Economics · May / June 2025 · Paper 22 · Question 3

0455

As printed in the paper

The question as text

In 2022, Paraguay’s production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides merit goods and public goods. The country’s private sector is a major producer of shampoo. The firms in the shampoo industry make use of division of labour. There are several firms in the industry, but the number is declining. There is a possibility that soon there may be just one firm in the industry.

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

Show the answer and mark scheme

3(a)[2]
Identify what is measured on the axes of a production possibility curve. (Output of) two types of product (2). Output (1)
one type of product (1)
another type of product (1). 2 Two types of products may be shown on the axes on a PPC diagram for two marks. If more than two items are given, consider the first three.
3(b)[4]
Explain, with an example of each, the difference between a merit good and a public good. Logical explanation which might include: A merit good is under-consumed / underproduced / consumers do not appreciate its full value / has external benefits / can be produced by the private sector / can be produced by the private sector and the public sector / is a private good / is rival and excludable (1)
e.g. education / healthcare / fruit (1). A public good would not be produced by the private sector / is (usually) supplied / produced by the government / funded by the government (1)
non-excludable / non-rival (1)
e.g. street lighting / defence / flood control (1). 4 One mark for an explanation of a merit good and one mark for an example of a merit good. One mark for an explanation of a public good and one mark for an example of a public good. Accept but do not expect reference to non-rejectable / zero cost of producing an extra unit for a public good. Allow public park. No mark for roads unless qualified by e.g. uncrowded roads with many entry and exit points. Mark
3(c)[6]
Analyse how division of labour can benefit firms. Coherent analysis which might include:
Workers can specialise (1)
in what they are best at producing (1)
save time / speed up production (1)
reduce waste (1)
reduce mistakes (1)
increase productivity /skill / efficiency (1)
increase output / supply (1)
lower (average) cost (1).
Increase quality (1)
lower prices (1)
raise demand / increase sales (1)
increase revenue (1)
increase profits (1).
Make it easier to mechanise production (1)
reduce labour required (1).
Reduce training / training costs (1)
as reduce tasks undertaken / division of labour involves breaking production down into different tasks (1). Mark
3(d)[8]
Discuss whether or not consumers would benefit from only one firm producing shampoo. In assessing each answer, use the table opposite. Why they might:
one firm may be able to benefit from economies of scale
lower average cost may lead to lower prices
firm may spend a large amount on research and development due to high profits and security
quality of product may be high
less time / less effort choosing shampoo. Why they might not:
lack of competition may drive up prices
lack of choice
if quality is poor, cannot switch to substitutes
firm may experience diseconomies of scale. 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 Mark Guidance Level Description 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. Mark

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.