Identify two functions of money.

[2] Jun 21

Two from: Medium of exchange, store of value, standard of deferred payments, unit of account /
measure of value.

Identify two industries, other than agriculture, that operate in the primary sector. [2] Jun 21

Two from e.g.: Mining, fishing, forestry, oil extraction

Define the labour force. [2] Jun 21

• Those who are economically active (2). • Those willing (1) and able to (work) (1). • The employed (1)
and the unemployed (1).

Explain two reasons why commercial banks may want to merge. [4] Jun 21

Logical explanation which might include: Greater market power/share (1) eliminating a competitor /
providing a greater range of services (1). More opportunity to take advantage of economies of scale (1)
lower costs of production / higher profit / example e.g. share ATMs (1). May enable the merged bank to
operate in more than one country / become a multinational company (1) access to new market (1).
Become better known (1) large banks may be more likely to have a brand image (1). May enable
rationalisation (1) eliminate duplication / rase efficiency (1). Survival (1) may have been loss making / at
risk of going out of business (1).

Explain the difference between private and external benefits. [4] Nov 21

Logical explanation which might include: Private benefits are enjoyed by the producer (1) and consumer
(1) first and second parties (1) of a product, example e.g. revenue for the producer / satisfaction for the
consumer (1). External benefits are enjoyed by a third party (1) not directly involved in the production
(1) or consumption process (1) example (1)

Define division of labour. [2] Nov 21

Workers specialising (1) in particular tasks / repeating the same task (1). Breaking down production into
different / separate tasks (1) using different workers for the different tasks (1).

Define total revenue. [2] Nov 21

Total amount of money earned by firms (1) for selling their products (1). Price times quantity (2), P × Q
(2) Total costs plus profit (2).

Explain the difference between labour-intensive and capitalintensive industries. [4] Nov 21

Logical explanation which might include: Labour-intensive industries rely more on human labour (1) i.e.
workers (1) low-cost labour may be available (1) example of industry (1) Capital-intensive industries rely
more on capital (1) i.e. machines (1) capital more efficient / cheaper than labour (1) example of industry

Explain, with examples, the difference between the secondary sector and the tertiary sector. [4] Nov
21
Logical explanation which might include: Secondary sector covers manufacturing (and construction) /
converts primary products into finished goods (1) e.g. car industry (1). Tertiary sector covers services /
final stage of production (1) e.g. insurance (1)

Explain two ways a firm could increase the productivity of its workers. [4] Jun 21

Logical explanation which might include: • Raise wages / performance related pay / commissions (1)
increase motivation of workers (1). • Provide training (1) increase workers’ skills / efficiency (1). •
Division of labour by firm (1) enables greater specialisation (1) • Buy capital goods / invest (1) workers
will be working with better equipment (1). • Reduce working hours (1) workers may feel fresher / more
alert (1). • Improve working conditions (1) reduce stress (1). • Subsidise workers’ healthcare (1) making
them fitter / fewer days lost through illness (1). • Working from home (1) reduce stress from travelling
(1).

Explain two reasons why a loss-making firm may continue to produce. [4] Nov 21

Logical explanation which might include: May not expect the loss to last (1) may think demand will
rise/costs will fall in the future (1). May be subsidised by the government (1) to e.g. promote social
welfare/encourage consumption of merit goods/increase exports/respond to dumping by other
countries (1). May lower prices to drive out competitors/increase market share (1) raising price when
successful (1). May accept losses in short-term (1) in order to expand in long-term (1) May have high
retained profits (1) to allow for downturns in demand/cover the losses (1). May be a new firm (1) in the
process of growth/trying to survive (1). A firm’s main objective may not be profit maximisation (1) e.g.
growing market share/charity/provides public goods (1).

Explain two reasons why households may save less even though their income has increased. [4] Nov
21

Logical explanation which might include: Fall in the rate of interest (1) which would reduce the return
from saving / spend/borrow rather than save (1). Inflation (1) spend more now before prices rise further
/ may reduce the real rate of interest (1). Increase in confidence about the future (1) less motive to save
for hard times / less concerned will experience unemployment or fall in income (1). Fall in range,
number or reliability of financial institutions (1) which would reduce the safe places to save (1). Greater
consumption opportunities / spend more / higher living standards (1) with the introduction of new
products / lower prices / may be able to afford private education / healthcare (1). Increase in taxes (1)
reducing disposable income (1). Rise in family size (1) increasing household expenses (1). Rise in debt (1)
may reduce ability of households to e.g. to put money into a savings account (1). Change in social
attitudes (1) due to e.g. change in age of households (1).

Analyse the advantages that consumers may gain from a competitive market. [6] Nov 21

Coherent analysis which might include: Wide choice of producers (1) producing a similar product (1).
Efficiency (1) better quality (1) greater choice of products (1) firms may innovate (1) as firms try to gain a
larger share of the market (1). Lower price (1) as firms try to beat competition (1) increasing consumers’
purchasing power/standard of living (1). Raise consumer sovereignty (1) firms may respond quickly to
changes in consumer demand (1).

Analyse how trade unions could increase economic development. [6] Nov 21
Coherent analysis which might include: Trade unions could help engage in collective bargaining on
wages (1) higher wages (1) leads to higher purchasing power of workers (1). May increase motivation of
workers (1) increase output (1). Better working hours (1) improved working conditions (1) protect
workers’ rights (1) better health and safety (1) more job security (1) leads to higher standards of living
(1) higher life expectancy (1). Increased productivity / efficiency of workers (1) decreases cost of
production (1) decrease final price of goods and services produced in the country (1) increase
competitiveness (1) higher output / economic growth (1). May help with training (1) raise quality of
output (1).

Analyse why a firm may become more capital intensive. [6] Jun 21

Coherent analysis which might include: The cost of capital may fall / the price of labour may rise (1)
lowering costs of production (1) making the firm more price-competitive (1) may increase profits (1).
Advances in technology (1) may improve the quality of capital (1) making it more productive / efficient
(1) may increase the quality of products produced (1) raise demand for the products produced (1). Firms
may want to reduce human error / more consistent quality / uniform products (1) reduce wastage (1).
Firms may want to avoid disruption to production (1) caused by industrial action / strikes / sickness (1)
capital equipment does not need to take breaks / can work 24 hours a day (1). There may be a shortage
of labour (1) making it difficult to recruit workers (1). A government may reduce taxes on capital goods
(1) provide subsidies (1) the rate of interest may be reduced (1) making capital goods more affordable
(1). The firm’s output may rise (1) reducing the average fixed cost of capital / benefiting from economies
of scale (1).

Analyse how average cost can change as output increases. [6] Nov 21

Average cost may fall due to economies of scale (1) example of an economy of scale e.g. financial
economy (1) explanation of the example (up to 2 marks) e.g. banks may charge lower interest rates (1)
reducing firms’ cost of borrowing (1).

Another example e.g. buying economy (1) explanation of the example (up to 2 marks) e.g. able to buy in
bulk (1) and receive a discount (1). Higher output may enable fixed costs to be spread over a larger
output (1) which may reduce average fixed costs (1) whether average total cost will fall will depend on
what happens to average fixed cost plus average variable cost (1).

Average cost may rise due to diseconomies of scale (1) example e.g. managerial economy (1)
explanation of the example (up to 2 marks) e.g. difficulty of keeping control of a large organisation (1)
leading to more mistakes / poor decision making (1). Another example e.g. poor labour relations (1)
explanation of the example (up to 2 marks) e.g. lack of contact between workers and managers (1) may
be strikes (1).

Analyse how a trade union may benefit its members. [6] Nov 21

Coherent analysis which might include: A trade union may negotiate with employers (1) to raise wages
(1) improve working conditions (1) example (1) increase fringe benefits (1) example (1) through
collective bargaining (1) and sometimes industrial action / strikes (1). A trade union may settle disputes
between the employer and the workers (1) e.g. over changes in working practices (1) protect workers’
rights (1). A trade union may seek to protect the employment of its members (1) in some cases
negotiate favourable redundancy terms (1). A trade union may negotiate / put pressure on the
government (1) to e.g. raise a national minimum wage or reduce the retirement age (1). In some
countries, trade unions provide benefits and services to members (1) e.g. training services (1).

Discuss whether or not a government should stop firms merging. [8] Nov 21

In assessing each answer, use the table opposite.

Why it should:

• will have greater market share • may abuse greater market power • may become complacent •
consumers may experience higher prices and lower quality • may engage in rationalisation • may
increase unemployment • may experience diseconomies of scale

Why it should not:

• may innovate more • may provide consumers with lower prices and higher quality • may be more
international competitive • may improve current account position • may increase economic growth •
may experience economies of scale

Discuss whether or not a firm should have growth as its main objective. [8] Jun 21

In assessing each answer, use the table opposite.

Why it should:

• may increase market share • may increase market power • may increase profits / keep shareholders
happy • may enable the firm to take greater advantage of economies of scale • may increase pay and
job security of managers / directors • may make it more difficult for another firm to take it over as will
involve a greater cost

Why it might not:

• if demand is falling, survival may be a more appropriate main objective • if demand is limited e.g. a
niche market, growth may be an unlikely objective • profit maximisation as an objective, if successful,
will provide the funds for growth in the longer run • state-owned enterprise may have social welfare as
an objective • growth may result in diseconomies of scale • growth may put pressure on workers which
could lower productivity / result in higher labour turnover • may make it more attractive for a firm to
take it over

Discuss whether or not it is an advantage to keep a firm small. [8] Jun 21

In assessing each answer, use the table opposite.

Why it might:

• flexible, less people to consult, more in touch with consumers • may be able to provide more personal
attention • may receive government subsidies • may be able to concentrate on a niche market • may
have good labour relations • may avoid diseconomies of scale

Why it might not: