Paper 3: Microeconomics and Macroeconomics · 9EC0/03
Edexcel A A-level Paper 3, November 2021
All 10 written questions from Edexcel A A-level Paper 3 (November 2021), Microeconomics and Macroeconomics. Case studies: Hand car wash (HCW) firms in the UK and The German economy. 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.
Summer exams were cancelled, so this paper was sat in the autumn series. The paper itself is headed with the original May date.
Section A
Case study
Hand car wash (HCW) firms in the UK
Extracts: A: What is the true human cost of your £5 hand car wash (HCW)? · B: Government intervention in the HCW industry
In the extracts: HCWs, Clark, Nottingham Business School, WashMark, Hand-Car-Wash-evidence, Professor Ian Clark, Performance, Estimates, Automated, Prolonged
Q1(a)
Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK.
Mark splitKnowledge 2Application 2Analysis 1
TopicGovernment interventionLabour market
Q1(b)
Examine two reasons why the demand for HCWs increases during a period when consumer ‘incomes fail to keep up with inflation’ (Extract A line 8).
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicHow markets work
Examiner insight
- What to cover
- Give two reasons and develop each. Hand car washes are cheaper than automatic or valet alternatives, so demand rises as real incomes fall. This suggests they are an inferior good with negative income elasticity.
- Diagram
- Demand curve for HCWs shifting right as real incomes fall.
- Evaluation
- Say which reason is stronger and note that a severe squeeze on incomes could cut car washing altogether, so the income effect has a limit.
- Watch out
- Assuming all car washing is an inferior good. The argument depends on HCWs being the cheap substitute.
Q1(c)
Discuss the likely effects of changes in the level of migration on firms such as HCWs in the UK. Use a labour market diagram and the information provided to support your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicLabour market
Examiner insight
- What to cover
- Lower migration shifts the supply of labour left, raising wages and cutting employment at HCWs. Higher migration does the reverse. Link to the low skilled, low pay nature of the work.
- Diagram
- Labour market diagram with the supply of labour shifting left, showing the wage rising from W1 to W2 and employment falling.
- Evaluation
- Weigh the wage gain for remaining workers against higher costs, possible closure, and mechanisation. Depends on the elasticity of labour supply and on how easily firms substitute capital.
- Watch out
- Ignoring the instruction to use the data. Application marks need figures or references from the extracts.
Q1(d)
Evaluate the microeconomic and macroeconomic factors which determine the number of firms in an industry. Refer to HCWs or another industry of your choice.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicGovernment interventionLabour market
Examiner insight
- What to cover
- Cover both sides. Micro: barriers to entry, economies of scale, profit levels, market structure, regulation and enforcement. Macro: the rate of economic growth, interest rates, business confidence and the level of AD.
- Diagram
- Perfect competition or monopolistic competition long run diagram showing entry eroding supernormal profit to normal profit.
- Evaluation
- Judge micro and macro. Rank the determinants for your chosen industry and argue which dominates. Depends on the time period, since entry and exit take time.
- Watch out
- Describing market structures without explaining what determines the number of firms.
Q1(e)
Evaluate the microeconomic and macroeconomic effects of increased government intervention in an industry. Refer to HCWs or another industry of your choice.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
Examiner insight
- What to cover
- Cover both sides. Micro: compliance costs, higher prices, correction of market failure such as tax evasion or exploitation at HCWs. Macro: tax revenue, effects on employment, inflation and the informal economy.
- Diagram
- Minimum wage or regulation diagram showing the cost increase, plus AD and AS for the macro side.
- Evaluation
- Judge micro and macro. Weigh correcting market failure against government failure, enforcement cost and firms moving further into the informal economy.
- Watch out
- Only arguing one way. Intervention has both corrective and distortionary effects and both must appear.
Section B
Case study
The German economy
Extracts: C: Why Germany keeps to budget rules despite a slowdown in growth · D: Germany drops to number 7 in the Global Competitiveness Index
In the extracts: Germany, GDP, WEF, WEF Global Competitiveness, World Economic Forum, French President, Germany Average, European Union, Arguments, Large
Q2(a)
Explain one reason why a country such as Germany wants to avoid an increase in the national debt relative to GDP (Figure 2).
Mark splitKnowledge 2Application 2Analysis 1
TopicRole of the state in the macroeconomy
Examiner insight
- What to cover
- A rising debt to GDP ratio raises the interest burden, which crowds out other government spending and may raise the cost of future borrowing. Link to Germany's fiscal rules and the figure.
- Watch out
- Confusing the national debt with the annual budget deficit. The question is about the stock relative to GDP.
Q2(b)
Examine two likely effects of the forecast change in the rate of unemployment between 2019 to 2020, on firms in Germany. Refer to Figure 4 in your answer.
Mark splitKnowledge 2Application 2Analysis 2Evaluation 2
TopicEconomic growthMeasures of economic performanceAggregate demand
Examiner insight
- What to cover
- Give two effects and develop each. Rising unemployment cuts consumer incomes and so demand for firms' output, but it also widens the pool of available labour and eases wage pressure on costs.
- Diagram
- Optional: AD shifting left, or a labour market diagram with excess supply of labour.
- Evaluation
- Say which effect dominates for German firms. Depends on whether the firm sells domestically or exports, and on how long the rise lasts.
- Watch out
- Writing about effects on workers or on the government. The question asks about effects on firms.
Q2(c)
Discuss the likely impact of investment in new technology on the profitability of firms in Germany, as described in Extract C line 20. Use a cost and revenue diagram to support your answer.
Mark splitKnowledge 2Application 2Analysis 4Evaluation 4
TopicAggregate demand
Examiner insight
- What to cover
- New technology raises fixed costs first, then lowers average and marginal costs as output rises. Show profit increasing where the gap between AR and AC widens for German firms.
- Diagram
- Cost and revenue diagram with AC and MC shifting down, the new profit maximising output at MC equals MR, and the enlarged supernormal profit area shaded.
- Evaluation
- Weigh the productivity gain against the upfront cost, the payback period, the risk of obsolescence and whether rivals copy it. Depends on dynamic efficiency and the time period.
- Watch out
- Shifting the cost curves but not identifying the new profit maximising output and the changed profit area.
Q2(d)
Evaluate the microeconomic and macroeconomic factors which are likely to determine the rate of economic growth in Germany relative to other developed economies.
TopicEconomic growth
Examiner insight
- What to cover
- Cover both sides. Micro: investment in capital, innovation, labour market flexibility, the strength of the Mittelstand. Macro: export demand, the euro exchange rate, demographics, fiscal stance and productivity growth.
- Diagram
- LRAS or PPF shifting right, with AD and AS showing actual versus potential growth.
- Evaluation
- Judge micro and macro. Compare Germany's export dependence and ageing population against its industrial base. Depends on world demand and on the time period.
- Watch out
- Describing Germany's economy rather than explaining what determines its relative growth rate.
Q2(e)
Evaluate the microeconomic and macroeconomic impacts of ‘a much more expansionary fiscal policy’ (Extract C line 23) on the German economy.
Mark splitKnowledge 4Application 4Analysis 8Evaluation 9
TopicMacroeconomic objectives and policy
Examiner insight
- What to cover
- Cover both sides. Micro: firms winning government contracts, sectoral effects, incentives to work and invest. Macro: the multiplier raising AD, output and employment, higher inflation risk, a larger deficit.
- Diagram
- AD and AS diagram with AD shifting right, showing the output and price level effects.
- Evaluation
- Judge micro and macro. Depends on the size of the multiplier, the output gap, crowding out, and Germany's fiscal space given its low debt ratio.
- Watch out
- Ignoring the extract reference. The application marks require Germany's own fiscal position.
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.