Economic Principles and Issues · 7136/3

AQA A-level Paper 3, June 2019

All 3 written questions and 30 multiple choice questions from AQA A-level Paper 3 (June 2019), Economic Principles and Issues. Case studies: The UK’s broken housing market. Each question shows its marks and topic, with an examiner insight on 3, and opens the question paper and mark scheme at the right page.

Question paperMark schemeInsert

Case study

The UK’s broken housing market

Extracts: The UK housing market · Putting a roof over our heads · Selected indicators of the affordability of buying a house · Changing UK house prices · Mending the UK’s broken housing market

Q31To what extent10 marks
To what extent, if at all, do the data suggest that houses in the UK were more affordable in 2017 than they were in 2007? You must use the data in Extract C to support your assessment.

TopicPrice determination in a competitive marketDemand & supplyInequality & poverty

Examiner insight

What to cover
Use the data on house prices, incomes and mortgage rates to judge affordability.
Evaluation
Judge overall change using multiple indicators.
Watch out
Quote numbers from the extract.
Question paper p.18Mark scheme p.5Insert p.2Open in the tool
Q32Explain15 marks
Explain the likely causes of the main changes in house prices that have taken place between 2007 and 2017.

TopicPrice determination in a competitive marketDemand & supply

Examiner insight

What to cover
Falls after 2007: recession, credit crunch, weaker confidence. Rises later: low interest rates, housing shortage, inelastic supply, population growth, help-to-buy schemes.
Diagram
Housing market diagram with inelastic supply and shifts in demand.
Watch out
Use the data and split the decade into periods.
Question paper p.22Mark scheme p.8Insert p.2Open in the tool
Q33Recommend25 marks
After considering Extract E, and the original evidence in Extracts A, B, C and D, would you recommend that the Government should increase its spending on housing? Justify your recommendation.

TopicFiscal policy and supply-side policiesFiscal policy & public financesSupply-side policiesDemand & supply

Examiner insight

What to cover
Case for more spending: housing shortage, affordability, merit good, external benefits, jobs in construction.
Evaluation
Consider cost, national debt, crowding out, planning limits and alternatives. Make a clear recommendation.
Watch out
Paper 3 recommendations need a decision and conditions.
Question paper p.27Mark scheme p.10Insert p.2Open in the tool
Q11 mark
A monopolistically competitive firm’s demand curve is
  1. Aalso the market demand curve.
  2. Binelastic throughout its length.
  3. Cthe firm’s average revenue curve.
  4. Dthe same as its marginal revenue curve.
Show the answer

The answer is C.

TopicMarket structuresMonopolistic competitionRevenue & profit

Question paper p.2Mark scheme p.3Open in the tool
Q21 mark
The table below contains selected data on a country’s macroeconomic performance over a 20 year period.
Balance of trade Unemployment Rate of inflation on current Year (%) (%) account ($ bn) 1998 6.0 3.5 –20 2003 5.8 3.0 –19 2008 5.5 2.5 –12 2013 5.2 2.0 –2 2018 5.0 1.5 +3 All other things being equal, which one of the following, A, B, C or D, can be inferred from the above data?
  1. AThe natural rate of unemployment is falling
  2. BThe price level is increasing more slowly
  3. CThe volume of exports is increasing
  4. DThere is an inverse relationship between unemployment and inflation
Show the answer

The answer is B.

TopicEconomic performanceUnemploymentInflation & deflationMacro objectives & conflicts

Question paper p.3Mark scheme p.3Open in the tool
Q31 mark
Which one of the following is most likely to result in complete market failure?
  1. ANegative externalities in production and consumption
  2. BNon-excludability and no enforceable property rights
  3. CThe existence of demerit goods in some markets
  4. DThe government setting maximum prices for excludable and rival goods
Show the answer

The answer is B.

TopicMarket failure and government interventionMarket failure (general)

Question paper p.3Mark scheme p.3Open in the tool
Q41 mark
The diagram below shows the aggregate demand (AD) curve, the long-run aggregate supply (LRAS) curve, and two short-run aggregate supply (SRAS1 and SRAS2) curves for an economy. The economy’s initial equilibrium is at E1.
The most likely explanation for the move of the economy from its initial equilibrium at E1 to a new short-run equilibrium at E2 is a decrease in the
  1. Alevel of tariffs on imports.
  2. Bproductivity of capital.
  3. Crate of wage inflation.
  4. Dvalue of government subsidies to farmers.
Show the answer

The answer is A.

TopicHow the macroeconomy works (AD/AS)Aggregate demandAggregate supply

Question paper p.4Mark scheme p.3Open in the toolPractise the AD/AS diagram
Q51 mark
Which one of the following policies is most likely to improve the supply side of the economy? A policy which
  1. Aincreases the budget surplus.
  2. Breduces the natural rate of unemployment.
  3. Cshifts resources from capital to labour intensive industries.
  4. Dshifts the burden of tax from indirect to direct taxation.
Show the answer

The answer is B.

TopicFiscal policy and supply-side policiesSupply-side policies

Question paper p.4Mark scheme p.3Open in the tool
Q61 mark
The diagram below shows the market demand (D) curve and two supply (S1 and S2) curves for a brand of soft drink. The drink is a demerit good because of its high sugar content. The government imposes an indirect tax on each can sold that cuts consumption by 100 000 cans per week.
If the price elasticity of demand for the drink is –2.0, the price must have increased by
  1. A5p
  2. B10p
  3. C15p
  4. D20p
Show the answer

The answer is B.

TopicMarket failure and government interventionIndirect taxes & subsidiesPrice elasticity of demand

Question paper p.5Mark scheme p.3Open in the toolPractise the indirect tax diagram
Q71 mark
The hypothesis of diminishing marginal utility
  1. Aassumes that at least one factor of production is fixed in the short run.
  2. Bcan be used to help explain why a demand curve is downward sloping.
  3. Cexplains why firms try to maximise profit.
  4. Dstates that total utility must fall as consumption increases.
Show the answer

The answer is B.

TopicIndividual economic decision makingUtility

Question paper p.5Mark scheme p.3Open in the tool
Q81 mark
A rational, utility maximising consumer is considering the purchase of a used car. Her final choice is between two cars which are identical in all respects except for the differences shown below.
Period of Price guarantee against faults Car 1 £8 000 3 months Car 2 £10 000 12 months Based on the above information, which one of the following is the most likely explanation for the customer’s purchase of Car 2? She
  1. Ahas £10 000 of savings available to buy herself a used car.
  2. Bhas a positive income elasticity of demand for used cars.
  3. Chas a price inelastic demand curve for used cars.
  4. Dwants to reduce the risks from asymmetric information.
Show the answer

The answer is D.

TopicIndividual economic decision makingBehavioural economicsUtility

Question paper p.6Mark scheme p.3Open in the tool
Q91 mark
All other things being equal, if the velocity of circulation is constant, the quantity theory of money based on Fisher’s equation of exchange, MV=PQ, predicts that an x% increase in the money supply will always cause an x%
  1. Adecrease in the rate of interest.
  2. Bincrease in nominal national income.
  3. Cincrease in real national income.
  4. Dincrease in the rate of economic growth.
Show the answer

The answer is B.

TopicFinancial markets and monetary policyMoney & bankingInflation & deflation

Question paper p.6Mark scheme p.3Open in the tool
Q101 mark
The diagram below shows the aggregate demand (AD) curve, the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve for an economy.
The economy’s initial equilibrium is at E1.
The government wants to achieve economic growth without conflicting with its long-run objective of price stability. All other things being equal, which one of the following policy combinations is most likely to enable the economy to achieve a new long-run equilibrium at E2?
  1. AA reduction in interest rates and increased government borrowing.
  2. BA reduction in the budget deficit and the rate of growth of the money supply.
  3. CIncreased government expenditure on apprenticeships and transport infrastructure funded through borrowing.
  4. DIncreased government expenditure on welfare funded through higher indirect taxes.
Show the answer

The answer is C.

TopicHow the macroeconomy works (AD/AS)Aggregate demandAggregate supplyEconomic growth & cycleMacro objectives & conflicts

Question paper p.7Mark scheme p.3Open in the toolPractise the AD/AS diagram
Q111 mark
The table below shows how a firm’s total cost of producing handbags changes as output increases.
Output Total cost per month (handbags per month) (£) 0 45 000 1 000 165 000 2 000 250 000 3 000 360 000 What is the average fixed cost of producing 3 000 handbags per month?
  1. A£15
  2. B£105
  3. C£110
  4. D£120
Show the answer

The answer is A.

TopicProduction, costs and revenueCosts & economies of scale

Question paper p.8Mark scheme p.3Open in the tool
Q121 mark
The existence of negative externalities in consumption results in a misallocation of resources. This is because at the free market level of output the
  1. Amarginal private benefit is greater than the marginal private cost.
  2. Bmarginal private cost is greater than the marginal social cost.
  3. Cmarginal social benefit is less than the marginal social cost.
  4. Dmarginal social cost is less than the marginal private benefit.
Show the answer

The answer is C.

TopicMarket failure and government interventionExternalities

Question paper p.8Mark scheme p.3Open in the tool
Q131 mark
The diagram below shows the actual level of real GDP and the trend level of real GDP over time for an economy. The economy starts its recovery from recession at point M.
After several years of growth the economy reaches point N.
All other things being equal, which one of the following is the most likely consequence of the economy’s growth path between points M and N?
  1. AA decrease in the level of interest rates due to deflation.
  2. BA decrease in the rate of inflation due to increased output.
  3. CAn increase in investment due to the accelerator process.
  4. DAn increase in the value of the multiplier due to a rise in the savings ratio.
Show the answer

The answer is C.

TopicMeasuring macroeconomic performanceGDP & national incomeEconomic growth & cycle

Question paper p.9Mark scheme p.3Open in the toolPractise the economic cycle diagram
Q141 mark
All other things being equal, which one of the following would be most likely to result in a reduction in inequality in the distribution of income in the UK? An increase in the
  1. Aamount of government tax revenue.
  2. Baverage standard of living.
  3. Clevel of median income.
  4. Dshare of income of the lowest quintile.
Show the answer

The answer is D.

TopicDistribution of income and wealthInequality & poverty

Question paper p.9Mark scheme p.3Open in the tool
Q151 mark
The table below shows different combinations of changes in the rate of interest and the government’s budget position. The economy has a negative output gap. All other things being equal, which one of the combinations of policies, A, B, C or D, is most likely to reduce the economy’s negative output gap?
Rate of interest Government’s budget position
  1. AIncrease Decrease in surplus
  2. BDecrease Increase in surplus
  3. CIncrease Decrease in deficit
  4. DDecrease Increase in deficit
Show the answer

The answer is D.

TopicEconomic performanceEconomic growth & cycleMonetary policy & interest ratesFiscal policy & public finances

Question paper p.10Mark scheme p.3Open in the tool
Q161 mark
The table below shows the value of the Gini coefficient for a country between 2012 and 2016. Over the five year period, the government has used progressive taxation to change the distribution of income.
Year Gini coefficient 2012 0.60 2013 0.55 2014 0.50 2015 0.45 2016 0.40 Based on the above data, which one of the following is a positive statement?
  1. AA progressive tax system is the fairest way of correcting income inequality.
  2. BBetween 2012 and 2016 the distribution of income in the country became more equal.
  3. CThe Gini coefficient is the best way of measuring changes in the distribution of income.
  4. DThe government should continue to tax the rich to improve the distribution of income.
Show the answer

The answer is B.

TopicEconomic methodology and the economic problemPositive & normativeInequality & poverty

Question paper p.10Mark scheme p.3Open in the tool
Q171 mark
The UK’s labour productivity increases by only 10% over a five year period. Over the same period its main trading partners increase their productivity by 25%. All other things being equal, the most likely consequence for the UK is
  1. Aa decline in UK imports from its main trading partners.
  2. Ba 15% deterioration in its balance of trade on the current account.
  3. Ca loss of competitiveness against its main trading partners.
  4. Dthe imposition of a 15% tariff on imports to maintain international competitiveness.
Show the answer

The answer is C.

TopicThe international economyTrade & comparative advantageProductivity & efficiency

Question paper p.11Mark scheme p.3Open in the tool
Q181 mark
The diagram below shows the kinked demand curve (D) for a firm operating in a competitive oligopolistic market.
The kinked demand curve model provides an explanation of why the
  1. Afirm colludes with competitors to set the price of 0P1.
  2. Bfirm’s demand curve becomes more elastic as it lowers its price.
  3. Cfirm’s price changes depend on competitors’ pricing behaviour.
  4. Dfirm won’t change its price from 0P1 even if competitors change their prices.
Show the answer

The answer is C.

TopicMarket structuresOligopoly

Question paper p.11Mark scheme p.3Open in the toolPractise the kinked demand diagram
Q191 mark
A large Asian steel-producing country dumps its surplus steel on the world market. All other things being equal, if the demand for steel is price elastic, the most likely consequence for the EU market for steel will be to
  1. Areduce excess capacity in the EU steel-making industry.
  2. Breduce the value of steel imports into the EU.
  3. Cshift the demand curve for EU steel workers to the left.
  4. Dshift the supply curve of EU steel workers to the left.
Show the answer

The answer is C.

TopicThe international economyProtectionism & trading blocs

Question paper p.12Mark scheme p.3Open in the tool
Q201 mark
A company has an issued share capital of £1 million and an outstanding corporate bond issue of £200 000. To fund its expansion, the company issues additional corporate bonds for £300 000. All other things being equal, after the issue of the additional corporate bonds the ratio of the company’s total debt to its equity will be
  1. A0.2:1
  2. B0.3:1
  3. C0.5:1
  4. D2.0:1
Show the answer

The answer is C.

TopicFinancial markets and monetary policyMoney & banking

Question paper p.12Mark scheme p.3Open in the tool
Q211 mark
Despite its central bank operating a policy of quantitative easing for several years, an economy has rising unemployment and a rate of inflation significantly below the target rate set by the government. All other things being equal, which one of the following actions is the central bank most likely to take in order to meet the target for inflation?
  1. AA policy leading to an appreciation of the exchange rate.
  2. BAn increase in its base rate of interest and the reversal of its quantitative easing policy.
  3. CProviding forward guidance indicating that the bank will continue with its programme of quantitative easing.
  4. DSelling some of its stock of government bonds to other financial institutions.
Show the answer

The answer is C.

TopicFinancial markets and monetary policyMonetary policy & interest ratesInflation & deflation

Question paper p.12Mark scheme p.3Open in the tool
Q221 mark
Beef and leather are in joint supply. Changes in farming methods have resulted in a significant fall in the price of chicken, a substitute for beef. All other things being equal, which one of the following diagrams, A, B, C, or D, best illustrates the effects of the fall in the price of chicken on the market for leather?
  1. A(see diagram in paper)
  2. B(see diagram in paper)
  3. C(see diagram in paper)
  4. D(see diagram in paper)
Show the answer

The answer is A.

TopicPrice determination in a competitive marketDemand & supply

Question paper p.13Mark scheme p.3Open in the toolPractise the supply and demand diagram
Q231 mark
The table below shows different combinations of changes in a commercial bank’s liquidity and capital ratios. All other things being equal, which one of the following combinations, A, B, C or D, is most likely to improve the bank’s financial stability?
Liquidity ratio Capital ratio
  1. AIncrease Decrease
  2. BIncrease Increase
  3. CDecrease Increase
  4. DDecrease Decrease
Show the answer

The answer is B.

TopicFinancial markets and monetary policyMoney & banking

Question paper p.14Mark scheme p.3Open in the tool
Q241 mark
An economy had a 3% increase in its real GDP over a one year period. In the same period its population grew by 5% and its rate of inflation was 2.5%. From these data it can be inferred that
  1. Aits Human Development Index decreased by 2%.
  2. Bnominal GDP per capita increased.
  3. Creal wages fell due to inflation.
  4. Dthe number of unemployed people increased.
Show the answer

The answer is B.

TopicMeasuring macroeconomic performanceGDP & national incomeInflation & deflation

Question paper p.14Mark scheme p.3Open in the tool
Q261 mark
All other things being equal, which one of the following is most likely to cause the marginal revenue product of labour curve in the shoe manufacturing industry to shift to the right?
  1. AA decrease in money wage rates in the shoe industry.
  2. BA decrease in the number of workers employed in the shoe industry.
  3. CAn increase in the market demand for shoes.
  4. DAn increase in the number of firms competing in the shoe industry.
Show the answer

The answer is C.

TopicThe labour marketLabour demand & supply

Question paper p.15Mark scheme p.3Open in the tool
Q281 mark
A country experiences a large net capital outflow. All other things being equal, the most likely consequence of this in the short run will be a decrease in
  1. Aits exchange rate.
  2. Bits net income from overseas investments.
  3. Cits rate of interest.
  4. Dthe value of exports and imports.
Show the answer

The answer is A.

TopicThe international economyExchange ratesBalance of payments

Question paper p.16Mark scheme p.3Open in the tool

Question text is quoted from the question papers, © AQA, for students’ private study. Open the official papers and mark schemes from the links on each question. Examiner insights are written with AI assistance and moderated by Finn.