Paper 3: Microeconomics and Macroeconomics · 9EC0/03
Edexcel A A-level Paper 3, June 2019
All 10 written questions from Edexcel A A-level Paper 3 (June 2019), Microeconomics and Macroeconomics. Case studies: Markets for food and drinks high in fat, salt or sugar… and African countries, 2017. Each question shows its marks and topic, with an examiner insight on 9, and opens the question paper and mark scheme at the right page.
Section A
Case study
Markets for food and drinks high in fat, salt or sugar (HFSS)
Extracts: A: The effects of a total ban on advertising of HFSS foods · B: Taxing HFSS foods and subsidising healthy eating widens inequality · C: Tax on fatty foods in Denmark is an economic disaster
In the extracts: HFSS, The-Effects-of-Banning-Advertising-in-Junk-Food, Subsidies, Denmark, Danish, Taxes, Review of Economic Studies, Oxford University Press, Walkers All Walkers, Tayto Golden Wonder
Q1(a)
With reference to Figure 1 and Extract A, explain what is meant by a ‘highly concentrated’ market for potato crisps (Extract A, lines 2–3).
Mark splitKnowledge 2Application 2Analysis 1
TopicGovernment interventionMarket failure
Q1(b)
Apart from changes in indirect taxes and subsidies, examine two causes of income inequality within a developed economy such as the UK.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicGovernment interventionPoverty and inequality
Examiner insight
- What to cover
- Pick two causes, such as wage differences from skills and education, and unemployment or the growth of low paid part time work. Link each to the spread of UK household incomes.
- Diagram
- Two labour market diagrams: scarce skilled labour commanding a high wage against abundant unskilled labour at a low wage.
- Evaluation
- Depends on the size of each cause and the time period, since education raises wages only slowly. The benefit system offsets part of market generated inequality.
- Watch out
- Using indirect taxes or subsidies as one of the two causes, which the question rules out.
Q1(c)
In Extract A, lines 15–16, it was suggested that some firms may respond to the advertising ban by cutting the prices of their products. Using game theory and the information provided in Figure 1 and Extract A, discuss the effects on firms of cutting prices in an oligopolistic market.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMarket structuresMarket failure
Examiner insight
- What to cover
- Use the Figure 1 payoff matrix to show that cutting price is the dominant strategy but leaves both firms worse off, a Nash equilibrium like the prisoner dilemma. Rivals match cuts, so a price war erodes profit.
- Diagram
- Two firm payoff matrix from Figure 1 with the dominant strategy and Nash equilibrium marked, or a kinked demand curve showing rivals matching price cuts.
- Evaluation
- Weigh higher sales if rivals do not follow, the gains from collusion, and non-price competition as an alternative. Depends on price elasticity of demand and brand loyalty. Conclude.
- Watch out
- Describing the payoff numbers without identifying the dominant strategy and the Nash equilibrium.
Q1(d)
Evaluate the microeconomic and macroeconomic effects of increased government spending on education to promote healthy eating in the UK.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicAggregate demand
Examiner insight
- What to cover
- Cover both sides. Micro: education corrects information failure, shifting demand for HFSS foods left and healthy foods right, towards the social optimum. Macro: the spending raises AD, and healthier workers raise LRAS.
- Diagram
- HFSS market with demand shifting left towards the social optimum, plus AD/AS with AD and LRAS shifting right.
- Evaluation
- Weigh the opportunity cost of the spending, long time lags, weak effect on entrenched habits, and stronger alternatives such as taxes or advertising bans. Judge micro and macro.
- Watch out
- Assuming information campaigns change behaviour, without noting that habit and addiction limit the shift in demand.
Q1(e)
Evaluate the likely microeconomic and macroeconomic effects of imposing a tax on HFSS foods.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicGovernment interventionMarket failure
Examiner insight
- What to cover
- Cover both sides. Micro: the tax raises price and cuts quantity towards the social optimum, internalising external health costs, though producers may absorb part of it. Macro: tax revenue rises, inflation rises slightly and healthier workers raise LRAS.
- Diagram
- Negative consumption externality with an indirect tax: supply shifting up by the tax, MPB above MSB, the social optimum and tax revenue labelled, plus AD/AS.
- Evaluation
- Weigh the regressive burden on poorer households, inelastic demand limiting the fall in consumption, reformulation by firms, and substitution to untaxed foods. Judge micro and macro.
- Watch out
- Ignoring the macroeconomic half, or forgetting that HFSS demand is price inelastic so the fall in quantity may be small.
Section B
Case study
African countries, 2017
Extracts: D: Rising debt levels in Africa · E: Mozambique’s economic stability is being put to the test · F: Microfinance in Mozambique
In the extracts: Mozambique, African, Interest, GDP, Microfinance in Mozambique Microfinance, International Monetary Fund, Institution Type Private, Africa Increases, Africa Economist, Financial Times
Q2(a)
With reference to Extract D line 21, explain why ‘opportunity cost’ is a problem for governments of developing countries when servicing debt.
Mark splitKnowledge 2Application 2Analysis 1
TopicNature of economicsEmerging and developing economies
Examiner insight
- What to cover
- Debt servicing uses government revenue that could have funded health, education or infrastructure. Name the next best alternative forgone in Mozambique and link the loss of that spending to slower development.
- Watch out
- Do not just define opportunity cost. The marks are for applying it to a specific Mozambican spending alternative.
Q2(b)
Examine two reasons, apart from access to finance, why 90% of the manufacturing sector in Mozambique ‘is made up of small enterprises’ (Extract E, line 9).
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicInternational economicsEmerging and developing economiesAggregate demand
Examiner insight
- What to cover
- Give two distinct reasons and develop each. Options include limited infrastructure and power supply, low skills and human capital, small domestic market size, and weak property rights or regulation.
- Evaluation
- Say which reason bites harder in Mozambique and why. Note that these constraints interact and that some ease as income rises.
- Watch out
- Two separate reasons are needed. One reason explained twice scores only once.
Q2(c)
Discuss whether borrowers benefit from microfinance. Make reference to Mozambique in your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicEmerging and developing economies
Examiner insight
- What to cover
- Microfinance gives small borrowers access to capital they cannot get from banks. Trace the chain to investment in a small enterprise, higher income and reduced poverty in Mozambique.
- Evaluation
- Weigh gains against very high interest rates, the risk of a debt trap, small loan sizes and the fact that it does not fix infrastructure or skills. Judge by borrower type.
- Watch out
- Assuming microfinance always helps. The judgement must recognise that it works for some borrowers and not others.
Q2(d)
Evaluate the microeconomic and macroeconomic factors, apart from access to credit and banking, influencing growth and development in Mozambique.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicInternational economicsEmerging and developing economiesAggregate demand
Examiner insight
- What to cover
- Cover both sides. Micro: infrastructure, education and skills, property rights, corruption, health of the workforce. Macro: investment, FDI, export diversification away from primary products, exchange rate stability.
- Diagram
- Optional: LRAS or PPF shifting right for the macro side, and a labour market diagram for the micro side.
- Evaluation
- Judge micro and macro. Rank the factors by importance for Mozambique and argue which binds most. Depends on the time period and on the quality of institutions.
- Watch out
- The question excludes credit and banking. Answers that return to finance lose the application marks.
Q2(e)
Evaluate the likely microeconomic and macroeconomic effects of relatively high inflation rates in many African countries.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMeasures of economic performance
Examiner insight
- What to cover
- Cover both sides. Micro: menu costs, shoe leather costs, distorted price signals, real wage erosion for the poorest. Macro: loss of competitiveness, uncertainty and lower investment, higher nominal interest rates.
- Diagram
- AD and AS diagram distinguishing demand pull from cost push.
- Evaluation
- Judge micro and macro. Depends on whether inflation is anticipated, on its cause, and on whether wages and welfare payments are indexed. Some inflation accompanies growth.
- Watch out
- Listing costs of inflation with no reference to African economies. Application marks need a named country or context.
Question text is quoted from the question papers, © Pearson Edexcel, 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.