Economics · May / June 2016 · Paper 22 · Question 6

2281

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The question as text

Deposits in banks in Dubai rose by 40% in 2013. More financial companies are locating in Dubai. The growth in its financial sector is being accompanied by horizontal mergers between financial companies and workers becoming more specialised. The economy is becoming richer but the economic problem will never be solved here or elsewhere in the world.

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6(a)[2]
Why can the economic problem never be solved? [2]
Wants will grow more (1)
than resources (1). Or:
Wants are infinite/unlimited (1)
whilst resources are finite/limited (1).
6(b)[4]
Explain two reasons why workers specialising can reduce the average cost of production. [4]
Workers can specialise in what they are best at (1)
increasing productivity/efficiency (1).
Workers can be trained more quickly (1)
cost of training reduced/do not have to be trained in every task (1).
Less equipment is needed (1)
cutting the amount of capital needed (1).
Less time needs to be taken in moving between tasks (1)
more time focused on production (1).
It may be easier to mechanise the process (1)
increase productivity (1).
Increased efficiency/higher quality production (1)
reduces wastage (1).
6(c)[6]
Analyse how an increase in bank lending can increase economic growth. [6]
An increase in bank lending to households may increase consumer expenditure (1)
higher total (aggregate) demand (1)
may encourage firms to increase their output (1)
this will raise real GDP (1).
An increase in bank lending may increase investment/spending on capital goods/ expand business (1)
this will increase demand for capital goods (1)
it will also increase productive capacity (1)
causing potential economic growth (1).
An increase in bank lending to people undertaking education/training (1)
may increase labour productivity (1)
increasing GDP (1)
and potential economic growth (1).
6(d)[8]
Discuss whether consumers benefit from horizontal mergers. [8]
A horizontal merger is a merger between two firms at the same stage of production producing the same product (1). Up to 5 marks for why it might:
They may enable the firms to take greater advantage of economies of scale (1)
example (1)
this will reduce average cost of production (1)
this may lower prices to consumers (1).
They may enable the firms to earn more profit (1)
which they can spend on research and development (1)
increasing innovation (1)
raising the quality of the product (1). Up to 5 marks for why it might not:
They may result in the firms experiencing diseconomies of scale (1)
example (1)
this will increase average cost of production (1)
this may raise prices to consumers (1).
The firms may gain greater market share (1)
move it closer to monopoly (1)
this may result in higher prices (1).
The reduction in competition (1)
may discourage research and development (1)
this may reduce innovation (1)
reduce quality (1).

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