A-level Economics Tutor

Diagrams

79 past-paper questions that ask you to draw, complete or annotate a diagram, by topic, each with the mark scheme's diagram behind the button. In the levels grids a relevant, accurate diagram is part of what separates Level 3 from Level 2 analysis; in short questions each correctly labelled feature usually earns its own mark.

The diagrams you must be able to draw

A checklist of the diagram families on the specification, each linked to its topic's questions. Written by the site from the specification and mark schemes; to be checked by a tutor.

DiagramWhat the mark scheme looks forQuestions
Supply and demandShifts of demand and supply, the new equilibrium, and the areas for consumer and producer surplus. Label the axes (price, quantity), both curves, both equilibria and the direction of the shift.12 here
Indirect taxes and subsidiesA specific tax shifts supply vertically upwards by the tax; an ad valorem tax pivots it; a subsidy shifts it downwards. Show the incidence on consumers and producers and the tax revenue or subsidy cost as rectangles.7 here
Externalities and welfare lossMPC, MSC, MPB and MSB; the free-market and social-optimum quantities; the welfare-loss triangle between them. Over-production for a negative externality, under-consumption for a positive one.9 here
Maximum and minimum pricesA maximum price below equilibrium creates excess demand (a shortage); a minimum price above it creates excess supply. Mark the quantities demanded and supplied at the controlled price.8 here
Production possibility frontiersPoints inside, on and outside the frontier; movements along it (opportunity cost) and outward shifts (growth, more or better resources).1 here
Aggregate demand and aggregate supplyAD with SRAS and LRAS. The Keynesian LRAS is L-shaped (horizontal then vertical); the classical LRAS is vertical. Show real output and the price level on the axes, and the output gap where the question asks.10 here
The circular flow and the multiplierInjections and withdrawals on the circular flow; on an AD/AS diagram the multiplier is the second, larger shift of AD after the initial injection.21 here
Costs and revenues of the firmAC, MC, AR and MR. MC cuts AC at its minimum; profit is maximised where MC = MR; supernormal profit is the rectangle between AR and AC at that output.8 here
Monopoly and perfect competitionMonopoly: downward-sloping AR with MR below it, output where MC = MR, the allocatively efficient output where AR = MC for comparison. Perfect competition: horizontal AR = MR = price, long-run normal profit at minimum AC.4 here
Oligopoly: the kinked demand curveA demand curve kinked at the current price, elastic above and inelastic below, with a discontinuity in MR that explains sticky prices.1 here
The labour marketDemand and supply of labour with the wage rate on the vertical axis; a minimum wage above equilibrium; monopsony with MCL above the labour supply curve and employment below the competitive level.2 here
Tariffs and tradeWorld supply horizontal at the world price; a tariff raises it, cutting imports: more domestic output, less consumption, tariff revenue, and two welfare-loss triangles.1 here
Exchange ratesDemand for and supply of the currency against another; shifts from interest rates, speculation, trade flows and FDI; appreciation and depreciation as a new equilibrium.topic page
The Phillips curveUnemployment on the horizontal axis, inflation on the vertical; the short-run trade-off and the vertical long-run curve at the natural rate.topic page

Every diagram question, by topic

The circular flow, national income and the multiplier (21)

June 2025 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 In 2023 the UK government reduced indirect tax on certain goods and services.
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the likely impact of a reduction in indirect tax on the equilibrium level of real output and the price level. (2) Price level SRAS P1 AD Y1 Real output
June 2025 · AS Paper 2 · Q6(e) 15 marks 15-mark response
Data and extracts for question 6Sources for use with SECTION B Read Figures 1 and 2 and Extract A before answering Question 6. UK living standards and supply‑side policies Figure 1: UK rate of economic growth, 2010 to 2028 10.0 % 7.5 5.0 2.5 0 –2.5 –5.0 –7.5 –10.0 * Data from 2023 to 2028 are forecast figures (Source: adapted from https://www.statista.com/statistics/375195/gdp-growth-forecast-uk/) Figure 2: UK inflation rate* and base interest rate, January 2022 to October 2023 12 % 10 8 6 4 2 0 inflation rate base interest rate * Measured by Consumer Prices Index (CPI). This is the year-on-year inflation rate calculated monthly. (Source: adapted from www.statista.com and www.tradingeconomics.com) Extract A Economic reforms Economists forecast that the UK will experience a slower rate of economic growth between 2024 and 2028. They also expect a high rate of inflation due to rising import prices of food, fuel and energy, and a strong demand for consumer goods. As a result, real income per household is estimated to decrease by around 0.9% in 2024. 5 This decrease would be the largest reduction in living standards since the Office for National Statistics records began in the 1950s. However, the UK government argues that there are some limitations of using GDP to compare living standards over time. One main reason is the fact that GDP figures are in nominal terms. The government questions the reliability of inflation data as it 10 believes that the Monetary Policy Committee (MPC) of the Bank of England will keep a high base interest rate to control inflation. The government also claims that the forecast by economists fails to consider the market-based supply-side policies it introduced in November 2023 to improve living standards. The government’s £10.4 billion cut to National Insurance contributions for employees 15 is the most significant policy, expected to increase employment and living standards. It is forecast to bring additional people into work and encourage more people to work longer hours. This is likely to result in an extra 94 000 full-time workers. The government has also taken measures to encourage more out-of-work benefits claimants into jobs. It introduced stricter benefit rules for people who can work but 20 do not take a job offered to them. This includes stopping people’s benefits if they do not actively engage in seeking employment in six months. This is likely to result in a further increase in employment figures. But economists claim that its impact on GDP will be relatively insignificant. This is because most of those affected by this policy will take on work with limited hours and very low pay. 25 These market-based supply-side policies, combined with measures centred on childcare subsidies for working parents, are expected to increase total employment by 200 000 between 2024 and 2028. The government argues that the expected increase highlights that it is better to “unlock the potential we have at home”, rather than encouraging migration. However, several economists suggest that 30 a rise in net migration is contributing more to an increase in the UK’s potential economic growth. Furthermore, the UK government’s decision to offer 100% tax relief on investment in capital machinery will increase overall investment by 0.5% by 2028. The benefits of 35 this effective tax cut for firms are estimated to increase over time, as technology advances and productivity improves. However, this tax cut will not prevent business investment falling in the short term, as higher interest rates are making it more expensive for firms to borrow. Economists suggest that this tax cut can only be funded by decreasing government 40 expenditure on public services in the long run. Government expenditure will need to decrease by a third, as a proportion of GDP, between 2024 and 2028. (Source: adapted from https://www.ft.com/content/5ff3538b-aed2-4898-b423- f0c61da728ff)
(e) Discuss the likely macroeconomic effects of a decrease in government expenditure on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer. (15)
June 2025 · Paper 2 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1–2) and extracts (A and B) before answering Question 6. Question 6 The German economy Figure 1: German government tax revenue, % of total revenue, 2022 2%2% 4% Income taxes 6% Value added tax Petrol duty 9% Corporation tax 41% Tobacco duty Motor vehicle tax Other 36% (Source adapted from: https://www.bundesfinanzministerium.de) Figure 2: German government budget, % of GDP, 2014–2022 1.9 2 1.5 1.2 1.3 % of 1 0.6 GDP 0 –2 –2.6 –4 –3.7 –4.3 –6 2014 2016 2018 2020 2022 (Source adapted from: https://tradingeconomics.com/germany/government‑budget) Extract A The opportunities and challenges facing the German economy The German economy entered a recession in 2023, and business confidence in the country fell at the fastest pace since 2021. German growth was the lowest among major economies in 2023. The future, however, is a greater concern owing to external factors such as global conflicts and restrictions on free trade. 5 The German government has been trying to improve its economic performance, with an aim to have renewables account for 80% of its energy supply. However, this would be a major shift for Germany where fossil fuels such as coal and gas still provide 75% of the energy needs and exposes it to volatile global energy prices. The rapid building of liquid natural gas terminals has helped to secure energy supplies in the short term. 10 The German government needs to remove a number of problems that have long held back its economy. Infrastructure projects in renewable energy production, such as wind farms, have been delayed by lengthy planning procedures. Business leaders complain of excessive bureaucracy and lack of technological advances. Labour shortages are another issue. Germany is expected to be short of up to 7 million workers by 2035, partly due to 15 an ageing population. There is a lack of skilled workers in the building trade, electrical engineering and professional services, which are important for the country’s economic ambitions. The German government needs to introduce effective policies such as planning reforms to speed up construction projects or reforms to increase the flexibility of the labour market. 20 The German economy has long been one of the biggest exporters in the world. It has trade surpluses with all its major trading partners except China and in 2021 its current account surplus was 7.7% of GDP. However, this has caused tensions with the governments of other countries, in particular the USA, which sees Germany’s surplus as partly a cause of the USA’s huge current account deficit. Having said that, a weakening 25 euro caused by higher interest rates in the USA compared to the Eurozone is beginning to have an effect in reducing Germany’s current account surplus – which dropped to 4.2% in 2022. (Source adapted from: https://www.ft.com/, https://www.cnb.cz/en/monetary‑policy/inflation‑reports/boxes-and-annexes-contained-in- inflation-reports/The-German-economy-and-the-dollar-euro-exchange-rate, and https://tradingeconomics.com/germany/current-account-to-gdp) Extract B US technology firm Intel invests in German semiconductor factories Intel is to double its investment in semiconductor factories in eastern Germany to €30 billion. This is the largest foreign direct investment in Germany’s history. Intel acquired the land for the factories in November 2022 and the first factory is expected to start production within four to five years. The site is expected to create 7 000 construction 5 jobs during the building phase, about 3 000 permanent high‑tech jobs and tens of thousands of additional jobs across the semiconductor industry. (Source adapted from: https://www.ft.com)
(d) With reference to Extract B, discuss the impact of the planned investment by Intel in a new semiconductor factory on Germany’s aggregate demand. Use an aggregate demand and aggregate supply diagram in your answer. (12)
June 2024 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 Business investment fell by 0.5% between Quarter 3 2019 and Quarter 4 2019. (Source: adapted from https://www.ons.gov.uk)
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the likely impact of a fall in business investment on the equilibrium level of real output and the price level. (2)
June 2024 · AS Paper 2 · Q6(b) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK monetary policy since the Global Financial Crisis of 2008 Figure 1: UK inflation rate (as measured by the Consumer Prices Index) and UK nominal wage growth, annual percentage change, 2008 to 2019 5 % 4 Nominal wage growth 3 Inflation rate 2 1 0 –1 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 (Source: adapted from ONS) Figure 2: UK real GDP, annual percentage change, Q4 2006 to Q4 2019 2 % 1 0 -1 -2 -3 -4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 2006 2008 2010 2012 2014 2016 2018 (Source: adapted from https://www.ons.gov.uk/economy/ grossdomesticproductgdp/timeseries/ihyq/qna) Extract A Has monetary policy worked? Between 2008 and 2009, financial markets around the world were crashing and many UK banks were adversely affected by the collapse of the housing market. This reduced access to credit for UK households and businesses. Faced with these large risks, the Monetary Policy Committee (MPC) of the Bank of 5 England reduced the base interest rate from 5.25% in February 2008 to 0.5% in March 2009. The MPC had known that reducing the base interest rate was not enough alone. It drafted the use of a new idea: quantitative easing (QE). It had bought assets worth £200 billion by November 2009. This QE was later implemented by the USA’s Federal 10 Reserve, and was claimed to be a success. In July 2012 the total spent on QE in the UK amounted to £375 billion. This decision has been credited with preventing the recession, caused by the Global Financial Crisis of 2008, turning into another Great Depression. The UK’s unemployment rate peaked at 8.5% in 2009 but had fallen to 4% in 2019, the lowest since the mid-1970s. 15 In 2016 the MPC further expanded its QE programme by £60 billion and reduced the base interest rate to 0.25%. Households with mortgages benefitted from the low interest rate, enabling them to continue consumption and therefore helping economic recovery. Nevertheless, this has resulted in a rise in household debts. Borrowing on credit cards and personal loans has increased above the levels seen before 2008. 20 Inflation caused by the fall in the exchange rate of the British pound, higher employment levels and nominal wage growth has since directed the MPC to increase base interest rates. It increased the base interest rate to 0.5% in November 2017, and then to 0.75% in March 2018. However, the uncertainty around the UK’s future trade relationship with the EU has meant that increases in the base interest rate were only marginal. 25 Many economists believe that if the UK and the EU are unable to form a trade agreement, base interest rates would need to be decreased again and QE expanded. Conversely, a few economists have argued that QE is no longer effective as a monetary policy instrument. They indicated that the base interest rate was usually reduced by as much as 5% during previous recessions. This is more than the UK can currently manage. Therefore 30 it would also require the government to implement a fiscal policy to deal with any future economic downturn. The Bank of England is, nonetheless, preparing for the worst-case scenario of a recession deeper than the downturn after the Global Financial Crisis of 2008. (Source: adapted from ‘The verdict on 10 years of quantitative easing’, Richard Partington, The Guardian, https://www.theguardian.com/business/2019/ mar/08/the-verdict-on-10-years-of-quantitative-easing)
(b) Assess the likely impact of an increase in real wages on the UK economy. Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2024 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 2Ghana – cocoa and chocolate production Figure 3: World’s largest cocoa growers and chocolate producers Cocoa growers Chocolate producers Ivory Coast 46% Germany 17% Ghana 18% Belgium 11% Indonesia 14% Italy 7.4% Nigeria 7% US 7.2% (Source: adapted from International Cocoa Association www.icco.org December 2021 and The Telegraph.co.uk accessed 24/2/22) Extract D From a managed to a floating exchange rate Ghana’s currency, the cedi, has depreciated significantly against major currencies, especially the US dollar (US$), since the adoption of the floating exchange rate system in 1992. From 1983 to 1992 it operated a managed exchange rate. Since the liberalisation of the foreign exchange market there have substantial swings and on average the cedi has 5 depreciated 98% against the US dollar. The cedi to US dollar rate has been very volatile recently, causing macroeconomic instability and limiting economic growth. (Source adapted from: https://www.theigc.org/project/on-the-causes-and-effect-of- exchange-rate-volatility-on-economic-growth-evidence-from-ghana/ and https://www.scirp.org/journal/paperinformation.aspx?paperid=95492) Extract E There is a lot of money in chocolate but the growers of cocoa see very little of it. In 2020 the chocolate retail industry was worth £78 billion, but Ghana – the world’s second largest cocoa producer – earned just over £1 billion. Cocoa farmers in Ghana now make roughly $1 a day (this often includes being subsidised by the Ghanaian government). This is a familiar pattern for many African countries where the economy 5 is still shaped by a colonial relationship in which they export commodities to be processed elsewhere. Ghana currently processes about 30% of its cocoa crop into chocolate, meaning that the exports can earn high prices. Despite plans for expanding the domestic chocolate industry there are still many obstacles in the way. The equipment to make chocolate is 10 very expensive and there is neither a local sugar nor dairy industry. Imported milk and sugar would increase the cost of production significantly, with the added problem that foreign currency would be needed. Producing chocolate requires consistent refrigeration, and the high cost of the equipment to achieve that is a major obstacle for entrepreneurs without substantial funds. There is an inconsistent supply of energy in rural parts of 15 Ghana. An alternative, making teas and wines using cocoa, can make 20 times more revenue than the raw beans, but they do not have the mass market appeal and high profits of chocolate. Access to funds is a big problem and one farmer, Nana Aduna, says that high interest rates on bank loans are an issue for start-up businesses and at the moment he cannot 20 afford to borrow money. “You cannot grow a business when you have to service interest rates of 18%–20% or even more,” he says. But the government has pledged to address these structural issues, using supply side policies. The Trade and Industry Minister announced that industrialisation is the focus of government policy. “It only makes sense that the most important commodity in 25 our country, which is cocoa… should become the target for a major programme of industrialisation,” he says. The ‘One District One Factory’ programme aims to kickstart industrialisation by providing the infrastructure for Ghana’s farms, by establishing processing plants in some of the big cocoa-growing areas. It has become easier for the private sector to invest in food 30 processing, and there is a big tax rebate available to processing companies that set up in the country’s enterprise zones – designated areas to encourage economic activity – in a bid to help them export. (Source: adapted from https://www.newsbreak.com/news/2201853748349/ghana-s- farmers-eye-sweet-success-from-chocolate and https://www.indepthnews.net/ index.php/the-world/africa/4495-ghana-starts-with-cocoa-to-end-neocolonial- trading-ties and https://www.brookings.edu/blog/africa-in-focus/2020/09/03/ pathways-to-structural-transformation-of-the-ghanaian-economy-and- some-roadblocks/ and https://www.ghanaweb.com/GhanaHomePage/ business/Speculators-driving-interbank-retail-FX-rates-gap-1468375) Extract F A new trade bloc for Africa The African Continental Free Trade Agreement (AfCFTA) has been signed by all 55 member states of the African Union, including Ghana, Nigeria, and South Africa. This brings together 1.2 billion people with a combined gross domestic product (GDP) of more than $2 trillion as of 2023. 5 The agreement commits countries to removing tariffs on 90% of goods, with other goods to be phased in later. The agreement also liberalises services and aims to tackle non-tariff barriers which reduce trade between African countries, such as long delays at the borders. (Source adapted from: https://www.aljazeera.com/economy/2018/3/20/ african-continental-free-trade-area-what-you-need-to-know)
(c) Discuss factors influencing the level of aggregate demand in Ghana. Use an aggregate demand and aggregate supply diagram in your answer. (12)
June 2023 · AS Paper 2 · Q4(c) 2 marks AO2=2 Diagram
Data and extracts for question 44 The table below shows the UK business investment, in £ billions, 2019 and 2020. Business Year investment (£ billions) 2019 226 2020 204
(c) Annotate the aggregate demand (AD) and aggregate supply (AS) diagram below to show the likely impact of a fall in business investment on the equilibrium level of real output and the price level. (2) Price AS level P1 AD Y1 Real output
June 2023 · Paper 2 · Q1(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 11 In September 2022 the Bank of England increased the base interest rate from 1.75% to 2.25%. (Source: adapted from https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp)
(a) Draw an aggregate demand and aggregate supply diagram to illustrate the likely impact of an increase in the UK base interest rate on the average price level and real output. (4)
June 2022 · AS Paper 2 · Q4(c) 2 marks AO2=2 Diagram
Data and extracts for question 44 The UK exchange rate changed from £1 = $1.53 in January 2015 to £1 = $1.22 in October 2019.
(c) Annotate the aggregate demand (AD) and aggregate supply (AS) diagram below to show the likely impact of an improvement in net trade on the equilibrium level of real output and the price level. (2) Price level AS P1 AD Y1 Real output
June 2022 · Paper 2 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6UK Government spending and inequality Figure 1: UK regional gross disposable household income per capita, 2018 £ per capita 19 000 to 21 000 17 000 to 18 999 16 000 to 16 999 15 000 to 15 999 14 500 to 14 999 14 000 to 14 499 13 000 to 13 999 North East South East (Source: adapted from University of Sheffield/Office for National Statistics: https://www.sheffield.ac.uk/news/nr/uk-higher-regional-inequality-large-wealthy-country-1.862262) Figure 2: UK subjective happiness by income, April 2021 Answer to the question: ‘On a scale of 1–10, how happy did you feel after yesterday?' (0 = not at all, 10 = completely) Less than £10 000 £10 000–£20 000 £20 000–£40 000 More than £40 000 7.31 7.02 7.13 7.29 (Source: adapted from https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/ datasets/incomegroupsplitestimatesonpersonalandeconomicwellbeingacrosstime) Extract A Regional inequality in the UK Geographically, the UK is highly unequal in incomes. According to research from the University of Sheffield, the estimate of the Gini coefficient is 0.34. There are a number of different reasons for this. First, labour in poor places tend to develop too few skills, with a lack of education holding people back. In Rotherham in the north of England, for 5 example, 21% of disadvantaged 18-year-olds from state schools and colleges go on to higher education compared to 41% in London. Secondly, there is a lack of infrastructure spending in northern cities compared to London. In 2017–18, 28% of public expenditure on transport – and 46% of capital expenditure on railways – was spent in London. The argument for this is that London gets a lot of public money because a lot of people take 10 public transport. This has angered many people in the North. These problems cannot be solved quickly. They compound each other. Just as people are rarely poor for one reason, regions do not fall behind only because they have poor transport, poor schools or poor policy making, but for all those reasons and more. Ideally, the UK would develop a bold plan for regional development that could be followed 15 by future governments, as Germany did for its eastern part. Tera Allas of McKinsey, a consultancy firm, argues that improving education is crucial, even if the returns are not immediately obvious. It is easier to improve schools than to persuade businesses to move to a poorer part of the country. (Source: adapted from https://www.economist.com/britain/2020/07/30/ why-britain-is-more-geographically-unequal-than-any-other-rich-country) Extract B Public sector spending on infrastructure Economic differences across the UK are large and have grown. The government is looking at reducing this inequality partly through spending on transport infrastructure. Public sector capital spending is due to rise from just over 2% of GDP to 3%. That amounts to around £20 billion of additional spending per year on new capital projects. The 5 government is looking to take advantage of current low interest rates to finance the expansion without worsening its fiscal position. The government is determined to focus this spending on the north of England, Wales and the Midlands. Planned schemes include a new Trafford Park tram line in Manchester and reopening train lines and stations closed back in the 1960s, including stations in 10 Haxby in Yorkshire and Blyth in Northumberland. Progress has already been made in Wales with the reopening of Bow Street station near Aberystwyth. This project has taken 11 years to become a reality and cost £8m. It is estimated that it will generate a boost to the economy of £24m through boosting local trade, creating new jobs in the local area, and easing pressure on congested roads heading into Aberystwyth. 15 (Source: adapted from https://www.economist.com/britain/2020/01/09/the-coming- splurge-on-northern-infrastructure and https://www.wales247.co.uk/transport-for-wales- delivers-new-bow-street-station) Extract C Options for UK tax rises in the future There are a number of options for raising additional tax revenue in the future. These include: • increasing council tax on houses: this annual charge paid to local government is currently based on estimated house prices in 1991 and so is very out of date. This 5 would negatively affect areas where house prices have risen the most since 1991 • a one-off wealth tax: a 5% tax on property and pension wealth of more than £500 000 would raise £260 billion to help pay for the global health crisis in five years, according to proposals from the Wealth Commission • increasing corporation tax: at the 2021 Budget the Chancellor announced that 10 the top rate of UK corporation tax would be increased to 25% by 2023. This will remain the lowest rate in the G7 group of the world's largest advanced countries, but will raise £17.2 billion in 2025–26. (Source: adapted from https://www.telegraph.co.uk/tax/income-tax/five-tax-rises-rishi- sunak-considering-chances-happening-budget/, and https://home.kpmg/uk/en/home/ insights/2021/03/tmd-corporation-tax-rate-to-increase-to-25-percent.html)
(e) With reference to Extract B, discuss the benefits of an increase in infrastructure spending on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer. (15)
October 2020 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 In August 2018 the Monetary Policy Committee of the Bank of England raised the UK’s base interest rate from 0.5% to 0.75%.
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the possible impact of a rise in the base interest rate on the equilibrium level of real output and the price level. (2) Price level SRAS P1 AD Y Real output 1
October 2020 · AS Paper 2 · Q6(d) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK government budget and household consumption Figure 1: UK government spending and tax revenue as % of GDP, 1980–2018 50 45 40 35 30 25 0 1980 2018 1990 2000 2010 Government spending Government tax revenue (Source: adapted from Office for Budget Responsibility (OBR), http://cdn.obr.uk/EFO- MaRch_2018.pdf © Crown copyright 2018) Figure 2: UK real household consumption, quarterly, £ billions, 1997 to 2018 (Source: adapted from ONS, www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/ bulletins/consumertrends/apriltojune2018) Extract A UK household consumption Despite the slow growth in real household disposable incomes, consumer spending rose in 2017. Annual spending per person increased by £589, when compared with 2016. This may have reflected UK households’ delay in adjusting to the increase in inflation that was associated with the fall in the exchange rate of the British pound. The increase 5 in consumption has also been driven by low interest rates. In 2017 UK house prices increased by an average of 5.1%. UK consumers have financed most of their spending by borrowing on credit cards in order to maintain their living standards. In 2017 borrowing on credit cards rose by 9.6%, the second-highest level since before the financial crisis. This has increased the Bank of 10 England’s concerns about the sustainability of borrowing, given the slow growth in real incomes. The Bank has also indicated that the base interest rate was likely to rise faster than previously expected. More expensive credit could therefore constrain the ability of households to spend. (Source: adapted from ‘Consumer Trends UK’, ONS, https://www.ons.gov.uk/economy/ nationalaccounts/ satelliteaccounts/bulletins/consumertrends/octobertodecember2017 and © Crown copyright 2018) Extract B Reduction of the UK’s budget deficit Since 2010 many economists have believed that the biggest problem facing the government was the rising budget deficit. In late 2017, the UK’s Chancellor of the Exchequer announced that the government would continue with its plans to decrease its budget deficit. To address this issue, the government further reduced welfare payments 5 and introduced extra spending cuts in the public sector. The UK government had estimated that the fall in UK productivity since the financial crisis was only temporary. However, it has now accepted that this fall in the level of productivity is a long-term issue. Subsequently, the UK’s forecast long-term trend rate of growth was reduced. Slower growth means lower tax receipts, higher spending and a 10 bigger budget deficit. Some economists have suggested that the government should not pursue additional reductions in the budget deficit. They have also claimed that the responsibility of the government is not to balance the budget but to balance the economy by moving it to full employment. 15 (Source: adapted from ‘Philip Hammond must ditch deficit reduction and invest. But will he?’, The Guardian, https:// www.theguardian.com/politics/2017/nov/19/philip-hammond-must-ditch-deficit- reduction-and-invest-but-will-he’)
(d) Assess the likely impact on the UK economy of an ‘increase in consumption’ (Extract A, lines 5–6). Use an aggregate demand and aggregate supply diagram in your answer. (10)
October 2020 · Paper 2 · Q5(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 55 The Hong Kong‑Zhuhai‑Macau Bridge is the world’s longest sea bridge. It reduces the journey time from Hong Kong to Zhuhai from 4 hours to just 30 minutes. It cost the equivalent of $18.8 billion and was government funded. (Source adapted from: www.theguardian.com)
(a) Draw an aggregate demand and aggregate supply diagram to show the likely impact of this new bridge on the price level and real output in the region. (4)
June 2019 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 The diagram below shows the aggregate demand (AD) and a possible long-run aggregate supply (LRAS) for the UK. Price LRAS level AD 0 Real output
(b) Annotate the diagram above to show the likely impact of government policy to promote business competition on the equilibrium level of real output and price level. (2)
June 2019 · AS Paper 2 · Q6(d) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK inflation and economic growth Figure 1: UK inflation rate as measured by annual percentage changes in the Consumer Price Index (CPI), January 2014 to January 2018 3.5 3.0 % 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 (Source: www.bankofengland.co.uk/publications/Pages/inflationreport/2017/aug.aspx) Figure 2: Selected changes to the CPI basket of goods and services, 2017 IN OUT Non-dairy milk Apple cider Jigsaw puzzles Menthol cigarettes Child scooters Child swings Cycling helmets Basic mobile phones (Source: www.theguardian.com/business/2017/mar/14/uk-inflation- ons-basket-goods-gin-cycling-helmets) Figure 3: UK exports, £ billions per month, January 2014 to January 2018 52 50 £ billions 48 46 44 42 40 0 (Source: Trading Economics, ONS - https://tradingeconomics.com/united-kingdom/exports) Figure 4: Annual percentage change in real Gross Domestic Product (GDP), 2014-2017 2014 2015 2016 2017 United Kingdom 3.1 2.2 1.8 2.0 Developing countries (average) 4.7 4.2 4.1 4.5 (Source: IMF, World Economic Outlook 2017) Extract A Rising inflation After January 2017, the inflation rate, as measured by the Consumer Price Index (CPI), in the UK has exceeded the Bank of England’s 2% target. Sharp increases in food prices as a result of the fall in the exchange rate of the pound have contributed to rising inflation. Between January and September 2017, food prices have increased by 3.5 percentage 5 points. The Office for National Statistics (ONS) has identified that the rapid increase in food prices affected people on low fixed incomes the most. It leaves them with very little money to spend on relatively more expensive items. Moreover, the Bank of England has observed a rise in the size of personal debt relative to income. In order to maintain their standard of 10 living, many consumers on low fixed incomes are using their credit cards and taking out short-term loans to fund their spending. Inflation rose to over 3% at the end of 2017 leading to the Monetary Policy Committee increasing the base rate of interest by 0.25 percentage points to 0.5% in November 2017. Wage growth has been lagging behind price rises and this is expected to continue. 15 Basic wage increases are expected to be only around 1%. This has heaped considerable pressure on households. The ONS has updated the shopping basket that is used in the measurement of UK inflation, to reflect the lifestyle of households in the country. Technological advancements, changes in consumer tastes and a move towards health, fitness and 20 gluten-free products have made it essential to revise the 2017 basket. (Source: adapted from ‘UK inflation tipped to rise again with wages forecast to stagnate’, The Guardian, https://www.theguardian.com/business/2017/aug/13/ uk-inflation-tipped-to-rise-again-with-wages-forecast-to-stagnate#img-1) Extract B Economic growth and living standards Economic growth is expected to accelerate again as foreign demand for UK exports increases due to the global economic recovery. According to some economists, consumer spending is no longer the engine of growth for the UK. The increase in exports, which is largely due to the fall in the exchange rate of the pound, is expected to be the most 5 significant driver of the UK’s economic growth. Some economists have proposed that the quality of economic growth needs to be measured and not just the quantity. This will allow governments to understand how GDP growth affects the living standards of its citizens. They want governments to publish data on the quality of life alongside GDP data as economic growth varies across the country 10 with jobs and wages distributed unevenly. Economic growth figures also hide differences that are not considered in GDP calculations. In 2017, it was estimated that the relative size of the informal economy of developing countries was nearly five times greater than that of the UK. (Source: adapted from ‘Growth to accelerate as UK economy bounces back’, The Telegraph, http://www.telegraph.co.uk /business/2017/08/01/ growth-accelerate-uk-economy-bounces-back/; ‘GDP is not enough: economists and businesses demand new measure of inclusive growth’, The Telegraph, http://www.telegraph.co.uk/business/2017/03/07/gdp-not- enough-economists-businesses-demand-new-measure-inclusive/)
(d) With reference to Figure 3, assess the likely impact of the change in the value of exports, since mid-2016, on the economic growth of the UK. Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2019 · Paper 2 · Q2(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 22 The International Monetary Fund has called on the G20 group of large industrialised countries to boost government spending on infrastructure. (Source: https://www.theguardian.com/business/2016/jul/23/ imf-calls-for-more-government-spending-as-rate-cuts-lose-their-impact)
(a) Draw an aggregate demand and aggregate supply diagram to show the likely impact of an increase in government spending on infrastructure on a country’s price level and real output. (4)
June 2018 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) for the UK. Price level SRAS P1 AD Real output Y1
(b) Annotate the diagram above to show the likely impact of a rise in the cost of raw materials on the UK’s equilibrium level of real output and price level. (2)
June 2018 · AS Paper 2 · Q6(b) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6The UK economy Figure 1: Unemployment – International Labour Organisation (ILO) and the claimant count, millions, 2010-2016 3 2.5 2 Millions 1.5 1 0.5 0 2010 2011 2012 2013 2014 2015 2016 ILO Claimant count (Source: ONS Datasets, https://www.ons.gov.uk/) Figure 2: Household savings*, 2010-2015 12 % 10 8 6 4 2 0 2011 2012 2013 2014 2015 2010 * Savings as a percentage of household disposable income (Source: http://www.tradingeconomics.com/united-kingdom/personal-savings) Figure 3: UK average house prices, 2005–2016 220 200 180 160 140 0 2006 2008 2010 2012 2014 2016 (Source: http://www.telegraph.co.uk/property/house-prices/ the-state-of-the-uk-housing-market-in-five-charts/) Extract A Soaring house prices House prices are still rising rapidly. The average UK house price was £214 000 in June 2016, according to the Office for National Statistics (ONS). This is £24 000 more than it was at its peak in September 2007, just before the economic downturn. First-time buyers have experienced the largest rise in house prices. 5 Even the loss of consumer confidence over Britain’s vote to leave the EU did not stop house prices from rising – annual growth increased from 5.2% in July 2016 to 5.6% in August 2016. House price growth was the strongest in London, with annual average prices rising by 9.6%. However, in Wales average house prices actually fell by 0.5% during the same period. In its first post-Brexit referendum forecast, estate agency Countrywide 10 said that house prices will fall by 1% across the UK in 2017, before rising by 2% in 2018. Real household income in the UK fell by 10.4% in the years following the financial crisis. This increased the difference between real income and house prices. In 1997, a house cost little more than twice the average income. By early 2015, the average price of a house was five times the average annual income. 15 The rate of home ownership for 25 to 34-year-olds has fallen to 35.8% over the last twenty-five years as houses became less affordable. First-time buyers have to wait longer to save up for a house deposit. Conversely, home ownership has risen to 78.6% among those aged 65 to 74. (Source: adapted from ‘The state of the UK housing market in five charts’, The Telegraph, http://www.telegraph.co.uk/property/house-prices/ the-state-of-the-uk-housing-market-in-five-charts/; ‘UK house price growth slows as demand cools after Brexit vote’, The Guardian, https://www.theguardian.com/business/2016/sep/30/uk-house- price-growth-slows-demand-cools-brexit-vote-nationwide) Extract B UK migration trends in the year ending June 2016 Inward migration levels are among the highest ever recorded with an estimated 650 000 people moving to the UK. This is an increase of around 11 000 from the previous year. Employment remains the most common reason for long-term migration (312 000) to the UK, with around 182 000 of these coming with a definite job and 130 000 looking for 5 work. Long-term migration to the UK for study was estimated to be 163 000. In addition, 80 000 long-term migrants arrived in the UK to accompany their families. There were 41 280 refugees applying for asylum, including dependants, of which 10 547 people were granted asylum. Asylum applicants cannot usually accept offers of employment while 10 their case is being processed. (Source: adapted from ‘Migration Statistics Quarterly Report: December 2016’, ONS, https:// www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/ internationalmigration/bulletins/migrationstatisticsquarterlyreport/dec2016)
(b) With reference to Extract A, assess the likely macroeconomic effects of an increase in house prices. Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2018 · Paper 2 · Q2(b) 4 marks AO1=2, AO2=2 Diagram
(b) Draw an aggregate demand and aggregate supply diagram illustrating the likely impact of a rise in interest rates on the price level and real output. (4)
June 2017 · AS Paper 2 · Q4(a) 2 marks AO2=2 Diagram
Data and extracts for question 44 The Chancellor announced in the 2015 Budget that the personal allowance (the annual income that can be earned before starting to pay income tax) would increase from £10 600 to £11 000 in April 2016. This means most consumers will pay less income tax. (Source: adapted from http://www.telegraph.co.uk/finance/personalfinance/ how-budget-affect-me/11721785/Budget-2015-what-to-expect- for-income-tax-and-the-personal-allowance.html)
(a) Annotate the aggregate demand and aggregate supply diagram below to show the likely impact of the increase in the personal allowance on the UK’s price level and real output. (2)
June 2016 · AS Paper 2 · Q2(c) 1 mark AO1=1 Diagram
Data and extracts for question 22 The table below shows GDP per capita at purchasing power parities (PPPs) for a selection of European countries in 2013. GDP per capita Country (US$, at PPPs, 2013, rounded) UK 38 500 Spain 33 000 Italy 35 500 (Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD)
(c) Diagram A shows the aggregate demand and aggregate supply for a country. Illustrate actual economic growth on Diagram A. (1) Diagram A Price Aggregate supply level P1 Aggregate demand Y1 Real output

Supply, demand and price determination (12)

June 2024 · AS Paper 1 · Q2(c) 2 marks AO1=1, AO2=1 Diagram
Data and extracts for question 22 Vanilla bean prices increased to a record $600 a kilogramme in 2018 after a cyclone hit the tropical island of Madagascar, damaging crops. Madagascar supplies 75% to 80% of the world vanilla bean market.
(c) Annotate the diagram below to show the effect of the cyclone on the price of vanilla beans. (2) Supply Price of vanilla beans e Pe Demand 0 Qe Quantity of vanilla beans
June 2024 · Paper 1 · Q6(a) 5 marks AO1=1, AO2=1, AO3=3 Diagram
Data and extracts for question 6The electronics industry Extract A Rising prices of electronics devices Computer chips act as the “brain” in all electronic devices. Makers of electronic devices face significant increases in the price of computer chips as they try to source enough components, including games consoles, computers and smartphones. The price of some computer chips has jumped from $0.20 each to more than $1. The prices of electronic 5 devices have risen for a range of reasons, including higher material costs and the growing popularity of home entertainment. (Source: adapted from https://www.ft.com/content/8c718a74- cd95-4b2d-ac0e-de0682e4e3cd) Extract B Labour shortages in the electronics industry Every year, highly skilled and experienced employees in the electronics industry retire. The current tight labour market has made an already difficult problem of hiring suitable engineering and computing graduates worse, especially since the nature of the industry is becoming increasingly technical. As production becomes 5 more automated, electronics jobs are more likely to require problem solving and analysis than just assembling skills. However, artificial intelligence and other new technologies can help fill some of the skills gap. In addition, by giving hazardous, repetitive, grimy work to robots, human beings can focus on more creative, analytic tasks. 10 (Source: adapted from https://www.ericsson.com/en/blog/2021/12/ manufacturing-problems-that-keep-ceos-awake-at-night) Extract C Serious concerns over merger The Competition and Markets Authority (CMA) has said the takeover of the Cambridge- based computer chip designer Arm by its US rival Nvidia raises serious competition concerns. It has launched an in-depth investigation into the £29.5 billion deal. The CMA said the merger could reduce choice for firms reliant on computer chips, pushing 5 up prices of products including cars, games consoles and mobile phones. In addition, severe global shortages of computer chips has disrupted the manufacture of a range of electronic goods pushing up costs for firms. Despite this, large electronics firms benefit from economies of scale and are able to finance high-risk innovation and global advertising. 10 (Source adapted from: https://www.theguardian.com/ business/2021/aug/20/watchdog-expresses-concerns- over-nvidias-takeover-of-uk-chip-designer-arm ) Extract D The growing problem of electronic waste Electronic waste is the fastest growing element of the world’s household waste problem. The problem in the UK is particularly bad. The country produces 24.9 kg a person a year – nearly 10 kg more than the EU average. In 2018, 1.2 million tonnes of electrical devices were sold in the UK, and 500 000 tonnes made it to recycling centres. Some appliances 5 are more likely to be recycled than others. The recycling rate for big appliances, such as fridges and cookers, is about 80%. Of small appliances, barely one in five makes it to the recycling centre. As items such as toasters, hairdryers and headphones fit into household bins, they are not often taken to a recycling centre. This causes many problems, such as hazardous substances contaminating soil, water pollution and other external costs. 10 Policy makers have a long list of options to combat this problem including stricter regulation, environmental education, taxation and financial incentives. In some countries, for example, household rubbish is weighed and recycling initiatives are subsidised. (Source adapted from: https://www.ft.com/content/26e1aa74- 2261-11ea-92da-f0c92e957a96)
(a) With reference to Extract A, explain the likely reasons for the change in price of electronic devices. Include a supply and demand diagram in your answer. (5)
June 2023 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6The market for television content Figure 1: Elasticities of demand for streamed television services, UK, 2021 Price elasticity of demand -0.6 Income elasticity of demand 1.6 (Source: adapted from https://www.consultancy.uk/news/24986/covid-19- presents-netflix-with-chance-to-hike-prices) Figure 2: Market shares of streamed content providers, Europe, 2021 39% Netflix 29% Amazon 9% Apple TV+ 7% Disney+ 3% DZN 2% Viaplay 1% TIM Vision 1% Sky Now Tv 1% HBO 1% IPLA 7% Others 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% Market share (Source: adapted from Statista 2021) Extract A The growth of streamed television content Netflix currently has 13 million UK subscribers, who typically pay £9.99 a month to the US based private sector firm. At this price, up to two users can view the television content at the same time. The demand for individual firms’ streamed television content boomed when people were forced to stay at home and has only begun to slow recently as more 5 firms enter the market e.g. Amazon Prime Video. The launch of Disney+ at the end of 2019, including original content such as the £74 million Star Wars TV spin-off The Mandalorian, resulted in the service adding more UK subscribers in a year in 2020 than any other streaming platform has ever managed. However, the costs of providing streaming television content have risen. Consumers now 10 expect original content, for example Stranger Things which costs around £10 million an episode to make. Furthermore, advertising in a saturated market is expensive. In 2021, Netflix put up the price of its most-popular package by £1 a month to £9.99. Fortunately for Netflix, its subscriber demand has proven price inelastic. Just 3% of customers in a survey said they would definitely cancel their subscription after Netflix’s 15 latest price rise. (Source: adapted from ‘As UK hits peak, Netflix the streaming giant will have to work harder’, The Guardian, Monday 3 January 2022) Extract B Is television content a public good? Public service broadcasting in the UK is made up of a number of parts. First, there are the main UK-wide public service broadcasters (PSBs). There is the publicly funded BBC, and the publicly owned Channel 4 which is funded through advertisements. The BBC was established in 1922 by a Royal Charter. It is mainly funded through the TV 5 licence fee, which costs £159 a year and is a compulsory charge for those who watch live TV on any device. Live TV and catch-up services are free to view and do not restrict household usage. Without the licence fee very few people would pay due to the free rider problem. The BBC’s Charter sets out its five public purposes: 10 • To provide impartial news and information • To support learning for people of all ages • To show the most creative, highest quality and distinctive televised content • To provide content for minority groups which would not be profitable for a private firm 15 • To reflect the UK, its culture and values to the world. (Source: adapted from https://publications.parliament.uk/pa/cm5801/cmselect/ cmcumeds/156/15604, and ‘BBC licence fee to be abolished in 2027 and funding frozen’, The Guardian, Sunday 16 January 2022) Extract C The environmental impact of streaming television content The carbon footprint produced by watching a month of Netflix programmes is equivalent to driving a car to Saturn. Every activity in the chain required to stream video, from the use of huge datacentres and transmission over Wi-Fi and broadband to watching the content on a device, requires electricity. The majority of this is generated by emitting CO2. 5 Modern flatscreen televisions use significant amounts of energy. There’s very little a government can do about this in a free market dominated by US firms. The focus of any government intervention could be to encourage alternative forms of entertainment and recreation, support the development of more energy efficient devices, to improve information on the environmental effects or to use regulation to limit 10 viewing hours. (Source: adapted from ‘Streaming’s dirty secret: how viewing Netflix top 10 creates vast quantity of CO2’, The Guardian, Friday 29 October 2021)
(e) Discuss likely reasons why the market price of streaming television content is increasing. Draw a supply and demand diagram to support your answer. (15)
June 2022 · AS Paper 1 · Q6(a) 5 marks AO1=1, AO2=2, AO3=2 Diagram
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(a) Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer. (5)
June 2022 · Paper 1 · Q1(b) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 11 Disney+ is a streaming service that distributes films and television series produced by the Walt Disney Studios. Disney+ subscribers (million) November 2019 10 December 2019 26.5 February 2020 28.6 April 2020 50 (Source adapted from: https://www.businessofapps.com/data/disney-plus-statistics/)
(b) Draw a supply and demand diagram to show the likely effect of the change in the number of subscribers on the market equilibrium for Disney+ services. (4)
November 2021 · Paper 1 · Q2(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 22 Cobalt is a key metal used in the batteries of electric cars. China is the world’s largest producer of electric cars but has recently cut subsidies to its manufacturers. The Democratic Republic of the Congo (DRC) produces more than 60% of the world’s supply of cobalt, from its small-scale mines. Many new small mines opened in 2018 as a result of improved expectations of profit. The following graph shows the price of cobalt between June 2018 and June 2019. 45 40 35 30 $ per pound 25 weight 20 (454 grams) 15 10 5 0 June 2018 June 2019
(a) With reference to the information provided, draw a supply and demand diagram to show why the price of cobalt fell between June 2018 and June 2019. (4)
October 2020 · Paper 1 · Q6(a) 5 marks AO1=1, AO2=1, AO3=3 Diagram
Data and extracts for question 6The UK Rail Industry Figure 1: UK government subsidy to Northern, a train operating company in Northern England 290 287.9 285 280 277.0 275 0 2017 2018 (Source adapted from: https://www.theyworkforyou.com/wrans/?id=2018-10-18.181280.h) Figure 2: Rail passenger kilometres travelled per year in the UK, billions 70 65 billion (2018) 60 50 40 30 20 10 0 1985 1995 2005 2015 (Source adapted from: fullfact.org) Figure 3: Price of a single off-peak train journey, Edinburgh to Leeds Saturday 22nd December 2018 19:00 hours Adult Young Persons (16–25) Railcard £105.30 £69.50 (Source: https://www.lner.co.uk/buy-tickets/booking-engine) Extract A The case for nationalisation Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into 5 the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system. Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 10 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway. The privately-owned train operators are now the subject of fierce criticism, due to 15 overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was 20 suffering lower passenger numbers and revenue than forecast. Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation. (Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00) Extract B Southern Rail boss paid £495 000 The Chief Executive of Southern Rail, the private-sector train operator that has become associated with delays, losses, cancellations and strikes, was paid £495 000 last year. This increased calls for nationalisation and a maximum wage for executives at companies with government contracts. In contrast the average base pay for a train driver in the UK is 5 £47 705, although they can earn up to £63 000. Nearly a third of Southern Rail trains were late in 2016 as it tried to deal with a labour dispute that involved extensive strike action. The rail trade unions are opposed to planned changes to the role of train guards, which they claim will put passenger safety at risk. 10 (Source adapted from: Rob Davies, The Guardian 10 April 2017 https://www.theguardian.com/business/2017/apr/10/southern-rail-boss-double-pay-rise)
(a) Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer. (5)
June 2019 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6Health provision Figure 1: National Health Service (NHS) in England: Government spending and projected funding gap, £ billions, 2015 to 2020 140 Government spending required to meet forecast demand 130 120 £ billions 110 100 Government spending on the NHS 90 0 2015 2016 2018 2019 2017 2020 (Source: https://www.economist.com/news/britain/21706563-nhs-mess- reformers-believe-new-models-health-care-many-pioneered) Figure 2: Percentage of NHS patients in England waiting over 18 weeks for non-emergency treatment 12% 10% 10.1% Jan 2017 8% 5.7% Jan 2013 6% 4% 2% 0% Jan 2013 Jan 2014 Jan 2015 Jan 2016 Jan 2017 (Source: https://www.statista.com/chart/8813/more-and- more-people-made-to-wait-by-the-nhs/) Extract A Hospitals already full National Health Service (NHS) managers’ warned that bed occupancy rates are approaching 99% in some parts of the country, compared with recommended levels of 85%. In 2017 the number of patients waiting for non-urgent treatment passed the four million mark, the highest figure for almost a decade. 5 The chief executive of the NHS suggested that waiting list targets for routine operations such as hip and knee replacements would have to be sacrificed in order to protect other services, including accident and emergency (A&E) and cancer care. However, the government has insisted waiting time targets must still be met. Recently the Chancellor awarded the NHS £2.8 billion over three years, including £1.6 billion 10 in 2018 - less than the £4 billion which NHS officials had asked for to keep up with an ageing population and new medical technologies. NHS managers said there was now very little spare capacity in the system, warning of shortages of paramedics, doctors, A&E consultants and nurses. (Source: adapted from http://www.telegraph.co.uk/news/2017/12/07/hospitals- already-full-bursting-pressures-mount-warn-nhs-chiefs/) Extract B How health care is funded Most countries have a mixed economy of health provision typically funded from taxation, patient fees and private health insurance. The NHS was launched in the UK in 1948 to ensure direct state provision by the government of health care ‘free at the point of use’. The NHS is mainly funded from 5 general taxation. However, some NHS patients pay for some of their medical care, such as prescriptions to buy medicine. In the ongoing debate about how best to fund the NHS, some people have proposed introducing a £12 charge for visiting a General Practitioner (GP) doctor. Proponents argue that such a charge would deter overuse of GP services by those who do not have 10 genuine health needs. It would also raise additional money for the NHS and create incentives which will stimulate innovation and more choice. Estimates suggested that a £12 charge on the 450 million visits a year to GPs could have raised enough to cover hospitals’ overspend in 2016. Based on exemptions for prescriptions, 90% of patients will not be charged including the elderly, children and low 15 income groups. There would also be administrative costs of collecting the charge and verifying exemptions. These arrangements would significantly reduce the amount a charge would generate, assuming no one paying would be dissuaded from visiting their GP. The proportion of people in the UK taking out private health insurance (PHI) to pay for private health care has increased to 10.6%, despite significant increases in the 20 prices of treatment in private hospitals. Some economists argue that the government should provide subsidies to encourage people to take out private health insurance. This would reduce the burden on the NHS by taking some people out of the state system. Furthermore it is argued that private health care increases choice for users, encourages competition and drives up standards of care. 25 A typical PHI policy for a healthy 35-year-old costs about £650 a year but this rises steeply to £2 300 for those aged 70, when claims are far more likely. The level of contribution is based on their risk of requiring health care. PHI also tends to incur high management and administrative costs due to the resources required to assess risk and claims. Also there is the possibility of market failure given asymmetric information. 30 (Source: adapted from https://www.kingsfund.org.uk/ publications/how-health-care-is-funded) Extract C Public parks are a public good Public parks are places which people can use for free to exercise or to relax. Parkrun Limited organises free weekly runs in local parks attracting hundreds of joggers per park to enjoy healthy exercise. The government is proposing to ban local authorities charging Parkrun for the use of public parks to fund the maintenance of public parks. The 5 government considers that it is appropriate for the public to pay a reasonable sum for the private use of a facility such as a tennis court or a football pitch which may be used exclusively. However, the government does not consider it appropriate for a local authority to charge a volunteer community group ‘seeking to provide a free weekly event’ for the use of a public park. Parkrun share the park with other park users. Although a running 10 course may be marked out there is no restriction on other people using the park. (Source: adapted from © Crown Copyright Running Free – Government consultation on preserving the free use of public parks, April 2017, https://www.gov.uk/ government/uploads/system/uploads/attachment_data/file/608372/ Parkrun_ConDoc.pdf and http://www.telegraph.co.uk/news/2017/04/14/ councils-banned-charging-runners-take-part-regular-saturday/)
(e) Discuss likely reasons why the prices of treatments in private sector hospitals are increasing. Draw a supply and demand diagram to support your answer. (15)
June 2019 · Paper 1 · Q2(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 22 In August 2017 Hurricane Harvey caused the closure of nearly a quarter of the oil production capacity in the United States.
(a) Draw a supply and demand diagram to show the likely microeconomic effects of the hurricane on the US oil market. (4)
June 2018 · AS Paper 1 · Q6(a) 5 marks AO1=1, AO2=2, AO3=2 Diagram
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
(a) With reference to Figure 1 and Extract A, explain why the price of uranium has ‘fallen to a 13-year low’ (Extract A, lines 2 and 3) in 2016. Include a supply and demand diagram in your answer. (5)
June 2017 · AS Paper 1 · Q3(c) 2 marks AO2=2 Diagram
Data and extracts for question 33 In 2015 the UK government cut subsidies for the installation of solar energy panels.
(c) Annotate the diagram below to show the effect of removing the solar panel installation subsidy on the equilibrium price and quantity. (2) Solar panel installation market diagram Price of solar panels supply Pe demand Quantity of 0 solar panels Qe
June 2017 · AS Paper 1 · Q6(a) 5 marks AO1=1, AO2=2, AO3=2 Diagram
Data and extracts for question 6The market for cigarettes Figure 1: Price elasticity of demand - a comparison between tobacco and e-cigarettes Price of packet of 20 Price of tobacco cigarettes e-cigarette kit £7.70–£9.50 £9.99–£19.99 Average price per Single cigarette equivalent tobacco cigarette price of an e-cigarette 48p 7p Price elasticity of demand Price elasticity of demand for tobacco cigarettes for e-cigarettes –0.35 –1.9 (Source: adapted from https://www.blucigs.co.uk/united-kingdom/kits/all-kits) Extract A Government intervention on tobacco There was a time when smoking was fashionable. Television and magazine advertisements glorified smoking. Everyone from your dad to your doctor smoked in all places – cars, restaurants and even hospitals. Tobacco is still the single biggest cause of cancer in the world and the leading cause of preventable deaths. Nearly 80% of the 1 billion smokers worldwide live in low- and 5 middle-income countries. Bans on tobacco advertising, promotion and sponsorship can reduce tobacco consumption. Comprehensive smoking bans covering indoor workplaces, public places and public transport have been introduced in 48 countries. Tobacco taxes are the most cost-effective way to reduce tobacco use, especially among 10 the young and people in low-income groups. A tax increase that raises tobacco prices by 10% decreases tobacco consumption by 4% in high-income countries and 5% in low- and middle-income countries. However, some 8 million people are expected to die each year by 2030 – because they have smoked tobacco or have been exposed to passive smoking. The use of alternative 15 products such as electronic cigarettes (e-cigarettes) are gaining in popularity but information about their effects is uncertain. Little research has yet been done about the long-term health effects of e-cigarettes and the nicotine dispensed by e-cigarettes is highly addictive. The illegal tobacco market still counts for 1 in every 10 cigarettes consumed globally. In addition, tobacco companies still spend tens of billions of dollars 20 each year on advertising and promoting tobacco products and sponsoring events. They continuously challenge the regulatory measures governments are taking. (Source: adapted from http://www.who.int/topics/tobacco/en/ and http://www.who.int/ mediacentre/commentaries/reducing-tobacco-use/en/) Extract B Free market approach Are free markets incompatible with good health? If the solution to every problem involves banning advertising, raising prices and restricting availability, you might easily conclude that the free market is the disease and government regulation is the cure. From this perspective, the providers of food, alcohol and tobacco are determined to push the most unhealthy products on the public at the lowest prices. 5 Contrary to this viewpoint, the profit motive is not unhealthy. Businesses have an obvious incentive to keep their customers alive and customers have a strong incentive to seek out healthier options. Any company that can make a scientifically sound health claim gains a competitive advantage over its rivals. Health sells. In contrast, government regulation can lead to negative health outcomes. Markets can correct themselves long before 10 government failures are even acknowledged. Over a million Britons, almost all of whom are smokers or ex-smokers, use e-cigarettes, as a less hazardous product than cigarettes and yet e-cigarettes face increased regulations and in many countries they are banned. It is neither consistent nor ethical to prevent smokers from switching to much safer alternatives. Efforts to regulate e-cigarettes are a far greater threat to public health than 15 the products themselves. We argue that the interests of consumers are nearly always better advanced by the provision of accurate information and free choice than by prohibitions and regulations. The government policy of small but steady tax rises on tobacco and ever-larger warning labels is becoming less effective and leads to unintended consequences. 20 (Source: adapted from http://www.iea.org.uk/blog/free-market-solutions-in-health- should-be-allowed-to-flourish, Christopher Snowdon, 11th July 2013)
(a) Explain why ‘bans on tobacco advertising’ (Extract A, line 7) may result in a decrease in the revenue of tobacco firms. Include a supply and demand diagram in your answer. (5)

Aggregate demand (10)

June 2025 · AS Paper 2 · Q6(e) 15 marks 15-mark response
Data and extracts for question 6Sources for use with SECTION B Read Figures 1 and 2 and Extract A before answering Question 6. UK living standards and supply‑side policies Figure 1: UK rate of economic growth, 2010 to 2028 10.0 % 7.5 5.0 2.5 0 –2.5 –5.0 –7.5 –10.0 * Data from 2023 to 2028 are forecast figures (Source: adapted from https://www.statista.com/statistics/375195/gdp-growth-forecast-uk/) Figure 2: UK inflation rate* and base interest rate, January 2022 to October 2023 12 % 10 8 6 4 2 0 inflation rate base interest rate * Measured by Consumer Prices Index (CPI). This is the year-on-year inflation rate calculated monthly. (Source: adapted from www.statista.com and www.tradingeconomics.com) Extract A Economic reforms Economists forecast that the UK will experience a slower rate of economic growth between 2024 and 2028. They also expect a high rate of inflation due to rising import prices of food, fuel and energy, and a strong demand for consumer goods. As a result, real income per household is estimated to decrease by around 0.9% in 2024. 5 This decrease would be the largest reduction in living standards since the Office for National Statistics records began in the 1950s. However, the UK government argues that there are some limitations of using GDP to compare living standards over time. One main reason is the fact that GDP figures are in nominal terms. The government questions the reliability of inflation data as it 10 believes that the Monetary Policy Committee (MPC) of the Bank of England will keep a high base interest rate to control inflation. The government also claims that the forecast by economists fails to consider the market-based supply-side policies it introduced in November 2023 to improve living standards. The government’s £10.4 billion cut to National Insurance contributions for employees 15 is the most significant policy, expected to increase employment and living standards. It is forecast to bring additional people into work and encourage more people to work longer hours. This is likely to result in an extra 94 000 full-time workers. The government has also taken measures to encourage more out-of-work benefits claimants into jobs. It introduced stricter benefit rules for people who can work but 20 do not take a job offered to them. This includes stopping people’s benefits if they do not actively engage in seeking employment in six months. This is likely to result in a further increase in employment figures. But economists claim that its impact on GDP will be relatively insignificant. This is because most of those affected by this policy will take on work with limited hours and very low pay. 25 These market-based supply-side policies, combined with measures centred on childcare subsidies for working parents, are expected to increase total employment by 200 000 between 2024 and 2028. The government argues that the expected increase highlights that it is better to “unlock the potential we have at home”, rather than encouraging migration. However, several economists suggest that 30 a rise in net migration is contributing more to an increase in the UK’s potential economic growth. Furthermore, the UK government’s decision to offer 100% tax relief on investment in capital machinery will increase overall investment by 0.5% by 2028. The benefits of 35 this effective tax cut for firms are estimated to increase over time, as technology advances and productivity improves. However, this tax cut will not prevent business investment falling in the short term, as higher interest rates are making it more expensive for firms to borrow. Economists suggest that this tax cut can only be funded by decreasing government 40 expenditure on public services in the long run. Government expenditure will need to decrease by a third, as a proportion of GDP, between 2024 and 2028. (Source: adapted from https://www.ft.com/content/5ff3538b-aed2-4898-b423- f0c61da728ff)
(e) Discuss the likely macroeconomic effects of a decrease in government expenditure on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer. (15)
June 2025 · Paper 2 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1–2) and extracts (A and B) before answering Question 6. Question 6 The German economy Figure 1: German government tax revenue, % of total revenue, 2022 2%2% 4% Income taxes 6% Value added tax Petrol duty 9% Corporation tax 41% Tobacco duty Motor vehicle tax Other 36% (Source adapted from: https://www.bundesfinanzministerium.de) Figure 2: German government budget, % of GDP, 2014–2022 1.9 2 1.5 1.2 1.3 % of 1 0.6 GDP 0 –2 –2.6 –4 –3.7 –4.3 –6 2014 2016 2018 2020 2022 (Source adapted from: https://tradingeconomics.com/germany/government‑budget) Extract A The opportunities and challenges facing the German economy The German economy entered a recession in 2023, and business confidence in the country fell at the fastest pace since 2021. German growth was the lowest among major economies in 2023. The future, however, is a greater concern owing to external factors such as global conflicts and restrictions on free trade. 5 The German government has been trying to improve its economic performance, with an aim to have renewables account for 80% of its energy supply. However, this would be a major shift for Germany where fossil fuels such as coal and gas still provide 75% of the energy needs and exposes it to volatile global energy prices. The rapid building of liquid natural gas terminals has helped to secure energy supplies in the short term. 10 The German government needs to remove a number of problems that have long held back its economy. Infrastructure projects in renewable energy production, such as wind farms, have been delayed by lengthy planning procedures. Business leaders complain of excessive bureaucracy and lack of technological advances. Labour shortages are another issue. Germany is expected to be short of up to 7 million workers by 2035, partly due to 15 an ageing population. There is a lack of skilled workers in the building trade, electrical engineering and professional services, which are important for the country’s economic ambitions. The German government needs to introduce effective policies such as planning reforms to speed up construction projects or reforms to increase the flexibility of the labour market. 20 The German economy has long been one of the biggest exporters in the world. It has trade surpluses with all its major trading partners except China and in 2021 its current account surplus was 7.7% of GDP. However, this has caused tensions with the governments of other countries, in particular the USA, which sees Germany’s surplus as partly a cause of the USA’s huge current account deficit. Having said that, a weakening 25 euro caused by higher interest rates in the USA compared to the Eurozone is beginning to have an effect in reducing Germany’s current account surplus – which dropped to 4.2% in 2022. (Source adapted from: https://www.ft.com/, https://www.cnb.cz/en/monetary‑policy/inflation‑reports/boxes-and-annexes-contained-in- inflation-reports/The-German-economy-and-the-dollar-euro-exchange-rate, and https://tradingeconomics.com/germany/current-account-to-gdp) Extract B US technology firm Intel invests in German semiconductor factories Intel is to double its investment in semiconductor factories in eastern Germany to €30 billion. This is the largest foreign direct investment in Germany’s history. Intel acquired the land for the factories in November 2022 and the first factory is expected to start production within four to five years. The site is expected to create 7 000 construction 5 jobs during the building phase, about 3 000 permanent high‑tech jobs and tens of thousands of additional jobs across the semiconductor industry. (Source adapted from: https://www.ft.com)
(d) With reference to Extract B, discuss the impact of the planned investment by Intel in a new semiconductor factory on Germany’s aggregate demand. Use an aggregate demand and aggregate supply diagram in your answer. (12)
June 2024 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 Business investment fell by 0.5% between Quarter 3 2019 and Quarter 4 2019. (Source: adapted from https://www.ons.gov.uk)
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the likely impact of a fall in business investment on the equilibrium level of real output and the price level. (2)
June 2024 · AS Paper 2 · Q6(b) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK monetary policy since the Global Financial Crisis of 2008 Figure 1: UK inflation rate (as measured by the Consumer Prices Index) and UK nominal wage growth, annual percentage change, 2008 to 2019 5 % 4 Nominal wage growth 3 Inflation rate 2 1 0 –1 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 ‘16 ‘17 ‘18 ‘19 (Source: adapted from ONS) Figure 2: UK real GDP, annual percentage change, Q4 2006 to Q4 2019 2 % 1 0 -1 -2 -3 -4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 2006 2008 2010 2012 2014 2016 2018 (Source: adapted from https://www.ons.gov.uk/economy/ grossdomesticproductgdp/timeseries/ihyq/qna) Extract A Has monetary policy worked? Between 2008 and 2009, financial markets around the world were crashing and many UK banks were adversely affected by the collapse of the housing market. This reduced access to credit for UK households and businesses. Faced with these large risks, the Monetary Policy Committee (MPC) of the Bank of 5 England reduced the base interest rate from 5.25% in February 2008 to 0.5% in March 2009. The MPC had known that reducing the base interest rate was not enough alone. It drafted the use of a new idea: quantitative easing (QE). It had bought assets worth £200 billion by November 2009. This QE was later implemented by the USA’s Federal 10 Reserve, and was claimed to be a success. In July 2012 the total spent on QE in the UK amounted to £375 billion. This decision has been credited with preventing the recession, caused by the Global Financial Crisis of 2008, turning into another Great Depression. The UK’s unemployment rate peaked at 8.5% in 2009 but had fallen to 4% in 2019, the lowest since the mid-1970s. 15 In 2016 the MPC further expanded its QE programme by £60 billion and reduced the base interest rate to 0.25%. Households with mortgages benefitted from the low interest rate, enabling them to continue consumption and therefore helping economic recovery. Nevertheless, this has resulted in a rise in household debts. Borrowing on credit cards and personal loans has increased above the levels seen before 2008. 20 Inflation caused by the fall in the exchange rate of the British pound, higher employment levels and nominal wage growth has since directed the MPC to increase base interest rates. It increased the base interest rate to 0.5% in November 2017, and then to 0.75% in March 2018. However, the uncertainty around the UK’s future trade relationship with the EU has meant that increases in the base interest rate were only marginal. 25 Many economists believe that if the UK and the EU are unable to form a trade agreement, base interest rates would need to be decreased again and QE expanded. Conversely, a few economists have argued that QE is no longer effective as a monetary policy instrument. They indicated that the base interest rate was usually reduced by as much as 5% during previous recessions. This is more than the UK can currently manage. Therefore 30 it would also require the government to implement a fiscal policy to deal with any future economic downturn. The Bank of England is, nonetheless, preparing for the worst-case scenario of a recession deeper than the downturn after the Global Financial Crisis of 2008. (Source: adapted from ‘The verdict on 10 years of quantitative easing’, Richard Partington, The Guardian, https://www.theguardian.com/business/2019/ mar/08/the-verdict-on-10-years-of-quantitative-easing)
(b) Assess the likely impact of an increase in real wages on the UK economy. Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2024 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 2Ghana – cocoa and chocolate production Figure 3: World’s largest cocoa growers and chocolate producers Cocoa growers Chocolate producers Ivory Coast 46% Germany 17% Ghana 18% Belgium 11% Indonesia 14% Italy 7.4% Nigeria 7% US 7.2% (Source: adapted from International Cocoa Association www.icco.org December 2021 and The Telegraph.co.uk accessed 24/2/22) Extract D From a managed to a floating exchange rate Ghana’s currency, the cedi, has depreciated significantly against major currencies, especially the US dollar (US$), since the adoption of the floating exchange rate system in 1992. From 1983 to 1992 it operated a managed exchange rate. Since the liberalisation of the foreign exchange market there have substantial swings and on average the cedi has 5 depreciated 98% against the US dollar. The cedi to US dollar rate has been very volatile recently, causing macroeconomic instability and limiting economic growth. (Source adapted from: https://www.theigc.org/project/on-the-causes-and-effect-of- exchange-rate-volatility-on-economic-growth-evidence-from-ghana/ and https://www.scirp.org/journal/paperinformation.aspx?paperid=95492) Extract E There is a lot of money in chocolate but the growers of cocoa see very little of it. In 2020 the chocolate retail industry was worth £78 billion, but Ghana – the world’s second largest cocoa producer – earned just over £1 billion. Cocoa farmers in Ghana now make roughly $1 a day (this often includes being subsidised by the Ghanaian government). This is a familiar pattern for many African countries where the economy 5 is still shaped by a colonial relationship in which they export commodities to be processed elsewhere. Ghana currently processes about 30% of its cocoa crop into chocolate, meaning that the exports can earn high prices. Despite plans for expanding the domestic chocolate industry there are still many obstacles in the way. The equipment to make chocolate is 10 very expensive and there is neither a local sugar nor dairy industry. Imported milk and sugar would increase the cost of production significantly, with the added problem that foreign currency would be needed. Producing chocolate requires consistent refrigeration, and the high cost of the equipment to achieve that is a major obstacle for entrepreneurs without substantial funds. There is an inconsistent supply of energy in rural parts of 15 Ghana. An alternative, making teas and wines using cocoa, can make 20 times more revenue than the raw beans, but they do not have the mass market appeal and high profits of chocolate. Access to funds is a big problem and one farmer, Nana Aduna, says that high interest rates on bank loans are an issue for start-up businesses and at the moment he cannot 20 afford to borrow money. “You cannot grow a business when you have to service interest rates of 18%–20% or even more,” he says. But the government has pledged to address these structural issues, using supply side policies. The Trade and Industry Minister announced that industrialisation is the focus of government policy. “It only makes sense that the most important commodity in 25 our country, which is cocoa… should become the target for a major programme of industrialisation,” he says. The ‘One District One Factory’ programme aims to kickstart industrialisation by providing the infrastructure for Ghana’s farms, by establishing processing plants in some of the big cocoa-growing areas. It has become easier for the private sector to invest in food 30 processing, and there is a big tax rebate available to processing companies that set up in the country’s enterprise zones – designated areas to encourage economic activity – in a bid to help them export. (Source: adapted from https://www.newsbreak.com/news/2201853748349/ghana-s- farmers-eye-sweet-success-from-chocolate and https://www.indepthnews.net/ index.php/the-world/africa/4495-ghana-starts-with-cocoa-to-end-neocolonial- trading-ties and https://www.brookings.edu/blog/africa-in-focus/2020/09/03/ pathways-to-structural-transformation-of-the-ghanaian-economy-and- some-roadblocks/ and https://www.ghanaweb.com/GhanaHomePage/ business/Speculators-driving-interbank-retail-FX-rates-gap-1468375) Extract F A new trade bloc for Africa The African Continental Free Trade Agreement (AfCFTA) has been signed by all 55 member states of the African Union, including Ghana, Nigeria, and South Africa. This brings together 1.2 billion people with a combined gross domestic product (GDP) of more than $2 trillion as of 2023. 5 The agreement commits countries to removing tariffs on 90% of goods, with other goods to be phased in later. The agreement also liberalises services and aims to tackle non-tariff barriers which reduce trade between African countries, such as long delays at the borders. (Source adapted from: https://www.aljazeera.com/economy/2018/3/20/ african-continental-free-trade-area-what-you-need-to-know)
(c) Discuss factors influencing the level of aggregate demand in Ghana. Use an aggregate demand and aggregate supply diagram in your answer. (12)
June 2023 · AS Paper 2 · Q4(c) 2 marks AO2=2 Diagram
Data and extracts for question 44 The table below shows the UK business investment, in £ billions, 2019 and 2020. Business Year investment (£ billions) 2019 226 2020 204
(c) Annotate the aggregate demand (AD) and aggregate supply (AS) diagram below to show the likely impact of a fall in business investment on the equilibrium level of real output and the price level. (2) Price AS level P1 AD Y1 Real output
June 2022 · AS Paper 2 · Q4(c) 2 marks AO2=2 Diagram
Data and extracts for question 44 The UK exchange rate changed from £1 = $1.53 in January 2015 to £1 = $1.22 in October 2019.
(c) Annotate the aggregate demand (AD) and aggregate supply (AS) diagram below to show the likely impact of an improvement in net trade on the equilibrium level of real output and the price level. (2) Price level AS P1 AD Y1 Real output
October 2020 · AS Paper 2 · Q6(d) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK government budget and household consumption Figure 1: UK government spending and tax revenue as % of GDP, 1980–2018 50 45 40 35 30 25 0 1980 2018 1990 2000 2010 Government spending Government tax revenue (Source: adapted from Office for Budget Responsibility (OBR), http://cdn.obr.uk/EFO- MaRch_2018.pdf © Crown copyright 2018) Figure 2: UK real household consumption, quarterly, £ billions, 1997 to 2018 (Source: adapted from ONS, www.ons.gov.uk/economy/nationalaccounts/satelliteaccounts/ bulletins/consumertrends/apriltojune2018) Extract A UK household consumption Despite the slow growth in real household disposable incomes, consumer spending rose in 2017. Annual spending per person increased by £589, when compared with 2016. This may have reflected UK households’ delay in adjusting to the increase in inflation that was associated with the fall in the exchange rate of the British pound. The increase 5 in consumption has also been driven by low interest rates. In 2017 UK house prices increased by an average of 5.1%. UK consumers have financed most of their spending by borrowing on credit cards in order to maintain their living standards. In 2017 borrowing on credit cards rose by 9.6%, the second-highest level since before the financial crisis. This has increased the Bank of 10 England’s concerns about the sustainability of borrowing, given the slow growth in real incomes. The Bank has also indicated that the base interest rate was likely to rise faster than previously expected. More expensive credit could therefore constrain the ability of households to spend. (Source: adapted from ‘Consumer Trends UK’, ONS, https://www.ons.gov.uk/economy/ nationalaccounts/ satelliteaccounts/bulletins/consumertrends/octobertodecember2017 and © Crown copyright 2018) Extract B Reduction of the UK’s budget deficit Since 2010 many economists have believed that the biggest problem facing the government was the rising budget deficit. In late 2017, the UK’s Chancellor of the Exchequer announced that the government would continue with its plans to decrease its budget deficit. To address this issue, the government further reduced welfare payments 5 and introduced extra spending cuts in the public sector. The UK government had estimated that the fall in UK productivity since the financial crisis was only temporary. However, it has now accepted that this fall in the level of productivity is a long-term issue. Subsequently, the UK’s forecast long-term trend rate of growth was reduced. Slower growth means lower tax receipts, higher spending and a 10 bigger budget deficit. Some economists have suggested that the government should not pursue additional reductions in the budget deficit. They have also claimed that the responsibility of the government is not to balance the budget but to balance the economy by moving it to full employment. 15 (Source: adapted from ‘Philip Hammond must ditch deficit reduction and invest. But will he?’, The Guardian, https:// www.theguardian.com/politics/2017/nov/19/philip-hammond-must-ditch-deficit- reduction-and-invest-but-will-he’)
(d) Assess the likely impact on the UK economy of an ‘increase in consumption’ (Extract A, lines 5–6). Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2019 · AS Paper 2 · Q6(d) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6UK inflation and economic growth Figure 1: UK inflation rate as measured by annual percentage changes in the Consumer Price Index (CPI), January 2014 to January 2018 3.5 3.0 % 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 (Source: www.bankofengland.co.uk/publications/Pages/inflationreport/2017/aug.aspx) Figure 2: Selected changes to the CPI basket of goods and services, 2017 IN OUT Non-dairy milk Apple cider Jigsaw puzzles Menthol cigarettes Child scooters Child swings Cycling helmets Basic mobile phones (Source: www.theguardian.com/business/2017/mar/14/uk-inflation- ons-basket-goods-gin-cycling-helmets) Figure 3: UK exports, £ billions per month, January 2014 to January 2018 52 50 £ billions 48 46 44 42 40 0 (Source: Trading Economics, ONS - https://tradingeconomics.com/united-kingdom/exports) Figure 4: Annual percentage change in real Gross Domestic Product (GDP), 2014-2017 2014 2015 2016 2017 United Kingdom 3.1 2.2 1.8 2.0 Developing countries (average) 4.7 4.2 4.1 4.5 (Source: IMF, World Economic Outlook 2017) Extract A Rising inflation After January 2017, the inflation rate, as measured by the Consumer Price Index (CPI), in the UK has exceeded the Bank of England’s 2% target. Sharp increases in food prices as a result of the fall in the exchange rate of the pound have contributed to rising inflation. Between January and September 2017, food prices have increased by 3.5 percentage 5 points. The Office for National Statistics (ONS) has identified that the rapid increase in food prices affected people on low fixed incomes the most. It leaves them with very little money to spend on relatively more expensive items. Moreover, the Bank of England has observed a rise in the size of personal debt relative to income. In order to maintain their standard of 10 living, many consumers on low fixed incomes are using their credit cards and taking out short-term loans to fund their spending. Inflation rose to over 3% at the end of 2017 leading to the Monetary Policy Committee increasing the base rate of interest by 0.25 percentage points to 0.5% in November 2017. Wage growth has been lagging behind price rises and this is expected to continue. 15 Basic wage increases are expected to be only around 1%. This has heaped considerable pressure on households. The ONS has updated the shopping basket that is used in the measurement of UK inflation, to reflect the lifestyle of households in the country. Technological advancements, changes in consumer tastes and a move towards health, fitness and 20 gluten-free products have made it essential to revise the 2017 basket. (Source: adapted from ‘UK inflation tipped to rise again with wages forecast to stagnate’, The Guardian, https://www.theguardian.com/business/2017/aug/13/ uk-inflation-tipped-to-rise-again-with-wages-forecast-to-stagnate#img-1) Extract B Economic growth and living standards Economic growth is expected to accelerate again as foreign demand for UK exports increases due to the global economic recovery. According to some economists, consumer spending is no longer the engine of growth for the UK. The increase in exports, which is largely due to the fall in the exchange rate of the pound, is expected to be the most 5 significant driver of the UK’s economic growth. Some economists have proposed that the quality of economic growth needs to be measured and not just the quantity. This will allow governments to understand how GDP growth affects the living standards of its citizens. They want governments to publish data on the quality of life alongside GDP data as economic growth varies across the country 10 with jobs and wages distributed unevenly. Economic growth figures also hide differences that are not considered in GDP calculations. In 2017, it was estimated that the relative size of the informal economy of developing countries was nearly five times greater than that of the UK. (Source: adapted from ‘Growth to accelerate as UK economy bounces back’, The Telegraph, http://www.telegraph.co.uk /business/2017/08/01/ growth-accelerate-uk-economy-bounces-back/; ‘GDP is not enough: economists and businesses demand new measure of inclusive growth’, The Telegraph, http://www.telegraph.co.uk/business/2017/03/07/gdp-not- enough-economists-businesses-demand-new-measure-inclusive/)
(d) With reference to Figure 3, assess the likely impact of the change in the value of exports, since mid-2016, on the economic growth of the UK. Use an aggregate demand and aggregate supply diagram in your answer. (10)
June 2018 · AS Paper 2 · Q6(b) 10 marks AO1=2, AO2=2, AO3=2, AO4=4 10-mark response
Data and extracts for question 6The UK economy Figure 1: Unemployment – International Labour Organisation (ILO) and the claimant count, millions, 2010-2016 3 2.5 2 Millions 1.5 1 0.5 0 2010 2011 2012 2013 2014 2015 2016 ILO Claimant count (Source: ONS Datasets, https://www.ons.gov.uk/) Figure 2: Household savings*, 2010-2015 12 % 10 8 6 4 2 0 2011 2012 2013 2014 2015 2010 * Savings as a percentage of household disposable income (Source: http://www.tradingeconomics.com/united-kingdom/personal-savings) Figure 3: UK average house prices, 2005–2016 220 200 180 160 140 0 2006 2008 2010 2012 2014 2016 (Source: http://www.telegraph.co.uk/property/house-prices/ the-state-of-the-uk-housing-market-in-five-charts/) Extract A Soaring house prices House prices are still rising rapidly. The average UK house price was £214 000 in June 2016, according to the Office for National Statistics (ONS). This is £24 000 more than it was at its peak in September 2007, just before the economic downturn. First-time buyers have experienced the largest rise in house prices. 5 Even the loss of consumer confidence over Britain’s vote to leave the EU did not stop house prices from rising – annual growth increased from 5.2% in July 2016 to 5.6% in August 2016. House price growth was the strongest in London, with annual average prices rising by 9.6%. However, in Wales average house prices actually fell by 0.5% during the same period. In its first post-Brexit referendum forecast, estate agency Countrywide 10 said that house prices will fall by 1% across the UK in 2017, before rising by 2% in 2018. Real household income in the UK fell by 10.4% in the years following the financial crisis. This increased the difference between real income and house prices. In 1997, a house cost little more than twice the average income. By early 2015, the average price of a house was five times the average annual income. 15 The rate of home ownership for 25 to 34-year-olds has fallen to 35.8% over the last twenty-five years as houses became less affordable. First-time buyers have to wait longer to save up for a house deposit. Conversely, home ownership has risen to 78.6% among those aged 65 to 74. (Source: adapted from ‘The state of the UK housing market in five charts’, The Telegraph, http://www.telegraph.co.uk/property/house-prices/ the-state-of-the-uk-housing-market-in-five-charts/; ‘UK house price growth slows as demand cools after Brexit vote’, The Guardian, https://www.theguardian.com/business/2016/sep/30/uk-house- price-growth-slows-demand-cools-brexit-vote-nationwide) Extract B UK migration trends in the year ending June 2016 Inward migration levels are among the highest ever recorded with an estimated 650 000 people moving to the UK. This is an increase of around 11 000 from the previous year. Employment remains the most common reason for long-term migration (312 000) to the UK, with around 182 000 of these coming with a definite job and 130 000 looking for 5 work. Long-term migration to the UK for study was estimated to be 163 000. In addition, 80 000 long-term migrants arrived in the UK to accompany their families. There were 41 280 refugees applying for asylum, including dependants, of which 10 547 people were granted asylum. Asylum applicants cannot usually accept offers of employment while 10 their case is being processed. (Source: adapted from ‘Migration Statistics Quarterly Report: December 2016’, ONS, https:// www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/ internationalmigration/bulletins/migrationstatisticsquarterlyreport/dec2016)
(b) With reference to Extract A, assess the likely macroeconomic effects of an increase in house prices. Use an aggregate demand and aggregate supply diagram in your answer. (10)

Market failure and externalities (9)

June 2025 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(e) With reference to Extract A, discuss the likely private costs and external costs caused by meat farming. Use an appropriate diagram in your answer. (15)
June 2025 · Paper 1 · Q3(b) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 33 The diagram below shows the equilibrium position of a dental practice operating in a monopolistically competitive industry. AC Costs/ MC revenues E Pe AR Qe 0 MR Output
(b) The government subsidises dental care in the UK through the National Health Service (NHS). There has been a large decrease in the work carried out by NHS dentists. Up to 90% of practices are not accepting new NHS patients. (Source: adapted from https://www.theguardian.com/society/2023/jul/14/ mps-demand-urgent-reform-nhs-dental-services-report) Draw an externalities diagram to identify the welfare gain area from the consumption of dental care in the UK. (4)
June 2024 · Paper 3 · Q1(b) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response
Data and extracts for question 1The energy market Figure 1: UK wholesale gas prices per therm, 2021, in pence 500p Price per therm 400p 352p 300p 200p 100p 0p Feb Apr Jun Aug Oct Dec Figure 2: Number of firms supplying gas and electricity in the UK, 2004–2021 80 60 40 20 0 2004 06 08 10 12 14 16 18 21 Gas and electricity Electricity Gas Extract A Rising gas prices UK consumers are some of the biggest users of gas. 85% of homes use gas central heating, and gas generates a third of the country’s electricity. North Sea gas is running out – and as Britain has replaced coal-fired energy production with wind power in order to reduce carbon emissions, it has become dependent on gas imports. 5 Almost all UK businesses face significant rises in fuel costs over the next few months, and there is no substitute for energy, at least in the short run – an almost perfect example of price inelastic demand. (Source: adapted from https://www.theecoexperts.co.uk/ blog/reasons-for-uk-gas-price-increase) Extract B The UK gas market is broken During the past decade the government has allowed new entrants into the retail energy market with business models that left them ill-prepared to achieve long term business growth. Now the UK must choose between letting its energy market collapse and offering large subsidies for energy retailers. 5 The problem began in the 1980s and 1990s, when privatisation created an oligopolistic energy market dominated by the “Big Six”, which paid their shareholders high dividends and their bosses excessive salaries. The government responded to anger over high energy bills with further liberalisation. Some of the new entrants were innovative, such as Bulb, which offered consumption-tracking apps, and Octopus, which discouraged 10 consumption when demand was high with dynamic pricing. But most were under- capitalised and produced no energy, merely buying it on global wholesale markets and selling it on. Some paid little attention to ensuring continuity of supply or forward buying of gas. The constraints on energy retailers worsened in 2017 with the closure of a big 15 gas-storage facility, which left the UK able to store just 2% of its annual demand. Other big gas importing countries, by contrast, can store 20%–30%. The risks rose further in 2019, when the government capped consumer prices in response to continued complaints about high energy bills. The perfect storm came in the summer of 2021. As economies opened up, global 20 demand for energy rose. Gas supply in Russia, a big producer, was disrupted, and unusually calm weather reduced UK wind turbine energy production to 11% of capacity. In August Ofgem, the industry regulator, said that from October the firms would be able to raise prices for households by 54%. But since then the wholesale price of gas paid by UK energy firms has risen by more than 70%. The result is that UK energy firms are tied 25 into contracts to supply gas to households at far less than they must pay to get it. (Source: adapted from https://www.economist.com/britain/britains-gas-market-is-broken/) Extract C The gender pay gap in the oil and gas industry Despite best efforts to try to attract more women into the oil and gas industry, females are still hugely under-represented in science, technology, engineering and maths careers, whether school leavers, graduates or experienced workers. Women hold under 25% of careers in these areas, and typically hold more non-technical roles, which can attract 5 lower salaries than technical disciplines. There is an even smaller female representation in the offshore workforce (3.6%) e.g. working on rigs in the North Sea, an area that pays higher salaries than onshore work. Despite continued efforts there is still a lack of female applications. Only 5% of the applications to the technical apprentice programme were female, of which half withdrew 10 their applications at the first stage of the recruitment process. There is also a low representation of females in senior leadership roles within the oil and gas industry, especially in technical positions. Women also generally take up part-time positions which are typically lower paid. This has resulted in the oil and gas industry having an average gap in hourly pay of 25%. 15 In the majority of developed countries, women have made substantial progress in the labour market since the 1970s, with both wages and labour force participation increasing relative to that for men. Notwithstanding these large improvements, women still earn less than ‘comparable’ men in all developed countries and, since the 2000s, progress for women in the labour market seems to have slowed. 20 (Source: adapted from https://www.harbourenergy.com/media/2a2nmavb/chr-18311- 01-gender-pay-gap-2020-v6-final.pdf and https://ftp.iza.org/dp10975.pdf)
(b) Examine one likely externality that arises when a producer generates electricity by burning gas. Use a diagram to show the external costs of production. (8)
June 2022 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(f) Some economists suggest that the market price of cod does not result in the socially optimum level of output. Evaluate the likely external costs from the over-fishing of cod. Use an appropriate diagram in your answer. (20)
June 2022 · Paper 1 · Q3(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 33 A company that provides drinking water and treats waste water has been fined £180 000 after an incident that killed about 2 500 fish. The charges relate to an illegal discharge of sewage from the waste water treatment plant that polluted nine kilometres of the River Severn, a popular tourist destination. (Source: adapted from https://www.leaderlive.co.uk/news/wrexham/ 19393552.water-company-fined-today-sewage-leaked-wrexham-river-killing-2-500-fish/)
(a) Draw an externalities diagram to show the likely impact of the sewage discharge on the local tourist industry. (4)
November 2021 · Paper 1 · Q6(b) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response
Data and extracts for question 6The travel and tourism industry Figure 1: Package holiday market share of the six largest providers, booked by UK residents, 2019 TUI 29% Jet2 16% Thomas Cook 13% Expedia 8% On The Beach 6% BA Holidays 4% (Source adapted from: https://knowledge.sharescope.co.uk/2019/10/16/finding-companies- that-control-their-own-destinies/The Times/ATOL) Figure 2: Jet2 package holiday prices to Sorrento Price 12 hours after Thomas Cook shutdown Price before Thomas Cook shutdown 2 Adults for 7 Nights from Monday 25 May 2020 2 Adults for 7 Nights from Monday 25 May 2020 Half Board Half Board 1 x Premium Double or Twin room 1 x Premium Double or Twin room Return flights from Edinburgh Return flights from Edinburgh View flight times View flight times 22 kg Bag Allowance 22 kg Bag Allowance 10 kg Hand Baggage 10 kg Hand Baggage ATOL Protected ATOL Protected Coach Transfers Coach Transfers Holiday price from £1,576 Per person price Holiday price from £1,648 Per person price £788 £824 Data accessed: 22nd and 23rd September 2019 Extract A Marginal productivity of cabin crew Cabin crew are responsible for loading passengers and providing in-flight meals. United Airlines is planning to reduce the number of its cabin crew members onboard international flights. The airline currently operates its planes with one more cabin crew member than its competitors. The marginal productivity of this additional crew member 5 may be low. By reducing the number of its cabin crew members United Airlines will be able to operate more efficiently and compete more effectively. (Source adapted from: https://simpleflying.com/united-airlines-to-reduce-number-of-crew- on-international-flights/) Extract B Thomas Cook’s environmental impact Thomas Cook Group plc’s operations included its airline and 560 high street travel agents providing flights, hotels and package holidays. The environmental impact of the travel industry is significant. It accounts for 8% of all global carbon emissions. Thomas Cook recognised the risks presented by climate change 5 and actively engaged in reducing their airline emissions. Its plans included using more efficient aircraft and using lower-carbon fuel. In 2018, Thomas Cook was included in the top 10 of the world’s most fuel-efficient airlines. (Source adapted from: https://www.thomascookgroup.com/investors/insight_external_ assest/Thomas+Cook+Sustainability+Report+2018.pdf) Extract C Why did Thomas Cook shut down? Thomas Cook Group plc ceased trading on 23 September 2019. The collapse of Thomas Cook left 600 000 travellers stranded overseas and approximately 21 000 worldwide employees were left without a job. Thomas Cook’s management said that the failure of rescue talks between banks, 5 shareholders and the UK Government meant it had no choice but to shut down the business. But in truth the tour operator’s problems go back much further. A disastrous merger in 2007, increased debts, the internet revolution in holiday booking and Brexit uncertainty all contributed to the failure of the business. 10 In 2007 it merged with MyTravel. Thomas Cook directors had an objective of rapid company growth over short-term profitability. The merger was supposed to create a European giant, promising £75 million-a-year cost savings and a springboard to challenge emerging internet rivals. In reality, Thomas Cook was merging with a company that had only made a profit once in the previous six years, and the deal left the Group 15 with huge debts. In May 2019, the firm reported a £1.5 billion loss. The role of the management in Thomas Cook’s collapse is being investigated by the UK Government. Thomas Cook executives’ salaries and bonuses have been questioned. Directors received salaries totalling £20 million in the five years before its collapse. The Chief Executive Officer (CEO) earned a £500 000 cash bonus in 2017 and about 20 £8.5 million in his five years with the company. It seems that around £4 million of this was in the form of shares. The share price reached £1.46 in 2018, but each share is now worthless. The CEO said that the directors had worked “exhaustively” to rescue Thomas Cook and create a long-term turnaround strategy. “It is a matter of profound regret to me and the 25 rest of the board that we were not successful.” The UK prime minister admitted that the government refused to grant £150 million as a subsidy to help rescue Thomas Cook in the short run. The UK prime minister stated: “Clearly, that is a lot of taxpayers’ money and sets up, as people will appreciate, a moral hazard in the case of future such commercial difficulties that companies face. I have 30 questions about whether it’s right that the directors, or whoever, the board, should pay themselves large sums when businesses can go down the tubes like that. One is driven to reflect on whether the directors of these companies are properly incentivised to sort such matters out”. (Source adapted from: https://www.theguardian.com/business/2019/sep/23/thomas-cook- as-the-world-turned-the-sun-ceased-to-shine-on-venerable-tour-operator and https://www.ft.com/content/a7dd2554-de23-11e9-b112-9624ec9edc59)
(b) Examine the likely impact of Thomas Cook’s plan ‘to reduce their airline emissions’ (Extract B, line 6) on the social optimum position. Use an appropriate externalities diagram in your answer. (8)
October 2020 · Paper 1 · Q2(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 22 The external benefits of higher education include increased tax revenue, faster economic growth, greater innovation and labour market flexibility. (Source adapted from: https://www.timeshighereducation.com/news/higher-education-its- good-for-you-and-society/2008681.article#survey-answer)
(a) Draw an externalities diagram to show the likely impact of the consumption of higher education. (4)
June 2018 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
(f) Using the concept of external costs, evaluate whether nuclear power is under-provided or over-provided in the energy market. Use an appropriate diagram in your answer. (20)
June 2018 · Paper 1 · Q7 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
7 In September 2016 the government approved the building of an £18 billion nuclear power station, Hinkley Point C, which will supply 7% of UK electricity for up to 60 years. The power station is funded by Chinese and French investment. Evaluate the likely private costs and external costs involved in such major power station construction projects. Use an appropriate externalities diagram in your answer.

Government intervention in markets (8)

June 2025 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(f) Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer. (20)
June 2025 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(g) Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer. (20)
June 2024 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer. (20)
June 2024 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(g) Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer. (20)
June 2022 · AS Paper 1 · Q6(a) 5 marks AO1=1, AO2=2, AO3=2 Diagram
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(a) Explain the likely impact of the new 2020 TACs on the price of cod. Include a supply and demand diagram in your answer. (5)
June 2022 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
(g) Other than using a TAC, evaluate the policy options which could be used to reduce market failure resulting from over-fishing. Use at least one appropriate diagram in your answer. (20)
June 2018 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
The UK Government is considering introducing a maximum price for energy. (e) Discuss the likely microeconomic effects of this decision on energy producers and consumers. Include a supply and demand diagram in your answer. (15)
June 2018 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Energy markets Figure 1: Annual surplus or shortage of uranium, measured in millions of kilograms 25 Kg millions 15 5 0 -5 -15 -25 Figures from 2016 are forecast (Source: adapted from http://www.telegraph.co.uk/business/2016/11/20/uranium- the-unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract A Uranium: the unloved metal Uranium is a fuel source for nuclear energy production. The price of uranium has fallen to a 13-year low. Uranium is a relatively common metal but locating it in the right concentrations can be difficult. Australia has the biggest known resource of uranium, followed by Kazakhstan. Kazakhstan’s production has increased significantly since 2007, 5 accounting for a large proportion of the surplus of this metal. Given the large stockpiles of uranium some firms have ceased production. The biggest impact on the uranium market has been the devastating accident at the nuclear power station in Fukushima, Japan, in 2011. The accident caused a leak of radiation. The accident reduced confidence in the entire nuclear industry, as high doses 10 of radiation leaks increase the risk of cancer. In addition the high cost of safely storing radioactive waste has delayed the building of new nuclear power stations. Japan initially closed all of its 50 nuclear power stations which reduced the demand for uranium. But it has since concluded that nuclear power must be part of its mix of energy suppliers. Despite this setback in 2016 work started on a new uranium mine in Spain to meet 15 the expected rise in demand for the metal. Uranium is a controlled material, so mining companies have to comply with many regulations before opening a new mine. When it opens in 2018, this will be the only uranium mine in Europe, producing 2.2 million kilos a year. It has been in development for more than a decade. Most developed countries, with the notable exception of Germany, have concluded that 20 nuclear power is an essential part of their energy supply. The US and UK are committed to building new nuclear power stations, the latter providing a £30 billion subsidy to build a new nuclear plant at Hinkley Point. China is also building a further 60 nuclear power stations. Supporters of nuclear power say it provides a reliable source of energy at a time when 25 the world’s population is increasing, unlike solar power and wind power which both vary with the weather. In addition they argue that no country can significantly reduce carbon emissions, which are causing climate change, without nuclear. France and the UK have committed themselves to shut down all coal-fired power stations by 2025. So demand for uranium over the next two decades seems guaranteed. 30 (Source: adapted from Uranium: the unloved metal whose price is poised to go radioactive, Jon Yeomans, The Telegraph, 20 November 2016 http://www.telegraph.co.uk/business/2016/11/20/uranium-the- unloved-metal-whose-price-is-poised-to-go-radioactiv/) Extract B Irrational consumers pay the price The UK Government has announced that it might introduce maximum price controls on energy used by households. The UK’s largest energy suppliers are braced for what could be the industry’s most significant government intervention following a decade of rising energy bills and low 5 numbers of consumers switching between energy providers. The Prime Minister promised to intervene because the energy market is “manifestly not working” for consumers. Energy prices have risen by 158% in the last 15 years, and four million households, especially those on low incomes, are still on the most expensive energy rates. 10 Some energy analysts have warned the Government against taking a highly interventionist approach that could undermine the energy market and leave customers paying higher prices in the future. (Source: adapted from http://www.telegraph.co.uk/business/2017/03/22/ governments-pledge-cut-energy-prices-risks-leaving-consumers/) Extract C The economics of climate change Rising carbon dioxide emissions result from the increase in the use of coal, gas and oil in transport and for energy production. In addition, deforestation, food production and processing methods make the problem worse. These carbon emissions are causing a rise in global average temperatures, known as climate change. Climate change could cause 5 hundreds of millions of people to suffer hunger, water shortages and coastal flooding. Three elements of policy are required for an effective global response to reduce carbon emissions. The first is the pricing of carbon, implemented through tax, trading pollution permits or regulation. The second policy is to support innovation and the deployment of low-carbon technologies. And the third is action to remove barriers to energy efficiency, 10 and to inform, educate and persuade individuals about what they can do to respond to climate change. (Source: adapted from www.sternreview.org.uk/)
(g) Evaluate ways in which government intervention could be used to reduce carbon emissions. Use at least one appropriate diagram in your answer. (20)

Revenues, costs and profits (8)

June 2023 · Paper 3 · Q1(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 1The UK economy Figure 1: UK gas prices in pence per therm, August 2002 to August 2022 600 500 400 Pence per 300 therm 200 100 0 Aug Aug Aug 2002 2012 2022 Figure 2: UK inflation, CPI, August 2002 to August 2022 10 9.9 8 6 (%) 4 2 0 –2 Aug Aug Aug 2002 2012 2022 Extract A Fiscal policy changes in the UK, Autumn 2022 After many changes in policy, people earning above £150 000 will now no longer benefit from the tax cut in the September 2022 mini‑budget, which proposed the removal of the 45% tax band. The proposed change in the main 20% standard rate of income tax moving to 19% has been postponed. 5 In April 2022, a 1.25% rise in national insurance contributions was implemented, labelled as a health and social care levy. It was cancelled in Autumn 2022. Britain’s poorest households would have lost £7.56 a year from the national insurance rise. The richest 10% of households, earning an average of £108 000, would have lost £1 800. Another measure in the Truss Government’s £30 billion tax cut proposals that would have 10 benefitted the rich, was the removal of the 2023 planned rise in corporation tax from 19% to 25%. The former chancellor wanted to cut the tax to 15% but this was the wrong time to do this. The former chancellor also removed the 2014 cap on bankers’ bonuses, clearly an unfair decision at the time when public sector workers were told to accept pay caps to keep inflation under control. 15 The reflationary fiscal policy triggered warnings that the Monetary Policy Committee of the Bank of England would raise interest rates further – having already raised them from 0.1% in 2021 to 2.25% in September 2022. This meant an end to the fiscal rules set by the government in the recent past: debt to be falling as a share of national income by 2024 and no borrowing for day‑to‑day spending. 20 (Source: adapted from ‘Tax cuts benefit high income earners the most’ R Merrick The Independent: 19 September 2022 and FT Source: adapted from Sebastian Payne and Chris Giles in London 29 August 2022) Extract B Inequality to rise in the UK The rising cost of living is expected to affect low‑income families the most. Inflation in Autumn 2022 is expected to hit 14% for families in the poorest tenth of the income distribution, compared with 8% for families in the richest tenth, driven in large part by rising energy costs and food prices. Around half of the food consumed in the UK is 5 imported, and the 20% fall in the value of the pound in 2022 has affected lower income groups more because food is a higher proportion of their spending. The government’s decision to freeze benefits, rather than allowing them to rise in line with current inflation, means that the support provided is a real terms cut for families currently receiving high levels of benefits. A two‑year freeze on energy price caps will now only last until April 10 2023, which would have kept the average energy bill at £2 500 rather than £3 500. (Source: adapted from IFS Report: Living standards, poverty and inequality in the UK: July 2022 and https://www.ft.com/content/6de5b52e- 64c8-4997-8939-e1c59172daa7?shareType=nongift)
(c) Discuss the likely impact of a rise in gas prices on a firm that uses a large amount of gas in its production process. Use a cost and revenue diagram to support your answer. (12)
June 2022 · Paper 1 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6UK branded coffee shop chains market Figure 1: Branded coffee shops by number of shops in the UK in 2021 Costa 2681 Starbucks 1025 Caffè Nero 648 Coffee 50 AMT shop chains 40 Soho Coffee 30 Coffee Republic 3748 Other chains 0 500 1000 1500 2000 2500 3000 3500 4000 Number of shops (Source: adapted from https://www.statista.com/statistics/297863/ leading-coffee-shop-chains-in-the-united-kingdom-uk-store-number/) Figure 2: International coffee price (Arabica bean), US dollars per kilogram Month Price Change Jan 2020 3.13 – Feb 2020 2.99 –4.47% Mar 2020 3.27 9.36% Apr 2020 3.41 4.28% May 2020 3.30 –3.23% Jun 2020 3.12 –5.45% Jul 2020 3.24 3.85% Aug 2020 3.60 11.11% Sep 2020 3.67 1.94% Oct 2020 3.35 –8.72% Nov 2020 3.31 –1.19% Dec 2020 3.48 5.14% (Source: adapted from https://www.indexmundi.com/commodities/ ?commodity=other-mild-arabicas-coffee&months=12) Extract A Tough market conditions for coffee shops – but coffee quality is king UK coffee shop chains have experienced slow growth opportunities and rising costs. In 2019 the UK market leader, Costa Coffee, opened over 60% fewer stores than in 2018, while Starbucks opened just three new stores overall in 2019. By 2020, many costs were rising: staff shortages meant rising wages for baristas (trained 5 coffeemakers), a 6.2% National Minimum Wage increase for over 25-year-olds and rising rents. In a challenging UK economy, consumers placed coffee quality ahead of convenient location when choosing a coffee shop. This demonstrates the need for coffee shops to match rising expectations in the UK’s increasingly crowded coffee shop market in 10 order to stay competitive. Independent coffee shops (total 25 892 shops in 2020) remain a threat to the branded coffee shops as they pursue a unique luxury experience for customers. This will often focus on the atmosphere and customer service, luxury food and drink ranges and being a part of the local community. Independent coffee shops run on average profit as low as 2% of revenue, and many go out of business as new chains 15 arrive in a locality. In January 2020, Coca-Cola finalised its £3.9 billion takeover of market leader, Costa Coffee. The Coca-Cola company’s stated aims are to maximise long-term returns to shareholders while being mindful of overall responsibilities such as supporting sustainable communities. Major brands, such as Costa, continue to lead coffee shop 20 expansion in 2020 as competition intensifies. (Source: adapted from https://www.worldcoffeeportal.com/Latest/InsightAnalysis/2020/ February/5-UK-coffee-shop-market-dynamics-to-watch-in-2020) Extract B Greggs aiming for ‘coffee shop experience’ Greggs is looking to increase its branded coffee shop market share after the British bakery chain achieved record profits and overtook Starbucks in the amount of coffee it served in the UK. Although Greggs will continue to focus on the food-to-go market, it will be investing in better coffee machines and providing WiFi. It wants one in three 5 new outlets to have more seating. The company believes that it has the ability to take market share in two ways, by expanding its coffee range and at the same time enhancing the coffee shop experience. Greggs is modelling its plan on rival chain Pret A Manger, which has changed from focusing on food-to-go sales to mainly eating in. Greggs has transformed itself from an unremarkable seller of bread and pastries into one of the UK’s 10 most popular food-on-the-go chains, in part thanks to its embrace of vegan, gluten-free and healthy options as well as clever marketing that have changed its image. (Source: adapted from Financial Times, 3 March 2020 https://www.ft.com/ content/6fb6d73a-5d24-11ea-8033-fa40a0d65a98)
(d) Using a cost and revenue diagram, discuss the likely impact of ‘rising costs’ for coffee shops on their profitability (Extract A, line 2). (12)
November 2021 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 2The German economy Figure 1: German government budget balance, percentage of GDP, 2010 to 2019 1.9 2 1.5 1.2 1.2 0.9 0.6 0 0 –0.1 –1 % of GDP –2 –4 –4.2 –6 2010 2012 2014 2016 2018 2020 (Source adapted from: The Economist Nov 14th 2019) Figure 2: German national debt, percentage of GDP, 2010 to 2019 85 80 75 70 % of GDP 65 60 55 0 2010 2012 2014 2016 2018 2020 (Source adapted from: The Economist Nov 14th 2019) Figure 3: Annual percentage change in real GDP, Germany and average of developed economies, 2005 to 2021 (forecasted data for 2020 and 2021) 4 2 0 % –2 –4 –6 2005 2010 2015 2020 Germany Average of developed economies (Source adapted from: IMF and German Federal Statistical Office) Figure 4: Unemployment rate in Germany, percentage of labour force, 2005 to 2020 (2020 figure is forecasted) 12.5 11 . 7 % 10 . 8 % 10.0 9 % 8 . 1 % 7 . 7 % 7 . 8 % 7.5 7 . 1 % 6 . 8 % 6 . 9 % 6 . 7 % 6 . 4 % 6 . 1 % 6 . 1 % % 5 . 7 % 5 . 2 % 5 % 5.0 2.5 0 (Source adapted from: bundesagentur für arbeit.de and https://www.ft.com/ content/5486b247-c73e-4887-a2b2-528b23e301a6) Extract C Why Germany keeps to budget rules despite a slowdown in growth Germany’s economic boom is over, as it has entered recession. During the last ten years of economic growth well over 4 million jobs were created. The fear of recession has revived a debate in Germany: should the government spend more to stimulate growth? It is written into the German constitution that the fiscal 5 deficit cannot be greater than 0.35% of GDP, once the effects of the economic cycle have been removed. Germany’s budget has been in surplus since 2014 and the government is always reluctant to increase spending which would create a deficit. In 2018, aided by booming employment and low interest costs on existing debt, the budget ran to a surplus 1.9% of GDP. 10 Germany’s main trading partners have long been angered by German fiscal policy. The French President criticised Germany’s budget and current account surpluses that “always occur at the expense of others”. Large parts of Germany’s infrastructure need significant investment. As the economy has slowed, a decision to run a balanced-budget policy has become harder to defend. In 15 wealthy regions of Germany, crumbling schools have been closed for fear of collapse, and information and mobile technology on a wide scale needs to be modernised. The World Economic Forum reported that accessibility of fibre optic broadband also “remains the privilege of the few”. However, private sector firms, such as major motor manufacturers, are still willing to invest in new technology and the profitability of some of these 20 firms, in the long run, benefits as a result. The state development bank puts Germany’s investment shortfall at €138 billion (£120 billion). Arguments for a much more expansionary fiscal policy have failed to influence government policy. Big government programmes, such as a recent package to reduce Germany’s carbon emissions, are only implemented when they satisfy fiscal rules. 25 (Source adapted from: The Economist Nov 14th 2019 and https://www.ft.com/content/3cec4908-d164-11e9-8367-807ebd53ab77 7th September 2019 and https://www.ft.com/content/198f072e-4e42-11ea-95a0-43d18ec715f5 and https://www.ft.com/content/d89d9404-c586-11e9-a8e9-296ca66511c9 and https://www.ft.com/content/8f87c03c-93dc-11e8-b67b-b8205561c3fe) Extract D Germany drops to number 7 in the Global Competitiveness Index Despite being the largest economy in the European Union, Germany’s competitiveness is declining, according to the World Economic Forum (WEF). Germany dropped four places in the WEF’s Global Competitiveness Index, coming in as the seventh-most competitive economy. Out of the 103 indicators used in the report, Germany received lower scores in 5 53 areas in 2019. (Source: https://www.dw.com/en/germany-falls-in-global-competitiveness- ranking/a-50745071 8 October 2019)
(c) Discuss the likely impact of investment in new technology on the profitability of firms in Germany, as described in Extract C line 20. Use a cost and revenue diagram to support your answer. (12)
October 2020 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 2The UK economy Figure 3: GDP per hour worked, nominal values at PPPs, percentage above or below UK level, 2018 Japan Italy US France Germany -10 0 10 20 30 40 Percentages (Source adapted from: ONS.gov.uk) Figure 4: UK index of output per hour worked, base year 2016 = 100 130 120 110 100 Index 90 80 70 60 50 2000 2005 2010 2015 2018 Key Productivity if pre-crisis trend had continued Actual UK productivity (Source adapted from: ONS.gov.uk) Figure 5: Proportion of adults with low literacy and/or numeracy skills, by age, selected countries Aged 16-24 Aged 55-65 Italy US England Spain N. Ireland France Canada Germany Japan S Korea 0 10 20 30 40 50 60 (Source adapted from: OECD.org) (Figures 3, 4 and 5 Source: FT.com 2016 data published https://www.ft.com/content/6ada0002‑9a57‑11e8‑9702‑5946bae86e6d 2018) Extract D The end of the High Street? Homebase, the UK’s second‑largest do‑it‑yourself (DIY) retailer, made £20–40 million a year profit up to 2016. The Australian conglomerate Wesfarmers bought Homebase for £340 million in 2016, and began to rebrand 24 stores under its own name. It scaled back on curtain, cushion and other homeware sales in favour of power tools and building materials. 5 In 2018 Wesfarmers sold the DIY chain for £1, in the face of “extremely challenging” market conditions and excess store space. The chain was bought by restructuring specialist Hilco, which had also rescued the music chain HMV in 2013, and the stores have gone back to using the Homebase name. Over 70% of Homebase stores are currently losing money and the new owner wants to exit loss‑making stores and agree to rent reductions, as sales 10 fell 10% in 2018. Homebase has gone back to popular products and brands dropped by its previous owner Wesfarmers. The closures will add to the mounting job losses on Britain’s high streets. About 25 000 jobs have gone in the first seven months of 2018, according to analysis by an economics thinktank. A further 8 300 jobs are under threat at suppliers, with the multiplier effect 15 meaning that GDP is £1.5 billion less than projected. Several Marks & Spencer clothing stores closed their doors for the last time as the high‑street chain pushes ahead with a transformation plan. It plans to close 100 stores by 2022. Toys R Us, Poundworld and Maplin have shut down completely, while New Look, Mothercare and Carpetright have plans to close hundreds of stores as losses rise sharply. 20 Increasing rents and higher business rates have occurred at the same time as falling consumer confidence. Meanwhile, House of Fraser employees and pensioners are nervously awaiting more details about their future. The £90 million rescue deal by Sports Direct, the sportswear chain controlled by Mike Ashley, will protect 16 000 jobs for the time being. (Source adapted from: https://www.ft.com/content/00d0bb9e‑a6ee‑11e8‑8ecf‑a7ae1beff35b 24 August 2018 and https://www.theguardian.com/business/2018/aug/13/homebase‑close‑80‑stores‑high‑street‑job‑losses‑mount Patrick Collinson 13 Aug 2018)
(c) Discuss factors that are causing many high street retailers in the UK to close some branches or shut down completely. Use a cost and revenue diagram to support your answer. (12)
June 2019 · Paper 1 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6Energy and telecommunication markets in the UK Figure 1: Average annual household bill from the Big Six UK energy suppliers, 2017 1250 1000 * 750 Average annual bill £ 500 250 0 Average annual bill on standard variable tariff Supplier’s cheapest annual average tariff *market cheapest annual tariff (Source: https://www.lovemoney.com/news/67298/standard-variable-tariff-compared- cheapest-deal-provider-savings) Extract A Energy price cap to fix ‘broken’ market in UK The Prime Minister recently said that the regulator Ofgem (Office of Gas and Electricity Markets) should limit electricity and gas suppliers’ most expensive tariffs. Under the planned new legislation, the energy bills of 11 million households will be capped for as long as five years. The government claimed this cap could save households 5 up to £100 a year. This legislation would force Ofgem to change the licence conditions for energy suppliers so that they are required to cap electricity and gas prices. The measure will apply to anyone on a standard variable tariff, the expensive plans that customers are moved to when cheaper, fixed-price deals end. Ofgem will need to consult energy companies on how the cap is calculated, the government said. The Prime Minister 10 repeated her claim that she had to act because the ‘market is broken’, a charge the big energy companies reject. “I have been clear that our broken energy market has to change – it has to offer fairer prices for millions of loyal customers who have been paying hundreds of pounds too much,” she said. However, Michael Lewis, chief executive of E.ON said “the government must guard 15 against any unintended consequences that undermine customer service and push up prices as a whole. A price cap will not be good for customers. It will reduce competition and innovation”. Smaller suppliers such as First Utility said the Big Six had only themselves to blame for the cap, because they had kept millions of people on standard variable tariffs. 20 (Source: adapted from ‘UK puts energy efficiency at heart of climate change strategy’, Adam Vaughan, Copyright Guardian News & Media Ltd 2017 https://www.theguardian.com/ money/2017/oct/12/may-energy-price-cap-ofgem-electricity-gas-tariffs) Figure 2: The monthly rental cost of a telephone landline BT Retail 20 19 Virgin Media 18 Orange/EE 17 Wholesale 16 Line Rental* 15 Price 14 (£) 13 12 11 10 9 8 7 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 *Wholesale line rental – the rental price BT Openreach charges telephone service providers (Source: https://www.ofcom.org.uk/about-ofcom/latest/features-and-news/ landline-prices-review) Extract B BT profit rises BT Group, which includes BT Openreach and BT Retail, reported a rise in profit as revenue increased following the integration of the consumer mobile business, EE. BT finalised the takeover of EE in August 2016, and the integration has resulted in BT controlling 35% of the mobile consumer market. The profit of the UK-based telecommunication group in its 5 second quarter 2017 rose to £566 million. BT Group chief executive Gavin Patterson said: “We will operate a multi-brand strategy with UK customers being able to choose a mix of BT, EE or Plusnet services, depending on which suits them best. The acquisition enables us to offer great value bundles of services and customers are set to be the winners as we compete for their business”. 10 (Source: adapted from www.marketwatch.com (Oct 27 – 2016) and http://home.bt.com/ news/bt-life/bt-to-retain-ee-brand-as-acquisition-confirmed-11364037422234) Extract C BT to slash landline charges for 1 million customers Rental charges for landline-only customers – households with a telephone-only contract but no BT broadband – will fall from £18.99 to £11.99 per month after the regulator attacked existing deals as ‘poor value for money’. This rental reduction will save a million landline-only customers £84 a year. 5 The regulator Ofcom (Office of Communications) said it stepped in because these bills for landline-only customers – nearly two-thirds of whom are over 65 – have “soared” in recent years. This is despite BT and other landline providers benefiting from significant cuts in the wholesale line rental cost of providing the service by BT Openreach. Many landline-only customers are elderly, and have been with BT for decades. Ofcom has 10 focused on BT because it accounts for two-thirds of the UK’s 1.5m landline-only customers. A spokesperson for Ofcom said “This position [of dominance] has allowed BT to increase prices without much risk of losing customers, and other providers have followed BT’s pricing lead. We expect BT’s price cut to mean other providers will follow suit”. Ofcom 15 said that over three-quarters of BT’s landline-only customers have never switched provider, which has left them a prime target for price rises. The regulator said that all major landline providers have increased their line rental charges by between 23% and 47% in recent years, while their own costs for providing the service have fallen about 27%. Ofcom said it is also looking at measures to help people shop around for better 20 deals with more confidence. (Source: adapted from ‘BT to slash landline charges for 1m customers’, Mark Sweney, Copyright Guardian News & Media Ltd 2017 https://www.theguardian.com/business/2017/ oct/26/bt-to-slash-landline-charges-for-1m-customers)
(d) Discuss one likely reason for the rise in BT’s profit (Figure 2, Extracts B and C). Use a cost and revenue diagram to support your answer. (12)
June 2018 · Paper 3 · Q2(b) 8 marks AO1=2, AO2=2, AO3=2, AO4=2 8-mark response Hard
Data and extracts for question 2Indonesia Figure 4: World coal prices, 2006–2016, US dollars per tonne 250 200 150 $ per tonne 100 50 0 2006 08 10 12 14 16 (Source: http://www.economist.com/news/world-week/21697025-business-week) Figure 5: Indonesia’s real GDP, annual percentage change 10 5 + % 0 change – in GDP 5 10 15 2006 08 10 12 14 16 (Source: http://www.economist.com/news/world-week/21697025-business-week) Extract D Indonesia’s economic outlook The Indonesian economy is expected to grow by an average of 4.8% a year between 2017 and 2021. Joko Widodo, president of Indonesia since 2014, is increasingly confident in his role and now has enough political support to pass some of his desired supply-side reforms. His government has been aggressively trying to improve the business and investment 5 environment by easing regulations and offering tax incentives, for example to firms investing in special economic zones. Indonesia receives US$2.3 billion a year in overseas development aid, which is mainly spent on education and healthcare. There is also ongoing aid from international institutions and non-government organisations paying for restructuring after the 2004 10 Indian Ocean earthquake and tsunami, which led to the loss of over 170 000 lives and much damage to economic livelihood. Aid agencies have supported the Indonesian government in providing healthcare free at the point of access for 88 million of the poorest people, free schooling for 12 years for each child, and tertiary education for students accepted into university. There is a scheme to provide each of Indonesia’s 15 15.5 million poorest households with a cash transfer of 200 000 rupiah (US$14.37) a month. The World Bank has approved US$800 million in infrastructure loans to Indonesia, with another US$950 million as conditional loans. The Asian Development Bank has committed itself to lending US$2 billion. In December Japan’s development agency lent Indonesia US$535 million to construct two power stations. 20 (Sources: adapted from http://country.eiu.com/Indonesia and http://www.economist.com/ news/special-report/21693404-after-decades-underinvestment- infrastructure-spending-picking-up-last) Extract E Indonesia’s economic policies as commodity prices collapse Indonesia is the world’s fourth largest exporter of coal and the raw material accounts for 11% of its exports. Its other main exports are crude oil, palm oil, rubber and tin. Its main commodity exports tripled in value between 2000 and 2010, and as exports boomed, so did the economy. But the value of commodity exports has fallen by more than half from 5 its peak. Coal now sells for just US$50 per tonne, against US$125 in 2011. In the decade to 2014, Indonesia’s real GDP grew by an annual average of 6%, but the collapse in commodity prices has slowed the economy. In 2015 growth was 4.8%, the slowest rate since 2009. But compared with many other commodity exporters, Indonesia is getting off lightly. 10 The value of the rupiah, Indonesia’s currency, against the US dollar has fallen by 30% since 2013, but has since stabilised. Other emerging market currencies have depreciated even more steeply over that period. Despite the weak exchange rate, Indonesia’s inflation rate has mostly remained within the central bank’s target range of 3-5%. The main impact of the rupiah’s fall has been to curb imports, helping limit Indonesia’s current account 15 deficit to around 2% of GDP despite weaker export earnings. A cautious fiscal policy during the boom years has allowed for a modest fiscal expansion to offset the effects of weak exports and investment. The national debt is just 26% of GDP. Mr Widodo knows that Indonesia cannot raise its long-term growth rate if the economy remains reliant on coal. It needs a broader range of manufacturing and service industries. 20 If new enterprise is to flourish, Indonesia must support local entrepreneurship. The labour market is inflexible. To start a business takes an average of 47 days, compared with four in Malaysia and two in Singapore. The President’s supply-side policies are improving the business climate. The average number of days needed to approve a new power plant has declined from 900 to 200. The government recently revised its “negative investment 25 list” of sectors in which foreign ownership is banned or restricted, fully opening up the rubber, film and restaurant sectors, among others. In 2015 he launched a series of measures to try to reduce government failure, including easing some regulations, streamlining licensing procedures for firms on industrial estates and providing tax incentives to invest in special economic zones. 30 The government has used savings from cutting fuel subsidies, worth over 4% of GDP, to fund extra capital spending. But the budget deficit still widened to 2.8% of GDP, very close to the legal limit of 3%. If public expenditure is to increase further, the government will need to raise more revenue. That will not be easy. Most workers and employers pay little or no tax. Only 27 million of Indonesia’s 255 million people are registered taxpayers, 35 and in 2014 just 900 000 of them paid what they owed, leaving it with a tax revenue to GDP ratio of around 10%. Big companies say that they are being squeezed harder by the tax authorities because they are an easier target. Infrastructure spending will help bring foreign investment and good jobs to Indonesia as well as encouraging exports. Indonesia’s infrastructure problem can be summed up 40 as too few roads and congested ports. In the short term, infrastructure spending puts people to work and boosts demand for raw materials. In the longer term this spending offers the chance to make up for decades of neglect and underinvestment. Indonesia has plans for 65 dams, 16 of which are already under construction. In 2015 work started on the Keureuto Dam, designed to boost agricultural productivity in Aceh. Recently fields 45 were flooded for the massive Jatigede Dam in West Java, after 20 years of delays. Once complete, the dam will irrigate 90 000 hectares of rice paddy, increasing efficiency by giving farmers two harvests a year instead of one. (Sources: adapted from http://www.economist.com/news/special-report/21693405- secure-growth-it-needs-indonesia-must-resist-its-protectionist-urges-roll- out and http://www.economist.com/news/special-report/21693404-after- decades-underinvestment-infrastructure-spending-picking-up-last)
(b) Examine the likely effects on the profitability of Indonesian rice farmers of the government’s increased investment in dams (Extract E, lines 43-48). Use a cost and revenue diagram to support your answer. (8)
June 2017 · Paper 1 · Q4(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 44 In 2015 JCB, the construction equipment manufacturer, experienced a 6% fall in revenue. This resulted from a reduction in sales of construction equipment to emerging markets.
(a) Draw a cost and revenue diagram to show the likely impact of a reduction in sales of construction equipment on JCB’s profits. (4)
June 2017 · Paper 3 · Q2(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 2The UK economy Figure 4: UK national debt as a percentage of GDP 90 Forecast 80 70 60 % of 50 GDP 40 30 20 10 0 (Source: http://budgetresponsibility.org.uk/docs/dlm_uploads/BriefGuide_020511.pdf) Figure 5: UK fiscal deficit, public sector net borrowing (PSNB) 80 Forecast 40 £ billion 0 –40 –80 –120 –160 (Source: http://budgetresponsibility.org.uk/docs/dlm_uploads/BriefGuide_020511.pdf) Figure 6: Labour productivity per head, selected countries UK Spain France Indices: 2008 Q1(base) = 100 120 115 110 105 100 Index 95 90 85 80 75 1999 2001 2003 2005 2007 2009 2011 2013 (Source: http://www.bankofengland.co.uk/publications/Documents/ quarterlybulletin/2014/qb14q201.pdf) Extract C The National Living Wage (NLW) The Government has announced that from 2016 it will introduce a Living Wage Premium that will apply on top of the National Minimum Wage (NMW) for employees aged 25 and over to deliver a National Living Wage (NLW) for those people. The main NMW will continue to be set for all employees aged 21 and over, so that those aged 21 to 24 will 5 continue to be subject only to that rate. The effective minimum wage for the 25+ age group will therefore be over 13% higher in 2020 than would otherwise have been the case, and result in a 0.3% increase in wage costs overall. Further impacts on real GDP are estimated to be higher productivity (+0.3%) but lower average hours worked (-0.2%) and higher unemployment. Overall real 10 GDP is forecast to fall by 0.1% as a result of the NLW. However these forecasts depend on estimates of the likely elasticity of demand for labour. Academic evidence suggests that changes to the NMW since 1999 have led to only limited effects on demand for labour in the UK. The types of work that will be affected are relatively labour intensive, which may limit the scope for firms to substitute towards 15 using capital. Firms may also be expected to shift demand in favour of the under-25s given that they will not be subject to the NLW, which all else being equal would lead to a smaller reduction in overall labour demand. Some of the reduction in employees could also be partially offset by a rise in self-employment. But increasing the NLW to a higher proportion of median earnings may lead to bigger effects than have been experienced in 20 the past. (Sources: adapted from http://cdn.budgetresponsibility.independent.gov.uk/ July-2015-EFO-234224.pdf and http://budgetresponsibility.independent.gov.uk/) Extract D The productivity puzzle in the UK Since the onset of the 2007–2008 financial crisis, labour productivity growth in the UK has been exceptionally weak. Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied by its pre-crisis trend. Even taking into account possible measurement issues and changes 5 in the size of the service sector, this shortfall is large and is often referred to as the ‘productivity puzzle’. Measures of productivity can be used to inform estimates of an economy’s ability to grow without generating excessive inflationary pressure, which makes understanding recent movements important for the conduct of monetary policy. During the initial phases 10 of the recession, companies appear to have acted flexibly by holding on to labour and lowering levels of capacity utilisation in response to weak demand conditions. But the protracted weakness in productivity and the strength in employment growth over the past two years suggest that other factors are likely to be having a more persistent impact on the level of productivity. These factors are reduced investment in both physical and 15 intangible capital, such as innovation and training, and failings in the labour market such as immobility of labour and under-employment of skilled workers. Some economists explain this by using the concept of an output gap. (Source: adapted from http://www.bankofengland.co.uk/publications/ Documents/quarterlybulletin/2014/qb14q201.pdf)
(c) Discuss the likely impact of the National Living Wage on the profitability of firms. Use a cost and revenue diagram in your answer. (12)

Indirect taxes and subsidies (7)

June 2025 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(f) Evaluate the likely microeconomic effects of a reduction in subsidies to farmers of animal products (Figure 1 and Extract B, line 14). Use a relevant diagram to support your answer. (20)
June 2025 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6Sources for use with SECTION B Read the following figures (1 and 2) and extracts (A and B) before answering Question 6. The market for meat and the growth of vegetarianism Figure 1 The impact of subsidies on farmer income, in England, 2018–2019 (£000 per farm) Cereals Dairy Grazing livestock Pigs Poultry Mixed -20 0 20 40 60 80 100 £000 per farm Key Profit Subsidies (Source: adapted from www.FT.com) Figure 2 Potential impact of indirect tax rises on meat prices per kg, 2023–2030 Before indirect After indirect Type of Meat tax increases tax increases Beef/Veal £24.24 £29.50 Chicken £7.60 £8.63 (Source: adapted from Tax beef, pork and chicken to help climate and health, EU urged – CGTN) Extract A The case for cutting out meat Around a third of Britons are reducing the amount of meat they eat or are cutting it out altogether. Are these consumers right to be cutting out meat? For a start, there are the greenhouse gases released as a result of producing food. The evidence is clear that switching to a plant-based diet would lower emissions. A UK study found that eating a 5 diet high in meat costs 7.2 kg carbon dioxide emissions per day, compared with 3.8 kg for vegetarians. It would also free up land for other uses. Nearly 80% of the world’s farmland is dedicated to rearing animals; a plant-based diet would cut the use of land for agriculture by 76%. The land currently used by grazing livestock could be used for “rewilding”, allowing the environment and animal species destroyed by meat farming to 10 recover. Our health and wealth would be better too. A study published in 2016 modelled what would happen to our health and the global economy if we all switched to vegetarian diets. The economic benefits of switching to plant-based diets could be as much as £700 billion to £1 trillion per year in terms of savings on healthcare costs and lost 15 working days due to ill health. Some economists recommend an increased indirect tax on animal products so that their prices reflect the cost of externalities. This could impact on European farmers, if adopted by the European Union. The tax could bring £35 billion to the EU, with around £15 billion of that going directly to farmers. The 20 rest would be used to bring down VAT on fruit and vegetables, and fund other policies to encourage healthy-eating diets both in and outside the EU. (Source: adapted from https://moneyweek.com/499842/the-economic- consequences-of-veganism December-28-2018) Extract B Businesses benefitting from meat-substitute products There is one group for whom the trend towards meat-substitute products is definitely a good thing: processed food manufacturers and retailers. Finest British beef burgers are priced at £6.61 per kg. The ‘fake burger’ (which is made mostly of pea protein) is priced at £21.81 per kg even though the ingredients used to 5 make them, such as mushrooms, peas and palm oil, are cheaper ingredients than meat. Despite high prices, demand continues to rise for these products. This might benefit shareholders, but is it doing any real good for the rest of us? A large food producer bought meat-substitute product maker Vegetarian Butcher in December 2018 and is moving towards a range with more meat-substitute products. 10 In 2017, Nestlé bought Sweet Earth, a California-based maker of vegetarian foods, and it is launching its own meat-substitute ‘Incredible Burger’. It expects its meat-substitute revenues to reach $1 billion by 2029. As subsidies are being cut in every area of farming, consumers ought to be willing to pay higher prices for all food products. If farmers are to stay in business, they need to find 15 additional sources of revenue such as oyster mushrooms, goji berries and basil. (Source: adapted from http://www.financialtimes.com/the-veganism-boom-does- more-for-food-company-profits-than-the-planet February-22-2019)
(g) Evaluate the likely microeconomic effects of an increase in indirect tax on animal products (Figure 2 and Extract A, line 17). Use a relevant diagram to support your answer. (20)
June 2025 · Paper 3 · Q2(a) 5 marks AO1=2, AO2=2, AO3=1 Diagram Hard
Data and extracts for question 2Sources for use with SECTION B Read Figure 3 and the following Extracts (E to G) before answering Question 2. The economy of India Figure 3: Selected economic data for India, 2006–2021 Human GDP per capita % people living in Year Development (US$) absolute poverty Index (HDI) value 2006 820.0 0.611 55.1 2016 1 714.3 0.624 27.7 2021 2 238.1 0.633 16.4 (Source adapted from: https://www.statista.com/statistics/1272613/india-multidimensional- poverty-index/; https://data.worldbank.org/indicator/; UN Human Development Reports) Extract E 135 million Indians escape absolute poverty in recent years Absolute poverty in India, measured by the number of people living on under US$2.15 a day, has fallen dramatically over the last 15 years. The government’s dedicated focus on improving access to sanitation, nutrition, cooking oil, banking services, drinking water and electricity has led to significant advances in these 5 areas. The $2.3 million provision of subsidised cooking oil has positively transformed lives, with a 14.6 percentage points improvement in the access to cooking oil. (Source adapted from: https://pib.gov.in/) Extract F Buffer stocks in India The Indian government is required to maintain a buffer stock of 11 million tonnes of wheat and 10 million tonnes of rice. The grains are purchased from farmers at the minimum support price and stored in secure warehouses across the country. India, once troubled by famine, has more recently managed to remain self-sufficient in 5 most food categories except edible oils, and is the world’s largest rice exporter. Even during the global health crisis 2020-2022, when the government distributed free food to nearly 800 million people, buffer stocks ran down but not out. Farmers are encouraged to produce more without any consideration of sustainability. (Source adapted from: https://ig.ft.com/india-population/) Extract G Population growth in India “The greatest obstacle in the path of overall economic development is the alarming rate of population growth,” was one Indian government minister’s view in 1967. In the 1970s, the Indian government took radical measures to try to prevent population growth, with little success. 5 Then, in the 1980s and 1990s, India began opening up its economy to the private sector. Policymakers began viewing a growing young population in the form of the so-called demographic dividend – when a majority of a country’s population is of working age (15-64 years) – as an engine for further economic development. In May 2023 India took over from China as the country with the highest population reaching 1.4 billion. However, 10 it needs enough well-paying jobs designed to serve the modern, urban economy. (Source adapted from: https://www.aljazeera.com/features/2023/4/18/overtaking-chinas- population-will-india-gain-or-lose)
(a) Using a demand and supply diagram, explain the cost of a subsidy on the market for cooking oil to the Indian government (Extract E, line 6). (5)
June 2024 · AS Paper 1 · Q6(f) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or Hard
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(f) Evaluate the likely impact of a tax on plastic food-packaging. Use a diagram to support your answer. (20)
October 2020 · Paper 1 · Q1(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 11 Fuel duty is an excise tax imposed on the sale of petrol, included in the price paid by consumers, set at 58 pence per litre. (Source: https://www.gov.uk/tax-on-shopping/fuel-duty)
(a) Draw a supply and demand diagram to show the incidence of a specific petrol tax on consumers and producers. (4)
October 2020 · Paper 1 · Q6(a) 5 marks AO1=1, AO2=1, AO3=3 Diagram
Data and extracts for question 6The UK Rail Industry Figure 1: UK government subsidy to Northern, a train operating company in Northern England 290 287.9 285 280 277.0 275 0 2017 2018 (Source adapted from: https://www.theyworkforyou.com/wrans/?id=2018-10-18.181280.h) Figure 2: Rail passenger kilometres travelled per year in the UK, billions 70 65 billion (2018) 60 50 40 30 20 10 0 1985 1995 2005 2015 (Source adapted from: fullfact.org) Figure 3: Price of a single off-peak train journey, Edinburgh to Leeds Saturday 22nd December 2018 19:00 hours Adult Young Persons (16–25) Railcard £105.30 £69.50 (Source: https://www.lner.co.uk/buy-tickets/booking-engine) Extract A The case for nationalisation Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into 5 the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system. Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 10 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway. The privately-owned train operators are now the subject of fierce criticism, due to 15 overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was 20 suffering lower passenger numbers and revenue than forecast. Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation. (Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00) Extract B Southern Rail boss paid £495 000 The Chief Executive of Southern Rail, the private-sector train operator that has become associated with delays, losses, cancellations and strikes, was paid £495 000 last year. This increased calls for nationalisation and a maximum wage for executives at companies with government contracts. In contrast the average base pay for a train driver in the UK is 5 £47 705, although they can earn up to £63 000. Nearly a third of Southern Rail trains were late in 2016 as it tried to deal with a labour dispute that involved extensive strike action. The rail trade unions are opposed to planned changes to the role of train guards, which they claim will put passenger safety at risk. 10 (Source adapted from: Rob Davies, The Guardian 10 April 2017 https://www.theguardian.com/business/2017/apr/10/southern-rail-boss-double-pay-rise)
(a) Refer to Figure 1. Explain the likely effect of the change in subsidy levels between 2017 and 2018 on rail fares. Include a supply and demand diagram in your answer. (5)
June 2017 · AS Paper 1 · Q3(c) 2 marks AO2=2 Diagram
Data and extracts for question 33 In 2015 the UK government cut subsidies for the installation of solar energy panels.
(c) Annotate the diagram below to show the effect of removing the solar panel installation subsidy on the equilibrium price and quantity. (2) Solar panel installation market diagram Price of solar panels supply Pe demand Quantity of 0 solar panels Qe

Aggregate supply (5)

June 2025 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 In 2023 the UK government reduced indirect tax on certain goods and services.
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the likely impact of a reduction in indirect tax on the equilibrium level of real output and the price level. (2) Price level SRAS P1 AD Y1 Real output
October 2020 · AS Paper 2 · Q2(a) 1 mark AO1=1 Diagram
(a) Illustrate the shape of the Classical long-run aggregate supply (AS) curve on the diagram below. (1)
October 2020 · Paper 2 · Q5(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 55 The Hong Kong‑Zhuhai‑Macau Bridge is the world’s longest sea bridge. It reduces the journey time from Hong Kong to Zhuhai from 4 hours to just 30 minutes. It cost the equivalent of $18.8 billion and was government funded. (Source adapted from: www.theguardian.com)
(a) Draw an aggregate demand and aggregate supply diagram to show the likely impact of this new bridge on the price level and real output in the region. (4)
June 2019 · AS Paper 2 · Q2(a) 1 mark AO1=1 Diagram
(a) Illustrate the shape of the Keynesian long-run AS curve on the diagram below. (1)
June 2018 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 The diagram below shows the aggregate demand (AD) and short-run aggregate supply (SRAS) for the UK. Price level SRAS P1 AD Real output Y1
(b) Annotate the diagram above to show the likely impact of a rise in the cost of raw materials on the UK’s equilibrium level of real output and price level. (2)

Demand-side policies: fiscal and monetary policy (4)

June 2023 · Paper 2 · Q1(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 11 In September 2022 the Bank of England increased the base interest rate from 1.75% to 2.25%. (Source: adapted from https://www.bankofengland.co.uk/boeapps/database/Bank-Rate.asp)
(a) Draw an aggregate demand and aggregate supply diagram to illustrate the likely impact of an increase in the UK base interest rate on the average price level and real output. (4)
October 2020 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 In August 2018 the Monetary Policy Committee of the Bank of England raised the UK’s base interest rate from 0.5% to 0.75%.
(b) Annotate the aggregate demand (AD) and short-run aggregate supply (SRAS) diagram below to show the possible impact of a rise in the base interest rate on the equilibrium level of real output and the price level. (2) Price level SRAS P1 AD Y Real output 1
June 2018 · Paper 2 · Q2(b) 4 marks AO1=2, AO2=2 Diagram
(b) Draw an aggregate demand and aggregate supply diagram illustrating the likely impact of a rise in interest rates on the price level and real output. (4)
June 2017 · AS Paper 2 · Q4(a) 2 marks AO2=2 Diagram
Data and extracts for question 44 The Chancellor announced in the 2015 Budget that the personal allowance (the annual income that can be earned before starting to pay income tax) would increase from £10 600 to £11 000 in April 2016. This means most consumers will pay less income tax. (Source: adapted from http://www.telegraph.co.uk/finance/personalfinance/ how-budget-affect-me/11721785/Budget-2015-what-to-expect- for-income-tax-and-the-personal-allowance.html)
(a) Annotate the aggregate demand and aggregate supply diagram below to show the likely impact of the increase in the personal allowance on the UK’s price level and real output. (2)

Monopoly (4)

June 2023 · Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6The UK online streaming services market Figure 1: Market share of UK online streaming services Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022 Amazon Prime Video 37.9% 41.1% 45.0% 27.1% 25.9% Disney+ 16.0% 17.7% 19.3% 14.1% 21.5% Netflix 15.0% 10.5% 5.0% 9.4% 4.5% NOW 11.3% 11.2% 5.6% 11.0% 11.1% AppleTV+ 4.0% 5.5% 7.3% 9.2% 9.9% BritBox 4.0% 3.0% 5.7% 6.0% 5.9% Others 11.8 11.0% 12.1% 23.2% 21.2% (Source adapted from: Kantar, Worldpanel Division Geotech 2022) Figure 2: UK online streaming services – monthly fees Streaming service provider September 2022 Netflix premium (4 users/ultra HD*) £15.99 Netflix standard (2 users/HD) £10.99 *This is the highest quality Netflix basic (single user/non HD**) £6.99 picture currently available Amazon Prime Video £8.99 ** This is the basic quality picture Amazon Prime Video – Student price £4.49 Disney+ £7.99 AppleTV+ £4.99 (Source adapted from: https://www.radiotimes.com/tv/what- to-watch-tv/best-streaming-service-uk/) Extract A How Netflix makes use of behavioural science In the last few years, companies have been trying to find ways to attract the attention of customers. Various streaming platforms such as Netflix, Amazon, and YouTube use ‘nudges’ to influence consumer behaviour. The ‘next‑up’ feature on Netflix or ‘auto‑play’ on YouTube has been subject to research that relates it to binge‑watching. 5 Binge‑watching is the practice of viewing for a prolonged period, multiple episodes of a TV show or several films in rapid succession. Similarly, the policy of offering a one‑month free subscription under the label of ‘free trial’ requires credit card information to turn the forgetful subscriber into a potential paying one. Following this strategy, Netflix has expanded to 190 countries in just seven years 10 and according to the Wall Street Journal, the company generated total revenue of over $5.2 billion in 2019, which was an increase from 2018 of around $4 billion. However, 2022 data shows that consumers, increasingly worried about the rising cost of living, are turning their back on Netflix. With a reported cancellation of over 200 000 subscriptions in the first quarter and another two million forecast to leave by the 15 end of the year. Subscribers are rethinking their commitment to the streaming services that grew their numbers sharply during the home‑based months of the global health crisis. Netflix subscribers have also quoted a decline in value for money and satisfaction with the quality of the shows as key motives for cancellation. Disney now see higher satisfaction rankings than Netflix across the quality of shows, 20 amount of original content, number of new‑release films, variety of classic films and amount of kids’ content. Forecast cancellation rates for Disney+ fell to an all‑time low of 3.2%. (Source adapted from: https://www.novanudge.com/post/sludge-on-demand-how-netflix- makes-use-of-behavioural-science https://www.theguardian.com/media/2022/apr/20/netflix-shares-fall-losing-subscribers) Extract B The economics of price discrimination Throughout 2022, Netflix, a 100‑billion‑dollar company, increased prices in the US, Canada, the UK and Ireland (most of which saw similar price increases in 2021, too). In sharp contrast, Netflix recently announced it was reducing its prices in India (standard/2‑user 499 rupees a month, equivalent to £5.42) in a bid to compete with 5 Disney+ and Prime. UK students currently enrolled in a college or university who have a valid student email address can join Prime Student through the Amazon website. This gives them nearly 50% off a standard Prime membership and many other exclusive benefits. (Source adapted from: https://help.netflix.com/en/node/24926/in) Extract C Educational Website and TV Programmes BBC Bitesize is a learning platform created by the BBC in 1998. The online study resource allows parents to teach their children from home, using ready-made lesson plans and study guides with questions for all ages. The revision sessions are free to watch and they are available for children aged five up to their late teens. The guides are written by 5 teachers and subject experts, so they are reliable and follow the National Curriculum. Last year Bitesize attracted around two million weekly unique browsers with a peak week of 3.3 million in the GCSE exam period. Oak National Academy is a freely available learning resource website created for pupils aged four to sixteen. Launched in 2020, as a response to the global health crisis, the 10 website includes lesson slides, video lessons, worksheets, and quizzes conforming to the national curriculum in England. Ministers have set aside £43 million to fund the Oak National Academy over the next three years. (Source adapted from: https://www.bbc.co.uk/bitesize/articles/zmjdhbk https://www.structural-learning.com/post/oak-academy-a-teachers-guide#:~:text=Oak%20 National%20Academy%20is%20a,the%20national%20curriculum%20of%20England)
(e) Using examples from Figure 2 or Extract B, discuss the likely impact of price discrimination on a firm’s profits. Use a relevant diagram to support your answer. (15)
November 2021 · Paper 1 · Q3(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 33 River Island is a clothing retailer. Students are offered a River Island student discount code to benefit from a 10% price reduction as an attempt by the firm to increase profit.
(a) Complete the third-degree price discrimination diagram below. Draw the impact on each sub-market by showing the price and profit. (4) Students (a) Non-students (b) Pricea Priceb AC = MC ARa ARb MRb MRa 0 0 Quantitya Quantityb of clothing of clothing
October 2020 · Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6The UK Rail Industry Figure 1: UK government subsidy to Northern, a train operating company in Northern England 290 287.9 285 280 277.0 275 0 2017 2018 (Source adapted from: https://www.theyworkforyou.com/wrans/?id=2018-10-18.181280.h) Figure 2: Rail passenger kilometres travelled per year in the UK, billions 70 65 billion (2018) 60 50 40 30 20 10 0 1985 1995 2005 2015 (Source adapted from: fullfact.org) Figure 3: Price of a single off-peak train journey, Edinburgh to Leeds Saturday 22nd December 2018 19:00 hours Adult Young Persons (16–25) Railcard £105.30 £69.50 (Source: https://www.lner.co.uk/buy-tickets/booking-engine) Extract A The case for nationalisation Privatisation has not made the rail industry cheaper to operate, despite the promise from one government source that it would see private companies bringing: “more competition, greater efficiency and a wider choice of services”. One reason, suggest the critics, is fragmentation. Instead of pushing British Rail into 5 the private sector as a single supplier the government chose to break it into three components of track, train operators and rolling stock i.e. the trains and carriages. This has encouraged each part of the rail industry to prioritise its own profits rather than collaborating to improve the system. Privatisation, meanwhile, never really worked. The rail network of 2 500 stations and 10 32 000 km of tracks was renationalised in 2001. This has encouraged the government’s transport secretary, a supporter of private sector involvement, to argue that the state Network Rail monopoly should be removed so that companies can bid to build new rail lines to upgrade the railway. The privately-owned train operators are now the subject of fierce criticism, due to 15 overcrowding and cancelled services. Private companies are supposed to compete to win a bid to be the train operator for a region for a short number of years. However in recent years the number of private companies bidding or renewing their contract as rail operators has fallen. In May 2018 the government rescued the East Coast line by renationalising it. The line had been run by the private rail operator Virgin Rail, which was 20 suffering lower passenger numbers and revenue than forecast. Some argue that there is a simple solution: reunite track and train in the only feasible manner, nationalisation. (Source adapted from: https://www.ft.com/content/d82848ca-f7ba-11e7-88f7-5465a6ce1a00) Extract B Southern Rail boss paid £495 000 The Chief Executive of Southern Rail, the private-sector train operator that has become associated with delays, losses, cancellations and strikes, was paid £495 000 last year. This increased calls for nationalisation and a maximum wage for executives at companies with government contracts. In contrast the average base pay for a train driver in the UK is 5 £47 705, although they can earn up to £63 000. Nearly a third of Southern Rail trains were late in 2016 as it tried to deal with a labour dispute that involved extensive strike action. The rail trade unions are opposed to planned changes to the role of train guards, which they claim will put passenger safety at risk. 10 (Source adapted from: Rob Davies, The Guardian 10 April 2017 https://www.theguardian.com/business/2017/apr/10/southern-rail-boss-double-pay-rise)
(e) Discuss the likely benefits of price discrimination to rail passengers. Use a diagram to support your answer. (15)
June 2018 · Paper 1 · Q8 25 marks AO1=4, AO2=4, AO3=8, AO4=9 25-mark essay Either/or
8 In July 2016 Apple’s share of the UK market for smartphones was 38%. Evaluate whether such a high market share for one company is in the consumer interest. Use appropriate diagrammatic analysis in your answer.

Economic growth, output gaps and the trade cycle (3)

June 2017 · AS Paper 2 · Q3(c) 1 mark AO1=1 Diagram
Data and extracts for question 33 Real GDP in selected economies (the base year 2008=100) 110 108 106 104 102 Index 100 98 96 94 92 0 2009 2010 2011 2012 2013 2014 France Italy United Kingdom (Source: http://www.ons.gov.uk/ons/rel/elmr/gdp-and-the-labour-market/q1-2014- -may-gdp-update/sty-gdp-g7-economies.html?format=print)
(c) Illustrate a negative output gap on the diagram below. (1) Price AS level P1 AD Y1 Real output
June 2017 · Paper 3 · Q2(a) 5 marks AO1=2, AO2=2, AO3=1 Diagram
Data and extracts for question 2The UK economy Figure 4: UK national debt as a percentage of GDP 90 Forecast 80 70 60 % of 50 GDP 40 30 20 10 0 (Source: http://budgetresponsibility.org.uk/docs/dlm_uploads/BriefGuide_020511.pdf) Figure 5: UK fiscal deficit, public sector net borrowing (PSNB) 80 Forecast 40 £ billion 0 –40 –80 –120 –160 (Source: http://budgetresponsibility.org.uk/docs/dlm_uploads/BriefGuide_020511.pdf) Figure 6: Labour productivity per head, selected countries UK Spain France Indices: 2008 Q1(base) = 100 120 115 110 105 100 Index 95 90 85 80 75 1999 2001 2003 2005 2007 2009 2011 2013 (Source: http://www.bankofengland.co.uk/publications/Documents/ quarterlybulletin/2014/qb14q201.pdf) Extract C The National Living Wage (NLW) The Government has announced that from 2016 it will introduce a Living Wage Premium that will apply on top of the National Minimum Wage (NMW) for employees aged 25 and over to deliver a National Living Wage (NLW) for those people. The main NMW will continue to be set for all employees aged 21 and over, so that those aged 21 to 24 will 5 continue to be subject only to that rate. The effective minimum wage for the 25+ age group will therefore be over 13% higher in 2020 than would otherwise have been the case, and result in a 0.3% increase in wage costs overall. Further impacts on real GDP are estimated to be higher productivity (+0.3%) but lower average hours worked (-0.2%) and higher unemployment. Overall real 10 GDP is forecast to fall by 0.1% as a result of the NLW. However these forecasts depend on estimates of the likely elasticity of demand for labour. Academic evidence suggests that changes to the NMW since 1999 have led to only limited effects on demand for labour in the UK. The types of work that will be affected are relatively labour intensive, which may limit the scope for firms to substitute towards 15 using capital. Firms may also be expected to shift demand in favour of the under-25s given that they will not be subject to the NLW, which all else being equal would lead to a smaller reduction in overall labour demand. Some of the reduction in employees could also be partially offset by a rise in self-employment. But increasing the NLW to a higher proportion of median earnings may lead to bigger effects than have been experienced in 20 the past. (Sources: adapted from http://cdn.budgetresponsibility.independent.gov.uk/ July-2015-EFO-234224.pdf and http://budgetresponsibility.independent.gov.uk/) Extract D The productivity puzzle in the UK Since the onset of the 2007–2008 financial crisis, labour productivity growth in the UK has been exceptionally weak. Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied by its pre-crisis trend. Even taking into account possible measurement issues and changes 5 in the size of the service sector, this shortfall is large and is often referred to as the ‘productivity puzzle’. Measures of productivity can be used to inform estimates of an economy’s ability to grow without generating excessive inflationary pressure, which makes understanding recent movements important for the conduct of monetary policy. During the initial phases 10 of the recession, companies appear to have acted flexibly by holding on to labour and lowering levels of capacity utilisation in response to weak demand conditions. But the protracted weakness in productivity and the strength in employment growth over the past two years suggest that other factors are likely to be having a more persistent impact on the level of productivity. These factors are reduced investment in both physical and 15 intangible capital, such as innovation and training, and failings in the labour market such as immobility of labour and under-employment of skilled workers. Some economists explain this by using the concept of an output gap. (Source: adapted from http://www.bankofengland.co.uk/publications/ Documents/quarterlybulletin/2014/qb14q201.pdf)
(a) With reference to Extract D (line 18), explain the meaning of the term ‘output gap’. Use an aggregate demand and aggregate supply diagram in your answer. (5)
June 2016 · AS Paper 2 · Q2(c) 1 mark AO1=1 Diagram
Data and extracts for question 22 The table below shows GDP per capita at purchasing power parities (PPPs) for a selection of European countries in 2013. GDP per capita Country (US$, at PPPs, 2013, rounded) UK 38 500 Spain 33 000 Italy 35 500 (Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.PP.CD)
(c) Diagram A shows the aggregate demand and aggregate supply for a country. Illustrate actual economic growth on Diagram A. (1) Diagram A Price Aggregate supply level P1 Aggregate demand Y1 Real output

Market structures: efficiency, perfect and monopolistic competition (3)

June 2023 · Paper 1 · Q3(b) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 33 A luxury brownie baker is faced with falling demand as incomes fall.
(b) Small local bakeries have many of the characteristics of monopolistic competition. Draw the short run profit maximising equilibrium of a loss‑making luxury brownie baker. (4)
November 2021 · Paper 1 · Q5(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 55 In Sicily, many households can grow lemons of the same quality as each other. Chiara decides to sell lemons at her local market, expecting to make a normal profit. She notices that all of the many lemon sellers are charging exactly the same price.
(a) Draw diagrams showing the equilibrium positions for both the lemon market and a typical firm in the long run. (4) Firm Market
June 2019 · Paper 1 · Q3(b) 4 marks AO1=2, AO2=2 Diagram Hard
Data and extracts for question 33 According to the Royal Mail, more hair and beauty salons opened on UK high streets last year than any other type of independent business, with a net increase of 10%, representing 626 new salons. (Source: adapted from https://www.theguardian.com/small-business-network/2016/nov/18/ beauty-boom-or-bust-uk-too-many-salons)
(b) Draw a cost and revenue diagram to show the long-run equilibrium of a firm in monopolistic competition. (4)

Supply-side policies (2)

June 2022 · Paper 2 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6UK Government spending and inequality Figure 1: UK regional gross disposable household income per capita, 2018 £ per capita 19 000 to 21 000 17 000 to 18 999 16 000 to 16 999 15 000 to 15 999 14 500 to 14 999 14 000 to 14 499 13 000 to 13 999 North East South East (Source: adapted from University of Sheffield/Office for National Statistics: https://www.sheffield.ac.uk/news/nr/uk-higher-regional-inequality-large-wealthy-country-1.862262) Figure 2: UK subjective happiness by income, April 2021 Answer to the question: ‘On a scale of 1–10, how happy did you feel after yesterday?' (0 = not at all, 10 = completely) Less than £10 000 £10 000–£20 000 £20 000–£40 000 More than £40 000 7.31 7.02 7.13 7.29 (Source: adapted from https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/ datasets/incomegroupsplitestimatesonpersonalandeconomicwellbeingacrosstime) Extract A Regional inequality in the UK Geographically, the UK is highly unequal in incomes. According to research from the University of Sheffield, the estimate of the Gini coefficient is 0.34. There are a number of different reasons for this. First, labour in poor places tend to develop too few skills, with a lack of education holding people back. In Rotherham in the north of England, for 5 example, 21% of disadvantaged 18-year-olds from state schools and colleges go on to higher education compared to 41% in London. Secondly, there is a lack of infrastructure spending in northern cities compared to London. In 2017–18, 28% of public expenditure on transport – and 46% of capital expenditure on railways – was spent in London. The argument for this is that London gets a lot of public money because a lot of people take 10 public transport. This has angered many people in the North. These problems cannot be solved quickly. They compound each other. Just as people are rarely poor for one reason, regions do not fall behind only because they have poor transport, poor schools or poor policy making, but for all those reasons and more. Ideally, the UK would develop a bold plan for regional development that could be followed 15 by future governments, as Germany did for its eastern part. Tera Allas of McKinsey, a consultancy firm, argues that improving education is crucial, even if the returns are not immediately obvious. It is easier to improve schools than to persuade businesses to move to a poorer part of the country. (Source: adapted from https://www.economist.com/britain/2020/07/30/ why-britain-is-more-geographically-unequal-than-any-other-rich-country) Extract B Public sector spending on infrastructure Economic differences across the UK are large and have grown. The government is looking at reducing this inequality partly through spending on transport infrastructure. Public sector capital spending is due to rise from just over 2% of GDP to 3%. That amounts to around £20 billion of additional spending per year on new capital projects. The 5 government is looking to take advantage of current low interest rates to finance the expansion without worsening its fiscal position. The government is determined to focus this spending on the north of England, Wales and the Midlands. Planned schemes include a new Trafford Park tram line in Manchester and reopening train lines and stations closed back in the 1960s, including stations in 10 Haxby in Yorkshire and Blyth in Northumberland. Progress has already been made in Wales with the reopening of Bow Street station near Aberystwyth. This project has taken 11 years to become a reality and cost £8m. It is estimated that it will generate a boost to the economy of £24m through boosting local trade, creating new jobs in the local area, and easing pressure on congested roads heading into Aberystwyth. 15 (Source: adapted from https://www.economist.com/britain/2020/01/09/the-coming- splurge-on-northern-infrastructure and https://www.wales247.co.uk/transport-for-wales- delivers-new-bow-street-station) Extract C Options for UK tax rises in the future There are a number of options for raising additional tax revenue in the future. These include: • increasing council tax on houses: this annual charge paid to local government is currently based on estimated house prices in 1991 and so is very out of date. This 5 would negatively affect areas where house prices have risen the most since 1991 • a one-off wealth tax: a 5% tax on property and pension wealth of more than £500 000 would raise £260 billion to help pay for the global health crisis in five years, according to proposals from the Wealth Commission • increasing corporation tax: at the 2021 Budget the Chancellor announced that 10 the top rate of UK corporation tax would be increased to 25% by 2023. This will remain the lowest rate in the G7 group of the world's largest advanced countries, but will raise £17.2 billion in 2025–26. (Source: adapted from https://www.telegraph.co.uk/tax/income-tax/five-tax-rises-rishi- sunak-considering-chances-happening-budget/, and https://home.kpmg/uk/en/home/ insights/2021/03/tmd-corporation-tax-rate-to-increase-to-25-percent.html)
(e) With reference to Extract B, discuss the benefits of an increase in infrastructure spending on the UK economy. Use an aggregate demand and aggregate supply diagram to support your answer. (15)
June 2019 · AS Paper 2 · Q4(b) 2 marks AO2=2 Diagram
Data and extracts for question 44 The diagram below shows the aggregate demand (AD) and a possible long-run aggregate supply (LRAS) for the UK. Price LRAS level AD 0 Real output
(b) Annotate the diagram above to show the likely impact of government policy to promote business competition on the equilibrium level of real output and price level. (2)

The labour market (2)

June 2025 · Paper 1 · Q5(a) 4 marks AO1=2, AO2=1, AO3=1 Diagram
Data and extracts for question 55 The National Minimum Wage for people over 23 rose by 9.7% to £10.42 in April 2023. The industry most affected is hospitality. (Source: adapted from https://www.gov.uk/government/publications/the-national- minimum-wage-in-2023/the-national-minimum-wage-in-2023)
(a) Draw a labour market diagram to show the likely impact of the increase in the National Minimum Wage for hospitality employees. (4)
November 2021 · Paper 3 · Q1(c) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 1Hand car wash (HCW) firms in the UK Extract A What is the true human cost of your £5 hand car wash (HCW)? The UK’s hand car washes (HCWs) are extremely price competitive, but they have also been linked to modern slavery. Are they ever fair for workers? There is little agreement about how many HCWs there are in the UK. Estimates range from 10 000 to 20 000. This lack of accurate information about the industry makes 5 government regulation very difficult. Automated car washes, with their fierce rotating bristles, used to be the first option for drivers in a hurry. Now there is more choice. While the economy slows and incomes fail to keep up with inflation, demand for HCWs has grown. Many people see paying £5 for a car washed by someone else, rather than cleaning it at home, as a small expense which yields a high utility. But what is the true 10 cost of a £5 car wash – and what should we be paying? The growth of HCWs is partly the result of changes in the structure of industry in the UK. Many petrol stations have closed as drivers fill up at supermarkets. Garages and their forecourts have closed as cars become more reliable and locked into service agreements. The available sites for HCWs have therefore increased significantly and rents have fallen. 15 HCW entrepreneurs have identified available land and have benefitted from changes in the labour market, partly as a result of EU migration. UK drivers are now able to obtain cheap and effective hand car washing. For many migrants, car washes are a first job. “They accept car washing for a short period while they improve their language skills and move into other industries,” says Ian Clark, a professor of work and employment at 20 Nottingham Business School. “But there are also car-wash workers without networks who are in a dead end, working there for long periods.” Many drivers are only interested in getting the cheapest wash. If the price is very low, it probably means that workers are receiving less than the minimum wage and working in poor conditions. Crude calculations illustrate the problem. A £5 HCW employing five 25 workers for 10 hours a day would need to wash 79 cars a day to just cover the wage costs. This assumes the workers are paid the minimum wage. This is one car every seven and a half minutes. Even if the profit can be higher on valet services, the price of which can be as little as £12 for a full inside-and-out clean, it’s hard to see how a car wash price as low as £5 pays a living wage. This ignores all other costs which HCWs incur such as 30 business rates and rent. Evidence from car-wash workers is limited but Clark and others have been able to build a picture of some of the tougher conditions on drenched forecourts. “Like nail bars and small garment manufacturers, car washes are what we call ‘hard-to-reach places,’” Clark explains. As part of the research, Clark and his team spoke to workers from 45 HCWs in 35 the Midlands. Clark and his team met and observed workers who lacked waterproof boots or trousers, or hi-vis jackets and gloves. “They’re spraying around hydrochloric acid solution for alloy wheels, breathing in the vapour and fumes,” Clark says. Some workers were paid a little over half the minimum wage. 40 (Source adapted from: https://www.theguardian.com/world/2018/jul/16/true-human-cost- 5-pound-hand-car-wash-modern-slavery) Extract B Government intervention in the HCW industry There are three main areas of government intervention that might impact on labour intensive firms such as HCWs: First, there is the planning issue which focuses on the impact on the environment, for example, the disposal and recycling of waste water and chemicals. There could be 5 planning regulations to prevent the use of tarmac rather than concrete on forecourts. Tarmac allows waste water and chemicals to seep into the sub soil. It could also be a requirement to have a sludge trap to stop the waste entering waterways. Second, there is the health and safety issue for workers. Prolonged exposure to chemicals and lack of protective clothing puts the health of workers at risk. Performance targets 10 could involve minimum levels of protective clothing and rest breaks for the workers. Third, there is the issue of tax. The informal nature of the business type makes tax evasion easier. Not all UK HCWs violate regulations. There are legitimate, regulated HCW firms as well as examples of good practice by independent outlets. One national supermarket, Tesco, 15 has banned all independent hand car washes from its car parks. It is now in a partnership agreement with national car wash operator Waves. It uses a WashMark certificate of quality and compliance which was introduced by the industry to improve working conditions. Other major supermarkets are considering similar changes. One adviser believes £9 is a reasonable minimum price for a basic wash. Some pressure groups have 20 developed a mobile phone app where evidence of unreasonable conditions can be reported by drivers. Involving drivers in the issue, and making them demand fairer car washes, creates an incentive for good businesses to improve practices and come forward to get a WashMark certificate. 25 (Source adapted from: https://www.parliament.uk/documents/commons-committees/ environmental-audit/Hand-Car-Wash-evidence.pdf research into HCWs by Professor Ian Clark, Nottingham Business School May 2018)
(c) Discuss the likely effects of changes in the level of migration on firms such as HCWs in the UK. Use a labour market diagram and the information provided to support your answer. (12)

Production possibility frontiers (1)

June 2018 · AS Paper 1 · Q5(b) 2 marks AO2=2 Diagram
Data and extracts for question 55 The British Broadcasting Corporation (BBC) is a TV broadcaster. It is financed through an annual TV licence fee of £145.50. At this fee level many TV owners benefit from consumer surplus.
(b) The diagram shows the production possibility frontier for the BBC. Assuming the BBC is at point W, annotate the diagram to show the opportunity cost of providing more educational programmes. (2)

Specialisation and the division of labour (1)

June 2022 · AS Paper 1 · Q6(e) 15 marks AO1=3, AO2=3, AO3=3, AO4=6 15-mark response
Data and extracts for question 6The market for fish Extract A Total allowable catches of North Sea cod halved in response to falling stocks In 2020, new lower limits on the quantity of cod that can be caught by the UK fishing fleet came into force. These limits on the fish catch, called total allowable catches (TACs), were agreed at the annual EU fisheries negotiations. It was the last December EU meeting attended by the UK before it left the EU. It was 5 agreed that cod catch limits will be cut by 50% in the North Sea, while reduced limits were agreed for cod in the Celtic Sea, Irish Sea and west of Scotland. However, there were increases for other types of fish, with TACs for haddock in the North Sea rising by 23% and for sole rising by 19%. UK Fisheries Minister George Eustice said: “This year there has been mounting scientific 10 evidence suggesting that cod is being overfished in many parts of the northeast Atlantic and we have responded to conserve stocks”. These new regulations applied to the UK while it remained part of the Common Fisheries Policy. In the future it will become an independent coastal state and negotiate on fisheries with the EU and other coastal states such as Norway. 15 (Source adapted from: https://www.independent.co.uk/news/business/news/north-sea-cod- stocks-quota-climate-change-brexit-a9252196.html) Figure 1 Atlantic over-fishing: share of total allowable catch (TAC) in excess of scientific advice (2019) Country Excess TAC (%) Excess TAC (tonnes) Sweden 52.4 17 369 106 925 United Kingdom 24.3 34 052 Ireland 21.7 49 914 Denmark 19.7 20 620 Germany 18.0 The Netherlands 13.5 31 910 3 009 Belgium 10.4 France 9.4 27 230 Spain 6.6 16 689 Portugal 3.8 3 662 (Source adapted from: Statista 2018) Extract B The tragedy of the commons The ‘tragedy of the commons’ may occur when there are common access resources (CARs). These are natural resources over which no private ownership has been established. Therefore, there are difficulties in excluding people from using or exploiting them. CARs include fisheries and common grazing lands. Oceans are so vast that it is 5 impractical for one fishing company to establish ownership and control. This means that others cannot be prevented from exploiting the ocean. Economists have suggested that with the lack of ownership of these resources, private producers will act in their own self-interest and exploit CARs to maximise profit. This exploitation is unsustainable. In other words, CARs provide an opportunity for individuals to create profit, while 10 creating negative externalities which impact on everybody else. This process is referred to as the ‘tragedy of the commons’. The ‘tragedy of the commons’ is at the core of a range of problems that are relevant and threatening to natural resources, environments and human health. In the case of overfishing, fishing companies are not made accountable for the state of the ocean. 15 They continue to fish as much as possible to maximise profit. Today, 90% of fish stocks are depleted. The reason for such a wide range of problems is because there is an environmental cost for everything. The ‘tragedy of the commons’ is the outcome of the fact that every resource is limited on this planet, coupled with the rising level of demand for these 20 resources. These issues are large-scale and require laws, regulation and international cooperation. (Source adapted from: http://felixonline.co.uk/articles/2019-12-09-tragedy-commons- drama-planet-not-enjoying/)
The UK fishing industry employs about 24 000 people, more than half of them working in Scotland. (e) Discuss the likely impacts on an economy of specialising in the fishing industry. Use a production possibility frontier diagram in your answer. (15)

The price mechanism, consumer and producer surplus (1)

June 2016 · AS Paper 1 · Q6(c) 6 marks AO1=2, AO2=2, AO3=2 Diagram
Data and extracts for question 6The market for housing Figure 1 – Estimates of the price elasticity of supply of new housing, selected countries 2.5 2.0 1.5 Price elasticity of supply 1.0 0.5 0.0 (Source: adapted from Caldera Sánchez, A. and Å. Johansson (2011), “The Price Responsiveness of Housing Supply in OECD Countries”, Figure 3, OECD Economics Department Working Papers, No. 837, OECD Publishing. http://dx.doi.org/10.1787/5kgk9qhrnn33-en) Figure 2 – Index of UK house prices (1993 = 100) 400 375 350 325 300 275 250 225 200 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 2007 2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014 2014 2015 (Source: http://www.nationwide.co.uk/about/house-price-index/download-data#~ ) Extract A Problems facing UK first time buyers Over a third of aspiring first time buyers in the UK have given up hope of ever being able to save for a deposit to buy a property, new research has found. A deposit is the minimum amount that must be paid upfront when buying a property, which is a proportion of the price of the property. The UK Government has a Help to Buy scheme designed to help people buy a home. The 5 government subsidises the mortgage (loan) needed to buy a property, so buyers require a smaller amount saved as a deposit. Under this scheme, first time buyers need as little as a 5% deposit to qualify for a mortgage. This is due to end in the first few months of 2017. The research from mortgage insurer Genworth says this will mean a return to 20% deposits, which would see the average time needed to save for a deposit rise from three 10 years to over 10 years. “Trying to buy your first home in the current climate is like chasing a runaway train. Even with good salaries that could comfortably support a mortgage, thousands of aspiring first time buyers can only save modest sums, especially those who are already paying rent. This deposit trap is why many feel they are left with the all or nothing choice of 15 borrowing from family or waving goodbye to ever owning a home,” said Simon Crone, a vice president at Genworth. “Help to Buy has significantly improved access to mortgages with deposits that are actually realistic to save. The numbers using the scheme may be modest, but it has made significant inroads in the short-term to boost access at the lower end of the property 20 market,” he pointed out. (Source: adapted from http://www.propertywire.com/news/europe/ uk-first-time-buyers-201409309641.html September 2014) Extract B Housing and flood defences A radical new approach to housing and a £2.3 billion of investment in flood defences were announced as part of the UK Government’s new National Infrastructure Plan 2014. One key proposal is for the government to plan, build and sell homes. An initial programme on a government-owned former airfield near Cambridge will see the development of 10 000 homes. This approach will fast track the development by 5 providing certainty and making new homes available more quickly. The government will make the initial investment but expects that later costs will be met through the sale of land and homes. It will also evaluate the feasibility and economic effects of rolling out this model on a wider scale, to support and accelerate housing supply. The plan also commits to £2.3 billion of capital investment to over 1400 flood defence 10 projects in a 6-year programme of investment. As a result, over 300 000 homes will be better protected and over £30 billion of economic damages prevented. Major projects that will benefit include £42 million for the Oxford Flood Alleviation Scheme, £80 million for the Humber Estuary and over £17 million for Tonbridge, Yalding and the surrounding communities. 15 (Source: adapted from https://www.gov.uk/government/news/ambitious-plans-for-housing-flood-defence- and-roads-set-out-in-national-infrastructure-plan-2014)
(c) Explain the likely impact on producer surplus of an increase in the demand for housing. Use a diagram to illustrate your answer. (6)

Government failure (1)

June 2024 · AS Paper 1 · Q6(g) 20 marks AO1=4, AO2=4, AO3=6, AO4=6 20-mark essay Either/or
Data and extracts for question 6The market for plastic in the UK Figure 1: Trend in the purchase of single‑use plastic bags in millions, UK, 2014 to 2021 2014 2015 2016 2017 2018 2019 2020 2021 7 500 2 120 1 750 1 130 1 040 627 496 197 Extract A 10p charge continues to reduce use of plastic carrier bags The 5p charge on single‑use carrier bags was introduced in supermarkets in 2015. The charge was increased to 10p in 2021 and extended to all businesses. The UK Environment Minister said that the plastic bag charge has ended the irrational purchase of billions of single‑use carrier bags, thereby protecting our landscapes and 5 ensuring millions of pounds are redistributed to worthy causes. This was needed as without this legislation, the market is not able to effectively manage the situation. Consumers are now in the habit of bringing reusable carrier bags when shopping. In addition to single‑use carrier bag charges, major retailers have offered bottle deposit return schemes and refillable food and cleaning product options. These provide 10 incentives to consumers to reuse their plastic containers. However, retailers have suggested that most customers do not wish to pay more for cleaning products in reusable packaging. With the average household income falling by 4.3% in 2023, sales of refillable cleaning products are expected to fall from 200 000 to 130 000 this year. 15 (Source adapted from: https://www.circularonline.co.uk/news/) Extract B Plastic packaging tax Food manufacturers have criticised the implementation of a new UK environmental tax, warning it will force them to increase prices for consumers. The 2018 tax was designed to provide incentives to businesses to use recycled plastic in packaging. Businesses manufacturing or importing 10 tonnes or more a year of 5 plastic packaging that contains less than 30% recycled plastic are taxed at £200 a tonne. Plastic packaging containing more than this will be exempt from the tax. Helene Roberts, Chief Executive of Robinson Packaging, said increased prices for the consumer would be an unintended consequence of the tax. “It will just create inflationary pressures within the supply chain and firms may need to pass this on.” A wide range of 10 businesses are affected by the new tax, including retailers importing items such as bin liners, drink bottles and carrier bags. Food manufacturers are particularly impacted as the industry uses 40% of packaging in the UK. (Source adapted from: https://www.ft.com) Extract C Single‑use cups An estimated 2.5 billion single‑use cups are used in the UK every year by consumers buying coffee from chains and cafes, creating approximately 25 000 tonnes of waste. Research has found that while a 25p charge on single‑use cups increases the use of reusable coffee cups in coffee shops, a discount on reusable coffee cups has no impact at 5 all on their use. A 25p charge on single‑use cups increases the use of reusable coffee cups by 3.4%. Environmental messaging in cafes, for example posters about litter, increases the use of reusable coffee cups by 2.3%. The availability of reusable cups leads to an increase of 2.5% whereas the distribution of free reusable cups leads to a further increase of 4.3%. 10 “While the increases for individual measures were modest, the greatest behavioural change was when the measures were combined,” said Wouter Poortinga of Cardiff University. (Source adapted from: https://www.theguardian.com/environment/2017/mar/30/)
(g) Evaluate methods of government intervention which could be used to reduce the market failure associated with plastic waste. Use a diagram to support your answer. (20)

Business growth and business objectives (1)

June 2024 · Paper 1 · Q3(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 33 Peloton is a firm which makes exercise bikes. Peloton’s objective is to prioritise selling fitness services rather than to achieve short-term profit maximisation. (Source adapted from: https://www.forbes.com/sites/shelleykohan/2022/01/26/ peloton-prioritizes-access-and-acquisition-over-profits/?sh=13d8ee474f40 )
(a) Draw a cost and revenue diagram to illustrate the different business objectives: profit maximisation and revenue maximisation. (4)

Oligopoly (1)

June 2022 · Paper 1 · Q4(a) 4 marks AO1=2, AO2=2 Diagram
Data and extracts for question 44 Pilgrim’s Pride is the second-largest chicken supplier in the US. It will pay a $107.9 million fine for price fixing with Tyson Foods and other chicken suppliers. The firms limited production to force prices higher and harm major customers, including KFC. Pilgrim’s Pride is thought to have gained at least $361 million in total revenue from the collusion. (Source: adapted from https://www.drovers.com/news/industry/ pilgrims-pride-agrees-price-fixing-fine)
(a) Draw a simple two firm/two outcome game theory model to show why the chicken suppliers may have colluded. (4)

Trading blocs, the WTO and protectionism (1)

November 2021 · Paper 2 · Q6(d) 12 marks AO1=2, AO2=2, AO3=4, AO4=4 12-mark response
Data and extracts for question 6Trade and aid in Rwanda Figure 1: Aid funding received by Rwanda (per capita, US dollars), 2008 to 2018 125 123 120 115 110 105 US dollars 100 95 90 85 83 80 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Source adapted from: data.worldbank.org) Figure 2: Population of Rwanda (millions), 2008 to 2018 12.5 12.0 11.5 11.0 Millions 10.5 10.0 9.5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Source adapted from: https://tradingeconomics.com/rwanda/population) Figure 3: Rwanda real GDP annual percentage growth rate, 2008 to 2018 12 11 10 9 8 % 7 6 5 4 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Source adapted from: African Development Bank Statistics accessed April 2020) Extract A Rwandan tariffs on imports of used clothing In a market in Kigali, Rwanda’s capital, an auction is under way. Sellers offer crumpled T-shirts and faded jeans; traders argue over the best picks. Everything is second-hand. A Tommy Hilfiger shirt sells for 5 000 Rwandan francs ($5.82); a plain one for a tenth of that. Afterwards, a trader sorts through the purchases he will resell in his home village. 5 The logos hint at their previous lives: Kent State University, a rotary club in Pennsylvania, Number One Dad. These auctions were once twice as busy, but in 2016 Rwanda’s government increased import tariffs on a kilo of used clothes from $0.20 to $2.50. Now many traders struggle to make a profit. The traders are not the only ones who are unhappy. Exporters in the US 10 claim the tariffs are costing jobs there. In March, the US President warned that he would suspend Rwanda’s tariff-free access to US markets for its clothing exports after 60 days if it did not remove the tariff. Globally, about $4 billion of used clothes crossed borders in 2016. The share from China and South Korea is growing, but 70% still come from Europe and North America. Many 15 go to Asia and eastern Europe, but Africa remains the largest market. The trade enables poor people to afford clothes and creates retail jobs. However, governments worry that the trade undercuts their own clothing manufacturers. Second-hand imports of clothing now dominate African markets. Researchers at the Overseas Development Institute, a British think-tank, estimate that Tanzania imports 20 540 million used items of clothing and 180 million new ones each year, while producing fewer than 20 million itself. African manufacturing is weak for many reasons, from ineffective privatisations to collapsing infrastructure. But second-hand clothing imports are a major factor: it is estimated that they accounted for half of the fall in employment in the African clothing industry between 1981 and 2000. 25 For example, a clothing factory in Kigali is operating at only 40% of capacity and employs 600 workers, down from 1 100 in the 1990s. It is hard to compete, says Ritesh Patel, its manager, when a used imported T-shirt sells for the price of a bottle of water. Instead, the company specialises in uniforms for police, soldiers and security guards, which cannot be bought second-hand. 30 The threatened suspension of tariff-free access to the US market would hurt Rwanda, but not very much. Last year Rwanda sold just $1.5 million of clothing to the US. Nor, with about 12 million people, is Rwanda a big market for US exports. (Source adapted from: https://www.economist.com/finance-and-economics/2018/05/31/ rwanda-refuses-to-remove-tariffs-on-imports-of-used-clothing) Extract B Development in Rwanda Rwanda’s strong economic growth has been accompanied by substantial improvements in living standards, with a two-thirds drop in child mortality and near-universal primary school enrolment. A strong focus on policies to encourage industrialisation and poverty reduction initiatives have contributed to significant improvements in access to services 5 and human development indicators. Absolute poverty declined from 59% to 39% of the population between 2001 and 2014 but was almost stagnant between 2014 and 2017. The official inequality measure, the Gini index, declined from 0.52 in 2006 to 0.43 in 2017. (Source adapted from: https://www.worldbank.org/en/country/rwanda/overview)
(d) Discuss the likely impact on Rwandan consumers and clothing manufacturers of the increase in the tariff on imports of second-hand clothes. Use an appropriate diagram to support your answer. (12)

Poverty and inequality (1)

June 2022 · Paper 2 · Q6(a) 5 marks AO1=2, AO2=2, AO3=1 Diagram
Data and extracts for question 6UK Government spending and inequality Figure 1: UK regional gross disposable household income per capita, 2018 £ per capita 19 000 to 21 000 17 000 to 18 999 16 000 to 16 999 15 000 to 15 999 14 500 to 14 999 14 000 to 14 499 13 000 to 13 999 North East South East (Source: adapted from University of Sheffield/Office for National Statistics: https://www.sheffield.ac.uk/news/nr/uk-higher-regional-inequality-large-wealthy-country-1.862262) Figure 2: UK subjective happiness by income, April 2021 Answer to the question: ‘On a scale of 1–10, how happy did you feel after yesterday?' (0 = not at all, 10 = completely) Less than £10 000 £10 000–£20 000 £20 000–£40 000 More than £40 000 7.31 7.02 7.13 7.29 (Source: adapted from https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/ datasets/incomegroupsplitestimatesonpersonalandeconomicwellbeingacrosstime) Extract A Regional inequality in the UK Geographically, the UK is highly unequal in incomes. According to research from the University of Sheffield, the estimate of the Gini coefficient is 0.34. There are a number of different reasons for this. First, labour in poor places tend to develop too few skills, with a lack of education holding people back. In Rotherham in the north of England, for 5 example, 21% of disadvantaged 18-year-olds from state schools and colleges go on to higher education compared to 41% in London. Secondly, there is a lack of infrastructure spending in northern cities compared to London. In 2017–18, 28% of public expenditure on transport – and 46% of capital expenditure on railways – was spent in London. The argument for this is that London gets a lot of public money because a lot of people take 10 public transport. This has angered many people in the North. These problems cannot be solved quickly. They compound each other. Just as people are rarely poor for one reason, regions do not fall behind only because they have poor transport, poor schools or poor policy making, but for all those reasons and more. Ideally, the UK would develop a bold plan for regional development that could be followed 15 by future governments, as Germany did for its eastern part. Tera Allas of McKinsey, a consultancy firm, argues that improving education is crucial, even if the returns are not immediately obvious. It is easier to improve schools than to persuade businesses to move to a poorer part of the country. (Source: adapted from https://www.economist.com/britain/2020/07/30/ why-britain-is-more-geographically-unequal-than-any-other-rich-country) Extract B Public sector spending on infrastructure Economic differences across the UK are large and have grown. The government is looking at reducing this inequality partly through spending on transport infrastructure. Public sector capital spending is due to rise from just over 2% of GDP to 3%. That amounts to around £20 billion of additional spending per year on new capital projects. The 5 government is looking to take advantage of current low interest rates to finance the expansion without worsening its fiscal position. The government is determined to focus this spending on the north of England, Wales and the Midlands. Planned schemes include a new Trafford Park tram line in Manchester and reopening train lines and stations closed back in the 1960s, including stations in 10 Haxby in Yorkshire and Blyth in Northumberland. Progress has already been made in Wales with the reopening of Bow Street station near Aberystwyth. This project has taken 11 years to become a reality and cost £8m. It is estimated that it will generate a boost to the economy of £24m through boosting local trade, creating new jobs in the local area, and easing pressure on congested roads heading into Aberystwyth. 15 (Source: adapted from https://www.economist.com/britain/2020/01/09/the-coming- splurge-on-northern-infrastructure and https://www.wales247.co.uk/transport-for-wales- delivers-new-bow-street-station) Extract C Options for UK tax rises in the future There are a number of options for raising additional tax revenue in the future. These include: • increasing council tax on houses: this annual charge paid to local government is currently based on estimated house prices in 1991 and so is very out of date. This 5 would negatively affect areas where house prices have risen the most since 1991 • a one-off wealth tax: a 5% tax on property and pension wealth of more than £500 000 would raise £260 billion to help pay for the global health crisis in five years, according to proposals from the Wealth Commission • increasing corporation tax: at the 2021 Budget the Chancellor announced that 10 the top rate of UK corporation tax would be increased to 25% by 2023. This will remain the lowest rate in the G7 group of the world's largest advanced countries, but will raise £17.2 billion in 2025–26. (Source: adapted from https://www.telegraph.co.uk/tax/income-tax/five-tax-rises-rishi- sunak-considering-chances-happening-budget/, and https://home.kpmg/uk/en/home/ insights/2021/03/tmd-corporation-tax-rate-to-increase-to-25-percent.html)
(a) Using a Lorenz curve diagram, explain how income inequality is measured using the Gini coefficient. Refer to Extract A in your answer. (5)

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