Note AcademyNote Academy
Start

Economics · Oct / Nov 2023 · Paper 22 · Question 3

0455

As printed in the paper

The question as text

In 2020, some firms in Suriname, a South American country, stopped production. This was because the firms could not cover their variable costs, as well as some of their fixed costs. The reduction in the country’s output resulted in a rise in its unemployment rate. The government used supply-side policy measures to reduce unemployment. In 2021, the number of firms in some markets fell again, but this time it was when output was rising.

Read automatically from the paper; the printed page above is exact.

Show the answer and mark scheme

  • 3(a)[2]

    Define, with an example, a fixed cost. A cost that does not change with output / a cost that has to be paid even when output is zero (1)

    e.g. rent (1). 2 Not sufficient to state a cost that does not change. Accepting electricity / electricity bills and wages.

  • 3(b)[4]

    Explain two types of unemployment. Logical explanation which might include:

    frictional unemployment (1)

    workers in between jobs (1)

    structural unemployment (1)

    changes in demand and supply conditions / skills not matching vacancies / lack of labour mobility (1)

    cyclical / demand-deficient unemployment (1)

    lack of total demand / occurs during a recession (1)

    4 Allow explanation of two types of frictional unemployment i.e. search, casual or seasonal and two types of structural unemployment i.e. regional and technological. Also allow voluntary and involuntary. One mark each for each of two types identified and one mark each for each of two explanations.

  • 3(c)[6]

    Analyse how supply-side policy measures could reduce unemployment. Coherent analysis which might include: Education (1)

    can increase qualifications / literacy rate (1)

    training (1)

    can increase skills / productivity / quality of labour (1)

    raise mobility / increase job opportunities (1)

    reduce structural unemployment (1). Lower income tax (1)

    reduce unemployment benefit (1)

    increases the incentive for the unemployed to find work quickly (1)

    reduce frictional unemployment (1). Lower corporation tax / tax incentives (1)

    encourage firms to invest / expand output (1). Privatisation (1)

    deregulation (1)

    can increase efficiency (1)

    reduce firms’ costs (1)

    enabling firms to afford more workers (1). Reform of trade unions / labour market reforms (1)

    Deregulation / removing labour regulations (1)

    making it easier to hire and fire workers (1). Government spending on infrastructure (1)

    can reduce firms’ costs of production / reduce transport costs (1)

    encouraging firms to expand (1)

    increase labour mobility (1). Minimum wage legislation (1)

    reducing may encourage employer to employ more workers / increasing may encourage the unemployed to search more actively for work (1). Subsidies (1)

    encouraging firms to expand / prevent firms going out of business (1). Better/more healthcare (1)

    can increase productivity / reduce working time lost (1). 6 Reward the same point e.g. ‘raise productivity’ only once. Accept lower interest rate if linked to encouraging investment.

  • 3(d)[8]

    Discuss whether or not having fewer firms in a market will benefit consumers. In assessing each answer, use the table opposite. Why it might:

    firms may be larger, may be able to benefit from economies of scale
    economies of scale may include e.g. financial, managerial, technical
    lower costs may result in lower prices
    firms may have more market power - firms may make more profit and may reinvest which can improve quality
    firms may have moved to another market in response to changes in consumer demand
    firms that were creating pollution and other external costs may close down
    may reduce the time consumers spend shopping around Why it might not:
    firms may experience diseconomies of scale
    diseconomies of scale may include e.g. communication problems, control problems and poor industrial relations
    less choice
    lack of competition / move towards monopoly resulting in lower quality and higher prices
    lower availability. Level Description A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Guidance There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content.
Practise this paper →

Make a free account to save your answers and see your weak topics and ask the AI why a wrong answer is wrong.