A-level ECONOMICS Paper 3 Economic Principles and Issues

A-level ECONOMICS Paper 3 Economic Principles and Issues Friday 7 June 2024 Morning Time allowed: 2 hours Materials For this paper you must have: • the Insert • a calculator. Instructions • Answer all questions. • Use black ink or black ball-point pen. Pencil should only be used for drawing. • Fill in the boxes at the top of this page. • You will need to refer to the Insert provided to answer Section B. • You must answer the questions in the spaces provided. Do not write outside the box around each page or on blank pages. • If you need extra space for your answer(s), use the lined pages at the end of this book. Write the question number against your answer(s). • Do all rough work in this answer book. Cross through any work that you do not want to be marked. Information • The maximum mark for this paper is 80. • The marks for questions are shown in brackets. • No deductions will be made for wrong answers. Section A Answer all questions in this section. box Only one answer per question is allowed. For each question completely fill in the circle alongside the appropriate answer. CORRECT METHOD WRONG METHODS If you want to change your answer you must cross out your original answer as shown. If you wish to return to an answer previously crossed out, ring the answer you now wish to select as shown. 0 1 Which one of the following is a consequence of the basic economic problem of limited resources and unlimited wants? [1 mark] A All goods and services will have a market price B Employment of factors of production has an opportunity cost C Markets are unable to allocate resources efficiently D There will not be an excess supply in markets 0 2 A profit-maximising firm, in the service sector, needs to recruit a new employee. Which one of the following explains why asymmetric information could mean that the most suitable person is not chosen? [1 mark] A It is difficult to calculate the marginal revenue productivity of workers in the service sector B Occupational immobility of labour means that there is a limited supply of workers with the right skill set C The firm may have to recruit the worker from the local area because labour is often geographically immobile D The firm is unlikely to know everything about job applicant’s skills, abilities and motivation If production has moved from Point A to Point B, which one of the following must be true? [1 mark] A Allocative efficiency in the car industry is unchanged B Demand for electric-powered vehicles has increased C Productive efficiency in the car industry is unchanged D Static efficiency in the car industry has improved 0 4 A household's annual income increases from £35 000 to £38 500. All other things being equal, if the household's income elasticity of demand for Good X is –0.2 and its income elasticity of demand for Good Y is 0.4, which one of the following statements is correct? [1 mark] A Spending on Good X will fall by £70 and spending on Good Y will increase by £140 B Spending on Good X will fall by £700 and spending on Good Y will increase by £1400 C Spending on Good X will fall by 2% and spending on Good Y will increase by 4% D Spending on Good X will fall by 20% and spending on Good Y will increase by 40% Turn over ► box Table 1 shows the effect of cash benefits and taxes on household incomes in the UK in 2020–21. Table 1 Income of top quintile (£s) Income of bottom quintile (£s) Ratio of top to bottom quintile Original income 107 551 8 196 13.1 plus cash benefits 2 581 7 267 0.4 Gross income 110 132 15 463 7.1 less direct taxes 32 000 2 267 14.1 Disposable income 78 131 13 196 5.9 less indirect taxes 7 133 3 024 2.4 Post-tax income 70 998 10 172 7.0 Source: Office for National Statistics box Which one of the following can be concluded from the data in Table 1 regarding the distribution of income between the top and bottom quintile of households? [1 mark] A Cash benefits were less effective than direct taxes in redistributing income from the bottom quintile of households to the top quintile B Direct taxes made the distribution of income more unequal C Indirect taxes made the distribution of income more unequal D Indirect taxes were more effective than cash benefits in redistributing income from the top quintile of households to the bottom quintile Table 2 shows the UK's balance of trade in goods and services in successive quarters. Table 2 Quarter 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2 Balance of trade (£bn) –8.5 3.6 0.9 –12.1 –4.7 –25.3 –25.0 What was the UK's median quarterly balance of trade over the period shown in Table 2? [1 mark] A –£12.1bn box B –£10.2bn C –£8.5bn D £11.4bn 0 7 Which one of the following is an injection into the circular flow of income? [1 mark] A Factor incomes B Government borrowing C Investment D Savings Turn over for the next question Turn over ► 0 8 Figure 2 shows the total utility that a consumer derives from their daily consumption of bananas. Figure 2 Based on the information in Figure 2, which one of the following statements is correct? [1 mark] A A rational consumer will choose to consume 3 bananas each day B Diminishing marginal utility sets in with the consumption of the 4th banana C Marginal utility is maximised with the consumption of the 3rd banana D Marginal utility from consuming the 3rd banana is less than the 2nd 0 9 A government introduces a number of supply-side policies that increase the size of the country's working population and labour productivity. All other things being equal, which one of the following statements identifies the most likely effects of the policies on the country's economy? [1 mark] A An increase in real national income and a reduction in the balance of payments deficit B An increase in short-run economic growth and inflation C An increase in the trend rate of economic growth and a growing balance of payments deficit D A reduction in unemployment and an increase in inflation 1 0 Figure 3 shows how the markets for Good X and Good Y are affected by an increase in the demand for Good X. Figure 3 It can be concluded that Good X and Good Y are in [1 mark] A competitive demand. B composite demand. C derived demand. D joint supply. *07* Turn over ► 1 1 Figure 4 shows the short-run average costs (AC), marginal costs (MC), average revenue (AR) and marginal revenue (MR) curves for a typical firm in a monopolistically competitive market. Figure 4 In the long run, market forces are most likely to cause the firm's revenue curves to [1 mark] A shift left and become flatter. B shift left and become steeper. C shift right and become flatter. D shift right and become steeper. *0* 1 2 According to the kinked demand curve model of oligopoly, which one of the following would be most likely to explain price stability in an oligopolistic market? [1 mark]