Economic Principles and Issues · 7136/3

AQA A-level Paper 3, November 2020

All 3 written questions and 30 multiple choice questions from AQA A-level Paper 3 (November 2020), Economic Principles and Issues. Case studies: Changing living standards and inequality in the UK. 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 schemeInsertExaminer report

Summer exams were cancelled, so this paper was sat in the autumn series. The paper itself is headed June.

Case study

Changing living standards and inequality in the UK

Extracts: UK living standards since the 2007–2008 financial crisis · Selected indicators of UK living standards · Growth of the world economy is set to slow in 2019 · The National Living Wage and living standards

Q31To what extent10 marks
To what extent, if at all, do the data suggest that living standards in the UK improved between 2007 and 2017? You must use the data in Extract B to support your assessment.

TopicMeasuring macroeconomic performanceLiving standards & wellbeing

Examiner insight

What to cover
Use real wages, GDP per head, employment and inequality data to judge living standards.
Evaluation
Judge overall: some indicators improved, others fell.
Watch out
Quote numbers from Extract B.
Question paper p.18Mark scheme p.5Insert p.2Examiner report p.3Open in the tool
Q32Explain15 marks
Explain how a sustained slowdown in the world economy is likely to affect living standards in the UK.

TopicMeasuring macroeconomic performanceLiving standards & wellbeingEconomic growth & cycle

Examiner insight

What to cover
A world slowdown cuts UK exports, investment and confidence, so growth, jobs and real incomes fall.
Diagram
AD/AS diagram with AD shifting left.
Watch out
Link the chain to living standards, not only GDP.
Question paper p.22Mark scheme p.7Insert p.2Examiner report p.4Open in the tool
Q33Recommend25 marks
After considering Extract D, and the original evidence in Extracts A, B and C, would you recommend that the government implement a further substantial increase in the National Living Wage? Justify your recommendation.

TopicThe labour marketMinimum wage

Examiner insight

What to cover
A higher NLW raises pay for low earners and may raise productivity.
Diagram
Minimum wage diagram, competitive and monopsony.
Evaluation
Risks: job losses, higher prices, regional differences. Make a recommendation.
Watch out
Clear recommendation using the extracts.
Question paper p.27Mark scheme p.9Insert p.2Examiner report p.4Open in the tool
Q21 mark
All other things being equal, the demand for labour is more likely to be wage elastic if
  1. Ait is difficult to substitute capital for labour.
  2. Bthe cost of labour is a low percentage of total costs.
  3. Cthe final product has a high price elasticity of demand.
  4. Dthe supply curve for labour is wage elastic.
Show the answer

The answer is C.

TopicThe labour marketLabour demand & supply

Question paper p.2Mark scheme p.3Open in the tool
Q31 mark
Table 1 contains data for the rates of growth of nominal and real GDP and the rate of inflation for an economy in a given year. Which one of the following combinations, A, B, C or D, shows the correct relationship between the three variables?
Table 1
Nominal GDP Real GDP Inflation growth growth
  1. A–2% 0% +2%
  2. B+4% +3% –1%
  3. C+5% +5% +1%
  4. D–5% –2% –3%
Show the answer

The answer is D.

TopicMeasuring macroeconomic performanceGDP & national incomeInflation & deflation

Question paper p.3Mark scheme p.3Open in the tool
Q41 mark
Figure 1 shows three aggregate demand (AD) curves, a short-run aggregate supply (SRAS) curve and a long-run aggregate supply (LRAS) curve.
Figure 1
In Figure 1, when
  1. Aaggregate demand shifts from AD1 to AD2, cyclical unemployment is likely to be eliminated.
  2. Baggregate demand shifts from AD1 to AD3, the rate of economic growth is equal to (Y3 – Y1).
  3. Cthe economy is producing at Y1, there is a positive output gap.
  4. Dthe economy is producing at Y2, there is no unemployment.
Show the answer

The answer is A.

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

Question paper p.3Mark scheme p.3Open in the tool
Q51 mark
In an economy, over the last decade, each of the top five decile groups has experienced a fall in their share of total income. In contrast, the bottom five decile groups have experienced a substantial increase in their share of total income.
It can be concluded that, over this period, the distribution of income is most likely to have become
  1. Amore equal.
  2. Bmore equal but less equitable.
  3. Cmore equitable.
  4. Dmore equitable but less equal.
Show the answer

The answer is A.

TopicDistribution of income and wealthInequality & poverty

Question paper p.4Mark scheme p.3Open in the tool
Q61 mark
In an economy, the marginal propensity to consume is 0.6. All other things being equal, which one of the following statements is correct?
  1. AA £5 billion reduction in the economy’s national income will result in a £3 billion fall in consumption
  2. BIf injections into the circular flow of income equal £20 billion, national income will equal £32 billion
  3. CIf injections into the circular flow of income rise by £10 billion, national income will rise by £6 billion
  4. DWhen the economy’s national income equals £100 billion, consumption will equal £60 billion
Show the answer

The answer is A.

TopicHow the macroeconomy works (AD/AS)Circular flowAggregate demand

Question paper p.4Mark scheme p.3Open in the tool
Q81 mark
Figure 2 shows the equilibrium position, point E, of a profit-maximising firm in a monopolistically competitive industry.
Figure 2
All other things being equal, which one of the following applies to the firm’s equilibrium at point E? The firm is
  1. Ain short-run equilibrium, but not in long-run equilibrium.
  2. Bmaking normal profit because AC = AR.
  3. Cmaking supernormal profit because MC = MR.
  4. Dproductively efficient but not allocatively efficient.
Show the answer

The answer is B.

TopicMarket structuresMonopolistic competition

Question paper p.5Mark scheme p.3Open in the tool
Q101 mark
All other things being equal, in which one of the following circumstances is the Bank of England most likely to raise Bank Rate to maintain financial stability?
  1. AA fall in bank liquidity and capital ratios following several years of rapid growth in bank lending and a boom in house prices
  2. BAn increase in the government’s target for the rate of inflation following a significant increase in the rate of productivity growth
  3. CAn increase in the savings ratio as the economy recovers from a recession
  4. DA rise in share prices on global stock markets due to the growth in world trade
Show the answer

The answer is A.

TopicFinancial markets and monetary policyMoney & bankingMonetary policy & interest rates

Question paper p.6Mark scheme p.3Open in the tool
Q111 mark
Figure 3 shows a firm’s total revenue (TR) curve.
Figure 3
Which one of the following combinations, A, B, C or D, describes how the firm’s average revenue and marginal revenue will change as the firm expands its output?
Average revenue Marginal revenue
  1. AIncreases Increases
  2. BConstant Constant
  3. CDecreases Decreases
  4. DIncreases Constant
Show the answer

The answer is B.

TopicProduction, costs and revenueRevenue & profit

Question paper p.6Mark scheme p.3Open in the tool
Q131 mark
Table 2 shows the inflation rate and the rate of growth of the money supply for an economy between 2016 and 2019.
Table 2
Rate of growth Year Inflation of money supply 2016 3.1% 3.5% 2017 3.5% 3.3% 2018 2.9% 3.2% 2019 2.5% 2.0% From the data in Table 2 it may be concluded that, all other things being equal, there was
  1. Aa fall in the value of money throughout the entire period.
  2. Ba policy of quantitative easing in operation throughout the entire period.
  3. Can inverse relationship between inflation and the rate of growth of the money supply.
  4. Dcontinuous disinflation throughout the entire period.
Show the answer

The answer is A.

TopicEconomic performanceInflation & deflation

Question paper p.7Mark scheme p.3Open in the tool
Q141 mark
Increased output results from specialisation and the division of labour because they enable
  1. Acountries to produce outside their production possibility boundary.
  2. Bmore efficient use of the available resources.
  3. Cpeople to exchange goods and services with each other.
  4. Dthe use of money as a medium of exchange and store of value.
Show the answer

The answer is B.

TopicEconomic methodology and the economic problemSpecialisation & division of labour

Question paper p.8Mark scheme p.3Open in the tool
Q151 mark
Figure 4 shows a firm’s demand (D) curve and its marginal revenue (MR) curve for good X. The firm initially sells OQ1 units of X per day at a price of OP1.
Figure 4
If the firm increases its price by 10%
  1. Aprice elasticity of demand will decrease.
  2. Bprice elasticity of demand will not change.
  3. Ctotal revenue will decrease.
  4. Dtotal revenue will increase.
Show the answer

The answer is C.

TopicPrice determination in a competitive marketPrice elasticity of demandRevenue & profit

Question paper p.8Mark scheme p.3Open in the tool
Q161 mark
Which one of the following distinguishes a private good from a pure public good?
  1. AA private good can only be provided by private firms and not the government
  2. BConsumption of a private good creates negative externalities for other consumers
  3. CConsumers of a private good have full knowledge of any externalities in its production
  4. DOne person’s consumption of a private good reduces the amount available for other consumers
Show the answer

The answer is D.

TopicMarket failure and government interventionPublic goods

Question paper p.9Mark scheme p.3Open in the tool
Q171 mark
Table 3 shows the demand for and supply of oranges at a range of prices between 10 pence and 30 pence.
Table 3
Quantity Quantity Price (pence) supplied demanded (000s) (000s) 10 100 125 15 120 120 20 122 108 25 125 100 30 128 As a result of an increase in consumers’ incomes, the demand for oranges increases by 25% at each of the prices shown in Table 3.
After the rise in incomes:
  1. Aat a price of 10 pence, excess demand increases by 50%.
  2. Bat a price of 30 pence, excess supply falls by 75%.
  3. Cthe equilibrium market price increases by two-thirds.
  4. Dthe price elasticity of demand increases by 25% at each price.
Show the answer

The answer is C.

TopicPrice determination in a competitive marketDemand & supplyPrice elasticity of demand

Question paper p.9Mark scheme p.3Open in the tool
Q181 mark
Which one of the following government policies is most likely to reduce market failure and to improve the allocation of resources?
  1. AA higher rate of tax on all firms earning profit
  2. BA minimum price for demerit goods above their free market price
  3. CFree market pricing for the provision of public goods
  4. DSubsidies paid to all loss-making firms to maintain full employment
Show the answer

The answer is B.

TopicMarket failure and government interventionMarket failure (general)

Question paper p.10Mark scheme p.3Open in the tool
Q191 mark
The long-run Phillips curve shows that
  1. Athe expected rate of inflation is zero.
  2. Bthere is an inverse relationship between unemployment and inflation in the long run.
  3. Cthere is no trade-off between reducing inflation and lower unemployment in the long run.
  4. Dunemployment can only be reduced in the long run by an increase in aggregate demand.
Show the answer

The answer is C.

TopicEconomic performanceInflation & deflation

Question paper p.10Mark scheme p.3Open in the tool
Q201 mark
Figure 5 shows the market demand for labour (DL = MRPL), the market supply of labour (SL=ACL), and the marginal cost of labour (MCL), in a particular industry.
The employer in this industry is a monopsonist.
Figure 5
From Figure 5, it can be concluded that, in the absence of a trade union or a minimum wage, the firm will employ
  1. AOQ1 workers at a wage of OW1.
  2. BOQ2 workers at a wage of OW1.
  3. COQ2 workers at a wage of OW2.
  4. DOQ2 workers at a wage of OW3.
Show the answer

The answer is D.

TopicThe labour marketTrade unions & monopsonyLabour demand & supply

Question paper p.11Mark scheme p.3Open in the tool
Q211 mark
All other things being equal, which one of the following is most likely to increase the national debt?
  1. AForeign companies increasing their direct investment into the economy
  2. BThe central bank using its reserves of foreign currency to fund a trade deficit
  3. CThe government reducing its budget surplus by increasing its expenditure on infrastructure
  4. DThe government running a budget deficit, financed by selling bonds to foreign investors
Show the answer

The answer is D.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.11Mark scheme p.3Open in the tool
Q221 mark
Table 4 shows the weights used in the Consumer Prices Index (CPI) for a selection of items in 2008 and 2018.
Table 4
Category 2008 weight 2018 weight Food and non-alcoholic beverages 109 101 Alcoholic beverages and tobacco 42 Clothing and footwear 63 Transport 152 156 All goods 547 519 All services 453 481 The data in Table 4 indicate that between 2008 and 2018 the
  1. Aaverage price of goods fell, whereas the average price of services increased.
  2. Bpercentage increase in the price of ‘Clothing and footwear’ was greater than the percentage increase in the price of ‘Transport’.
  3. Cproportion of total expenditure, by a typical household, on ‘Alcoholic beverages and tobacco’ did not change.
  4. Dtotal expenditure of a typical household on ‘Food and non-alcoholic beverages’ fell.
Show the answer

The answer is C.

TopicMeasuring macroeconomic performancePrice indices & inflation measurement

Question paper p.12Mark scheme p.3Open in the tool
Q231 mark
Figure 6 shows the marginal private and social benefit (MPB and MSB) curves and the marginal private and social cost (MPC and MSC) curves in the market for domestically produced solar panels. The initial market equilibrium is at E1.
Figure 6
To correct the market failure, the government introduces a subsidy to domestic manufacturers of solar panels of £200 per unit produced. Which one of the following represents the total amount of subsidy payments made by the government in the first year of the scheme?
  1. A£20 million.
  2. B£25 million.
  3. C£75 million.
  4. D£100 million.
Show the answer

The answer is D.

TopicMarket failure and government interventionIndirect taxes & subsidiesExternalities

Question paper p.13Mark scheme p.3Open in the tool
Q251 mark
An economy is estimated to be experiencing a 2% rate of frictional unemployment plus a 3% rate of structural and real wage unemployment. If it is also experiencing cyclical unemployment of 4%, its natural rate of unemployment is most likely to be
  1. A3%
  2. B5%
  3. C6%
  4. D9%
Show the answer

The answer is B.

TopicEconomic performanceUnemployment

Question paper p.14Mark scheme p.3Open in the tool
Q261 mark
Figure 7 shows two aggregate demand (AD1 and AD2) curves and two long-run aggregate supply (LRAS1 and LRAS2) curves for an economy.
Figure 7
All other things being equal, which one of the following combinations, A, B, C or D, is most likely to explain the movement of the economy from E1 to E2?
An increase in the
  1. Abudget surplus and size of the multiplier.
  2. Bexchange rate and supply of money.
  3. Crate of inflation and positive output gap.
  4. Dvolume of exports and potential output.
Show the answer

The answer is D.

TopicHow the macroeconomy works (AD/AS)Aggregate demand

Question paper p.15Mark scheme p.3Open in the tool
Q271 mark
Which one of the following is correct for a proportional tax on income?
  1. AThe amount of tax paid increases as income increases
  2. BThe marginal rate of tax is lower than the average rate
  3. CThe average rate of tax falls as income increases
  4. DThe average rate of tax is lower than the marginal rate
Show the answer

The answer is A.

TopicFiscal policy and supply-side policiesFiscal policy & public finances

Question paper p.15Mark scheme p.3Open in the tool
Q281 mark
Table 5 contains data for a firm’s marginal cost of producing different outputs of shirts per day. The firm operates in a perfectly competitive market.
Table 5
Output of shirts per day Marginal cost (£s) 800 900 1000 1100 If the market price is £10 per shirt, at which one of the following outputs per day, A, B, C or D, will the firm maximise its profit?
  1. A800
  2. B900
  3. C1000
  4. D1100
Show the answer

The answer is C.

TopicMarket structuresPerfect competitionRevenue & profit

Question paper p.16Mark scheme p.3Open in the tool
Q291 mark
Figure 8 shows two supply (S1 and S2) curves and the demand (D) curve for euros on the foreign exchange market and the price of euros in terms of pounds sterling.
Figure 8
Which one of the following is the most likely explanation for the change in the exchange rate shown in Figure 8?
An increase in eurozone
  1. Acompanies buying factories in the UK.
  2. Bexports of manufactured goods to the UK.
  3. Cinterest rates relative to those in the UK.
  4. Dproductivity growth relative to that in the UK.
Show the answer

The answer is A.

TopicThe international economyExchange rates

Question paper p.17Mark scheme p.3Open in the tool
Q301 mark
The behaviour of a consumer buying a 75-inch large screen TV is biased due to bounded rationality and the anchoring effect. This implies that the choice of which TV to buy is based on the price of
  1. Aall available 75-inch TVs, given sufficient time to obtain the information.
  2. Bthe cheapest available 75-inch TV, in order to maximise utility.
  3. Cthe first 75-inch TV seen and imperfect information about available alternatives.
  4. Dthe most expensive 75-inch TV, believing that this indicates the 30 best quality available.
Show the answer

The answer is C.

TopicIndividual economic decision makingBehavioural economics

Question paper p.17Mark scheme p.3Open in the tool

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