INSTRUCTIONS TO CANDIDATES

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1 Candidate Name Centre Number 2 Candidate Number GCE A level 1133/01 ECONOMICS EC3 A.M. WEDNESDAY, 23 June hours For s use Question Maximum Mark or 9 or Total 60 Mark Awarded ADDITIONAL MATERIALS In addition to this examination paper, you will need a calculator. INSTRUCTIONS TO CANDIDATES Write your name, centre number and candidate number in the spaces at the top of this page. Answer all the questions in Section A. You may use continuation paper on page 10 if necessary, taking care to number the continuation correctly. Answer one question from Section B. You are advised to spend no more than one hour on Section A. INFORMATION FOR CANDIDATES The number of marks is given in brackets at the end of each question or part-question. Section A has 40 marks and Section B has 20 marks. You are reminded that assessment will take into account the quality of written communication used in answers that involve extended writing (Section B). You are reminded that the essay questions in Section B are synoptic and so will test understanding of the connections between the different elements of the subject. LH*(S )

2 2 SECTION A Answer all the questions in this section. 1. Profit maximisation Social and community objectives Business objectives Revenue maximisation Survival Market share maximisation The diagram shows examples of business objectives. Explain what is meant by the argument that most businesses satisfice between objectives rather than pursue one single objective. [2] Total mark

3 3 2. (a) Explain the difference between the short-run and long-run periods for a firm. [2] (b) Using the diagram below, explain what is meant by internal economies and internal diseconomies of scale. [4] COSTS LRAC = Long-run average cost SRAC = Short-run average cost LRAC SRAC1 SRAC2 SRAC3 SRAC4 SRAC Q 1 Q 2 Q 3 Q 4 Q 5 OUTPUT Total mark Turn over.

4 4 3. Costs and Revenue AC MC P AR = Average Revenue MR = Marginal Revenue AC = Average Cost MC = Marginal Cost 0 Q MR AR Output The diagram above illustrates the long-run equilibrium of a firm in monopolistic competition. Discuss whether this is a less desirable situation than that of perfect competition in the long-run. [6] Total mark

5 5 4. Unemployment passes two million There are now 10 jobseekers for every vacancy advertised in UK jobcentres, the TUC claimed earlier this week. The Office of National Statistics added that average earnings, including bonuses, rose 1.8% in the year to January, the lowest annual rise since records began in David Kern, chief economist at the British Chamber of Commerce, said the government should now seriously consider temporary wage subsidies. BBC News March (a) Explain why rising unemployment might lead to lower wage rises. [3] (b) Explain how wage subsidies might help to prevent unemployment rising. [3] Total mark Turn over.

6 5. 6 UK Inflation CPI inflation down to 2.9%, RPI inflation down to -0.4% Percentage Change Mar Jun Sept Dec Mar Jun Sep Dec Mar RPI CPI Annual inflation rates - 12 month percentage change Source: Office of National Statistics April With reference to the chart, explain why there may be significant differences in the rate of inflation as measured by the Consumer Prices Index (CPI) and the Retail Prices Index (RPI). [4] Total mark

7 7 6. The table below shows the maximum possible production possibilities in units of food and clothing (the two goods which can be produced) by the world s two countries, Barluna and Comenia. Units of Food Units of Clothing Barluna 500 OR 100 Comenia 1000 OR 250 Using the figures, evaluate whether trade between Barluna and Comenia is worthwhile. [6] Total mark Turn over.

8 8 7. Gross domestic product (GDP) per head 2008 ($US) GDP per head in US dollars GDP per head adjusted for purchasing power parity (PPP) in US dollars UK India Source: International Monetary Fund (a) Explain what is meant by GDP per head adjusted for purchasing power parity (PPP). [2]

9 9 (b) Discuss whether GDP per head figures are the best way to compare the standard of living of the UK and India. [8] Total mark Turn over.

10 10 For continuation.

11 11 SECTION B Answer one question from this section. 8. Discuss the view that the Government should never try to influence the free market prices of goods and services. [20] 9. Perfect competition in all markets for goods and services would maximise efficiency in the economy. The Government should therefore aim to achieve this situation. Discuss. [20] 10. Discuss the view that public and merit goods are so important that the Government should pay for them to be given free of charge to users. [20] Answer the question from Section B using the following pages. Turn over.

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