SQA Higher Economics

Past paper questions with official mark schemes · 2016–2024
Performance data from SQA course reports: 2019, 2022, 2023 & 2024

SQA Higher Economics ↗ Past Papers ↗ 2024 Course Report ↗ 2023 Course Report ↗

Course report badges: Solid well answered Hard many struggled Very Hard most struggled No badge = no data

1.12024 2(c)3 marks

Explain, using a Production Possibility Curve (PPC) diagram, the impact of an increase in the ‘productive potential of the economy’.

Mark Scheme

Diagram (2 marks): • fully labelled axes (consumer goods / capital goods) with correctly shaped PPC curve (1) • outward shift of the curve clearly indicated with a new PPC and arrows (1) Explanation (up to 2 marks): • outward shift (ID) as the economy can produce more consumer and capital goods (EXP) (1) • this could occur if new resources are discovered or technology improves (DEV) (1) • existing resources are being used more efficiently (DEV) (1) Max 2 marks for diagram. Max 2 marks for explanation.

1.22024 3(a)2 marksSolid

Describe why the basic economic problem of scarcity can never be solved.

Mark Scheme

• wants are unlimited but resources are limited (1) • it is human nature to never be satisfied (1) • scarcity is a relative concept (DEV) (1) • scarcity exists in all countries / is universal (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

Course Report 2024

Most candidates achieved full marks here.

1.32024 3(b)3 marksHard

Describe the allocation of resources in a market economy.

Mark Scheme

• resources are allocated using the price mechanism / market forces (1), which automatically allocates resources according to consumer demand / most profitable products (DEV) (1) • what to produce is decided by the demand of consumers (1) • how to produce is decided by the most efficient / cheapest / profitable method (1) • goods are produced for consumers who can afford them (1) Or via price mechanism: if demand rises there will be a shortage (1) causing price to rise (DEV) (1); price signals profit opportunity to producers (1); resources reallocated to the more profitable good (1)

Course Report 2024

Many candidates focused only on the price mechanism and neglected the ‘what, how and for whom’ decisions. All three must be addressed for full marks.

1.42023 3(a)2 marksSolid

Compare scarcity with a shortage.

Mark Scheme

Scarcity / Shortage: • unlimited wants / demand exceeds supply in a particular market (1) • permanent — can never be resolved / temporary (1) • wants never fully satisfied due to human nature / resolved by a price rise or increase in supply (1) • universal problem affecting all economies / limited to a specific market (1) Candidates must make 2 comparisons to gain full marks.

Course Report 2023

Most candidates compared these two concepts accurately.

1.52023 2(f)2 marks

Describe the allocation of resources in a planned economy.

Mark Scheme

• decisions about the allocation of scarce resources are taken centrally by government (1) • resources are allocated for the benefit of the state rather than individuals (DEV) (1) • not allocatively efficient (DEV) (1) • planners may fail to make accurate predictions, resulting in shortages or gluts (DEV) (1) Accept answers addressing how, what, or why resources are allocated.

1.62022 3(a)3 marksSolid

Distinguish, using examples, between economic goods and free goods.

Mark Scheme

Economic Good / Free Good: • needs scarce resources to produce / abundantly available (1) • creation has an opportunity cost / creation does not deplete scarce resources (1) • carries a price / does not command a price (1) • eg car / eg air (1) Candidates must give at least 2 distinctions and 1 pair of examples to gain full marks. Max 1 mark for examples.

Course Report 2022

Most candidates effectively distinguished between these two concepts.

1.72022 3(b)3 marksSolid

Explain opportunity cost, using a PPC diagram.

Mark Scheme

Diagram (2 marks): • diagram with labelled axes and correctly shaped PPC curve (1) • opportunity cost clearly indicated by points / letters and dotted lines on the curve (1) Explanation (up to 2 marks): • opportunity cost arises because as production of one good rises (ID) quantities of the alternative good are sacrificed (EXP) (1) • credit example from diagram — as consumer goods fall from A to B, the opportunity cost is XY capital goods (1) Max 2 marks for diagram. Max 2 marks for explanation.

Course Report 2022

Many candidates drew a correct diagram and explained opportunity cost well.

1.82021 3(a)3 marks

Describe the problem of scarcity.

Mark Scheme

• there are limited resources but unlimited wants (1) • resources eg oil are limited as there are only finite supplies (DEV) (1) • wants are unlimited because people are inherently greedy (1) • advertisers encourage consumption of new versions of products (1) • it is a universal problem (1) • it cannot be eradicated but can be managed (1) • it is a relative concept — it only exists when we have increased wants (1) Do not award choice or opportunity cost.

1.92021 3(b)4 marks

Explain the ways scarcity affects the choices made by (i) Firms (ii) Government.

Mark Scheme

(i) Firms: • firms have limited sales revenue (ID) so cannot produce all goods/services they want to (EXP) (1) • firms must choose how to allocate resources to maximise profits (DEV) (1) • example of an opportunity cost for firms (DEV) (1) (ii) Governments: • governments have limited tax revenue (ID) so cannot provide all the services they want to (EXP) (1) • governments must choose how to spend revenue to maximise welfare (DEV) (1) • example of an opportunity cost for governments (DEV) (1)

1.102019 3(a)2+3 marks

(i) Define scarcity. (ii) Explain methods of reducing the impact of scarcity.

Mark Scheme

(i): scarcity is the problem of unlimited wants faced with finite resources (1); it is a universal/permanent problem (1); scarcity is a relative concept (1) DNA explanations of why resources are finite and wants are unlimited. (ii): • discovery of new resources (ID) eg finding new oil reserves (EXP) (1) • specialisation (ID) to improve efficient use of scarce resources (EXP) (1) • resource substitution (ID) eg using machinery instead of labour (EXP) (1) (DEV) (1) • alternative resources eg solar/wind instead of fossil fuels (EXP) (1) • geographical mobility of resources (ID) eg helping workers find work elsewhere (EXP) (1) • occupational mobility (ID) eg training schemes (EXP) (1) • new production techniques (ID) to increase productivity (EXP) (1) • reduce level of wants by educating regarding sustainability (EXP) (1) Candidates must explain at least 2 methods. Up to 2 marks for any one method.

1.122018 2(b)6 marks

Explain, using production possibility diagrams: (i) Opportunity cost (ii) Economic efficiency.

Mark Scheme

(i) Opportunity cost Diagram: fully labelled axes and PPC curve (1); quantities indicated using numbers/letters (1) Explanation: opportunity cost arises because as production of one good rises (ID) the alternative good is sacrificed (EXP) (1); eg as consumer goods rise from 60 to 80, the opportunity cost is 10 capital goods (1) Max 2 marks for diagram. Max 2 marks for explanation. Max 1 mark for fully labelled diagram shared across (i) and (ii). (ii) Economic efficiency Diagram: economically efficient point indicated on the curve (1) Explanation: • producing inside the boundary is inefficient (ID) as resources are underutilised (1); points on the boundary represent economic efficiency (DEV) (1) • economic efficiency (eg point A) is when all resources are allocated in the best way with minimum waste (1) • no opportunity cost is incurred moving from inside to a point on the boundary (ID) as this indicates a more efficient use of resources (1) • economic efficiency includes being productively efficient (ID) — maximum output from minimum input (1) Max 1 mark for diagram. Max 2 marks for explanation.

1.132017 2(a)3 marks

Explain, using examples, how the basic economic problem of scarcity leads to choices for firms.

Mark Scheme

• firms have unlimited wants (ID) yet only limited resources (1) • wants are unlimited due to greed/advertising/obsolescence (DEV) (1) • firms seek to maximise profits but have only limited resources, forcing choices (DEV) (1) • eg a firm cannot both buy new computers and train staff with limited resources — it must choose (DEV) (1) Max 2 marks if no example is provided.

1.142016 2(a)3 marks

Explain why consumers, producers and governments are faced with choices.

Mark Scheme

• consumers have limited income (ID) therefore make choices to maximise their utility (1) • producers have limited resources (ID) therefore make choices to maximise profit (1) • governments have limited revenue (ID) therefore make choices to maximise welfare (1)

2.12024 1(c)2 marksHard

Explain the factors which make the demand for natural gas price inelastic.

Mark Scheme

• lack of substitutes (ID) — no immediate alternatives; consumers/firms cannot switch when price rises (EXP) (1) • degree of necessity (ID) — energy is essential so consumers/firms are less responsive to price rises (EXP) (1) • time period (ID) — consumers/firms need time to find alternatives; governments need time to build alternative generation capacity (EXP) (1) Candidates must explain 2 factors to gain full marks.

Course Report 2024

Candidates knew PED theory generally but struggled to apply it to the specific gas market context. Applying theory to real-world scenarios is tested every year.

2.22024 3(c)2+2 marksVery Hard

Describe, using an example of each, what is meant by: (i) Competitive demand (ii) Competitive supply.

Mark Scheme

(i) Competitive demand: • substitute goods — alternative goods which can replace demand for another (1) • consumers derive equal satisfaction from substitute products (1) • eg Netflix and Amazon Prime (1) Award 1 mark for a valid description. Award 1 mark for an example. (ii) Competitive supply: • when producers use the SAME resources to produce two different products (1) • when the price of one product rises, producers switch to supplying the more profitable one (1) • eg a farmer can grow carrots or potatoes on the same land (1) Award 1 mark for a valid description. Award 1 mark for an example.

Course Reports 2022 & 2024

One of the most poorly answered questions across multiple years. Most candidates did not understand that competitive supply means products produced from the SAME resources — not just products competing in the same market.

2.32024 3(d)4 marksSolid

Draw a diagram to show the impact on the market for eggs of a shortage of chickens, combined with eggs increasingly being seen as part of a healthy diet.

Mark Scheme

• correctly labelled diagram (axes, D, S, P and Q or e) (1) • D1 — demand curve shifting to the RIGHT (eggs seen as healthier) (1) • S1 — supply curve shifting to the LEFT (shortage of chickens) (1) • new equilibrium indicated (P1 and Q1, or e1) (1) Accept a rise or fall in quantity depending on the relative size of the shifts. When the command word is ‘draw’, no written explanation is required.

Course Report 2024

Most candidates drew a well-labelled and correct diagram.

2.42023 3(d)4 marksHard

Explain, using a diagram, how excess supply can be resolved by a change in price.

Mark Scheme

Diagram (up to 3 marks): • fully labelled D&S diagram (price, quantity, D, S, P above equilibrium, QD and QS) (1) • new P1 and Q1 (or e1) shown at equilibrium after price falls (1) • excess supply clearly marked between QD and QS (1) Explanation (up to 2 marks): • by decreasing price (ID) there will be an extension in QD and contraction in QS (EXP) (1), returning to equilibrium (DEV) (1) • firms cannot sell inventory (ID) so reduce price (EXP) (1), encouraging consumers to buy more (DEV) (1)

Course Report 2023

Some candidates drew a supply curve shift rather than a price line above equilibrium with excess supply marked between QD and QS. These are completely different diagrams.

2.52023 3(c)2+3 marksHard

(i) Describe what is meant by price inelastic demand. (ii) Explain factors which affect the price elasticity of demand for goods and services.

Mark Scheme

(i): • the % change in quantity demanded is proportionately LESS than the % change in price (1) • the PED value will be less than 1 (1) • total revenue rises when price increases for a price inelastic good (1) Max 1 mark for an example. (ii) Factors: • availability of substitutes (ID) — if substitutes exist, consumers switch when price rises (EXP) (1) eg Tesco toothpaste for Colgate (DEV) (1) • degree of necessity (ID) — more essential = less responsive (EXP) (1) • proportion of income (ID) — smaller % spent = less responsive (EXP) (1) • frequency of purchase / ability to postpone (ID) (EXP) (1) • brand loyalty (ID) (EXP) (1) • habit forming / addictive eg cigarettes (ID) (EXP) (1) • longer time period since price change — more time to find alternatives (ID) (EXP) (1) Candidates must explain at least 2 factors to gain full marks.

Course Report 2023

For part (i): candidates did not refer to the proportionately smaller change in demand — this precise phrasing is required. For part (ii): many candidates explained factors accurately.

2.62023 3(b)3 marksHard

Explain the shape of a normal demand curve.

Mark Scheme

• the income effect (ID) — demand falls when price rises because the good becomes less affordable (EXP) (1) • the substitution effect (ID) — consumers switch to cheaper substitutes as price rises (EXP) (1) • the Law of Diminishing Marginal Utility (ID) — as more of a good is consumed, the satisfaction from an additional unit decreases (EXP) (1). A consumer will only demand more if price falls (DEV) (1)

Course Report 2023

Some candidates described an abnormal (upward-sloping) demand curve or explained shifts in demand instead. Read the question carefully — these are three distinct concepts.

2.72023 1(d)4 marks

Draw a diagram to show the effect on the market for Spanish olive oil of the reduced availability of sunflower oil, along with the abnormally dry weather in Spain.

Mark Scheme

• correctly labelled diagram (price, quantity, D, S, P, Q) (1) • D1 — demand curve shifting to the RIGHT (consumers switch from sunflower to olive oil) (1) • S1 — supply curve shifting to the LEFT (dry weather damages olive crop) (1) • new equilibrium indicated (P1 and Q1, or e1) (1)

2.82022 1(b)3 marksSolid

Draw a diagram to show how an increase in the price of ‘price inelastic food products’ would affect total revenue.

Mark Scheme

• fully labelled diagram (price, quantity, D labelled, P and Q, P1 and Q1) (1) • steeply sloped (inelastic) demand curve (1) • clear identification/labelling of revenue gained and revenue lost (1) When demand is inelastic and price rises, the GAIN in revenue outweighs the LOSS, so total revenue increases.

Course Report 2022

Many candidates drew a correct diagram but failed to label the demand curve as ‘D’. Always label axes AND curves.

2.92022 1(e)4 marksSolid

Draw a diagram to show the effect on the market for unhealthy food of the introduction of a ‘fat tax’, combined with increased ‘restrictions on advertising unhealthy food’.

Mark Scheme

• correctly labelled diagram (axes, D, S, P, Q) (1) • D1 — demand curve shifting to the LEFT (advertising restrictions reduce demand) (1) • S1 — supply curve shifting to the LEFT (fat tax increases production costs) (1) • new equilibrium indicated (P1 and Q1, or e1) (1) Accept a rise or fall in price depending on the angle and distance of the shifts.

2.102022 3(c)4 marksHard

Describe, using an example of each, what is meant by: (i) Joint demand (ii) Joint supply.

Mark Scheme

(i) Joint demand: • demand for one good is directly related to demand for another — complementary goods (1) • demand for two or more goods is interdependent (1) • eg smartphones and mobile data (1) Award 1 mark for a valid description. Award 1 mark for an example. (ii) Joint supply: • a production process results in more than one output (1) • an increase in supply of one product leads to increased supply of a by-product (1) • eg cattle produce both beef and leather (1) Award 1 mark for a valid description. Award 1 mark for an example.

Course Report 2022

Joint supply was poorly answered — candidates described any competing products rather than by-products of the same production process.

2.112022 3(d)5 marks

Explain, using examples, the reasons for some demand curves not being downward sloping.

Mark Scheme

• speculation (ID) — consumers buy more as price rises expecting further rises (EXP) (1) eg houses/shares (DEV) (1) • ostentatious/Veblen goods (ID) — consumers buy more to demonstrate wealth (EXP) (1) eg Rolex watch (DEV) (1) • Giffen goods (ID) — low-income consumers buy more of a basic good as price rises because they cannot afford alternatives (EXP) (1) eg rice/potatoes (DEV) (1) • higher price signals better quality (ID) so some consumers demand more (EXP) (1) Candidates must explain at least 2 reasons. Max 1 mark for examples per reason. Max 4 marks if no examples given.

2.122021 1(c)4 marks

Draw a diagram to show the effect on the market for aircraft of subsidies given by EU and US governments, combined with the worldwide suspension of most air travel during the Covid-19 pandemic.

Mark Scheme

• correctly labelled diagram (price, quantity, D, S, P, Q) (1) • D1 — demand curve shifting to the LEFT (suspension of air travel reduces demand) (1) • S1 — supply curve shifting to the RIGHT (government subsidies increase supply) (1) • new equilibrium indicated (P1 and Q1, or e1) (1)

2.132021 3(d)(i)4 marks

Explain, using a diagram, how an increase in the price of a product is likely to affect sales revenue if demand is price elastic.

Mark Scheme

Diagram (up to 3 marks): • clearly labelled diagram (price, quantity, p, p1, q, q1, D labelled) (1) • price elastic (shallow/flat) demand curve (1) • clear indication of revenue gained and revenue lost (1) Explanation (up to 2 marks): • the revenue gained from the price increase (ID) does not compensate for the revenue lost from the fall in quantity demanded (EXP) (1) • price elastic means a change in price leads to a proportionately greater change in quantity demanded (DEV) (1)

2.142021 3(d)(ii)2 marks

Describe the importance of price elasticity of demand for governments.

Mark Scheme

• a tax on price inelastic goods causes a less than proportionate fall in demand, raising tax revenue (1) eg taxing petrol — consumers still buy it so revenue rises (DEV) (1) OR • a tax on price elastic goods causes a more than proportionate fall in demand, reducing tax revenue (1) • governments may use subsidies to boost consumption of healthy goods where demand is elastic (1) Follow through consistently with either elastic or inelastic — do not mix.

2.152019 1(c)4 marks

Draw a diagram to show the effect of ‘new tariffs imposed’ combined with ‘investing more in infrastructure projects’ on the global market for steel.

Mark Scheme

• fully labelled diagram (axes, D, S, P and Q, or e) (1) • demand curve shifting to the RIGHT (infrastructure projects increase demand for steel) (1) • supply curve shifting to the LEFT (tariffs reduce the supply of foreign steel) (1) • P1 and Q1 (or e1) indicated (1)

2.162019 3(b)3 marks

Explain 3 reasons why the demand curve for some products slopes upwards from left to right.

Mark Scheme

• Giffen goods (ID) — low-income consumers buy more of an essential good as price rises because they cannot afford alternatives (EXP) (1) • Veblen/ostentatious goods (ID) — consumers demand more to demonstrate their wealth (EXP) (1) • speculative demand (ID) — consumers buy more expecting the price to rise further (EXP) (1) • higher prices indicating better quality (ID) — consumers buy more (EXP) (1) • anticipation of further price rises (ID) — consumers stockpile (EXP) (1) Candidates must explain 3 reasons to gain full marks. DNA price inelastic demand in regard to Giffen goods.

2.172019 3(c)4 marks

Describe the factors which increase the supply of a product.

Mark Scheme

• if the price of the product rises, producers divert resources to increase supply (1) • if the cost of production falls, supply will increase (1) • new technology increases output eg automation (1) • good weather increases agricultural output (1) • payment of subsidies/grants encourages firms to increase supply (1) • if taxes are imposed on imports, domestic firms are encouraged to increase supply (1) • prices of substitute goods rising may encourage firms to switch resources (1) • goods in joint supply — an increase in supply of one leads to increased supply of the other (1) Candidates must describe at least 2 factors. Up to 3 marks for any one factor. DNA descriptions referring to increased demand.

2.182018 1(b)(i)3 marks

A ‘pay cap’ or maximum price is a form of market intervention. Draw a market diagram to show the effect of setting a maximum price.

Mark Scheme

• fully labelled demand and supply diagram (axes, D and S labelled, equilibrium indicated) (1) • horizontal line representing the maximum price SET BELOW equilibrium (1) • quantities indicated (Q1 and Q2) / excess demand / shortage of supply illustrated (1)

2.192017 1(b)(i)3 marks

Draw a diagram to show the possible effect of the falling price of oil on the market for labour in Scotland.

Mark Scheme

Fully labelled diagram (axes, curves, original equilibrium p1q1 or eq1) (1) Either interpretation accepted: Diagram A — lower oil prices reduce oil firm profits (reduce demand for labour): • demand curve shifting to the LEFT (1) • new equilibrium price/quantity indicated (1) Diagram B — lower oil prices reduce production costs (increase demand for labour): • demand curve shifting to the RIGHT (1) • new equilibrium price/quantity indicated (1) DNA mark for new equilibrium if supply curve has shifted.

2.202017 1(e)4 marks

Draw a diagram to show the effect of a “tax cut for firms”, combined with rising disposable incomes, on the market for UK goods.

Mark Scheme

• fully labelled diagram (1) • demand curve shifting to the RIGHT (rising disposable incomes increase demand) (1) • supply curve shifting to the RIGHT (tax cuts reduce production costs, increasing supply) (1) • new equilibrium price indicated (1)

2.212016 1(c)4 marks

Draw a diagram to show the effects on the market for labour of “weakening investment” by industry combined with “discouraged” workers.

Mark Scheme

• fully labelled diagram showing original equilibrium price and quantity (eg pq) (1) • demand curve shifts to the LEFT (weakening investment reduces demand for labour) (1) • supply curve shifts to the LEFT (discouraged workers leave the labour market) (1) • new equilibrium price and quantity (eg p1q1) (1)

2.222016 2(b)(i)5 marks

Describe the factors which affect the price elasticity of demand for a product.

Mark Scheme

• number of close substitutes — more substitutes = more elastic (1) eg branded vs own-brand toothpaste (DEV) (1) • degree of necessity — necessities are more inelastic (1) eg bread or milk (DEV) (1) • proportion of income — small proportion = more inelastic (1) eg matches/crisps (DEV) (1) • frequency of purchase — frequent purchases tend to be more inelastic (1) • brand loyalty — loyal customers less responsive to price changes (1) • habit forming / addictive goods — more inelastic (1) eg cigarettes (DEV) (1) • time period — the longer since the price change, the more elastic demand becomes (1) as consumers have more time to find alternatives (DEV) (1) Max 2 marks for examples. Max 2 marks per factor.

2.232016 2(b)(ii)4 marks

Explain, using a diagram, why it is important for firms to consider the price elasticity of demand when making pricing decisions.

Mark Scheme

Diagram (up to 3 marks): • fully labelled diagram (1) • elastic or inelastic demand curve clearly shown (1) • clear indication of gain and loss in revenue (1) Explanation (based on price increase of an elastic good): • the gain in revenue from the price increase (ID) is less than the loss from the fall in quantity demanded (1) • the fall in quantity demanded (ID) is proportionately greater than the increase in price (1) • therefore the firm’s total revenue falls (DEV) (1) Max 3 marks for diagram. Max 2 for explanation with no diagram.

3.12024 1(d)3 marks

Describe reasons why a loss-making firm may continue to operate in the short run.

Mark Scheme

• total revenue still covers total variable costs — price ≥ average variable cost (1); this contributes to fixed costs (DEV) (1) • anticipation that demand will increase in the future (1) • shutting down risks losing customer loyalty (1) • costs of shutting down and restarting machinery are high (1) • risk of losing skilled staff / cost of redundancy (1) • firms may have reserves to cover losses temporarily (1) • strategic reasons — maintaining market presence (1) Candidates must describe at least 2 reasons.

3.22024 2(b)2 marksSolid

Describe 2 ways UK firms could improve their productivity.

Mark Scheme

• increasing the skills of the workforce / additional training (1) • increasing division of labour / specialisation (1) • using new technology or capital equipment (1) • improving management strategies/techniques (1) • performance related pay / bonuses / financial incentives (1) Candidates must describe 2 ways.

Course Report 2024

Most candidates demonstrated a clear understanding of productivity and scored well.

3.32023 3(f)3 marksSolid

Describe internal economies of scale.

Mark Scheme

• cost savings arising from the increased size of the firm (1) • purchasing economies — bulk discounts negotiated due to size of order (1) • technical economies — larger scale permits use of specialist machinery (1) • management economies — employing specialist staff eg accountants (1); allows better deals/decisions (DEV) (1) • financial economies — banks view larger firms as more credit-worthy, giving lower interest rates (1) • risk-bearing economies — diversifying into a range of products reduces risk (1) Candidates must describe at least 2. Labels not required, but if used they must match the description.

Course Report 2023

Many candidates accurately described internal economies of scale.

3.42023 3(e)3 marks

Describe the factors which cause average costs to fall in the short run.

Mark Scheme

• average fixed costs (AFC) are spread over an increasing number of units, causing ATC to fall (1) • AVC falls initially due to increasing returns to the variable factor (1); caused by increased specialisation/division of labour (DEV) (1) • in the short run, at least one factor of production is fixed (DEV) (1) • marginal cost is below average cost, pulling average cost downwards (1) Candidates must explain at least 2 factors. Award 1 mark for a correctly labelled and shaped ATC curve diagram.

3.52022 3(e)5 marks

Describe, using a diagram, the relationship between marginal cost and average cost.

Mark Scheme

Diagram (up to 4 marks): • accurately labelled axes — Costs (vertical), Output (horizontal) (1) • correctly shaped and labelled ATC curve (1) • correctly shaped and labelled MC curve (1) • MC curve cuts ATC at its lowest point (1) Description: • when MC < ATC, ATC falls (1) • when MC > ATC, ATC rises (1) • when MC = ATC, ATC is at its optimum/minimum point (1) • MC can be rising while ATC is still falling (if MC < ATC) (1) Max 4 marks for diagram. Max 4 for description. Vertical axis label must be ‘Cost(s)’ only.

3.62021 1(d)3 marks

Describe 3 internal economies of scale which may be achieved by firms operating in the drinks industry.

Mark Scheme

• purchasing economies — bulk discounts on ingredients/bottles (1) • management economies — employing specialist staff eg HR, legal, marketing (1) • technical economies — large-scale bottling/brewing equipment (1) • marketing economies — spreading advertising costs over greater output (1) • financial economies — banks offer better loan rates to large firms (1) • risk-bearing economies — diversifying into different drinks/markets (1) • R&D economies — large firms can fund product innovation (1) Candidates must describe 3 economies to gain full marks. DNA external economies of scale.

3.72019 3(e)4 marksHard

Describe internal and external economies of scale.

Mark Scheme

Internal economies of scale (cost savings from the increased size of the FIRM): • purchasing economies — bulk discounts (1) • technical economies — specialist machinery (1) • management economies — specialist staff (1) • financial economies — better loan rates (1) • risk-bearing economies — diversification (1) External economies of scale (cost savings from the increased size of the INDUSTRY): • local colleges provide directly relevant training (1) • ancillary firms locate close to the industry (1) • agglomeration/clustering economies (1) • transport infrastructure provided by local authority (1) Candidates must describe BOTH internal AND external economies to gain full marks. Max 3 marks for either alone. Award 1 mark for an appropriate diagram.

Course Report 2019

Some candidates confused internal and external economies of scale with economies and diseconomies of scale — completely different concepts.

3.82019 3(d)4 marks

Explain the law of diminishing marginal returns.

Mark Scheme

• this occurs in the short run only (ID) when one factor of production is fixed eg capital (EXP) (1) • as a variable factor is increased eg labour (ID) eventually productivity starts to fall (EXP) (1); the fixed factor is being ‘overworked’ (DEV) (1) • as output increases efficiency falls (ID) causing higher average costs (EXP) (1); if MC > AC, average cost is being pulled up (DEV) (1) • adding variable factors increases returns only for a limited period (ID) then benefits of specialisation erode (EXP) (1) eg extra workers getting in each other’s way (DEV) (1) Award 1 mark for a correct diagram showing diminishing marginal returns.

3.92018 2(c)6 marks

Explain, using a diagram, the shape of the short run average cost curve.

Mark Scheme

Diagram (up to 2 marks): • fully labelled axes (costs/output) (1) • U-shaped curve correctly labelled (SRAC/AC/ATC) (1) The curve FALLS initially because: • increasing returns to the variable factor (1) • benefits of specialisation (1) • fixed costs being spread over increasing output (1) • output rising faster than costs / MC < AC pulling AC down (1) The LOWEST point is the point of maximum productive efficiency (1) The curve RISES because: • diminishing returns / law of diminishing marginal returns (1) • benefits of specialisation eroded / fixed factor ‘overworked’ (1) • costs rising faster than output / MC > AC pushing AC up (1) Max 2 marks for diagram. Max 5 marks for explanation. Max 3 marks for explaining either the fall or the rise alone.

3.102017 2(c)8 marks

Explain, using a diagram, the shape of the long run average cost curve.

Mark Scheme

Diagram (up to 3 marks): • axes/curve correctly labelled (1) • AC/LRAC curve with correct U-shape (1) • economies of scale / diseconomies of scale correctly indicated (1) Explanation: • AC falling = economies of scale (ID) — cost savings from increased size (1); increasing inputs leads to a more than proportionate increase in output (DEV) (1) • lowest point = minimum efficient scale / constant returns to scale (1) • AC rising = diseconomies of scale (ID) — cost increases from increased size (1); inputs lead to less than proportionate increase in output (DEV) (1) • the LRAC is made up of many short run curves (ID) as firms expand to overcome diminishing returns (1) Types of economies of scale: • purchasing (1); technical (1); management (1); financial (1); risk-bearing (1) Diseconomies: • poor communication as firm grows (1); poor co-ordination (1) Max 4 marks for types of economy/diseconomy. Max 6 marks if no diagram. Max 7 marks if diseconomies not explained.

4.12024 3(f)3 marks

Describe the characteristics of perfect competition.

Mark Scheme

• many buyers and sellers (1) • no barriers to entry or exit (1) • each firm is a price taker — so insignificant they cannot affect the market price (DEV) (1) • products are homogeneous/identical (1) • perfect information — every buyer and seller knows everything about the market (DEV) (1) • abnormal profits/losses only in the short run; only normal profits in the long run (1) • firms are productively and allocatively efficient (1) • firms have a perfectly elastic demand curve (1) • the firm produces where P = MC (1) Candidates must describe at least 2 characteristics.

4.22021 3(c)4 marks

Compare the characteristics of perfect competition and monopoly.

Mark Scheme

Perfect Competition / Monopoly: • many small firms / one firm dominates the market (1) • no barriers to entry and exit / high barriers to entry and exit (1) • price takers / price makers (1) • homogeneous products / unique product (1) • perfectly elastic demand curve / inelastic demand curve (1) • normal profits in long run / abnormal profits (1) • productively and allocatively efficient / inefficient (1) • no opportunity for economies of scale / can exploit economies of scale (1) Award 1 mark for each valid comparison.

4.32017 2(b)4 marks

Describe the characteristics of a perfectly competitive market.

Mark Scheme

• there are many buyers and sellers (1) • none of whom can individually affect the price — price takers (1) • homogeneous product — all firms produce the same product (1) • perfect information — every buyer and seller knows everything (1) • no barriers to entry or exit (1) • firm produces where P = MC (1) • technically efficient — produces at lowest average cost (1) • allocatively efficient — producing what consumers want (1) • only normal profits in the long run (1) 1 mark for each valid description.

5.12024 3(e)4 marks

Describe the types of market failure.

Mark Scheme

• under-provision of public goods (1) — private firms won’t produce them due to the free rider problem/non-excludable and non-rival (DEV) (1) • under-provision of merit goods (1) — many couldn’t afford them if left to the market (DEV) (1) • over-consumption of de-merit goods (1) — goods with high social costs not paid for by producers (DEV) (1) • monopoly power (1) — one firm can exploit consumers (DEV) (1) • negative externalities (1) — costs to third parties not accounted for in production (DEV) (1) • positive externalities (1) — benefits to society that may be underprovided by the market (DEV) (1) • immobility of factors of production (1) — leading to unemployed resources (DEV) (1) • income inequality (1) — inefficient allocation of resources (DEV) (1) • information failure (1) — leading to sub-optimal choices (DEV) (1) Candidates must describe at least 2 types.

5.22022 1(c)3 marks

The overprovision of demerit goods results in market failure. Explain 3 other types of market failure.

Mark Scheme

• under-provision of public goods (ID) — firms cannot charge/non-payers cannot be excluded (EXP) (1) • under-provision of merit goods (ID) — many couldn’t afford these if left to the market (EXP) (1) • monopoly (ID) — reduced consumer choice / higher prices / poorer quality (EXP) (1) • negative externalities (ID) — costs to third parties not accounted for (EXP) (1) • positive externalities (ID) — benefits to society may be underprovided (EXP) (1) • income inequality (ID) — inefficient allocation as wealthier people access more resources (EXP) (1) • information failure (ID) — unequal knowledge between producer and consumer (EXP) (1) Candidates must explain 3 types to gain full marks.

5.32021 2(d)4 marks

Other than income inequality, describe 4 different types of market failure.

Mark Scheme

• non-provision of public goods eg street lighting — free rider problem/non-excludable and non-rival (1) • under-provision of merit goods eg health, education — not affordable for all (1) • over-provision of de-merit goods eg alcohol — high social costs not borne by private sector (1) • monopoly — one firm dominates and can exploit consumers (1) • negative externalities eg pollution — costs not accounted for in production (1) • positive externalities eg vaccines — products benefiting society may be underprovided (1) • immobility of factors of production — leading to unemployed resources (1) • information failure — sub-optimal choices (1) DNA income inequality. Candidates must describe 4 types to gain full marks.

5.42019 2(b)2 marks

Explain why the government intervenes to provide (i) Public goods (ii) Merit goods.

Mark Scheme

(i) Public goods: • to ensure they are provided/free to access for all (ID) — private firms won’t supply them due to the free rider problem/non-excludable/non-rival (EXP) (1) Award 1 mark for a valid explanation. (ii) Merit goods: • to ensure they are provided to everyone (ID) — the government believes all of society deserves to benefit (EXP) (1) • to ensure services like health and education are available to all (ID) — to improve welfare/productivity/life expectancy (EXP) (1) Award 1 mark for a valid explanation.

5.52018 1(b)(iii)2 marks

Explain one reason for government intervention in the market.

Mark Scheme

• governments provide merit goods (ID) because they benefit society (1); without intervention these are often under-consumed (DEV) (1) • governments regulate de-merit goods (ID) because they are bad for society (1); markets may over-produce these (DEV) (1) • governments provide public goods (ID) because without intervention they would be under-provided (1); free rider problem (DEV) (1) • governments regulate negative externalities (ID) because they are a cost to third parties (1); without intervention markets over-produce these (DEV) (1) • governments address inequality (ID) because markets may result in unequal distribution of income and wealth (1) Max 1 development mark.

5.62017 1(b)(iii)2 marks

Describe ways a government can improve the geographical mobility of labour.

Mark Scheme

• provision of affordable housing (1) • financial help with relocation costs (1) • ensure suitable education places available in new areas (1) • financial incentives eg London Living Allowance (1) • improve transport infrastructure (1) • ensure adequate provision of social services eg doctors (1) • Job Centres to provide information on vacancies (1) • language education programmes (1) Do not award development marks.

5.72016 1(g)(i)2 marks

Explain why “income inequality” is regarded as an example of market failure.

Mark Scheme

• income inequality is an inefficient allocation of resources (ID) — gaps in income and wealth mean not everyone has equal access to resources (1) • wealthier people have access to more resources and therefore more choice (DEV) (1) • equilibrium prices may put certain goods eg education out of reach for lower earners (ID) — the uneducated then have fewer opportunities (1)

5.82016 1(g)(ii)3 marks

Describe government interventions which may be used to reduce the effects of market failure.

Mark Scheme

• taxes — used to redistribute wealth / reduce consumption of demerit goods / reduce pollution (1) • provision of public goods eg street lighting — goods that would not be provided in a free market (1); free rider problem/non-rivalled (DEV) (1) • transfer payments/benefits — to ensure minimum living standards are maintained (1) • provision of merit goods eg education/healthcare — goods which provide social benefits (1) (DEV) (1) • regulation to prevent monopolies — eg through the CMA (1) (DEV) (1) Accept economic term (public goods) or practical example (street lighting). Max 2 marks per intervention.

6.12024 1(f)2 marksSolid

Describe the possible effects of an ageing population on the UK government’s finances.

Mark Scheme

• increased government spending on health care (1); may leave less finance for other departments (DEV) (1) • increased government spending on state pensions (1) • the future workforce may have to pay more tax (1) • less tax revenue from working/spending (1); may lead to more government borrowing (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

Course Report 2024

Most candidates applied their economic knowledge well and achieved full marks.

6.22024 2(a)2 marks

Describe what is meant by the term progressive tax.

Mark Scheme

• the proportion of tax paid is higher the more income you earn / the proportion of taxation increases as income increases (1) • people on higher incomes are impacted more than others (DEV) (1) • examples include capital gains tax / stamp duty / LBTT (DEV) (1) • many progressive taxes take into account the ability to pay (1) Award 1 mark for each valid description. Award 1 mark for a valid development. DNA income tax as it was given in the stimulus material.

6.32023 4(a)3 marks

Distinguish between progressive and regressive taxation.

Mark Scheme

Regressive Tax / Progressive Tax: • the proportion of income paid in tax FALLS as income rises / the proportion RISES as income rises (1) • favoured by the wealthier as proportionately they pay less / favoured by lower earners as they pay proportionately less (1) • indirect taxes / direct taxes (1) • eg VAT, duties on alcohol, petrol, road tax / eg income tax, inheritance tax, corporation tax (1) Award 1 mark for each valid distinction. Max 1 mark for paired examples.

6.42022 1(a)2 marksSolid

Describe what is meant by the term regressive tax.

Mark Scheme

• the proportion of tax paid is higher the less income you earn / the proportion of taxation falls as income increases (1) • people on low incomes are hit harder than others (DEV) (1) • regressive taxation is favoured by the wealthier (DEV) (1) • VAT / excise duty / fuel duty is an example of a regressive tax (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development. No marks for merely identifying an example — must have some development.

Course Report 2022

Most candidates attained high marks when asked to describe this key economic term.

6.52021 4(a)3 marks

Describe possible reasons for a shift from direct to indirect taxation.

Mark Scheme

• to encourage more people to enter the labour market (1); leads to reduced unemployment (DEV) (1) • to increase taxes collected from all age ranges, not just those of working age (1) • to solve market failure / reduce demand for demerit/harmful goods (1); reducing cost of health services in the long run (DEV) (1) • less direct tax gives individuals more choice (1); allowing them to decide which goods/services to purchase (DEV) (1) • some indirect taxes are unavoidable (1); they continue to raise revenue even if the tax goes up (DEV) (1) • cheaper to collect (1); collected by businesses on behalf of the government (DEV) (1) Candidates must describe at least 2 reasons.

6.62019 2(a)2 marks

Describe what is meant by ‘current spending’.

Mark Scheme

• day-to-day spending (1) • ongoing/regular spending on items replaced, used up or consumed regularly (1) • examples include nurses’ wages, bandages, hospital food (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

6.72019 2(c)2 marksHard

Define the following terms: (i) PSNCR (ii) National Debt.

Mark Scheme

(i) PSNCR: • government debt/borrowing for the year (1) • when annual government expenditure exceeds revenue / annual deficit (1) • government borrowing to finance a budget deficit (1) (ii) National Debt: • accumulated/total/sum of government borrowing over time (1) Award 1 mark for each valid definition.

Course Report 2019

Many candidates were not familiar with the Public Sector Net Cash Requirement (PSNCR).

6.82017 3(a)(i)2 marks

Describe what is meant by a budget deficit.

Mark Scheme

• a situation in which government outgoings are more than their incomings / planned spending exceeds planned tax receipts (1) • a budget is a plan for spending and revenue (DEV) (1) • accumulation of all annual deficits is known as the National Debt (DEV) (1) Award 1 mark for each valid description.

6.92016 1(a)2 marks

Describe what is meant by the term ‘austerity’. Your response must make reference to the article.

Mark Scheme

Description: • the measures taken by a government to shrink a budget deficit / create a budget surplus (1) From the article (any one): • “public spending cuts” (1) • “proposed tax increases” (1) • “weakening investment” (1) • “private sector to cut spending further” (1) Max 1 mark for description. Max 1 mark for reference to the article. Accept direct quotes.

6.102016 1(b)(i-ii)2+2 marks

(i) Describe what is meant by ‘National Debt’. (ii) Explain why measures to reduce a national debt may conflict with other government objectives.

Mark Scheme

(i) National Debt: • the total amount owed by an economy/country/government (1) • the accumulation of all a nation’s annual deficits (1) • a deficit is when spending exceeds income (1) (ii) Conflicts: • debt reduction may involve reducing government spending (ID) which may increase unemployment (1) • debt reduction may involve increasing indirect taxation (ID) which may increase income inequality due to its regressive nature (1) • debt reduction may involve increasing direct taxation (ID) which may reduce industry output/growth (1) • reduced government subsidies may increase costs of production (ID) causing cost-push inflation (1) Max 1 mark per conflicting objective.

7.22024 1(b)3 marksSolid

Describe the advantages of economic growth.

Mark Scheme

• increase in the standard of living (1) • increased consumption (1) • lower levels of unemployment (1); poverty may reduce (DEV) (1) • government receives more tax revenue (1); higher investment in infrastructure/public services/reducing national debt (DEV) (1) • increase in private sector investment to meet demand (1); increases productive capacity (DEV) (1) • may attract FDI (1); leading to more competition (DEV) (1) Candidates must describe at least 2 advantages.

Course Report 2024

Most candidates achieved full marks for describing the advantages of economic growth.

7.32024 4(a)6 marks

Explain the effects of unemployment on: (i) Individuals (ii) Firms.

Mark Scheme

(i) Individuals: • reduced income (ID) therefore lower standard of living (EXP) (1) • unable to meet spending commitments eg mortgage (ID) therefore greater chance of poverty/homelessness/debt (EXP) (1) • loss of skill/motivation (ID) therefore harder to find work in the future (EXP) (1) • potential social consequences eg increase in crime/worsening health (ID) therefore lower quality of life (EXP) (1) • those in employment may pay higher income tax (ID) to cover increased Universal Credit costs (EXP) (1) (ii) Firms: • consumers spending less (ID) therefore loss of sales revenue/profits (EXP) (1) • lack of demand (ID) therefore increased business failure (EXP) (1) • increased pool of labour (ID) so firms can choose the best quality staff (EXP) (1) • increased pool of labour (ID) so wage rates are kept low, lowering costs of production (EXP) (1) (DEV) (1) Candidates must explain at least one effect on individuals AND one on firms to gain full marks. Max 1 mark for social consequences.

7.42024 4(b)3 marks

Describe the economic features of the boom/peak stage of the business cycle.

Mark Scheme

• GDP is at its highest / above trend rate (1) • consumer spending is at its highest (1) • unemployment is at its lowest / full employment (1); due to high levels of demand (DEV) (1) • profits/investment are at their highest (1) • consumer/business confidence is at its highest (1) • inflation is likely to be at its highest (1); due to demand-pull pressure in the economy (DEV) (1) Candidates must describe at least 2 features. Award 1 mark for an appropriately shaped curve with axes labelled and the boom stage clearly shown.

7.52024 4(c)2 marks

Distinguish between Gross Domestic Product (GDP) and Gross National Product (GNP).

Mark Scheme

GDP / GNP: • value of all goods and services produced by ALL firms WITHIN the UK / value of goods and services produced by UK firms WHETHER in the UK or abroad (1) • measures the UK’s national output / includes GDP plus net property income from abroad (1) • eg includes Highland Spring water produced in Scotland / eg includes Boohoo clothes produced in South Asia (1) • used by many countries as the main measure of economic activity / more complete measure of economic welfare (1) Award 1 mark for each valid distinction.

7.62023 1(a)1 markHard

Describe the meaning of real income.

Mark Scheme

• income adjusted for the effects of inflation / income with the effects of inflation removed (1) Award 1 mark for a valid description.

Course Report 2023

Some candidates described real income as income after tax rather than income adjusted for inflation. These are different things.

7.72023 1(b)4 marks

Describe the way in which the rate of inflation is calculated in the UK.

Mark Scheme

• complete the Living Costs and Food Survey to find out what average families buy (1) • create a basket of goods based on the results of the survey (1) • items in the basket are updated annually (1) • the costs of housing are NOT included in the CPI basket (1) • give a weight to each item based on its importance / proportion of household spending (1) • gather prices from retailers around the country (1) • compare prices to the base year (1) • calculate the percentage change in prices (1) • calculate an average change across all items — this is the inflation rate (1) Responses should be in a logical sequence.

7.82023 1(c)1 mark

Describe demand-pull inflation.

Mark Scheme

• when demand is increasing faster than supply, prices will rise (1) • when demand exceeds supply, prices will rise (1) • when there is excessive demand in the economy, prices will rise (1) Award 1 mark for a valid description.

7.92023 1(e)2 marksSolid

Explain the way in which monetary policy could be used to reduce a high inflation rate.

Mark Scheme

• interest rates could be increased (ID) to discourage borrowing by making it more expensive / encourage saving by making it more rewarding (1) • the reduction in spending due to less borrowing/more saving will reduce aggregate demand in the economy (DEV) (1) • reducing aggregate demand will reduce demand-pull pressure and slow the rate at which prices are increasing (DEV) (1) Award 1 mark for each valid explanation. Award 1 mark for a valid development.

Course Report 2023

Many candidates achieved high marks by applying their knowledge of monetary policy to the control of inflation.

7.102023 1(f)3 marks

Explain the impacts on consumers of a fall in their real incomes.

Mark Scheme

• consumers are no longer able to afford their preferred brands (ID) so this affects their standard of living (EXP) (1) • consumers may be forced to shop around (ID) which is an opportunity cost of time (EXP) (1) • borrowing may increase (ID) as normal daily costs can’t be covered (EXP) (1); ‘heating vs eating’ (DEV) (1) • consumers are less able/willing to save (ID) — increasing financial uncertainty in the future (EXP) (1) • reduces consumer confidence (ID) making them less willing to purchase luxury items such as holidays/cars (EXP) (1); impact on quality of life (DEV) (1) Candidates must explain at least 2 impacts. DNA any reference to real income falling. Max 2 marks for social impacts.

7.112023 4(b)3 marks

Describe 3 types of unemployment.

Mark Scheme

• frictional — time taken to move between jobs (1) • cyclical/demand-deficient — downturns in aggregate demand (1) • structural — decline in traditional industries (1) • seasonal — the nature of jobs at certain times of year (1) • regional — high unemployment in certain areas when firms/industries close (1) • technological — workers replaced by automation (1) Candidates must describe 3 types to gain full marks. Labels not required, but if used they must match the description.

7.122022 4(a)2 marksSolid

Describe 2 macroeconomic aims of the UK government.

Mark Scheme

• low and stable rate of inflation / 2% CPI target / between 1% and 3% CPI (1) • positive/sustainable economic growth (1) • low rate of unemployment / full employment / NAIRU (1) • keeping the balance of payments in balance/surplus (1) Candidates must describe 2 aims to gain full marks. Award 1 mark for each valid description.

Course Report 2022

Most candidates correctly identified two appropriate government aims.

7.132022 4(b)4 marks

Describe the method of calculating the CPI.

Mark Scheme

• complete the Living Costs and Food Survey to find out what average families buy (1) • create a basket of goods based on the results of the survey (1) • items in the basket are updated annually (1) • housing costs are NOT included in the CPI basket (1) • give a weight to each item based on its importance / proportion of household spending (1) • gather prices from retailers around the country (1) • compare prices to the base year (1) • calculate the percentage change in prices; add up all changes to find an average — this is inflation (1) Award 1 mark for each valid description. Max 1 mark for exemplification.

7.142022 4(d)6 marks

Discuss the costs and benefits of economic growth.

Mark Scheme

Costs: • if AD increases faster than AS then demand-pull inflation may occur (1) • increased AD may lead to increased imports (1); worsening current account deficit (DEV) (1) • cost-push inflation may arise as firms import more raw materials (1) • increased production leads to increased social costs such as congestion and pollution (1) • scarce/non-renewable resources are used up (1) • increased growth does not necessarily increase living standards for all — income inequality may result (1) Benefits: • increased production leads to greater levels of employment (1) • increased employment leads to higher standards of living (DEV) (1) • increased employment leads to increased tax revenue for the government (DEV) (1) • economic growth encourages foreign direct investment (1) • economic growth can reduce government borrowing (1); reducing the national debt (DEV) (1) • can lead to increased exports (1); improving the balance of payments (DEV) (1) Candidates must discuss at least 1 cost AND 1 benefit to gain full marks.

7.152022 4(e)3 marks

Describe the uses of national income statistics.

Mark Scheme

• compare figures against other countries (1) • compare figures against previous years (1) • calculate the country’s rate of economic growth (1) • evaluate/compare living standards in a country (1); by dividing NI by head of population (DEV) (1) • compare performance in different sectors of the economy (1) • evaluate success/failure of economic policies (1) • identify areas where government assistance may be required (1) • calculate contributions required eg to the IMF (1) Candidates must describe at least 2 uses.

7.172021 2(b)3 marks

Explain the possible effects of high levels of unemployment on UK firms.

Mark Scheme

Negative effects: • less income being earned (ID) leads to lower demand for goods and services (EXP) (1); decreased sales/profits (DEV) (1); leading to a negative multiplier effect (DEV) (1) Positive effects: • increased pool of available labour (ID) giving firms more candidates to choose from (EXP) (1); may be able to offer lower salaries/perks (DEV) (1) • downward pressure on wages (ID) decreasing cost of production (EXP) (1); which may lead to higher profits (DEV) (1) • lower risk of industrial/strike action (ID) as there is more fear of job losses (EXP) (1) Candidates must explain at least 2 effects. Accept all positive or all negative.

7.182021 2(c)4 marks

Describe the stages of the business cycle.

Mark Scheme

Boom/Peak: GDP above trend rate/highest level (1); highest consumer spending (1); firms have highest confidence/profits/investment (1); unemployment lowest/full employment (1) Slump/Trough: GDP zero/negligible/prolonged period of low GDP (1); lowest spending (1); firms have lowest confidence/profits; many business failures (1); unemployment highest (1) Recovery: GDP rising/turning positive (1); consumers begin to spend more (1); firms more confident/start to invest again/profits rising (1); employment starts to rise (1) Recession: two consecutive quarters of negative GDP (1); consumer spending falling (1); firms’ profits falling/cut back on investment (1); unemployment rising (1) Candidates must describe at least 2 stages to gain full marks.

7.192021 4(a)4 marks

The UK government aims to maintain positive economic growth. This may conflict with achieving other government aims. Explain these conflicts.

Mark Scheme

Inflation: • increased consumer spending/demand (ID) leading to higher prices / demand-pull inflation (EXP) (1); may drive up commodity prices leading to cost-push inflation (DEV) (1) Balance of payments: • increased consumer/business spending (ID) leads to spending more on imports, worsening the BoP deficit (EXP) (1) Environmental aims: • increased spending (ID) leading to more pollution/congestion/CO2 emissions (EXP) (1) National debt: • increased government spending/lower tax revenue (ID) has to be financed through borrowing, increasing national debt (EXP) (1) Income inequality: • increased prosperity (ID) increasing asset and land prices, usually owned by a smaller, wealthier proportion of the population (EXP) (1) Candidates must explain at least 2 conflicts. DNA low unemployment as a conflicting aim.

7.202019 1(e)2 marks

Describe the reasons for economic growth being a government objective.

Mark Scheme

• to achieve higher standards of living / lift people out of poverty (1) • to increase employment / to reduce transfer payments (1) • to help reduce income inequality (1) • to increase profits for firms (1) • to increase tax revenue (1) • to attract foreign direct investment (1) • to reduce government borrowing (1) • to improve public services (1) • to potentially increase exports, improving the Balance of Payments (1) Candidates must describe 2 reasons to gain full marks.

7.212019 4(b)(i)2 marksHard

Distinguish between the UK’s Gross Domestic Product (GDP) and Gross National Product (GNP).

Mark Scheme

GDP / GNP: • measures the value of all goods and services produced by UK firms WITHIN the UK / measures the value of goods and services produced by UK firms WHETHER in UK or abroad (1) • a measure of the UK’s national output / includes GDP + net property income from abroad (1) • eg Famous Grouse whisky produced in Scotland / eg Primark producing clothes in Bangladesh (1) Award 1 mark for each valid linked distinction.

Course Report 2019

Very few candidates were able to clearly describe the difference between GDP and GNP.

7.222019 4(b)(ii)4 marks

Describe limitations of using national income statistics to compare economies.

Mark Scheme

• regional inequalities within a country may not be revealed (1) • income inequalities may not be revealed (1) • each country may calculate differently, making comparisons difficult (1) • statistics must be in real terms to be comparable (1) • inaccuracies/corruption in data produced by each country (1) • must be calculated per capita to compare meaningfully (1) • figures may not account for the shadow/black economy (1); can be up to 50% in developing economies (DEV) (1) • may not include subsistence activity eg crops for own consumption (1) • depletion of natural/scarce resources is ignored (1) • currency values change over time (1) Candidates must describe at least 2 limitations.

7.232019 4(c)8 marksHard

Describe, using a diagram, the stages of the business cycle (trade cycle).

Mark Scheme

Diagram (up to 2 marks): • appropriately shaped and labelled curve and axes (GDP on vertical) (1) • boom/slump/recovery/recession labels (minimum 3 indicated correctly) (1) Description (1 mark each): Boom: GDP highest; consumer spending highest; profits highest; unemployment lowest Slump: GDP prolonged negligible/zero; consumer spending lowest; profits lowest; unemployment highest Recession: two consecutive quarters of negative GDP; consumer spending falling; profits falling; unemployment rising Recovery: GDP rising; consumer spending rising; profits rising; unemployment falling Max 3 marks for any one stage. Max 2 marks for any one economic indicator. Max 7 marks if all stages not mentioned in diagram or description. Max 2 marks for developments such as knowledge of 5-year typical cycle or recent double dip.

Course Report 2019

A significant number of candidates confused the Business Cycle with the Circular Flow of Income — these are completely different concepts.

7.242018 1(c)(i)3 marks

Describe how the rate of inflation is measured in the UK.

Mark Scheme

• the Living Costs and Food Survey is taken across the UK (1) • this is used to create a basket of several hundred goods and services most commonly bought by consumers (1) • items are weighted according to the amount typically spent (1) • eg petrol may carry a higher weighting than beauty treatments (1) • an index starts at 100 in the base year (1) • prices are sampled at various locations across the UK (1) • changes in prices are expressed as an annual inflation rate or percentage (1) • housing costs are not included in the calculation (1)

7.252018 1(c)(ii)2 marks

Describe deflation. Your response must make reference to the graph in the source material.

Mark Scheme

Description: • deflation is a decrease in the general price level of goods and services (1) • deflation is when the rate of inflation becomes negative / falls below 0% (1) From source material: • Jan 2015 — April 2015 (1) • June 2015 / August 2015 (1) • Nov 2015 (1) Max 1 mark for description. Max 1 mark for reference to source material.

7.262018 2(c)8 marks

Describe the positive and negative effects of high levels of unemployment on an economy.

Mark Scheme

Negative effects: • reduced income / falling standards of living (1) • more competition for jobs (1) • less tax revenue for government (1); eg less income tax / less VAT (DEV) (1) • wage levels may fall as workers accept less skilled jobs (1) • economic growth may slow due to reduced AD (1) • economic growth may slow due to de-skilling of workforce (1) • increased JSA/Universal Credit costs for government (1); may increase budget deficit (DEV) (1) • increased costs for government on NHS/policing/social work (1) Positive effects: • opportunity for entrepreneurial activity/retraining (1) • firms have more choice when hiring (1); can select better quality staff, improving efficiency (DEV) (1) • firms have reduced costs due to fewer demands for wage rises (DEV) (1) • there is reduced inflationary pressure (1); may lead to improved BoP as exports more competitive (DEV) (1) Max 6 marks for descriptions of either positive or negative effects only. Max 1 development mark per effect described.

7.272018 3(b)3 marks

Explain the effects of economic growth on unemployment.

Mark Scheme

• unemployment may decrease (ID) as economic growth increases demand for labour (1) • more people in work increases consumer spending/AD (DEV) (1) • this will stimulate further growth / a positive multiplier effect (DEV) (1) • unemployment may decrease (ID) as growth increases tax revenue which the government can invest (1) • government investment in capital projects creates jobs (DEV) (1) • government may fund increased public sector wages/employment schemes (DEV) (1) • this will incentivise more people to enter the labour market (DEV) (1)

7.282017 1(b)(ii)2 marks

Describe one method of calculating the unemployment rate in the UK.

Mark Scheme

Claimant Count: the addition of all those claiming Job Seekers Allowance (JSA) (1); not everyone who would like a job will claim JSA, so the figure underestimates the unemployed total (DEV); some people are not eligible for JSA (DEV); produces a lower figure than the LFS method (DEV) OR Labour Force Survey: a quarterly survey of a large number of households about their employment status (1); the survey asks who is currently available for work, looking for work etc (1); the government’s favoured method / better for international comparisons (DEV); produces a higher figure than the claimant count method (DEV) Responses must be based on only ONE method to achieve full marks.

7.292016 3(c)(i-ii)3+3 marks

(i) Describe the recent trend in the rate of inflation in the UK. (ii) Explain the possible reasons for the trend described in (i).

Mark Scheme

(i) Trend: • currently inflation is very low (1) • rate is currently falling (1) • the CPI has been relatively stable in recent years (1) • deflation occurred in 2015 (1) • the current inflation rate is below target (1); the MPC target is 2% CPI (DEV) (1) Max 1 mark for correct specific CPI figures. (ii) Reasons: • falling oil/petrol/energy/gas prices (ID) reduces costs of production for firms (1); may be passed on to consumers, reducing cost-push inflation (DEV) (1) • low inflation in Europe (ID) causing low inflationary expectations (1) • supermarket price wars (ID) keeping consumer prices down (1) • weak wage growth (ID) keeping demand-pull/cost-push inflation down (1) Do not award marks for speculation on events which have not happened.

8.12023 4(d)8 marks

Explain, using a circular flow of income diagram, what is meant by a multiplier effect.

Mark Scheme

Diagram — option A (standard) (up to 4 marks): • labels for factor incomes, consumer spending, goods and services, factors of production (1) • labels for households, firms and correct direction of arrows (1) • all injections (I, G, X) with correct arrow (1) • all leakages (S, T, M) with correct arrow (1) Diagram — option B (numerical) also accepted (up to 4 marks). Max 6 marks if no diagram. Explanation: • an injection into the economy (ID) causes a larger increase in final national income (EXP) (1) • injections increase the flow of income; leakages/withdrawals reduce it (DEV) (1) • this leads to firms hiring more resources and increasing their output (DEV) (1) • increased incomes increase consumer spending (DEV) (1) • one person’s spending becomes another person’s income (DEV) (1) • this process continues until the new, higher equilibrium is reached (DEV) (1) • the formula is 1/1−MPC or 1/MPS (1) • credit a numerical example eg if MPC is 0.8 then the multiplier is 5 (1) The extent of the multiplier is determined by the MPC or MPS.

8.22023 2(c)3 marks

Explain, using a production possibility diagram, what is meant by economic growth.

Mark Scheme

Diagram (up to 2 marks): • fully labelled diagram (axes labelled capital and consumer goods and correctly shaped PPC curve) (1) • outward shift indicated (new PPC curve and arrows) (1) Explanation (up to 2 marks): • curve moves outward (ID) as the economy is capable of producing more of both goods (EXP) (1) • achieved by an increase in the quantity or quality of factors of production (DEV) (1) • usually measured by increases in real per capita GDP (DEV) (1) Max 2 marks for diagram. Max 2 marks for explanation.

8.32022 2(a)2 marks

Describe what is meant by a ‘negative multiplier effect’.

Mark Scheme

• when a decrease in demand/spending leads to a proportionately greater decrease in National Income (1) • spending is related to income so when less is spent, less is received in income (1); a reduction in spending by one group causes a greater reduction in income for others (DEV) (1) • eg if a car factory closes, the fall in demand/spending has a negative knock-on effect on local shops, pubs, restaurants etc (DEV) (1) • can be caused by a reduction in injections / increase in withdrawals (1) • can be calculated by the formula 1/1−MPC or 1/MPS (1)

8.42021 2(e)3 marks

Describe the possible impact of decreased investment spending by firms on the circular flow of income.

Mark Scheme

• fewer flows between firms and households in the circular flow / within the economy (1) • lower demand for factors of production leading to lower incomes (1); lower consumer spending (DEV) (1) • this is a reduction in an injection (DEV) (1); the equilibrium level of national income will decrease (DEV) (1); negative multiplier may be created (DEV) (1) OR • decreased capital spending may lead to more labour being employed (1); this may lead to higher consumer spending (DEV) (1); positive multiplier may be created (DEV) (1) Candidates must follow through with one line of argument.

8.52021 4(e)3 marks

Describe what is meant by the equilibrium level of national income.

Mark Scheme

• in a closed economy, equilibrium is Income (Y) = Expenditure (E) = Output (O) (1) • in an open economy where leakages/withdrawals = injections (1) • leakages are savings (S), tax (T) and imports (M) (DEV) (1) • injections are investment (I), government spending (G) and exports (X) (DEV) (1) Award 3 marks for a circular flow diagram showing injections equalling leakages (all 3 injections and leakages required for 1 mark each).

8.62019 1(e)3 marks

Explain why ‘investing more in infrastructure projects’ may result in an even greater increase in National Income.

Mark Scheme

• better infrastructure may improve geographical mobility of labour (ID) allowing vacancies to be filled, increasing output (EXP) (1) • better infrastructure improves business transport/communications (ID) which can lower costs of production (EXP) (1); increases productivity/output (DEV) (1) • better infrastructure may attract FDI (ID) which increases output/GDP (EXP) (1) • investing creates jobs and incomes in the economy (ID) which generates consumer spending (EXP) (1) • this leads to further investment spending / increased AD / output (DEV) (1); the multiplier effect is triggered (DEV) (1) • the formula is 1/1−MPC or 1/MPS (DEV) (1) • credit a numerical example eg if MPC is 0.8 the multiplier is 5 — so £1bn infrastructure investment leads to £5bn increase in national income (DEV) (1) Award 1 mark for an accurate circular flow diagram showing injections.

8.72017 3(b)7 marks

Explain how fiscal policy could be used to stimulate economic growth.

Mark Scheme

Spending: • increase spending (ID) — increases circular flow of income/AD (1) • eg increasing public sector wages leads to more disposable income/consumer spending (DEV) (1) • eg increasing spending on training schemes increases productivity/output (1) • increased demand signals firms to produce more/increase output (DEV) (1) • increased output leads to increased demand for labour (DEV) (1) • increased demand/spending may generate more profits for firms (DEV) (1) • increased employment leads to increased consumer spending/AD (DEV) (1) • this increases AD and the spending cycle continues — the multiplier effect (DEV) (1) Taxation: • reduce taxation (ID) — increases circular flow of income/AD (1) • eg reduced corporation tax increases funds available for firms to invest (DEV) (1) • eg reduced Income Tax/VAT leads to more disposable income/consumer spending (DEV) (1) Max 2 marks for explanations of different examples of government spending. Max 4 marks for explanations of examples of fiscal policy. It is possible to achieve full marks without tackling both spending and taxation.

8.82016 3(b)5 marks

Describe the uses of national income statistics.

Mark Scheme

9.12024 1(e)2 marksHard

Explain supply side policies which could be used to encourage people to return to work.

Mark Scheme

• increase minimum wage (ID) — working will be more financially rewarding (EXP) (1) • more ‘back to work’ schemes / CV/interview advice (ID) — improve employability of the unemployed (EXP) (1) • improving education and training (ID) — to improve skills (EXP) (1) • more job centres (ID) — make unemployed more aware of vacancies (EXP) (1) • encouraging self-employment/new businesses (ID) — providing more jobs (EXP) (1) • reform of the social security system (ID) — to make work pay (EXP) (1) • cheaper childcare (ID) — incentivising new parents to return to work (EXP) (1) • lowering income tax (ID) — to make work worthwhile (EXP) (1) • invest in better transport links (ID) — so unemployed can access jobs further away (EXP) (1) Candidates must explain 2 policies.

Course Report 2024

Some candidates explained supply side policies aimed at reducing unemployment generally, whereas the question specifically asked about encouraging people to RETURN to work. Read the question carefully.

9.22024 4(d)6 marks

Explain the ways in which monetary policy and fiscal policy could be used to decrease the rate of inflation.

Mark Scheme

Monetary policy (interest rates): • interest rates can be increased (ID) • consumers have less to spend due to higher loan repayments (EXP) (1) • use of credit cards/loans becomes more expensive (EXP) (1) • mortgage repayments rise, reducing disposable income (EXP) (1) • savings become more attractive so less money in circulation (EXP) (1) • negative wealth effect and reduction in consumer confidence (EXP) (1) • businesses reduce prices to attract customers (EXP) (1) Fiscal policy: • increased income tax (ID) leading to lower disposable income/spending (EXP) (1); reducing demand-pull inflationary pressure (DEV) (1) • decreased government spending (ID) leading to lower public sector employment/wages (EXP) (1) • decrease VAT (ID) — firms may choose to reduce prices (EXP) (1) Candidates must explain at least 1 monetary AND 1 fiscal policy to gain full marks.

9.32023 4(c)6 marksSolid

Explain ways in which fiscal policy could be used to decrease unemployment.

Mark Scheme

Increase Spending: • increase capital spending (ID) creating construction projects which increase employment (EXP) (1); multiplier effect stimulates further growth/demand for labour (DEV) (1) • increase current spending (ID) eg building new schools gives construction jobs (EXP) (1); allows employment of new teachers (DEV) (1) • increased government spending increases circular flow of income/AD (ID) which may lead to firms expanding and creating jobs (EXP) (1) • increasing spending on education (ID) — higher skilled workers will be more employable (EXP) (1) Reduce Taxation: • reduced corporation tax (ID) — increases funds available for firms to invest and create jobs (EXP) (1) • reduced Income Tax/VAT (ID) — leads to more disposable income, consumer spending, output and jobs (EXP) (1); incentive to work (DEV) (1) Candidates must explain at least 2 ways. Credit multiplier formula/example up to a maximum of 1 mark.

Course Report 2023

Many candidates accurately explained tools of fiscal policy and applied them to decreasing unemployment.

9.42022 2(b)4 marksHard

Explain supply side policies which could be used to help workers who have lost their jobs access alternative employment.

Mark Scheme

• invest in better transport links/infrastructure (ID) so unemployed can access jobs further away (EXP) (1) • more job centres (ID) — make unemployed more aware of vacancies (EXP) (1) • strategies to make rented accommodation more affordable (ID) which increases geographical mobility (EXP) (1) • more ‘back to work’ schemes — CV help, coaching in employability skills (ID) (EXP) (1) • increasing training opportunities (ID) — making the workforce more flexible and employable (EXP) (1) • providing subsidies/grants to firms (ID) — firms may need more workers (EXP) (1) • a reduction in corporation tax (ID) — allowing firms to invest and take on more workers (EXP) (1) • deregulation (ID) — allows new entrants to a market, necessitating recruitment (EXP) (1) Candidates must explain at least 2 policies. DNA any reference to unemployment benefits.

Course Report 2022

Some candidates did not apply their answers specifically to workers accessing alternative employment, and instead referred to more general supply-side policies to reduce unemployment.

9.52022 4(c)5 marks

Explain the impact of an increase in interest rates on individuals and firms.

Mark Scheme

Individuals: • consumers gain a higher return on savings (ID) therefore encouraged to save more (EXP) (1) • mortgages become more expensive (ID) reducing ability to consume other things (EXP) (1) • personal loans become more expensive (ID) so individuals defer spending on ‘big ticket’ items (EXP) (1) • consumers less likely to use credit card/hire purchase (ID) as spending is more expensive (EXP) (1) Firms: • borrowing is more expensive for firms (ID) therefore discouraged from borrowing (EXP) (1); may lead to a reduction in investment (DEV) (1) • increased supplier costs may be passed on (ID) leading to a decrease in demand for their products (EXP) (1); could lead to job cuts (DEV) (1) Candidates must explain the impact on both individuals AND firms to gain full marks. Max 4 marks if only individuals or only firms covered.

9.62019 4(a)6 marksHard

Explain ways in which fiscal policy measures can be used to reduce the level of income inequality in the UK.

Mark Scheme

Taxation: • increase income tax (ID) — as this is a progressive tax, highest earners pay more (EXP) (1); increased revenue can be redistributed eg welfare spending (DEV) (1) • increase tax-free allowances (ID) — increases disposable income for lower earners (EXP) (1) • switch from regressive to progressive taxation (ID) — reduces burden on low income earners (EXP) (1) • reduce VAT (ID) — as this is a regressive tax, lower earners pay less of their income on tax (EXP) (1) • increase inheritance tax/capital gains tax (ID) — reduces wealth of the more affluent (EXP) (1) Expenditure: • increase spending on infrastructure/training (ID) — allows more people to enter the labour market (EXP) (1) • increase job seekers’ allowance (ID) — increases disposable incomes for unemployed (EXP) (1) • increase pay for lower paid public sector workers (ID) eg nurses (EXP) (1) • increase housing benefit (ID) — makes social/private rented housing more affordable (EXP) (1) • increasing child support (ID) — means-tested so benefits lower earners more (EXP) (1) • increase local authority funding (ID) — targeting low income households to increase educational attainment (EXP) (1) DNA explanations regarding NMW. DNA repeated explanations (regressive tax max 1 mark, progressive tax max 1 mark).

Course Report 2019

Some candidates demonstrated good understanding of fiscal policy generally but failed to relate it specifically to reductions in income inequality.

9.72018 3(a)4 marks

Explain the ways in which supply side policies can be used to create economic growth.

Mark Scheme

• grants may be awarded (ID) which could be used to invest in capital improving productivity (1); increased productivity means more output without increasing input (DEV) (1) • education may be improved (ID) to improve efficiency of workers (1); more efficient workers reduce wastage/errors (DEV) (1) • more/better training (ID) to improve productivity/flexibility (1); more flexible staff reduce stoppages/bottlenecks (DEV) (1) • industry may be deregulated (ID) to increase opportunities for competition (1); more competition encourages efficiency (DEV) (1) • minimum wage may be increased (ID) to incentivise more people to join the labour force (1) • subsidies may be offered (ID) to reduce the unit cost of production, leading to higher output (1) • tax breaks may be awarded to new firms (ID) reducing costs and leading to higher output (1) • labour mobility/flexibility may be improved (ID) eg zero-hour contracts (1) Max 2 development marks.

9.82017 1(f)3 marks

Describe the benefits of ‘a series of infrastructure projects’ for the Scottish economy.

Mark Scheme

• it will create jobs (1); may result in a positive multiplier effect/increased national income (DEV) (1) • improved infrastructure may improve productivity for Scottish firms (1); could lead to improved international competitiveness (DEV) (1) • Scotland may attract more FDI/investment (1); leading to increased jobs/wealth/growth (DEV) (1) • Scotland’s unemployment rate may fall (1); less requirement for the government to fund benefits (DEV) (1) Max 2 marks per benefit.

9.92016 1(f)2 marks

Describe a fiscal policy measure which could be used by governments to achieve economic growth.

Mark Scheme

• reduction in tax (1); increases disposable incomes so consumers may spend more (DEV) (1) OR • increases in government spending (1); increases public sector jobs/private sector contracts/incentives to work (DEV) (1)

9.102016 3(a)4 marks

Describe the economic powers of the Scottish Parliament related to taxation.

Mark Scheme

• vary income tax (1); by adjusting bands and rates (DEV) (1) • collect Land and Buildings Transaction Tax — replacing stamp duty (1) • control Scottish Landfill Tax — to protect the environment (1) • control Air Passenger Duty for passengers flying out of the UK (1) • determine the price of alcohol (1); eg setting minimum price per unit/not allowing happy hour (DEV) (1) • Revenue Scotland is responsible for collection of the new taxes (DEV) (1) • borrow £2.2 billion capital for the Scottish Parliament (1) Descriptions must be of an economic power. Max 3 marks per power. DNA development marks for describing benefits of the power.

9.112016 1(b)(ii)2 marks

Explain why measures to reduce a national debt may conflict with other government objectives.

Mark Scheme

• debt reduction may involve reducing government spending (ID) which may increase unemployment (1) • debt reduction may involve increasing indirect taxation (ID) which may increase income inequality due to its regressive nature (1) • debt reduction may involve increasing direct taxation (ID) which may reduce industry output/growth (1) • reduced government subsidies may increase costs of production (ID) causing cost-push inflation (1) Max 1 mark per conflicting objective.

10.12024 4(e)3 marks

Describe 3 economic powers devolved to the Scottish government.

Mark Scheme

• vary income tax (1) • collect / set Land and Buildings Transaction Tax (1) • control Scottish Landfill Tax (1) • control Air Passenger Duty for passengers flying out of Scotland (1) • give out free bus passes to under-22s and over-60s (1) • determine the price/promotion of alcohol (1) • awarding of rail passenger franchises (1) • budgetary decisions on health (1) • budgetary decisions on education (1) • ability to build up a budget surplus (1) • capital/resource borrowing powers (1) • some aspects of social security (1) • full economic decision-making on agriculture, forestry & fisheries (1) • full economic decision-making on tourism (1) • full economic decision-making on economic development (1) • full economic decision-making on social housing policy (1) Candidates must describe 3 economic powers to gain full marks.

10.22022 1(d)3 marks

Describe economic powers which have been devolved to the Scottish Parliament by the UK Government (other than taxation matters).

Mark Scheme

• determining the price/promotion of alcohol (1) • awarding of rail passenger franchises (1) • budgetary decisions on health (1); eg no prescription charges (DEV) (1) • budgetary decisions on education (1); eg no tuition fees (DEV) (1) • ability to build up a budget surplus (1); to a limit of £125m (DEV) (1) • limited resource borrowing (1); up to £600m each year / £1.75bn overall (DEV) (1) • capital borrowing powers (1); equivalent to £450m a year / £3bn in total (DEV) (1) • some aspects of social security (1); responsibility for 11 benefits including DLA/PIPs (DEV) (1) • full economic decision-making on agriculture, forestry & fisheries (1) • full economic decision-making on tourism / economic development / social housing (1) Candidates must describe at least 2 economic powers. Award 1 mark for a valid development including exemplification.

10.32017 3(a)(i-ii)2+3 marks

(i) Describe what is meant by Scotland’s budget deficit. (ii) Describe factors which may have caused Scotland’s budget deficit to be higher than the rest of the UK.

Mark Scheme

(i): • a situation in which the government’s outgoings are more than their incomings / planned spending exceeds planned tax receipts (1) • a budget is a plan for spending and revenue (DEV) (1) • accumulation of all annual deficits is known as the National Debt (DEV) (1) (ii): General: • government spending per capita in Scotland is higher than the rest of the UK / tax revenue per capita is lower (1) • Scottish government have devolved powers to adjust some benefits and have increased these (1) Specific (any): • increased capital spending eg infrastructure projects / new Forth Crossing / Edinburgh trams (1) • increased current spending eg public sector wages (1) • reduced revenue eg free prescriptions (1); free university fees (1); free elderly homecare (1); air passenger duty for under-16s abolished (1)

10.42016 3(a)4 marks

Describe the economic powers of the Scottish Parliament.

Mark Scheme

• vary income tax (1); by plus or minus 3 pence in the pound (DEV) (1) • collect Land and Buildings Transaction Tax replacing stamp duty (1) • control Scottish Landfill Tax to protect the environment (1) • control Air Passenger Duty (1) • determine the price of alcohol (1); eg setting minimum prices per unit (DEV) (1) • budgetary decisions on health (1); eg free prescriptions (DEV) (1) • budgetary decisions on education (1); eg no higher education fees (DEV) (1) • Revenue Scotland is responsible for the collection of the new taxes (DEV) (1) • borrow £2.2 billion capital for the Scottish Parliament (1) Max 3 marks per power. Descriptions must be of an economic power. DNA development marks for describing benefits of the power.

11.12024 5(a)3 marksSolid

Describe the theory of comparative advantage.

Mark Scheme

• this is when a country can produce goods/services at a lower opportunity cost than others (1); this means it sacrifices less of one good to produce another, relative to a second country (DEV) (1) • this shows that even if a country is less efficient at producing all goods and services, it should still specialise and trade (1) • a country which has an absolute advantage in neither area should specialise where its disadvantage is least / where it is ‘least-worst’ (1) • this would ensure world output / standards of living would increase (DEV) (1) Example — if country A gives up 1/3 of a truck to make 1 car, whereas country B gives up 1/2 a truck to make 1 car, country A has a comparative advantage in cars and should specialise in them (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

Course Report 2024

More candidates described comparative advantage without using a table or numerical examples, which enabled them to gain higher marks than in previous years.

11.22024 5(b)(i)4 marksSolid

Describe the different types of trade barriers.

Mark Scheme

• tariff — a tax levied on imported goods (1) • quota — limits the amount of a product allowed into the country (1) • subsidy — provides domestic firms with funds from the government (1) • embargo — bans particular products or products from a particular country (1) • strict regulation / safety standards — set a legal minimum standard of product safety (1) • soft loans — provide cheap finance to foreign buyers to boost domestic exports (1) • government contracts — awarded to domestic firms (1) Candidates must describe at least 2 types.

Course Report 2024

Many candidates demonstrated a strong understanding of types of trade barriers.

11.32024 5(b)(ii)4 marksSolid

Explain possible reasons for a country imposing trade barriers on imports.

Mark Scheme

• to protect infant industries (ID) — to give them time to grow / experience economies of scale (EXP) (1) • to prevent dumping (ID) — so foreign firms cannot sell goods cheaply and destroy local markets (EXP) (1); eg the US put tariffs on steel to deter China from dumping excess steel (DEV) (1) • to protect employment (ID) — consumers are encouraged to buy domestic goods (EXP) (1) • to prevent a dependence on imports (ID) — which causes a deficit in the Balance of Payments (EXP) (1) • for strategic reasons (ID) — to protect farming and defence in case of war/external shocks (EXP) (1) • for political retaliation (ID) — as a country has imposed tariffs on your products (EXP) (1) • to maintain health and safety standards (ID) — rejecting goods of lower quality (EXP) (1) Candidates must explain at least 2 reasons.

Course Report 2024

Many candidates demonstrated a strong understanding of the reasons for imposing trade barriers.

11.42023 5(c)4 marksSolid

Describe reasons for governments imposing trade barriers.

Mark Scheme

• infant industries can be protected (1) • domestic employment can be safeguarded (1) • strategic industries can be kept under domestic control (1); to maintain defence in case of war (DEV) (1) • balance of payments will improve (1); due to fewer imports (DEV) (1) • can be used to highlight political disagreements (1) • can be used to retaliate against other nations (1) • can be used to prevent ‘dumping’ / flooding the market (1) • maintaining health and safety standards (1); rejecting goods of lower quality (DEV) (1) • can be used to protect the environment / reduce social costs eg fewer air miles (1) Candidates must describe at least 2 reasons.

Course Report 2023

Most candidates achieved a high mark by effectively describing reasons for imposing trade barriers.

11.52023 5(d)2 marks

Describe what is meant by a free trade agreement.

Mark Scheme

• usually a negotiated and binding contract between countries or regions (1) • allows movement of goods and services without restriction (1) • it reduces/removes barriers to imports and exports between countries in the agreement (1) • restrictions which may be removed include tariffs and quotas (DEV) (1) • examples of free trade agreements include EFTA and NAFTA (1) • it will encourage trade between countries (DEV) (1) Max 1 mark for examples.

11.62023 2(a)2 marksHard

Describe what is meant by globalisation.

Mark Scheme

• the process of integration of markets in the world economy (1); goods and services / social / economic / cultural influences becoming similar in all parts of the world (DEV) (1) • the ability to produce any good or service anywhere in the world (1); using raw materials, capital and technology from anywhere / selling output anywhere / profits may be declared anywhere (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

Course Report 2023

Some candidates described multinational companies rather than globalisation itself.

11.72022 2(e)3 marksSolid

Describe trade barriers, other than tariffs, which could be imposed.

Mark Scheme

• a quota — limits the amount of a product allowed into the country (1) • a subsidy — provides domestic firms with funds from the government (1) • an embargo — bans particular products or products from a particular country (1) • strict regulation / safety standards — set a legal minimum standard of product safety (1) • soft loans — cheap finance to foreign buyers to boost domestic exports (1) • government contracts awarded to domestic firms (1) Candidates must describe at least 2 trade barriers.

Course Report 2022

Many candidates scored highly when asked to describe key trade barriers.

11.82021 1(a)(i)2 marks

Describe what is meant by the term ‘trade war’. Your response must make reference to the source material.

Mark Scheme

• a trade war is when countries impose trade restrictions / protectionism / retaliatory action on each other (1) From the source (any one): • there is a trade dispute between the EU and America (1) • the USA has imposed tariffs on Scotch whisky (1) • ‘tariffs of 25% on Scotch malt whisky’ (1) • the EU pays subsidies to Airbus / the US pays subsidies to Boeing (1) Candidates must indicate that more than one country is involved to gain full marks.

11.92021 1(a)(ii)3 marks

Other than political retaliation, explain possible reasons for a government imposing tariffs on imports.

Mark Scheme

• to protect infant industries (ID) — to give them time to grow / experience economies of scale (EXP) (1) • to prevent dumping (ID) — so foreign firms cannot sell goods cheaply and destroy local markets (EXP) (1) • to prevent a rise in unemployment (ID) — consumers are encouraged to buy domestic goods (EXP) (1) • to prevent a dependence on imports (ID) — which causes a Balance of Payments deficit (EXP) (1) • for strategic reasons (ID) — to protect farming and defence industries in case of war (EXP) (1) Candidates must explain at least 2 reasons. DNA political retaliation.

11.102021 5(c)6 marks

Describe the theories of absolute and comparative advantage.

Mark Scheme

Absolute advantage: • gained when a country can produce more of a product than another country (1) • may be because of climatic advantages / skilled labour / technology (DEV) (1) • eg China has a large low-cost labour force giving it an absolute advantage in textile production (DEV) (1) • any country with an absolute advantage should specialise and trade (DEV) (1); this leads to increased world output and improved living standards (DEV) (1) • credit correct numerical example showing absolute advantage (1) Comparative advantage: • gained when a country which has an absolute advantage in no area specialises where its disadvantage is least / is ‘least-worst’ (1) • ie where the opportunity cost of production is at its lowest (DEV) (1) • shows that even if a country is less efficient at producing all goods, it should still specialise and trade (DEV) (1) • eg if country A can produce TVs 10x better than country B but cars only 3x better, country A should specialise in TVs and country B in cars (1); (DEV) (1) Candidates must describe BOTH theories to gain full marks.

11.112019 1(a)2 marks

Describe what is meant by a ‘tariff’.

Mark Scheme

• a tariff is a tax on imports / exports / goods traded internationally (1); it makes imports less attractive/more expensive or makes domestic goods more attractive (DEV) (1) • a tariff is a trade barrier (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

11.122019 1(b)4 marks

Explain the benefits of ‘free trade’ to the UK economy.

Mark Scheme

• fewer restrictions on trade (ID) so increased opportunity for international trade/exporting (EXP) (1); can improve the Balance of Payments position (DEV) (1) • UK consumers have access to cheaper goods/services (ID) so real income increases (EXP) (1); standards of living increase (DEV) (1) • UK firms have access to larger markets (ID) so can benefit from economies of scale (EXP) (1) • UK consumers have more choice (ID) because countries specialise in different goods/services (EXP) (1); improves standards of living (DEV) (1) • free trade may reduce raw material costs for firms (ID) which may lead to lower prices for consumers (EXP) (1); could lead to lower inflation (DEV) (1) • more competition for UK firms (ID) meaning efficiency could be improved (EXP) (1) • may encourage FDI into UK (ID) which will have a beneficial impact on GDP/employment (EXP) (1) • an economy can consume outwith its PPC (ID) — accessing goods not available otherwise (EXP) (1) Candidates must explain at least 2 benefits. Max 2 marks for development.

11.132019 2(d)3 marksHard

Explain ways in which globalisation could help reduce the UK national debt.

Mark Scheme

Increased revenue: • UK firms access new/larger markets (ID) — increased tax revenue from tariffs (EXP) (1) • UK firms earn more profit (ID) — will increase corporation tax revenue (EXP) (1) • increased FDI may be attracted (ID) — raises corporation tax/income tax revenue (EXP) (1) • increased income tax from workers (ID) working for foreign businesses located in the UK (EXP) (1) • more consumption of goods (ID) — means higher VAT revenues (EXP) (1) • access to cheap labour (ID) — reduces costs for firms so increased profits generate more corporation tax (EXP) (1) Reduced costs: • public sector wage costs lower (ID) as large pool including foreign workers keeps wage pressure down (EXP) (1) • universal credit bill reduced (ID) as increased trade may bring more jobs (EXP) (1) Candidates must explain at least 2 ways to gain full marks.

Course Report 2019

Candidates demonstrated good understanding of globalisation but some were unable to apply this specifically to potential effects on the national debt.

11.142018 4(a)4 marks

Describe the theory of comparative advantage.

Mark Scheme

• this is when a country can produce goods/services at a lower opportunity cost than others (1); it would sacrifice less of one good to produce another, relative to a second country (DEV) (1) • a country will benefit by specialising and producing this good or service (1) • this would ensure world output / standards of living would increase (DEV) (1) Example (max 3 marks): • Country A has an absolute advantage in neither cars nor trucks (1) • however, Country A has a comparative advantage in cars (1) • this is because Country A only gives up 1/3 truck to make 1 car, whereas Country B gives up 1/2 truck to make 1 car (1) • Country A should therefore specialise in cars (1)

11.152017 1(c)(ii)4 marks

Explain factors that may have caused Scottish export volumes to rise.

Mark Scheme

• weak sterling (ID) resulting in UK exports being cheaper for foreign consumers (1); demand for UK exports will increase (DEV) (1) • profile of Scotland has been raised (ID) eg referendum/Commonwealth Games, resulting in more exports of Scottish goods eg whisky to China (1) • Scotland has a comparative advantage in the production of some goods (ID) — lower opportunity cost than other countries (1); an appropriate climate helped develop the whisky industry (DEV) (1) • Scotland had the highest productivity rate outside London (ID) — reducing costs and making exports more competitive (1) • government may have provided subsidies to home companies (ID) — reducing costs and making exports more competitive (1) • More FDI (ID) — if these multinational firms export, it will improve the Balance of Payments (1) Max 3 marks per explanation.

11.162016 4(a)6 marks

Describe the reasons why governments restrict trade.

Mark Scheme

• to protect an infant industry in a competitive market (1); restricting trade stops foreign competition and allows the infant industry to grow (DEV) (1); overseas competitors may have economies of scale not yet available to the infant industry (DEV) (1) • to improve the Balance of Payments by reducing imports (1); would reduce demand for imports and help reduce a deficit (DEV) (1) • to retaliate because a trading partner has already acted to restrict trade (1); could lead to both countries making a new trading agreement (DEV) (1) • a trading partner may be acting against human rights (1); restricting trade puts pressure on the partner to respect human rights (DEV) (1) • to protect key/strategic industries (1); eg defence construction (DEV) (1) • to prevent ‘dumping’ (1) • to protect employment (1) • to reduce the quantity of products which do not meet health and safety / environmental standards (1) Max 2 marks per reason.

12.12024 2(e)4 marks

Other than increasing UK exports, describe the possible advantages to the UK economy of multinationals locating in the UK.

Mark Scheme

• MNCs provide job opportunities (1); reducing unemployment (DEV) (1); improving standards of living (DEV) (1) • creates additional tax revenue for the UK government (1); could be used to improve public services (DEV) (1) • MNCs increase economic growth (1) • creates a cash investment which will improve the UK Balance of Payments (1) • MNCs could improve production methods / introduce new technology (1); boosting UK productivity (DEV) (1) • MNCs could improve the skills of UK workers (1); other organisations can benefit from skills transfer, leading to greater output (DEV) (1) • MNCs may encourage better infrastructure (1); attracting further MNCs (DEV) (1) Candidates must describe at least 2 advantages.

12.22023 5(b)4 marksSolid

Describe the reasons for UK multinationals choosing to locate abroad.

Mark Scheme

• cheaper costs of production / labour / rent / land (1) • to benefit from economies of scale (1) • to reduce costs of transport (1) • to access a new market / increase market share (1) • to locate close to their market (1) • to benefit from sympathetic tax regimes (1); eg low corporation tax (DEV) (1) • to benefit from less stringent legislation (1); eg planning permission / health and safety (DEV) (1) • to access subsidies offered by the host government (1) • to access specialised / highly trained labour (1) Candidates must describe at least 2 reasons.

Course Report 2023

Many candidates scored highly when describing reasons for multinationals locating abroad.

12.32022 2(d)4 marks

Describe disadvantages to a country of hosting a multinational, other than loss of jobs if it leaves.

Mark Scheme

• local firms may struggle, facing increased competition (1) • opportunity cost of government grants given to attract the MNC (1) • increased pollution from factories (1) • depletion of non-renewable resources (1) • no long-term commitment — MNC may leave when resources are depleted (1); negative multiplier effect when it leaves (DEV) (1) • profits do not remain in the host country — they are repatriated (1) • creates reliance on foreign firms which may lack loyalty (1) • ‘screwdriver’ economy — job creation centred in low-skilled/low-paid assembly areas (1) • MNC brings in its own management team (1) Candidates must describe 2 disadvantages.

12.42021 5(a)4 marks

Describe the benefits to the UK economy of hosting multinationals.

Mark Scheme

• MNCs provide job opportunities (1); reducing unemployment and stimulating growth (DEV) (1) • creates additional tax revenue through additional economic activity (1); enabling more public spending (DEV) (1) • increases economic growth (1) • MNCs increase exports for the UK (1); improving balance of trade figures (DEV) (1) • increased productivity through use of new technology (1); technology transfer benefits other organisations (DEV) (1) • MNCs may invest in infrastructure such as new roads (1); benefiting the economy through increased growth/output (DEV) (1) Candidates must describe at least 2 benefits.

12.52021 5(b)3 marks

Suggest 3 reasons why some multinationals may decide to relocate from the UK to a mainland EU country.

Mark Scheme

• nearer to their market (1) • less complex transport links / fewer border complications (1) • less political uncertainty (1) • nearer to suppliers (1) • in the Eurozone — no currency exchange costs (1) • potential delays at UK borders / customs (1) Candidates must suggest 3 reasons to gain full marks.

12.62019 5(a)(i)5 marks

Describe factors which may attract foreign firms to locate in Scotland.

Mark Scheme

• availability of natural resources eg oil, forests, land (1) • a skilled workforce (1); helps improve productivity levels (DEV) (1) • access to Scottish consumers / a new market (1); may allow for economies of scale (DEV) (1) • low interest rates (1) • weak pound relative to other currencies (1) • EU membership which eliminates trade barriers (1) • flexible labour markets (1) • relatively weak unions / good industrial relations (1) • access to subsidies / government grants (1); can reduce costs of production (DEV) (1) • good transport and infrastructure (1) • low corporation tax levels (1) • political stability allows businesses to plan ahead (1) Candidates must describe at least 2 factors. Max 4 marks for any one factor.

12.72019 5(a)(ii)4 marks

Describe possible disadvantages of foreign investment to the Scottish economy.

Mark Scheme

• local firms may struggle, facing increased competition (1) • opportunity cost of government grants (1) • increased pollution from factories (1) • depletion of non-renewable resources (1) • no long-term commitment — ‘footloose’ in nature, may leave creating pockets of unemployment (1) (DEV) (1) • profits are repatriated to the home country (1) • creates reliance on foreign firms for jobs and investment (1) • ‘screwdriver’ economy may be created where job creation is in low-skilled assembly (1) Candidates must describe 2 disadvantages. Up to 3 marks for any one disadvantage.

12.82018 4(c)(ii)3 marks

Explain the benefits to a developing economy of hosting a multinational company.

Mark Scheme

• the MNC provides job opportunities (ID) as demand for labour increases (1); reduces unemployment (DEV) (1) • creates additional tax revenue for the government (ID) which can be used to stimulate growth (1) • increases economic growth (ID) as the MNC increases the developing economy’s output (1) • creates an initial cash investment (ID) which will improve BoP (1) • the MNC will sell goods abroad (ID) which means increased exports (1); improves balance of trade figures (DEV) (1) • use of new technology (ID) gives workers more opportunity to improve skills (1); other organisations benefit from technology transfer, leading to greater output (DEV) (1) • MNCs may invest in infrastructure such as new roads (ID) which benefits the developing economy as a whole (1) Max 1 development mark.

12.92017 1(d)3 marks

Describe possible disadvantages of Foreign Direct Investment (FDI) to the Scottish economy.

Mark Scheme

• there may be increased negative externalities such as congestion and pollution (1) • profits from the business will be repatriated to the home country (1); bad for the Balance of Payments / less money circulating in the UK economy (DEV) (1) • the firm may withdraw operations at any time leaving pockets of unemployment (1); firms more likely to shut down overseas operations during a recession (DEV) (1) • management jobs may not be created — top jobs may be retained for employees of the home country (1); ‘screwdriver’ jobs do not create as much potential for growth (DEV) (1) • tax avoidance by some multinationals reduces government income (1) • ‘crowding out’ effect — competition for UK firms is increased which may put them out of business (1) • there may be increased demand for the pound, strengthening its value and making exports more expensive (1) Max 2 marks per disadvantage.

13.12024 5(c)3 marks

Describe factors which might increase the exchange rate for the pound sterling.

Mark Scheme

• increase in demand for £ / decrease in supply of £ (1) • fall in the UK rate of inflation (1) • increase in competitiveness of UK exports (1); leading to more goods/services demanded from abroad (DEV) (1) • decrease in imports to the UK (1) • speculation that the exchange rate will increase further (1) • government intervention by buying pounds (1) • increase in tourism to the UK / visitors purchasing sterling (1) • increase in UK interest rates / hot money inflows (1) • increase in FDI (1) Candidates must describe at least 2 factors.

13.22023 2(e)2 marks

Explain the impact of the weak exchange rate of sterling on the UK balance of payments.

Mark Scheme

• it will improve the current account balance (ID) as UK exports increase / UK imports decrease (EXP) (1); UK consumers may buy more domestic products (DEV) (1) • foreign buyers require less of their currency to buy UK goods/services (ID) making exports more competitive abroad — having a favourable effect on the balance of payments (EXP) (1) Award 1 mark for each valid explanation. Award 1 mark for a valid development. Watch for flips.

13.32022 5(a)(i)4 marks

Describe factors which decrease the exchange rate for the pound sterling.

Mark Scheme

• decrease in demand for the pound / increase in supply of pound (1) • decrease in foreign direct investment (1) • decrease in hot money inflows / fall in interest rates (1) • decrease in tourism / cancellation of major events (1) • increase in the rate of UK inflation (1) • decrease in competitiveness of UK exports (1) • speculation that the exchange rate will fall further (1) • government intervention by selling pounds (1) • political / external events creating instability eg Brexit (1) Candidates must describe at least 2 factors.

13.42022 5(a)(ii)3 marks

Explain advantages to UK firms of a weak exchange rate for sterling.

Mark Scheme

• UK exports will appear relatively cheap (ID) which will increase the quantity sold (EXP) (1); therefore UK firms will see increased profits (DEV) (1) • UK firms should see a rise in domestic sales (ID) as foreign goods become more expensive for UK citizens (EXP) (1) • UK firms who earn profits abroad (ID) will find the value of their profits have increased (EXP) (1) • foreign investors will find it cheaper to invest in UK firms (ID) which may help them expand (EXP) (1) • foreign tourists gain more £s for their currency (ID) so UK firms in tourism and transport may see a boost (EXP) (1) Candidates must explain at least 2 advantages.

13.52021 1(b)3 marks

Explain the possible effect of a ‘weak exchange rate of sterling’ on UK firms.

Mark Scheme

• UK firms get fewer units of foreign currency for every pound (ID) making imports/raw material costs more expensive (EXP) (1); may increase prices/be less competitive (DEV) (1); resulting in lower profit (DEV) (1) • foreign consumers get more pounds for a unit of their currency (ID) so UK exports become cheaper to buy (EXP) (1); UK export firms may gain customers/sales (DEV) (1) and may become more profitable (DEV) (1) • foreign tourists get more pounds for a unit of their currency (ID) so UK hospitality firms may gain customers/sales (EXP) (1) Award 1 mark for each valid explanation. Award 1 mark for each valid development. Watch for flips.

13.62019 5(b)3 marks

Discuss the advantages for UK firms of a depreciation in the value of sterling.

Mark Scheme

• benefits firms who export (1); goods will be cheaper for foreign consumers (DEV) (1); volume of export sales may increase (DEV) (1) • increases profits for UK firms involved in tourism (1); hotels may benefit from an influx of tourists (DEV) (1) • UK firms who earn profits abroad / have foreign investments will benefit (1); they will receive more £ for their $/€ when profits are repatriated (DEV) (1) • as imports are more expensive, UK consumers may demand more domestically produced goods (1); this will increase sales and profits for UK firms (DEV) (1) • credit a numerical example (1) Candidates must discuss at least 2 advantages. Up to 2 marks for any one advantage.

13.72018 4(b)4 marks

Explain the factors that may increase demand for sterling on foreign exchange markets.

Mark Scheme

• the volume of UK exports rises (ID) so foreign consumers need to purchase more sterling (1); eg if more foreign tourists visit the UK they will need sterling to pay for goods and services (DEV) (1) • UK interest rates rise (ID) so ‘hot money’ inflows may increase (1); investors will convert more currency to sterling to seek a higher rate of return (DEV) (1) • if speculators anticipate that sterling will rise in the future (ID) demand for sterling rises as they seek increased profits/returns (1) • improved production methods may reduce production costs (ID) making UK goods more competitive overseas (1); increasing the volume of exports (DEV) (1) • investor confidence increases (ID) — if more individuals/firms wish to invest in the UK they will require sterling (1) • government intervention (ID) — if they want the exchange rate to rise they may purchase additional sterling with their reserves (1) • low rates of inflation in the UK (ID) make UK goods/services appear cheaper (1) Max 2 development marks.

13.82017 4(c)5 marks

Describe how demand and supply of sterling can automatically correct a deficit on the UK’s Current Account of the Balance of Payments.

Mark Scheme

• a deficit shows that fewer £s are being demanded than are being supplied (1) • if demand for £ falls, its price will fall / weaken (1) • a weak sterling makes exports relatively cheap / imports relatively expensive (1); it costs less in terms of another currency to buy sterling (DEV) (1) • cheaper exports means demand for UK exports increases / dearer imports means demand for imports falls (DEV) (1) • as exports rise and imports fall the deficit is corrected (DEV) (1) • sterling is traded freely according to the forces of demand and supply when there is a floating exchange rate (DEV) (1) • credit use of an appropriate diagram (DEV) (1) Alternatively, credit answers relating to supply of sterling.

13.92016 1(e)(i-ii)2+2 marks

(i) Explain why a strong pound could benefit British holidaymakers on the continent. (ii) Outline the factors which affect the exchange rate for the pound sterling.

Mark Scheme

(i): • imports such as foreign holidays are cheaper (ID) so British holidaymakers can travel abroad more affordably (1) • UK tourists will be able to buy more Euros for their pound (ID) which makes their holiday better value for money (1) • they can buy more luxurious goods and services / book more expensive holidays (DEV) (1) • credit a numerical example (to include figures before and after strengthening of the pound) (1) (ii): • change in foreign direct investment (1) • change in demand/supply for UK exports/imports/pounds (1) • change in interest rates in the UK (1) • change in number of foreign holidaymakers visiting the UK (1) • change in the rate of inflation (1) Do not award development marks for part (ii).

14.12024 5(d)3 marks

Describe components of the current account of the UK Balance of Payments.

Mark Scheme

• trade in goods — the value of exports minus the value of imports of goods (1); usually in deficit in the UK (DEV) (1) • trade in services — the value of exports minus the value of imports of services (1); usually in surplus in the UK (DEV) (1) • investment income / net primary income eg interest / profits / dividends (1) • transfers / net secondary income eg overseas development aid (1) Candidates must describe at least 2 components. Titles of components not required if descriptions are adequate.

14.22023 5(d)2 marksHard

Describe components of the UK Balance of Payments.

Mark Scheme

Current Account: • trade in goods — value of exports minus value of imports of goods (1) • trade in services — value of exports minus value of imports of services (1) • investment income / net primary income eg interest/profits/dividends (1) • transfers / net secondary income eg overseas development aid (1) Capital/Financial Account: • foreign direct investment (FDI) — cross-border investment in capital and land (1) • portfolio investment — purchase of stocks and shares (1) • other investment eg ‘hot money’ (1) • reserve assets eg foreign currency managed by the Bank of England (1) • balancing item — net errors and omissions (1) Candidates must describe 2 components.

Course Report 2023

Some candidates described the overall balance of payments or different accounts rather than the components. Be specific about which account each component belongs to.

14.32022 2(c)2 marksSolid

Describe the possible impacts of fewer cars being produced in England on the UK Balance of Payments current account.

Mark Scheme

• increases the deficit on the UK’s Balance of Payments / worsens the Current Account (1) • car exports from the UK would reduce / car imports would increase (DEV) (1) • decreases exports / increases imports in Trade in Goods (DEV) (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

Course Report 2022

Many candidates were able to successfully apply the concept of balance of payments to the scenario given.

14.42022 5(b)2 marks

Describe the Capital/Financial Account of the Balance of Payments.

Mark Scheme

• inflows of capital spending by foreign firms (1) • takeovers of domestic businesses by foreign-owned businesses / investors (FDI) (1) • inflows of money from overseas into government bonds / property (1) • inflows of ‘hot money’ into a country’s banking system seeking the highest rate of return (1) • portfolio and other investments eg purchase and sale of shares (1) • changes in the Reserve Account (1) • the balancing item which allows for errors and omissions (1) Award 1 mark for each valid description.

14.52021 5(d)3 marks

Describe the components of the current account of the Balance of Payments.

Mark Scheme

• trade in goods — the value of exports minus the value of imports of goods (1); usually in deficit in the UK (DEV) (1) • trade in services — the value of exports minus the value of imports of services (1); usually in surplus in the UK (DEV) (1) • investment income / net primary income eg interest/profits/dividends (1) • transfers / net secondary income eg overseas development aid (1) Candidates must describe at least 2 components.

14.62018 1(d)(i)2 marks

Explain the impact of rising inflation on the Balance of Trade.

Mark Scheme

• inflation increases prices (ID) which makes exports less attractive / competitive (1) • the volume/demand for exports will fall (ID) which has a negative effect on the Balance of Trade (1) • in comparison to high UK prices, imports will appear more attractive (ID) so demand for imports will increase (1); the Balance of Trade will worsen (DEV) (1) Max 1 development mark.

14.72018 1(d)(ii)3 marks

Other than the Balance of Trade, describe 3 components of the UK Balance of Payments.

Mark Scheme

Current Account: • trade in services — records the value of services traded between countries (1) • investment income / net primary income — shows net interest, profits and dividends between the UK and other countries (1) • current transfers / net secondary income — shows government and private transfers eg overseas development aid (1) Capital/Financial Account: • transfer of ownership of fixed assets (1) • FDI eg investment in land, premises and equipment (1) • portfolio investment — flows of money to buy stocks and shares overseas (1) • other investment eg ‘hot money’ (1) • reserve assets eg reserves of foreign currency managed by the Bank of England (1) • balancing item — net errors and omissions (1) Titles not required if descriptions are adequate.

14.82016 4(b)4 marks

Describe the components of the current account of the UK Balance of Payments.

Mark Scheme

• trade in goods — exports and imports of goods (1); in the UK this is currently in deficit (DEV) (1) • trade in services — exports and imports of services (1); in the UK this is currently in surplus (DEV) (1) • investment income — interest / profits / dividends (1) • transfers — when money moves without any product in exchange (1); eg aid payments towards international institutions eg EU, IMF (DEV) (1) Max 1 development mark.

15.12024 5(e)3 marks

Describe 3 ways in which developed economies can provide economic assistance to a developing economy.

Mark Scheme

• emergency aid — provide food/shelter in floods/earthquakes (1) • financial aid — give cash or loans (1) • medical aid — provide doctors/medicines/vaccinations (1) • debt relief — allow non-payment of debt or debt interest (1) • education aid — provide teachers / books (1) • capital equipment — provide machinery / generators / computers (1) • technical expertise — provide engineers / architects (1) • project aid — providing support for specific projects (1) • soft loans — loans given at lower-than-normal rates of interest (1) • free trade agreements — removal of trade barriers (1) • tied aid — cash on the understanding it is spent on exports of the donor country (1) • bilateral / multilateral aid (1) Candidates must describe 3 ways.

15.22024 2(d)4 marks

Distinguish between the economic characteristics of emerging and developing economies.

Mark Scheme

Developing / Emerging: • slow economic growth / rapid economic growth (1) • low productivity / rapid improvements in productivity (1) • low standards of living / improving standards of living (1) • underdeveloped industry/infrastructure / rapid industrialisation (1) • little FDI / attractive to FDI (1) • reliance on agriculture / secondary industry increasing rapidly (1) • exports limited to mostly primary products / diversifying exports (1) • low levels of savings/poor banking facilities / greater access to banking facilities and credit (1) • low education opportunities / investment in education (1) Candidates must make at least 2 distinctions.

15.32024 1(g)2 marks

Describe the role of the International Monetary Fund (IMF).

Mark Scheme

• aims to promote international economic co-operation (1) • lends money to governments (1) • gives monetary / fiscal / exchange rate policy advice (1) • makes funds available to countries to meet Balance of Payments needs (1) • encourages debt relief (1) • promotes stability in exchange rates (1) • assists countries switching to more market-based economic systems (1) • makes global economic assessments and predictions (1) Award 1 mark for each valid description.

15.42023 5(e)(i)2 marks

Describe the role of the World Trade Organisation (WTO).

Mark Scheme

• encourages free trade (1); by reducing tariffs and non-tariff barriers (DEV) (1) • regulates world trade (1) • mediates in trade disputes (1) • enforces members’ adherence to agreements / can impose penalties (1) Award 1 mark for each valid description. Award 1 mark for a valid development.

15.52023 5(e)(ii)2 marksHard

Describe the role of the World Bank.

Mark Scheme

• funds development projects in developing economies (1) • provides zero to low interest rate loans (1) • collects data on economies (1) • provides advice to developing economies (1) • aims to minimise poverty / boost prosperity for the poorest people (1) • helps create sustainable economic growth (1) Award 1 mark for each valid description.

Course Report 2023

Some candidates described the IMF instead of the World Bank — know the difference between these two institutions.

15.62023 2(b)2 marksSolid

Describe economic characteristics of an emerging economy.

Mark Scheme

• rapid/increasing economic growth (1) • rapid improvements in productivity (1) • improving standards of living (1) • rapid industrialisation (1) • attractive to FDI from multinationals (1) • employment in secondary industry is increasing rapidly (1) • exports are diversifying into a wider range (1) • easier access to banking facilities and credit (1) • investment in education and training (1) • improvements in infrastructure (1) Candidates must describe at least 2 characteristics. Do not accept social characteristics (literacy, infant mortality etc).

Course Report 2023

Most candidates scored well by describing the characteristics of an emerging economy, though some included social/political/geographical factors rather than economic ones.

15.72022 5(c)4 marks

Describe the economic characteristics of developing economies.

Mark Scheme

• low national income / GDP per capita (1) • dependence on a limited range of products for export revenues (1) • high dependence on primary industry / farming is a significant proportion of GDP (1) • poor infrastructure (1) • low levels of investment (1) • poor educational attainment (1) • low productivity (1) • high unemployment (1) • lack of new capital and technology (1) • low levels of saving and poor banking infrastructure (1) • dependency on aid (1) Candidates must describe at least 2 characteristics.

15.82022 5(d)4 marks

Explain the ways in which developed countries can assist a developing country to achieve economic growth.

Mark Scheme

• food aid (ID) — allows workers to be nourished/productive (EXP) (1) • capital/equipment (ID) — enables improved productivity and output (EXP) (1) • project aid (ID) — supports growth/improvements to infrastructure (EXP) (1); better infrastructure attracts more investment/creates better opportunities for growth (DEV) (1) • knowledge transfer/training (ID) — gives technical and managerial know-how to improve efficiency (EXP) (1) • free trade agreements (ID) — to make their products relatively less expensive/more competitive (EXP) (1) • soft loans at lower than normal rates of interest (ID) — allow purchase of capital equipment (EXP) (1) • debt relief / writing off debt (ID) — freeing the country from repayments (EXP) (1); allows financial resources to be redirected towards expanding output (DEV) (1) • medical aid (ID) — reduces illness/days lost/improves productive potential (EXP) (1) Candidates must explain at least 2 ways.

15.92022 5(e)3 marks

Explain the impacts of emerging economies on UK firms.

Mark Scheme

• significant and growing markets (ID) from which demand/profits can be generated (EXP) (1); eg luxury products such as whisky may experience high sales (DEV) (1) • access to cheaper land/labour/materials (ID) reducing production costs for UK firms (EXP) (1) • competitively priced manufactured goods exported from emerging economies (ID) generate increased competition for UK firms (EXP) (1); will reduce UK income/profits (DEV) (1) • increasing global demand for natural resources (ID) will increase production costs (EXP) (1) • some emerging nations are less regulated (ID) which can cause instability, making them riskier to trade with (EXP) (1) Candidates must explain at least 2 impacts.

15.102019 5(c)4 marks

Compare the economic characteristics of a developing economy and an emerging economy.

Mark Scheme

Developing / Emerging: • slow economic growth / rapid economic growth (1) • low productivity / rapid improvements in productivity (1) • low standards of living / improving standards of living (1) • underdeveloped industry/infrastructure / rapid industrialisation (1) • little FDI / attractive to FDI (1) • reliance on agriculture / secondary industry increasing rapidly (1) • exports limited / diversifying exports (1) • low levels of savings/poor banking / easier access to banking and credit (1) • low education opportunities / investment in education (1) Candidates must make at least 2 comparisons.

15.112019 5(d)(i)2 marks

Describe the role of the World Trade Organisation (WTO).

Mark Scheme

• aims to promote free trade (1) • attempts to remove barriers to trade (1) • holds trade rounds (1) • mediates in trade disputes (1) • enforces members’ adherence to agreements (1) • can impose penalties/compensation (1) Award 1 mark for each description.

15.122019 5(d)(ii)2 marksHard

Describe the role of the International Monetary Fund (IMF).

Mark Scheme

• aims to promote international economic co-operation (1) • lends money to governments (1) • gives monetary / fiscal / exchange rate policy advice (1) • makes funds available to countries to meet Balance of Payments needs (1) • encourages debt relief (1) • promotes stability in exchange rates (1) • assists countries switching to more market-based economic systems (1) Award 1 mark for each description. Credit references to current events eg Eurozone bail-outs.

Course Report 2019

Many candidates were unclear on the role of the International Monetary Fund.

15.132018 4(c)(i)4 marks

Describe the economic characteristics of a developing economy.

Mark Scheme

• general poverty — low GDP per capita (1) • low standard of living (1) • high dependence on agriculture / only a few industries (1) • low exports / limited exports (1) • underutilised resources / underemployment (1) • low level of government spending/revenue (1); resulting in poor infrastructure development (DEV) (1) • low standards of education/training (1) • low productivity (1) • lack of new capital and technology (1) • low levels of saving and poor banking infrastructure (1) • lack of basic infrastructures (1) • lack of foreign investment (1) • dependency on aid (1) Max 2 development marks. Candidates must describe economic characteristics. DNA basic social characteristics unless linked to economic justification.

15.142017 4(a)6 marks

Explain ways in which developed economies can provide economic assistance to developing countries.

Mark Scheme

• capital aid (ID) — to enable productivity improvements/greater output (1); can be equipment or loans/grants (DEV) (1) • technical aid (ID) — to enable better use of equipment (1); eg giving advice and training to local workers (DEV) (1) • educational aid (ID) — to improve literacy/basic education (1) • health aid (ID) — to improve health of workers (1); eg medicines and inoculations (DEV) (1) • tied aid (ID) — aid tied to buying particular capital equipment from the donor country (1); may lead to longer term problems of high payments to the donor (DEV) (1) • food aid (ID) — to ensure working population is fit to work (1); can lead to dependency/lack of self-sufficiency (DEV) (1) • free trade agreements (ID) — to reduce cost of exports (1) • project aid (ID) — to support particular issues (1); eg water purification (DEV) (1) • soft loans (ID) — to allow access to cheaper funding to invest in capital equipment (1) • debt relief / writing off debt (ID) — to reduce the burden of debt / allow financial resources to be redirected (1) Max 3 marks per explanation.

15.152017 4(b)4 marks

Describe ways in which the rapid growth of emerging economies might affect the UK economy.

Mark Scheme

• emerging economies provide a market for UK goods and services (1); their populations have increasing disposable incomes to spend on UK exports (DEV) (1); may improve the UK’s Balance of Payments (DEV) (1) • UK firms’ costs of production may increase due to increased demand on finite worldwide resources (1) • UK firms’ costs of production may decrease due to cheaper raw materials/components from emerging economies (1); may negatively affect the Balance of Payments (DEV) (1); firms may shed labour, causing unemployment (DEV) (1) • UK exporting firms may face increased competition (1) Max 3 marks per effect described.

15.162016 4(c)5 marks

Describe the theories of absolute and comparative advantage.

Mark Scheme

Absolute advantage: • refers to a situation where countries are more efficient at producing some goods/services than others (1); could be due to low cost labour / high skilled labour / factor endowment / climate (DEV) (1) • eg China has a large low-cost labour force giving it an absolute advantage in textile production (DEV) (1) • any country with an absolute advantage should specialise and trade (DEV) (1); this leads to increased world output and improved living standards (DEV) (1) Comparative advantage: • shows that even if a country is less efficient at producing all goods and services it should still trade (1) • such countries should examine opportunity costs of production to identify goods/services they are ‘least worse’ at producing (1) • such countries should trade in the good/service which incurs the lowest opportunity cost (1) Max 3 marks per theory. Max 1 mark for a diagram. Max 2 marks for a numerical example.