Cambridge A Level Economics 9708 — 2024 May/June Paper 4 · Variant 1

1 Income inequality According to a report by the World Bank, income inequality has declined in some low-income countries in recent years. For example, between 2008 and 2018, the Gini coefficient decreased by more than 5 percentage points in Chile, Colombia and Mexico. In some other countries, such as Ethiopia, India and Indonesia income inequality has remained relatively stable over the past decade while it has increased in China and South Africa. In low-income countries inequalities of opportunity, in particular the differences in access to education between females and males, appear to pose obstacles to a more equal income distribution. Equality of opportunity becomes an issue of macroeconomic relevance. Table 1.1 shows Gini coefficients, female/male literacy ratios and the percentages of population in absolute poverty for five countries. Table 1.1 Country Gini Literacy % of population below the coefficient ratio1 poverty line Brazil 0.53 1.01 4.2 Mauritius 0.36 0.95 10.3 India 0.35 0.90 21.9 Egypt 0.31 0.80 32.5 Pakistan 0.30 0.67 24.3 1Literacy ratio = female literacy rate ÷ male literacy rate Source: CIA World Factbook It is important to note that income inequality is a complex issue that can be influenced by a wide range of factors, including economic growth, government policies and global economic trends. The government can use fiscal and supply-side policies to influence and change income distribution. These could lead to higher Gross Domestic Product (GDP) and increased economic growth. While the Gini coefficient is the most widely used measure of income inequality, it is important to note that it has limitations. It does not take into account other factors that contribute to inequality such as wealth inequality, and it may not take into account the full extent of inequality in societies with large informal economies. (a) Describe what is meant by the Gini coefficient and its possible range of values. [3] (b) Distinguish between absolute poverty and relative poverty. [3] (c) Consider whether Table 1.1 supports the conclusion that greater inequality of incomes is linked to poor literacy ratios of females to males and leads to greater poverty. [6] (d) Use one example of a supply-side policy and one example of a fiscal policy to assess how a government might be able to achieve greater equality in the distribution of income. [8]

Mark scheme: Question Answer Marks Follow the point-based marking guidance at the top of this mark scheme. 1(a) Describe what is meant by the Gini coefficient and its possible range of 3 values. The Gini co-efficient, measures income inequality or, less commonly, wealth distribution among a population. (1) The co-efficient ranges from 0 (or 0%) to 1 (or 100%),(1) with 0 representing perfect equality and 1 representing perfect inequality. (1) 1(b) Distinguish between absolute poverty and relative poverty. 3 Absolute Poverty is used to describe a condition where an individual does not have the financial means to obtain commodities to sustain life. (1) It is sometimes expressed as being below the ‘poverty line’ which gives a level of income per day. (1) Accept World Bank definition of absolute poverty (1) Relative Poverty refers to the level of income compared to income levels of other groups within the same surroundings (1) 1(c) Consider whether Table 1.1 supports the conclusion that greater 6 inequality of incomes is linked to poor literacy ratios of females to males and leads to greater poverty. No apparent link to poor literacy ratios. (1) Better literacy ratios are in countries with greater inequality of income distribution (1) Cannot determine a cause/effect (1) Higher Gini coefficients are also in countries with a lower % below the poverty line. (1) No link to absolute poverty. (1) cannot tell about relative poverty-no information (1) Up to 2 marks for correct use of data 1(d) Use one example of a supply-side policy and one example of a fiscal 8 policy to assess how a government might be able to achieve greater equality in the distribution of income. Fiscal policy Correct example (1) development (2) Link to equality (1) Supply-side policy Correct example (1) development (2) Link to equality (1) Section B

More questions on Addressing income and wealth inequality

2 The long-term equilibrium position in perfect competition is frequently used to illustrate efficient resource allocation in a free market economy. Explain why this is so and consider what prevents efficiency from being achieved. [20] OR

Mark scheme: 2 The long-term equilibrium position in perfect competition is frequently 20 used to illustrate efficient resource allocation in a free market economy. Explain why this is so and consider what prevents efficiency from being achieved. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 14 marks. AO3 out of 6 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis Explanation of allocative and productive efficiency. Diagram and/or explanation of the long term equilibrium in perfect competition Efficiency may not be achieved because of  Market failure, explained by reference to possible excessive profits, the need for very large investments, the existence of externalities, merit goods and of the need for public goods.  Government intervention can help overcome this by regulation, taxation, subsides, or ownership aimed at achieving productive and allocative efficiency. AO3 Evaluation (max 6 marks)  The concepts of allocative and productive efficiency are mainly theoretical and rest upon fine calculations of marginal changes or precise allocations of costs.  Government intervention in the production of a good or service does not necessarily achieve productive or allocative efficiency – there may be government failure. AO1 Knowledge and understanding and AO2 Analysis 14 AO3 Evaluation 6

More questions on Different market structures

3 With the help of an indifference curve diagram, assess the extent to which a rise in price would affect the demand for a normal good differently from the demand for a Giffen good. [20] Section C Answer one question. EITHER

Mark scheme: 3 With the help of an indifference curve diagram, assess the extent to 20 which a rise in price would affect the demand for a normal good differently from the demand for a Giffen good. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 14 marks. AO3 out of 6 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis  Diagram showing Indifference curves, budget lines and price lines.  Changes in budget lines representing a rise in price.  Diagrams of resultant path of consumption showing differences in substitution and income effects for normal and Giffen goods.  Comment on changes in overall demand based on changes in income and substitution effects.  Up to Level 2 only if no diagram. AO3 Evaluation (max 6 marks)  Comment on extent of changes would vary depending on the price elasticity of demand a  It would also depend on the slope of the indifference curve and the marginal rate of substitution. AO1 Knowledge and understanding and AO2 Analysis 14 AO3 Evaluation 6 Section C

More questions on Indifference curves and budget lines

4 In many countries increased government spending is regarded as a cause of economic growth. It is sensible, therefore, for a government to spend more to increase economic growth as it is good for its country. To what extent do you agree with this argument? [20] OR

Mark scheme: 4 In many countries increased government spending is regarded as a 20 cause of economic growth. It is sensible, therefore, for a government to spend more to increase economic growth as it is good for its country. To what extent do you agree with this argument? Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 14 marks. AO3 out of 6 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis  Comment on the meaning of economic growth and its measurement and a discussion on the effect of increased government spending. Extra government spending should increase total demand by consumers and businesses, which could allow investment, research, further production and economic growth.  Distinguish between actual and potential growth  Reference to the multiplier.  However, if there is limited spare productive capacity, extra spending might not result in further output but in rising prices, or increased imports with consequent effects on the balance of payments and long-term international competitiveness.  Also depends on the amount of capital, education and skills of work-force, size of work-force, availability of resources. The ability to combine the factors of production. Access to finance, types of business structure available FDI. Access to new technology. AO3 Evaluation (max 6 marks)  Some evaluation would be included in the above discussion. For the evaluation marks there should be a recognition of both sides of the argument and a final conclusion as to which is dominant.  Issues may include higher prices; potential for income inequality; environment degradation; over consumption of scarce resources. AO1 Knowledge and understanding and AO2 Analysis 14 AO3 Evaluation 6

More questions on Fiscal policy

5 National income statistics are often used as a measure of the standard of living. Consider to what extent national income statistics can be used to compare the standard of living between low-income countries and high-income countries. [20]

Mark scheme: 5 National income statistics are often used as a measure of the standard 20 of living. Consider to what extent national income statistics can be used to compare the standard of living between low-incomes and high-income and countries. Use Table A: AO1 Knowledge and understanding and AO2 Analysis and Table B: AO3 Evaluation to mark candidate responses to this question. AO1 and AO2 out of 14 marks. AO3 out of 6 marks. Indicative content Responses may include: AO1 Knowledge and understanding and AO2 Analysis  Definition of standard of living  Distinction between high/low income countries eg per capita income  The answer should provide reasons for the difficulties of comparison of different countries due to culture, climate, subsistence sector, informal economy, difficulty of data collection, distribution of income, exchange rates, purchasing power. Comment on which measures of national income should be used. AO3 Evaluation (max 6 marks) Assessment of the link between using national income figures and the standard of living. Alternative measures to develop the extent national income statistics can be used in relation to low/high income and countries AO1 Knowledge and understanding and AO2 Analysis 14 AO3 Evaluation 6

More questions on National income statistics