Paper 3: Microeconomics and Macroeconomics · 9EC0/03
Edexcel A A-level Paper 3, June 2023
All 10 written questions from Edexcel A A-level Paper 3 (June 2023), Microeconomics and Macroeconomics. Case studies: The UK economy and Changes in the nature of UK towns and cities. 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
The UK economy
Extracts: A: Fiscal policy changes in the UK, Autumn 2022 · B: Inequality to rise in the UK
In the extracts: Aug Aug Aug, Autumn, Monetary Policy Committee, Sebastian Payne and Chris, Inflation in Autumn, Bank of England, Giles in London, Independent, Inequality, Questions
Q1(a)
Explain the difference between a positive and a normative statement, using an example of each from Extract A.
Mark splitKnowledge 2Application 2Analysis 1
TopicNature of economics
Q1(b)
Examine two reasons for the rise in inflation in the UK. Refer to the information provided in your answer.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicMacroeconomic objectives and policyBusiness growth
Examiner insight
- What to cover
- Give two reasons and develop each. Options include cost push from energy and gas prices, imported inflation from a weaker pound, demand pull from post pandemic recovery, and wage pressure from labour shortages.
- Diagram
- AD and AS diagram distinguishing cost push, with SRAS shifting left, from demand pull with AD shifting right.
- Evaluation
- Say which cause dominates and cite the data. Note that the causes reinforce one another through second round wage effects.
- Watch out
- Asserting a cause without evidence. The application marks require figures from the extracts.
Q1(c)
Discuss the likely impact of a rise in gas prices on a firm that uses a large amount of gas in its production process. Use a cost and revenue diagram to support your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicMacroeconomic objectives and policyBusiness growth
Examiner insight
- What to cover
- Gas is a variable input, so higher gas prices raise MC and AC. Show the profit maximising output falling and supernormal profit shrinking, or a loss appearing.
- Diagram
- Cost and revenue diagram with MC and AC shifting up, the new output where MC equals MR, and the reduced profit area shaded.
- Evaluation
- Weigh how far the firm can pass the cost on, which depends on PED and market structure, against hedging, switching fuel, and the expected duration of the price rise.
- Watch out
- Shifting the curves without identifying the new output and profit. The diagram must be used in the argument.
Q1(d)
Evaluate microeconomic and macroeconomic policies that could be used to reduce inequality in the UK.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Cover both sides. Micro: minimum wage, education and training, regional policy. Macro: progressive taxation, transfer payments, universal credit, inheritance and wealth taxes.
- Diagram
- Lorenz curve moving towards the line of equality, or a labour market diagram for the minimum wage.
- Evaluation
- Judge micro and macro. Weigh reduced inequality against work incentives, the Laffer effect, the fiscal cost and possible capital flight. Depends on the time period.
- Watch out
- Describing inequality rather than evaluating the policies. The question asks for policies and their effects.
Q1(e)
Evaluate the likely microeconomic and macroeconomic effects of tax cuts in the UK.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMacroeconomic objectives and policyBusiness growth
Examiner insight
- What to cover
- Cover both sides. Micro: more disposable income, changed work and saving incentives, effects on specific firms. Macro: AD rises through consumption, supply side effects on LRAS, a larger budget deficit.
- Diagram
- AD and AS with AD shifting right, and LRAS shifting right for the supply side case.
- Evaluation
- Judge micro and macro. Depends on the marginal propensity to consume, the multiplier, the output gap, and whether the deficit is sustainable.
- Watch out
- Treating tax cuts as purely a demand side measure. The supply side incentive effects carry marks too.
Section B
Case study
Changes in the nature of UK towns and cities
Extracts: C: What next for the high street? · D: UK house prices may fall up to 20% · E: UK job vacancies hit record 1.1 million as labour shortages increase
In the extracts: People, Institute of Directors, Restaurants Fashion, Barbers Beauty, Kitty Ussher, Post Office, Customers, Changes, Growing, Clothes
Q2(a)
Using the data provided in Extract D, explain one role of financial markets.
Mark splitKnowledge 2Application 2Analysis 1
TopicThe financial sector
Examiner insight
- What to cover
- Use the Extract D data to explain one role, such as channelling savings into investment, providing liquidity, allowing firms to raise equity or debt finance, or facilitating forward and currency markets.
- Watch out
- Listing several roles briefly. One role explained with the data earns more than a list.
Q2(b)
Examine two reasons why retailers on the high street tend to remain small.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicAggregate demandBusiness growthMarket structures
Examiner insight
- What to cover
- Give two reasons and develop each. Options include a small local market, diseconomies of scale in retail premises, niche or personal service, limited access to finance, and the owner's objectives beyond profit.
- Diagram
- Optional: LRAC curve showing the minimum efficient scale reached at low output.
- Evaluation
- Say which reason binds hardest on the high street, and note that some small retailers choose to stay small.
- Watch out
- Explaining why firms grow instead of why these firms stay small.
Q2(c)
Discuss possible methods of price and non‐price competition that firms could use to increase the value of sales on the high street.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicAggregate demandBusiness growthMarket structures
Examiner insight
- What to cover
- Price competition includes discounting, loss leaders and price matching. Non price competition includes loyalty schemes, service, opening hours, product range and click and collect. Link each to higher sales value.
- Diagram
- Kinked demand curve, or an oligopoly diagram, or a demand curve shifting right under non price competition.
- Evaluation
- Weigh a price war that erodes margins against non price methods that cost money upfront. Depends on PED, market structure and whether rivals retaliate.
- Watch out
- Listing methods without linking them to the value of sales, which is price times quantity.
Q2(d)
Evaluate the microeconomic and macroeconomic effects of falling house prices.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicAggregate demandBusiness growthMarket structures
Examiner insight
- What to cover
- Cover both sides. Micro: negative wealth effect on consumption, construction firms cutting output, estate agents and related markets. Macro: lower AD, lower growth, improved affordability, effects on bank balance sheets.
- Diagram
- Housing market diagram with demand shifting left against inelastic supply, plus AD shifting left.
- Evaluation
- Judge micro and macro. Depends on the size and speed of the fall, the level of household debt, and whether negative equity develops. Falls also help first time buyers.
- Watch out
- Treating falling house prices as wholly bad. Affordability gains for buyers must appear in the judgement.
Q2(e)
Evaluate the microeconomic and macroeconomic effects of labour shortages in the UK, or a developed economy of your choice.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicLabour market
Examiner insight
- What to cover
- Cover both sides. Micro: wages bid up in shortage occupations, firms substituting capital for labour, training costs. Macro: cost push inflation, constrained LRAS, lost output, pressure on the fiscal position.
- Diagram
- Labour market diagram with the supply of labour shifting left, plus LRAS shifting left.
- Evaluation
- Judge micro and macro. Depends on whether the shortage is sectoral or economy wide, on migration policy, and on how quickly training or automation responds.
- Watch out
- Only covering the inflation effect. The microeconomic response of firms carries equal weight.
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.