Cambridge A Level Economics 9708 — 2016 May/June Paper 4 · Variant 1

This document consists of 4 printed pages and 1 Insert. DC (CW/JG) 115954/3 © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level * 2 1 7 6 4 3 1 5 0 8 * ECONOMICS 9708/41 Paper 4 Data Response and Essays May/June 2016 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 9708/41/M/J/16 © UCLES 2016 Section A Answer this question. 1 Changes in the Chinese economy China is an emerging economy. The proportions of workers employed by sector between 1990 and 2012 are shown in Fig. 1. Fig. 1: Working population in China by sector 1990–2012 1990 1995 2000 2005 2010 2012 Tertiary Secondary Primary 100 90 80 70 60 50 40 30 20 10 0 % 44.8 52.2 50.0 36.7 33.6 30.3 28.7 23.8 22.5 23.0 18.5 24.8 27.5 31.4 34.6 36.1 21.4 60.1 Iron ore is used for steel making. By 2013, China was the largest iron ore importer in the world. The main suppliers were Australia, Brazil, India and South Africa. China also needed other raw materials such as aluminium and copper. As a proportion of GDP, China bought four to ten times more of these than other countries and was responsible for much of the global increase in their demand during the two decades before 2013. The iron and steel industry in China was stimulated by strong domestic demand, particularly from the construction, manufacturing and automotive industries, all of which had expanded production. But during 2013 the outlook for China’s economy was less bright. There was a sharper than expected fall in export growth in China, while imports actually fell. Growth in industrial output was also slower and this, together with increased output from new iron ore mines in Australia, seemed likely to cause a reduction in iron ore prices. It was thought that the potential change in industrial output in China, the world’s second-largest economy, would worsen the outlook not only for mining companies but also for other producers worldwide. Statistics for the annual rate of inflation in China indicated that in 2013 prices of key products such as iron ore fell, causing the rate of inflation to fall and creating the prospect of price deflation. An economist said ‘falling prices are bad for the economy.’ Some economists feared that the future growth of building and urbanisation would be at a significantly slower rate. The result, it was thought, would be that any economic growth would be more likely to be caused by consumption and not by investment. This change to consumption from investment would mean that the demand for raw material inputs would fall significantly, as previous demand was a consequence of China’s growth through an investment approach. Of course, items such as cars, washing machines and computers all require a substantial amount of raw materials, so the demand for some inputs would still increase. Sources: China Labour Bulletin, accessed 29 April 2014, and Daily Telegraph, 10 June 2013

3 9708/41/M/J/16 © UCLES 2016 [Turn over (a) Identify the trends in working population in China and consider whether they are what might be expected in an emerging economy. [5] (b) The article states that ‘falling prices are bad for the economy’. Analyse whether falling prices necessarily harm an economy. [5] (c) Does the article give enough evidence to lead you to conclude that the changes in the Chinese economy would be bad for countries that trade with China? [4] (d) Using the article and your own knowledge, discuss what difference an investment approach to growth and a consumption approach to growth might make to an emerging economy such as China. [6]

4 9708/41/M/J/16 © UCLES 2016 Section B Answer any two questions. 2 ‘In a complex modern economy there is no possibility of a perfect market system. A concentration of market power always results and does not serve the public interest.’ Do you agree with this opinion? [25] 3 (a) Given the prices of two goods, how does economic theory analyse what is meant by ‘consumer equilibrium’? [12] (b) Suppose the price of one of the goods falls. Use indifference curve analysis to discuss whether consumers would always buy more of the good when its price falls. [13] 4 ‘Wage rate inequalities are inevitable and can be justified.’ Discuss whether this statement can be supported by economic theory. [25] 5 (a) Explain what is meant by diminishing returns and economies of scale, and consider whether diminishing returns can occur only in perfect competition and economies of scale in imperfect competition. [12] (b) ‘The theory of the firm that assumes perfect knowledge and the aim of profit maximisation can be found only in perfect competition. In monopoly those assumptions do not apply.’ Consider whether you agree with this statement. [13] 6 (a) Explain what is meant by the equilibrium level of national income, and consider whether it is possible to have such an equilibrium and unemployment at the same time. [12] (b) At a time of an election a government makes a promise that, if re-elected, it would aim to increase the growth rate of the national income. Discuss whether an increase in the growth rate is necessarily beneficial. [13] 7 Discuss which issues are at the heart of the debate about the quality of life in a country and what indicators might be used to assess them. [25] 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. This document consists of 10 printed pages. © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/41 Paper 4 Data Response and Essays May/June 2016 MARK SCHEME Maximum Mark: 70 Published 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 May/June 2016 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 AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 Section A 1 (a) Primary down, secondary and tertiary up; candidates should give figures to support this; (3) comment on likely changes as countries develop – need to give reason why it might be typical (2) [5] (b) Businesses suffer – profits could be reduced, investment limited, incomes and employment therefore reduced, consumers disadvantaged, government revenue reduced. But falling input costs are not necessarily bad. Export revenue may decline – depends on elasticity; balance of payment affected. It depends on whether there is a general price fall or a limited price fall. (one side, up to 4) [5] (c) China consumes large proportion of imports of raw materials, (10 x as much as a % of GDP than other countries) so a fall in price of materials (suggested 50%) and fall in demand would support that opinion. Imports have declined. However not all manufacturing has declined and some imports of consumer durables will increase particularly if consumption spending increases. China might improve in the long run but the article does not stress this. [4] (d) Candidates should make a reasoned attempt to consider any likely changes, not necessarily from the article, on employment, different incomes, standards of living, government tax revenue, rate of growth in the economy. Suggest up to 2 marks for each relevant suggestion. [6]

Page 3 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 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 1 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 2 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.

Page 4 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 Mark 18-25 (Linked to level 4 in individual question notes) 18–22 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. 23-25 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. 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 5 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 2 Candidates are expected to consider the argument. First, what is meant by a perfect market system and whether it is possible. Secondly whether a complex modern economy inevitably leads to a concentration of market power, and thirdly, if this is so, whether it serves the public interest. Candidates may refute, or accept, the subsidiary conclusion about market power, or the final conclusion or both. [25] L4 (18–25) For a clear consideration of each stage of the argument in the question. A reasoned conclusion should be presented. L3 (14–17) For a competent but more limited comment on the whole argument or by concentrating on part of the argument – maybe the link between market power and public interest by discussing market failures. L2 (10–13) For an undeveloped discussion of the argument concentrating on only one aspect and with no overall comment on the conclusion in the question. L1 (1–9) 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.

Page 6 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 3 (a) Analysis of the meaning of utility and the analysis of the equi-marginal principle which underlies an individual demand curve. Equilibrium could be explained either with reference to marginal utility/price or by using indifference curves. [12] L4 (9–12) For a reasoned analysis linked to more than one good and clearly structured answer which deals with a relation between utility, price and a given demand. L3 (7–8) For a fair analysis of utility but an undeveloped answer which deals with more than one good but does not link equilibrium to demand. L2 (5–6) For a limited attempt which does not clearly determine the equilibrium position for more than one good. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. (b) Discussion of income and substitution effects and resulting demand. Both normal and inferior goods lead to consumers buying more of the product but not the same amount extra. Fewer items would be bought with a Giffen good. [13] L4 (9–13) For an good discussion of income/substitution effects linked to normal, inferior and Giffen goods and clearly structured answer with a conclusion about what happens as prices change. L3 (7–8) For a fair discussion but undeveloped answer probably dealing with two of the types of good, or not clearly distinguishing income and substitution effects but still with some comment about what happens when prices change. L2 (5–6) For a limited attempt which does not determine the differences between the types of good or does not show the income and substitution effects. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial.

Page 7 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 4 The question presents an argument. Candidates should analyse whether the theory does explain differentials in wage rates, and discuss the conclusion that they should be accepted. There should be a conclusion to the candidate’s argument. [25] L4 (18–25) For a thorough analysis of theoretical wage determination with a clear discussion of each part of the argument, together with a comment on the conclusion of the argument. (14–17 for demand and supply only although the answer contains a full discussion of the argument) L3 (14–17) For a competent explanation of wage theory but with a more limited discussion of the structure of the argument although the answer itself should come to a conclusion for higher marks. (10–13 for demand and supply) L2 (10–13) For a correct but undeveloped theoretical analysis with scant comment about the structure of the argument, and no conclusion. (6–9 for demand and supply) L1 (1–9) For an answer which contains inaccuracies and only a few correct points. (1–5 for demand and supply only)

Page 8 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 5 (a) Analysis of the Law of Diminishing Returns and economies of scale and a recognition that the two can be used together, diminishing returns in the short run and economies of scale in the long run. It is more likely that economies of scale occurs in imperfect competition where large scale is possible. [12] L4 (9–12) For a sound comment with good explanation of the analysis and a clear understanding of the difference. Economies of scale occur in imperfect competition, diminishing returns occur in both. L3 (7–8) For a competent comment but with more limited explanation of the analysis. L2 (5–6) For a brief explanation and with a weak discussion of the links. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. (b) Candidates should consider whether perfect competition implies perfect knowledge and profit maximising. They should then consider whether these concepts may be found at all, or only sometimes, in monopoly, and if not, what other aims might exist. [13] L4 (9–12) For a sound explanation of the analysis and a clear understanding with a conclusion (no conclusion 9 max). L3 (7–8) For a competent comment but with limited development of the analysis and a weaker conclusion (no conclusion 7 max). L2 (5–6) For a brief explanation of the concepts and a weak comment on the possibilities available in monopoly and no conclusion. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial.

Page 9 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 6 (a) Explanation of the equilibrium level of income in terms of aggregate demand and supply or injections/withdrawals. Equilibrium can be at less than full employment. [12] L4 (9–12) For a sound explanation of the analysis and a clear understanding. L3 (7–8) For a competent comment but with limited development of the analysis. L2 (5–6) For a brief explanation of the elements of equilibrium but poor clarity in the answer. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial. (b) Candidates should explain the meaning of the growth rate of an economy and consider what benefits it might bring in terms of employment, incomes, standards of living, trade and wealth. They should also comment on possible drawbacks in terms of environmental change, resource use, distribution of income. [13] L4 (9–13) For a sound explanation of the analysis and a clear understanding with a conclusion (no conclusion 9 max). L3 (7–8) For a competent comment but with limited development and a weaker conclusion (no conclusion 7 max). L2 (5–6) For a brief explanation of the meaning of growth and a one-sided presentation of its effects and results with no conclusion. L1 (1–4) For an answer which has some basic correct facts but includes irrelevancies. Errors of theory or omissions of analysis will be substantial.

Page 10 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 41 © Cambridge International Examinations 2016 7 Candidates should explain what they would consider to be important to include–for example, output, health, housing, education, crime, income distribution. They should comment on the merit of using the value of GDP, HDI or MEW as indicators of quality of life. [25] L4 (18–25) For an clear explanation of the issues to be included and a discussion of the Merits and drawbacks of using alternative indicators and a reasoned conclusion. L3 (14–17) For a competent explanation of the issues but which do not provide a developed comment on alternative indicators. There will be some discussion but the evaluation will not be extensive. L2 (1—13) For an accurate though undeveloped explanation of the issues and a limited reference to alternative indicators. L1 (1–9) 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.