prosperity. In the ‘garden’ idea it is recognised that the economy requires regulation. The control of harmful activities and the encouragement of beneficial activities will enable the economy to become more efficient. Consider spending. Government spending should not be thought of as a single action which uses money as an engine uses fuel. Rather, it is part of a continuous process that circulates money through spending. Also, some of this spending helps to develop the economy because it will be spent on education, health and roads, although not all spending is equally useful. It has been argued that the most prosperous economies are those that tax and spend the most. Less spending cannot revive a weak economy, but more spending can. Employment is not created by profits. It is a consequence of a circular process that starts with consumer demand and spending. The customer is the true job creator and resources are allocated according to their preferences. Source: Adapted from the RSA Journal, Winter 2012 (a) The article says that markets are assumed to be productively efficient. What is meant by productive efficiency? [3] (b) Summarise the two main ideas about the working of the economy in the article. [4] (c) Analyse how more spending can ‘revive a weak economy’. [6] (d) Discuss whether the last sentence of the article conflicts with the earlier statements about the need for a government. [7]

3 9708/43/O/N/15 © UCLES 2015 Section B Answer any two questions. 2 Economic theory often uses the concept of the margin. (a) Explain how the concept of the margin is used in consumer theory to derive a market demand curve. [12] (b) Discuss whether the use of the concept of the margin is important for a firm in deciding its business objective. [13] 3 (a) Analyse, with the help of a diagram, the possible shape of the long-run average cost curve of a firm and explain whether it is likely to be the same for small and large firms. [12] (b) Two airlines were recently accused of colluding to exploit the consumer. An investigation was established to see if this had happened. Discuss why collusion can occur in one market structure but not in another market structure. [13] 4 Briefly consider the causes of unemployment and then use the economic theory of the determination of wage rates to discuss whether an increase in wage rates may substantially increase long term unemployment in some industries but not in others. [25] 5 In 2012, many smaller specialised city centre retailers struggled against competition from large supermarkets and online retailers. They were also badly affected by government fiscal policy. (a) Explain how small retailers could be badly affected by government fiscal policy. [12] (b) Economic theory suggests that competition is good. The statement from 2012 seems to imply that it is not. Discuss this difference of opinions and consider which you support. [13] 6 In a number of countries interest rates have remained low for a long time. Some people have been unhappy with the low rates but others have been pleased. However, high interest rates also cause different reactions. (a) Explain why different groups of people may differ in their reaction to the level of interest rates. [12] (b) Discuss whether a low interest rate can help a government achieve its macroeconomic aims. [13] 7 Economic development and the exploitation of resources can result in structural change and unemployment in some industries, increased environmental damage, overexploitation of fish stocks, increased inequalities in the distribution of income and pressure on resources causing inflation. Explain what is meant by a developing economy and discuss whether it would be wise to conclude from the above opinion that developing countries should, therefore, not seek to become developed. [25]

4 9708/43/O/N/15 © UCLES 2015 BLANK PAGE 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. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. 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.

® IGCSE is the registered trademark of Cambridge International Examinations. CAMBRIDGE INTERNATIONAL EXAMINATIONS Cambridge International Advanced Level MARK SCHEME for the October/November 2015 series 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 should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the October/November 2015 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 Section A 1 (a) Brief explanation of productive efficiency, referring either to a production possibility curve (PPC) or to the lowest cost of production of a given output with an elaboration. 3 marks for either approach. [3] (b) The machine idea is that the economy is best left without regulation. This does not work and there needs to be some government involvement, the economy is complex. Observations should be given as illustration. 2 marks for each side. [4] (c) Comment on meaning of weak economy (1). Increase spending is an injection (1) multiplier process – and explanation, increase in income and growth (4). [6] (d) Conclusion – there could be thought to be a conflict (1). Last sentence says consumer spending is main job creator. Previously article said government and regulation was necessary. The article previously said consumers were not always rational and things were not always efficient. 3 marks for each side with elaboration/illustration. Up to 4 marks for one side. [7] 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 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.

Page 3 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 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 subsections Level 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

Page 4 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 2 (a) Explanation of marginal utility, comparison of marginal change in utility and marginal change in price and the link between consumer equilibrium and demand. The sum of individual demand curves form the market demand curve. Whether individual utilities can be added is debateable. L4 For a reasoned explanation linked to more than one good and clearly structured answer which includes the relationship of individual curves to the market demand. [9–12] L3 For a fair explanation but undeveloped answer that may concentrate on individual demand, has more than one good but does not link to the market; or tries to mention the market but does not deal with more than one good for individual equilibrium. [7–8] L2 For a more limited attempt that deals briefly with utility and mentions the margin but does not show the equilibrium, nor more than one good and does not link to the market. [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 relevance of marginal revenue and marginal cost for a profit maximising firm. Discussion of whether firms do indeed seek to maximise profit and, therefore, whether the marginal analysis is relevant. L4 For a sound explanation of the analysis and a clear understanding of the principles involved with a good attempt at discussing alternative aims. [9–13] L3 For a competent comment on the margin but with limited elaboration of alternative aims. [7–8] L2 For a weak explanation of the margin and only brief mention of alternative aims. [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] 3 (a) Analysis of long run average cost, discussion of economies and diseconomies of scale; consideration of whether economies occur in smaller firms. A diagram is required. L4 For a reasoned and clear description of the analysis, an accurate diagram and a discussion of the economies of scale. [9–12] L3 For a competent comment but with either a limited elaboration of the analysis or a diagram showing the relationship between short and long run curves inaccurately. [7–8] L2 For a brief description and an inaccurate and poorly presented diagram and brief discussion of economies. [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]

Page 5 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 (b) Description of one imperfect market where collusion occurs. The most usual comparison will probably be oligopoly – although a ‘legal’ rather than theoretical monopoly may also be used – and a perfect market (possibly even a natural monopoly) in terms of size of firms, freedom of entry, output determination, types of product, information sharing. L4 For a reasoned and clear discussion of the analysis of two market structures. [9–13] L3 For a competent comment but with a limited elaboration of the differences. [7–8] L2 For a brief discussion concentrating on one market, or a very brief comment on two markets. [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] 4 Explanation of unemployment and wage determination using marginal revenue product. Depends whether it has been related to an increase in productivity, involves trade unions pushing up wages, or how government minimum wage policy is related to the market price. The long term effects would also depend on whether the industry is experiencing seasonal unemployment, cyclical unemployment or structural. L4 For a consideration of unemployment causes and a thorough understanding of the analysis of wage determination with a good discussion of the link between the two. There should be a conclusion and a well-structured answer. (14–17 for demand and supply only.) [18–25] L3 For a good explanation of unemployment but a weaker explanation of wage theory and poorer link between the two with limited differences in possible outcomes. There should still be a conclusion. (10–13 for demand and supply only.) [14–17] L2 For a correct but undeveloped explanation with only a brief link between the theory and possible employment outcomes and no real conclusion. (6–9 for demand and supply only.) [10–13] L1 For an answer which contains inaccuracies and only a few correct points. (1–5 for demand and supply only.) [1–9] 5 (a) Explanation of meaning of fiscal policy, most likely effect would be from increased taxes, either indirect on sales (the outcome would depend on demand elasticity) or direct on company profits/consumer incomes; it is unlikely that the policy would be a subsidy as they were badly affected. L4 For a reasoned and clear explanation of the analysis of different types of taxes and of wage policy. [9–12] L3 For a competent comment on either direct or indirect taxes and a briefer comment on wage policy. [7–8] L2 For a brief explanation of both fiscal and wage policy, or a more developed explanation of one aspect but no explanation of the other. [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]

Page 6 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 (b) Competition in the statement is from large businesses so it is really imperfectly competitive market. Expect some comment on the outcome of competition, – choice, reduced prices – but also price fluctuations, excess profits, inequality in the distribution of incomes, possible market failure. L4 For a reasoned discussion on possible outcomes of competition, positive concerning choice and prices and negative with possible market failures. [9–13] L3 For a competent discussion but with less development or a concentration on one side of the discussion. [7–8] L2 For a weaker attempt which gives only a brief discussion. [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] 6 (a) Explanation of effect on savers, borrowers, business investment, speculators. Higher rates; greater likely return on saving, increased cost of borrowing in order to finance expenditure. Conversely for lower rates. Different reactions might also depend on factors such as income; age of person; career situation; employment prospects; need for single large expenditure in future; time of year, e.g. holidays. Candidates could also mention the proportion of income that is spent or saved which may vary depending on the level of income. L4 For a sound explanation of the analysis and a clear understanding of the principles involved. [9–12] L3 For a competent comment but with limited elaboration. [7–8] L2 For a correct explanation of part of the analysis, 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) Low rates might stimulate borrowing (unless banks are unwilling to lend) and investment and hence government aims of employment, economic growth. Low rates might lower exchange rate as less demand for currency and increase exports (unless there is a general recession and demand doesn’t increase), reduce imports. This may help balance of payments but may help aim of low inflation. L4 For a reasoned discussion on effects on at least three macro aims with conclusion.[9–13] L3 For a competent discussion but with less development on three macro aims or a fuller discussion and development on two macro aims. Need conclusion for 8. [7–8] L2 For a weaker attempt which gives only a brief discussion. [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]

Page 7 Mark Scheme Syllabus Paper Cambridge International A Level – October/November 2015 9708 43 © Cambridge International Examinations 2015 7 There should be an explanation of characteristics of a developing economy; there should then be a comment on the statement recognising that not all these things happen, that even if they do they may not always be extensive, and that the statement is one-sided. A comment should be made of the positive side of development and a conclusion presented. L4 For a discussion of the factors which are involved in the analysis of each the stages of the argument together with a conclusion. [18–25] L3 For a competent discussion of part of the argument – probably that related to the explanation of the characteristics and the disadvantages of development – with briefer comment on the positive aspects. Some attempt at a conclusion will be presented. [14–17] L2 For a brief comment on part of the argument, with a weak discussion and with no conclusion. [10–13] L1 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]