Economics 9708/23 May/June 2021: question paper and mark scheme

Mark scheme

1(a)(i) Use the information in Fig.1.1 to describe the changes in 2 The data clearly shows that overall during the period the number of journeys by bus in Great Britain from bus passenger journeys outside of London have fallen 1997/98 to 2017/18. BUT within London, over the same period bus passenger journeys have increased. Various possibilities including: Within London, passenger journeys increased up to • Bus passenger journeys outside London have fallen 2013/14 but declined thereafter. over the period/from c 3.2 bn to c 2.7bn • Bus passenger journeys in London increased up to 2013/14 but have then fallen slightly/overall have increased/from c 1.3 bn to c2.3 bn • Overall bus passenger journeys have increased (1 mark for any of these) 1(a)(ii) Using the information in Fig.1.2, explain one of the 2 Explanations are likely to focus on price elasticity of changes you have identified. demand/consumer preferences and/or cross elasticity of demand/degree of substitutability between bus Various possibilities including: journeys and other forms of transport. • Public transport fares have increased above the rate of inflation • Bus passenger fares have increased faster than rail fares for most of the period • Bus fares have increased at their largest rate of growth since 2016 • Substituting bus journeys for rail journeys Identify the factor (1 mark) and explain with reference to the selected change in 1(a)(i) (1 mark) OFR applied if candidate wrongly identifies changes for part a but then provides a valid explanation 1 +1 1(b) Explain how opportunity cost can be applied to the Great 2 Valid examples could include money committed to British government’s decision to subsidise public subsidising public transport may have been used for transport. new roads, education, health services etc. A simple understanding of what opportunity cost is (1 mark) Which is applied to a valid example in context (1 mark) 1(c) Explain whether public transport in Luxembourg has 2 Explanation must refer to factors of production being become a free good as a result of all prices being needed to provide transport services i.e. there is a cost removed. involved which is not the case with free goods Explain what is meant by a free good (1 mark) Do not reward answers that clearly confuse free goods with public goods Explain why this is not a free good (1 mark) 1(d) Discuss whether a minimum price for fuel would be 6 A minimum price for fuel above the equilibrium price effective in reducing the congestion caused by the would increase the price for car users and in theory, demand for roads exceeding supply. lead to reduced demand and reduced congestion. However, this would only be effective if the demand for For an analysis of the effect of introducing a minimum price in fuel was price elastic. In addition, it will lead to excess a market. (up to 3 marks) supply and the possible formation of informal markets. It also depends on the ability of the government to For analysis which explains why a minimum price may not be maintain and enforce the minimum price. effective. (up to 3 marks) MAXIMUM of 5 marks for analysis 1 mark for a justified conclusion as to whether a minimum price would be effective in reducing congestion 1(e) Discuss whether making public transport free to 6 Various alternative policies could be consumers is the best way to allocate resources in public transport markets. – Maximum prices for bus and rail fares – Transfer payments for bus and rail transport users Analysis of the benefits of free public transport – Subsidies (up to 3 marks) Analysis of the benefits of any other valid policy (up to 3 marks) MAXIMUM of 5 marks for analysis Award up to 1 mark for an evaluation of which policy is likely to be the most effective

Mark scheme

2(a) Market research has estimated that the cross-elasticity of 8 An increase in the price of flights to Barbados will lead demand for hotels in Barbados with respect to the price to a larger percentage fall in demand for hotel of flights to Barbados is –2.5, and that the cross- accommodation (complements) and a smaller elasticity of demand for flights to Antigua with respect to percentage increase in demand for flights to Antigua the price of flights to Barbados is +0.5. (substitutes). Explain what is meant by cross-elasticity of demand and In the explanations, reference must be made to the what these values mean in terms of the effect of changes significance of the size of the coefficient for the third in the price of flights to Barbados on mark (i) the demand for hotels in Barbados, and (ii) the demand for flights to Antigua. For knowledge and understanding of the concept of cross elasticity of demand. What it measures (1 mark) and the formula (1 mark) (i) Identify that this would suggest hotels are a complement to flights due to the negative sign (1 mark) explain why the value is negative (1 mark) with reference to the size of the coefficient (1 mark) (up to 3 marks) (ii) Identify that this would suggest that flights to Antigua are a substitute for flights to Barbados due to the positive sign (1 mark) explain why the value is positive (1 mark) with reference to the size of the coefficient (1 mark) (up to 3 marks) 2(b) Growing pressures on the budget and on the 12 The effectiveness of the tax will depend on the PED for environment from increasing tourist numbers to holidays in Barbados; incidence will vary with rate of Barbados led the government to announce a new indirect tax. tax on incoming tourists in June 2018. A diagram would help here although it is not essential. Discuss the likely effectiveness of the new indirect tax in raising tax revenue and reducing tourist numbers. There are no KU marks awarded in part b for merely explaining/defining terms or phrases within the For an analysis of how the new tax will raise tax revenue and question reduce tourist numbers (up to 4 marks) For an analysis of other factors which may reduce the effectiveness of the new indirect tax (up to 4 marks) Up to 4 marks for an evaluation of the likely impact on the market of the new indirect tax, that may also consider other ways in which the government could raise additional revenue and reduce tourist numbers. Reserve 1 mark for a reasoned conclusion as to whether the new indirect tax would be truly effective

Mark scheme

3(a) Explain what is meant by aggregate supply and explain 8 A shift outwards of the AS curve can be due to one reason why the aggregate supply curve of an economy would shift outwards in – an increase in the supply of labour – net investment (i) the short run, and – other factor inputs – devaluation of the exchange rate (ii) the long run. – government regulations – discovery of new resources For explanation of aggregate supply e.g. total output in an – better education and training economy (1 mark) that distinguishes between short run and – advances in technology long run (1 mark) (up to 2 marks) Identify a reason (1 mark) plus up to 2 marks for an explanation of why this causes the SRAS to move outwards. (up to 3 marks) Identify a reason (1 mark) plus up to 2 marks for an explanation of why this causes the LRAS to move (up to 3 marks) 3(b) Discuss whether an increase in aggregate demand would 12 A good answer should consider firms, government and be of overall benefit for an economy. consumers/workers For an analysis of the benefits of an increase in aggregate The benefits for an increase in AD may include demand to the economy (up to 4 marks) economic growth, higher employment etc The problems may include inflation, current account For an analysis of the possible problems for an economy if deficit etc aggregate demand increases (up to 4 marks) There are no KU marks awarded in part b for merely Up to 4 marks for an evaluation which clearly compares the explaining/defining terms or phrases within the benefits and the problems for an economy resulting from an question increase in AD with one mark reserved for a reasoned conclusion

Mark scheme

4(a) Explain how a free trade area differs from a customs 8 The description of the principle of comparative union and explain two reasons why countries move advantage is not required. towards tariff-free trade. The main difference is in terms of a common external Up to 2 marks for an explanation of the difference between a tariff in a customs union. Reference to common policies free trade area and a customs union. as in the case of the EU is also OK. Knowledge and understanding of what is meant by a free trade area (1 mark) and knowledge and understanding of Various benefits of free trade include how this differs from a customs union (1 mark) – specialisation – higher living standards Identify a reason why countries may move to tariff free trade – cheaper and better quality products and more (1 mark) and up to 2 marks that clearly explains the benefits choice to countries × 2 (3 marks maximum per reason) – increased employment – to benefit from the principle of comparative advantage 4(b) Discuss the view that the gains from tariff-free trade are 12 This is an unusual statement, given that economic greater for countries who are net importers than for theory tends to concentrate on the benefits of increased countries who are net exporters. exports not imports. Up to 4 marks for an analysis of the benefits/gains The benefits from tariff-free imports can include /advantages and disadvantages from tariff-free trade for cheaper supplies, better quality and range of goods, countries who are net importers. Maximum of 3 marks for puts pressure on domestic producers to be more answers that only considers either advantages or efficient etc. But the disadvantages may include a disadvantages threat to domestic businesses. Up to 4 marks for an analysis of the benefits/gains The benefits for net exporters include higher growth, /advantages and disadvantages from tariff free trade for increased employment etc. but the disadvantages may countries who are net exporters. Maximum of 3 marks for include higher inflation. answers that only considers either advantages or disadvantages There are no KU marks awarded in part b for merely explaining/defining terms or phrases within the Up to 4 marks for an evaluation that clearly compares the question impact of tariff free trade on both countries who are net importers and those who are net exporters with 1 mark reserved for a valid conclusion as to whether the statement may be justified.