Paper 1

How do you calculate Price Elasticity of Demand?

% change in QD / % change in price

price elasticity of demand formula

% change in quantity demanded / % change in price

price elasticity of supply formula

% change in quantity supplied / % change in price

Define oligopoly. (2)

- A market dominated - by a small number of large firms

What is meant by the term demand? (2)

- The quantity of goods/services consumers are willing and able to buy (1) - at a given price (1)

Which of the following would be most likely to lead to a decrease in the price of a good? A A decrease in demand and an increase in supply B A decrease in demand and a decrease in supply C An increase in demand and a decrease in supply D An increase in demand and an increase in supply

A A decrease in demand and an increase in supply

Which of the following is most likely to lead to a leftward shift of a firm's supply curve? [1 mark] A An increase in VAT B An increase in productivity C A decrease in wages D A decrease in raw material costs

A An increase in VAT

Define the term inferior good. (1)

A good for which demand will fall if income rises.

Most likely cause of a rise in price of lemons?

A reduction in the number of firms supplying lemons

In which occupations do wages tend to be lowest? A) In those where there is an excess supply of labour B) In those where the workers are paid on a monthly basis C) In those where the work is dangerous D) In those where workers need long training

A) In those where there is an excess supply of labour

PED and PES UNIT?

ALWAYS positive or negative DECIMAL. NEVER a percentage

15 marker

AO2 = 5 marks AO3 = 10 marks A justified conclusion with sustained evaluation, which is coherent and relevant, with judgements fully supported by evidence. Analysis of a relevant selection of the economic evidence, with a well-developed logical chain of reasoning. Comprehensive application of knowledge and understanding of pertinent concepts/issues relevant to the context; effective use of specialist language maintained throughout.

EXPLAIN 6 marker

AO2 = 6 marks A full and precise explanation applying economic concepts and issues.

assess the impact of implementing the Regional Air Quality Management Plan (RAQMP) on Macau. (9)

AO2 and AO3 • The aim of the plan is to target those responsible for causing the air pollution. • More awareness of the levels of pollution caused will mean firms take action to reduce their emissions. • By reducing the emissions, air pollution in Macau may be reduced. • If air quality improves in Macau, health may improve leading to reduced health costs for families and/or the government. • Healthier workers should be more productive and have fewer absences. • This may attract skilled foreign labour to Macau improving growth prospects for local firms. AO4 • Unless it is enforced, the plan may not be adhered to. • Implementation of the plan will cost the government money which has an opportunity cost. • It is likely to take time for the plan to be effective. • Some firms may meet the targets but others may exceed them. • The Chinese government may come up with alternative effective ideas to reduce air pollution in Macau.

ANALYSE 6 marker

AO2= 2 AO3= 4 A full analysis of the economic evidence, a well-developed and logical chain of reasoning.

net pay

Amount of income left after taxes and deductions have been taken out.

Define the term innovation. (1)

An idea which leads to a new product/process

What causes the demand curve for cars to shift to the right?

An increase in consumer incomes

Which of the following would lead to a rightward shift of the supply curve for cars? A A fall in the price of cars B A new technological development C An increase in the price of steel D An increase in wages paid to car factory workers

B A new technological development

Which of the following are likely consequences of a monopolistic market compared to a competitive market? [1 mark] A High output and low prices B High prices and restricted output C High output and high prices D Restricted output and low prices

B High prices and restricted output

Which of the following would be classed as an economic resource? A Income B Land C Opportunity cost D Productivity

B Land

Which of the following is most likely to be a fixed cost for firms? [1 mark] A Packaging B Salaries C Transport D Wages

B Salaries

Which of the following would lead to a market failure? [1 mark] A )An increase in the price of a scarce raw material B) A fall in demand for an unpopular product C )A factory generating air pollution D )The government increasing taxes

C) A factory generating air pollution

What are the rewards to the four factors of production?

Capital = Interest Enterprise = Profit Land = Rent Labour = Wages

Tariq's Fried Chicken (TFC) is a small independent fast food restaurant operating in the centre of a large city. The busy street where TFC is located has lots of people passing by at all times of day and night. There are also many other similar fast food outlets nearby. The level of competition means that prices of products are similar at different restaurants. Tariq, the owner of TFC sometimes struggles to cover his costs and can only afford to pay his staff the national minimum wage. Assess the costs and benefits to TFC of operating in a competitive market. [9 marks]

Costs of operating in a competitive market: • increased competition may mean inability to raise prices, reducing profits • homogenous products and little product differentiation means it is difficult to build brand/consumer loyalty • perfect information means that consumers and competitors will know if a firm changes its price • inability to benefit from economies of scale • low profits may mean low wages for employees. Benefits of operating in a competitive market: • low barriers to entry, so easy to start up in business • perfect information means that it is easy to check competitors' prices and products • consumers focus on price, so little need to improve the quality of a firm's product.

Which one of the following statements is true about the demand curve? (1) A A demand curve is always vertical B A demand curve will shift to the right if price falls C A demand curve shows the relationship between demand and supply D A demand curve shows the amount demanded by consumers at a given price

D A demand curve shows the amount demanded by consumers at a given price

A fall in the price of games consoles is most likely to result from which of the following? [1 mark] A Increased advertising in the games console industry B Increased wages of games console designers C Decreased supply of components D Decreased demand for computer games

D Decreased demand for computer games

Which activity is included in the primary sector of the economy? Catering Farming Hairdressing Housebuilding

Farming

State two types of economy of scale

Financial • Technical • Marketing • Managerial • Purchasing • Risk-bearing • Internal • External.

9 marker

Focuses on: AO2 = 3 marks AO3 = 6 marks A fully justified conclusion with sustained evaluation, which is coherent and relevant, with judgements supported by evidence. A full analysis of the economic evidence, a well-developed and logical chain of reasoning. Comprehensive application of knowledge and understanding of pertinent concepts/issues relevant to the context; specialist language used throughout.

Assess whether the decision to install the machine will be beneficial for the business and the workers. [9 marks]

For- business • The machine would enable further specialisation to take place which would lead to increased productivity. This would enable the business to become more competitive. • The machine will allow for further job role designations which will address the issue of waiting times and poor customer service. This will result in fewer customer complaints which could lead to a higher demand for burgers which will increase profits. • The machine will allow the business to take advantage of technological economies of scale which will reduce their average costs and therefore result in lower prices for their products. This will mean they may be able to increase revenues through selling more whilst at the same time reducing their costs and increasing profits. • The machine will allow the business to grow or expand which could lead to opening more stores and hence greater profit potential. For-workers • The machine will result in fewer complaints which will create a nicer working environment and possibly increase the motivation and quality of service that workers can provide. • The machine could result in the business surviving in the long- term due to increased competitiveness and productivity, saving workers' jobs. • The machine could lead to the growth of the business in the long-term which could result in jobs being created and opportunities for further training and promotion. Against-business • The machine would be an expensive investment and may not lead to a high enough change in demand to cover the costs, which could lead to the failure of the business. • The machine may not improve productivity and competitiveness sufficiently to stave off competition from the large chains. • The machine could lead to the workers' demotivation which may lead to decreased productivity of workers which could affect waiting times and quality of customer service, impacting on profitability. Against-workers • The machine could lead to job losses in the short-term due to the machine taking over some existing work. • The machine could result in deskilling due to workers only being required to take on one stage of the process. • The machine could lead to quality of work deteriorating as a consequence of workers become bored and demotivated. • The machine could lead to a decrease in wages as the jobs required would be less skilled.

Net Pay (Take Home Pay) Formula

Gross pay - (Income tax - National insurance Contribution)

In order to reduce the problem of chewing gum litter, the UK government is considering asking producers to contribute to the clean-up operation. Do you think this is the best way to reduce the problem of chewing gum litter? Use your own economic knowledge to justify your view. [15 marks]

Indicative Content: • chewing gum producers make large profits • chewing gum producers are aware of the external/social costs • consumers are responsible for discarding gum on streets • higher financial penalties may act as an incentive to manufacturers • something must be done to deal with this problem • other methods: tax, minimum pricing, advertising, labelling • problems of placing accurate monetary values on external/social costs. Possible issues for evaluation include: • chewing gum producers make large revenues (especially Wrigley - Table 3) and profits so it's fair that they contribute to clean-up • chewing gum producers should do more to raise awareness of the litter problem • consumers should have some accountability • higher financial penalties may cause manufacturers to develop degradable gum • producers may simply pass on increased costs to consumers as a higher price • producers are at least partially responsible and should contribute • contributing to clean-up is only part of the operation and should be used in conjunction with other methods • fairness issues. How easy is it to apportion the share of costs to producers and consumers?

Do you think the UK government should intervene to reduce market failure in the box coffee shop market?(15)

Indicative content: • Explanation(s) of market failure(s) in the coffee shop market, e.g. external costs, oligopoly power • Coffee cup waste is a significant problem, e.g. number of cups, cost of clean-up • Difficulties in recycling coffee cups • Current attempts by firms to encourage re-use of cups not entirely successful • Other issues still to be dealt with, e.g. water use, carbon emissions and waste coffee products • Oligopoly power may be used to exploit the consumer, e.g. collusion, high prices • Oligopoly power may benefit the consumer, e.g. choice, quality of product, promotions • Government could therefore intervene to encourage recycling and reduce market power. Possible issues for evaluation include: • Coffee shops are clearly not doing enough to tackle the problem of waste • Coffee shops may already be doing enough to tackle the problem of waste • Government should intervene to prevent misallocation of resources associated with external costs • Government should intervene to prevent misallocation of resources associated with oligopoly • Government intervention may cost money - costs of intervention may outweigh the benefits • Governments may make the problem worse, or create different problems.

What are the characteristics of a competitive market?

Large number of firms, low barriers to entry

State the basic economic problem

Limited resources, unlimited wants

Concert tickets to see the most popular music artists can sell for very high prices. Explain one reason why the demand for these tickets might be price inelastic. (3)

One reason is that there are no substitutes (1) if they want to see the artist performing live (1) the consumer will have no choice but to pay a high amount (1)

Assess whether changes in the UK economy are likely to be beneficial for UK builders. [9 marks]

Positive effects: • Increase in demand for houses will increase the derived demand for builders with relevant skills, e.g. bricklayers • As some European workers leave the UK following Brexit, UK builders are likely to be in increasing demand Negative/neutral effects: • Increase in demand for houses may not lead to an increase in demand for builders if capital equipment/plant/machinery can be used instead • UK workers may still be overlooked for foreign workers who may be more skilled and/or willing to work for lower wages or in poorer conditions. Possible issues for evaluation include: • Prioritisation of the effects discussed • Magnitude of potential increase in demand for houses • Extent to which builders may be replaced by machinery • Short run versus long run considerations.

What is the central purpose of economic activity?

Producing goods and services to satisfy needs and wants

A firm is able to buy raw materials in bulk at a reduced average cost from its suppliers. This an example of:

Purchasing economies of scale

External economies of scale

The cost benefits that all firms in the industry can enjoy when the industry expands

Internal economies of scale

The cost benefits that an individual firm can enjoy when it expands.

Define the term labour. (1)

The human resource/workers used in production.

What is meant by the term opportunity cost? (2)

The next best alternative (1) which has to be given up/foregone (1).

price elasticity of demand

a measure of how much the quantity demanded of a good responds to a change in the price of that good

price elasticity of supply

a measure of how much the quantity supplied of a good responds to a change in the price of that good

Movement along demand/supply curve

denotes a change in both price and quantity demanded from one point to another on the curve

Economies of scale

factors that cause a producer's average cost per unit to fall as output rises Occurs when a company increases their scale of production and becomes more efficient, resulting in decreased cost per unit. This is because the cost of production (including fixed and variable costs) is spread over more units of production.

Unitary Price Elastic

if PED for product is equal to 1 then demand has unitary price elasticity. This means that the percentage change in the quantity demanded is proportional to the change in price.

social cost

private cost + external cost

perfectly inelastic demand

the case where the quantity demanded is completely unresponsive to price and the price elasticity of demand equals zero

equilibrium price

the price at which the quantity demanded equals the quantity supplied

gross pay

the total amount of an employee's earnings before deductions are taken out

average variable cost

variable cost(total cost of desired-fixed(0)) ÷ the quantity of output

Shift along demand/supply curve

when a good's quantity demanded or supplied changes even though price remains the same

Explain why online retailing is an example of a market. [2 marks]

• A market occurs when buyers and sellers are able to interact with one another to establish a price. • It brings buyers and sellers together in order to buy and sell goods and services at a price.

Explain one possible reason why the owners of the café may aim to make a profit. [2 marks]

• A reward for the café owners taking a business risk with their own, or others' financial capital • In order to make a surplus of revenue over costs so that the owners can reinvest the profits in the business to improve or expand.

evaluate how firms might be influenced by competing in an oligopoly, such as supermarkets in the Netherlands.(12)

• An oligopolistic market is one where there are a few dominant firms, such as Albert Heijn, Super Unie and Jumbo (which have 83.5% of the market between them) • Due to brand names and advertising, set up costs are likely to be high, therefore creating barriers to entry for any new firms trying to compete • High profits may be enjoyed by the dominant firms such as Albert Heijn, Super Unie and Jumbo because of these barriers to entry • The dominant firms can benefit from economies of scale because they are large scale producers. As output rises, average costs decrease, further increasing profits (and dominance) • Small firms can still compete and survive by specialising and/or catering for niche markets, which are not served by the dominant firms • However the supermarkets may have to compete via non price competition such as advertising, loyalty schemes, customer service and longer opening hours as they are likely to want to avoid price wars, which can be expensive • As the providers are interdependent, if one heavily invests in a major advertising campaign, it is likely to have an impact on the others' market share • The market is constantly changing and so dominance may only continue if the firms continue to develop new ways of attracting custom • Successful small firms run the risk of being taking over or crowded out by dominant supermarkets • It may depend upon how market trends change with regards to use of technology and online grocery shopping. • If the supermarkets in the oligopoly cannot keep up, they may lose dominance or be pushed from the market altogether

State two costs to individual workers from specialisation

• Boredom (for the worker) • Worker's skills may suffer (over-specialisation) • Worker may be replaced by machinery.

Explain one possible cause of monopolistic power in a market. [2 marks]

• Branding/product differentiation • Economies of scale • Sunk costs • Legal barriers, e.g. patents.

analyse why collusion may be a disadvantage for online consumers buying electrical equipment. (6)

• Collusion between firms reduces competition and means firms cooperate with one another instead • Cooperation between firms often means they agree to fix prices and therefore restrict competition • Consumers would therefore pay higher prices for laptops and games consoles • If firms make more profit as a result, it will be harder for new firms to enter the market, making competition in the industry even less likely • Online electrical equipment firms may collude by restricting availability • This means they may only make a limited quantity of electrical items available, encouraging consumers to make more hasty purchasing decisions at higher prices

State the main economic groups

• Consumers • Government • Producers.

Explain one possible effect on the equilibrium market price of cars of a fall in consumer incomes. [2 marks]

• Fall in consumers' ability to purchase goods and services, leading to a decrease in demand and hence a fall in equilibrium price OR • Fall in demand, leading to a leftwards shift in the market demand curve and hence a fall in equilibrium price

Explain one possible effect on the equilibrium market price of an increase in production costs for firms. [2 marks]

• Fall in firms' willingness to supply, which leads to a decrease in supply and hence a rise in equilibrium price • Fall in supply, leading to a leftwards shift in market supply curve and hence a rise in equilibrium price • If student draws a correct leftward shift of supply curve and indicates new equilibrium price and quantity.

Explain why the demand for food is relatively price inelastic. [2 marks]

• Food has no alternatives for sustaining life and so must be purchased in some form, so if price rises the quantity of food purchased will still remain the same.

Analyse why the price of a sofa sold by Handcraft Furniture Ltd is likely to be more expensive than a sofa sold by SofaSogood plc. [6 marks]

• Handcraft Furniture Ltd. (HF) sells sofas to customers with much higher incomes than customers of SofaSogood (SS) which allows HF to raise its selling price. • HF has 12 workers whereas SS has 75, which means that the scope for specialisation is lower and therefore unit costs may be higher meaning the selling price will need to be higher to cover costs. • HF do not get as high a discount on their supplies as SS. SS benefit from purchasing economies of scale which means their unit costs are lower leading to lower prices for their sofas. • Machine intensive production by SS could mean that their variable costs of production are lower than the variable costs of HF whose product is hand-made. This means that HF has higher costs per unit leading to a higher selling price. • Because HF sofas are hand-made the output of sofas is lower than SS, 66 sofas per person at SS and 25 per person at HF. As a consequence of this productivity is much lower and labour costs are higher leading to having to charge higher prices. • SS sofas are located in a warehouse outside the town which enables them to gain the benefits of lower storage and distribution costs whilst HF are situated in town and are constrained by higher overheads.

analyse the possible reasons for Coca-Cola purchasing shares in Inca Kola. (6)

• Inca Kola was a major competitor of Coca-Cola and the market leader • Coca-Cola had a slightly lower share of the market than Inca Kola, with 32.0% compared to 32.9% • Inca Kola was well established in Peru (since 1935) • Buying a share of the company was a way to benefit from the success rather than struggle to compete • The purchase meant Coca-Cola no longer needed to compete with Inca Kola for market share • Coca-Cola's purchase means they have much more control over the Peruvian fizzy soft drinks market • Coca-Cola also gets a share of Inca Kola's profits

Analyse the impact of the discount supermarkets entering the UK supermarket industry. [6 marks]

• Increased competition in the UK supermarket industry because of an increased number of firms, which may lead to lower prices for consumers. • Increased range of products for consumers leading to increased choice and consumer welfare. • Reduced market share held by Big 4 may lead to reduced economies of scale, while discount supermarkets may benefit more from economies of scale. • Competitive response of Big 4 - heavy discounting to reduce market share losses to Aldi and Lidl. • May be ethical concerns as supermarkets (especially Big 4) may respond by putting more pressure on suppliers to cut prices.

Explain one negative externality that could occur due to the building of a new airport. [2 marks]

• Increased congestion as a result of an increase in the number of vehicles around the site • Increased noise pollution from additional road and air traffic • Increased air pollution from additional road and air traffic.

Describe one benefit of increased immigration for firms. (2)

• Increased immigration will increase the supply of labour (1) leading to firms having a wider choice of available workers (1). • The supply of labour may increase (1) so the wage rate may fall (1).

Explain one possible reason for a rise in UK expenditure on eating out. [2 marks]

• Increased incomes mean people have more money to spend on luxuries. • Increased trend of eating out means that it becomes more popular. • The costs of home cooking have increased due to rising food prices and energy costs which makes eating out relatively cheaper at some fast food chains.

Analyse the possible externalities of the increase in take-away coffee consumption in the UK. [6 marks]

• Increased negative externalities/external costs as a result of coffee cup litter. This creates an eyesore as well as an additional cost for local councils to clean up • Increased problem of waste as many coffee cups are still difficult or expensive to recycle • Increased local environmental externalities due to increased traffic • Increased global environmental externalities due to transportation of coffee beans, paper, plastics etc. to coffee shops around the world, predominantly from developing to developed countries.

Explain one way the productivity of Sam's workforce could be increased.

• Increased spending on training can increase the efficiency of the workforce • Increased use of capital equipment can increase productivity of labour • Increased use of incentives may motivate workers to increase efficiency. • Increased specialisation increases rate of production

Explain one possible reason why average cost per unit may increase as the output level of a business increases. [2 marks]

• Labour costs could increase as higher wages rates may be needed to recruit sufficient labour. • Communication difficulties may slow down effectiveness of business operations as the business expands leading to higher costs. • Administration costs may increase disproportionately as output increases.

Do you think the government should intervene further in the UK supermarket industry? Use this information and your own economic knowledge to justify your view. [15 marks]

• Oligopoly - market leadership. Should the government give subsidies or tax incentives to new entrants, or would this distort the workings of the market and lead to higher prices? Also Aldi and Lidl have already successfully entered the market without intervention, increasing competition and lowering prices in the industry. • Non-price competition. Should the government provide opportunities for other businesses to utilise advertising media, or could this lead to a misrepresentation of their significance given that they may not have the resources to compete or survive? Would this result in lowering prices for the consumer? • Pressure on suppliers -Should the government regulate the actions of the Big 4 in relation to their suppliers in order to make sure they pay the market price? They already have the power to fine supermarkets pressurising suppliers but this involves lengthy investigations that could mean the supplier has already gone out of business by the time the problem is addressed. • Food waste - Should the government legislate about the use of surplus food? Could this restrict consumer choice and significantly reduce profits within the industry? • Work practices- Should the government intervene, this could increase prices for consumers but at the same time could improve working conditions for staff at discount supermarkets. • Special Offers - Should the government intervene to insist that the Big 4 provide clearer information regarding special offers so that consumers can make better and more informed choices? This could result in higher prices for consumers in the long run. • Price fixing - Should the government get involved by regulating price setting within the industry? How could this actually be enforced when prices are constantly changing? • Would the cost of intervention outweigh the benefits for the economy and the consumer? • Is it desirable in a free market economy to have the government intervening to such a degree?

The airline industry is an oligopoly, dominated by several large firms. Explain one advantage of this type of market structure for the consumers. (3)

• One advantage is that the consumer will have a choice (1) as the firms will be competing to gain market share from their competitors (1), so they may launch new flight routes to attract the customers (1). • One advantage is that consumers may be offered lower prices (1) as the large firms within the airline industry may be able to benefit from economies of scale (1) such as bulk buying aviation fuel (1).

Explain one reason why James may have decided against the objective of maximising profit for Gold Medal Sports. (3)

• One reason is that James' priority may be caring for customer needs (1) because he spends more time with his regular clients without charging extra (1), meaning he can understand their specialist injury requirements and treat them effectively (1). • One reason is that James' focus may be on helping athletes (1) meaning he keeps prices low so athletes can be treated even if they are on low incomes (1), so they can continue to train and follow their sporting interests (1).

Explain two possible consequences of the oligopolistic nature of the UK coffee box shop market. [6 marks]

• Prices of comparable products of rival brands will be similar because coffee shops may not wish to compete on the basis of price • Coffee shop chains will tend to compete on the basis of non-price factors rather than price. These non-price factors may include branding, advertising, special offers, loyalty cards • Strong emphasis on branding and the customer 'experience'. In recent years, all the main brands have tried to create the illusion of a less corporate/homogenous product by focusing on furnishings • Strong emphasis on product differentiation, e.g. seasonal drinks especially at Christmas (various hot chocolate drinks) and in the summer (fruit coolers etc.). This gives the consumer a feeling of choice • Occasional 'price wars' or discounts in order to increase market share, while reducing the market share of rivals. This would be beneficial for consumers in the short run, although may reduce choice in the long run. • Firms may collude to drive up prices.

State sectors of the economy

• Primary • Secondary • Tertiary.

Explain one positive externality that could result from building a new motorway. [2 marks]

• Reduced congestion on local roads, therefore benefitting users of local roads TO reduce the unreliability of travel time, reduce fuel and transport costs, able to access more services and facilities

assess the extent to which an increase in education and training is the best way to increase productivity. (9)

• Skills could be gained through education in schools and colleges leading to qualifications in technical areas relevant to business • Skills can also be gained through work place training by employers • Through education and training, workers will be more skilled and may therefore be more productive. This could lead to an increase in international competitiveness • Workers may be more motivated as a result of the training, leading to greater job satisfaction, lower labour turnover and improved productivity • Through improved human capital the quality of labour is greater and productivity can be increased. This could mean income per capita increases • However, the cost to the firm of staff training/the Canadian Government of providing education may be too great compared to investing in technological advances • The firm may be reluctant to invest in human capital if it pays to train workers but they then leave for alternative employment. • Increasing technological developments may be more financially viable. • To be effective the quality of the training needs to be of a high enough standard to meet the requirements of the work place • It takes a long time for the benefits of education to lead to increased productivity. This could explain why Canada's labour productivity growth took time to become the 3rd most productive of the leading economies • It depends on the nature of the industry, some industries are better suited to having highly skilled workers e.g. service industries • Whereas some industries suit increased automation and use of technological advances rather than investing in human capital

Explain one opportunity cost a government might face when making box economic decisions.

• Spending less on education if more is spent on healthcare because funds are limited • Spending more on roads means less money available to spend on nurses' wages • Spending money on public goods means less to spend on merit goods.

Analyse why a surgeon may earn more than a cleaner. [6 marks]

• Surgeon earns more than 3 times UK average • Surgeon earns around 11 times more than a cleaner • Higher level of skill required to be a surgeon • Longer training period required to be a surgeon • More demanding job as a surgeon • Higher level academic qualifications required to be a surgeon • Demand likely to be higher for surgeon than cleaner • Supply likely to be higher for cleaner than surgeon • Use of relevant supply and/or demand diagrams.

The National Living Wage (NLW) government policy target is to increase the NLW to £9 per hour by 2020. Explain two possible impacts of this policy on the UK supermarket industry. [6 marks]

• The policy could impact on competition in the supermarket industry as the Big 4 supermarkets' labour costs would increase more than the discounters' and they may have to increase prices which might mean customers would choose to swap stores. • The policy may have no impact on the supermarket industry if wage rates in the industry increase prior to 2020 to a level near to the new NLW. • The policy could lead to the supermarket industry investing in more technology to enable the reduction of labour to reduce their labour costs, leading to fewer jobs in the industry. • The policy could mean that revenue will increase in the industry as consumers will have more money to spend on supermarket shopping.

Give a definition of productivity. [2 marks]

• The rate of output in relation to the input • A measure to calculate the efficiency of individuals, machines, businesses.

analyse why Canadian firms may have been struggling to hire the labour they need. (6)

• There may not be enough people in Canada undertaking the required training to gain the specialist skills and qualifications required • This may be because it takes too long or costs too much for the training • Canada is a very big country and so it may be difficult for the specialist workers to move from their geographic locations • There may have been a faster increase in demand for the specialist skills such as computer engineers and web designers, than the supply of them • Wages and rewards for the computer engineers/web designers may be higher in other countries, encouraging workers to leave Canada

State one factor that will cause a demand curve to shift to the left. (1)

• a decrease in advertising • a decrease in income • an adverse change in taste and fashion • a decrease in price of substitute goods • an increase in price of complementary goods • a decrease in population

State one factor that will cause a supply curve to shift to the right. (1)

• a decrease in the cost of raw materials. • a decrease in the cost of labour. • a decrease in indirect taxes. • a subsidy. • improvementsin technology. • favourable natural conditions.

Explain the difference between a need and a want. [2 marks]

• a need is a necessity • a want is a desire or a luxury

Explain one factor that may affect price elasticity of supply. [2 marks]

• availability of factors of production • time period • stocks available • weather • spare production capacity • infrastructure/transport facilities.

State two benefits of growth for a business. [2 marks]

• economies of scale (credit specific types) • possible increased market share/market dominance • ability to set prices • barrier to entry • possible increased profit • increased prominence.

Explain one way that Ella could increase her profit. [2 marks]

• increase prices • reduce prices to increase sales • reduce fixed costs • reduce variable costs • spend money on advertising.

Analyse how the UK government could reduce the problem of chewing gum on the streets. [6 marks]

• increased fines for chewing gum litter • increased advertising or labelling on chewing gum packs to discourage litter • provide more bins • a minimum price imposed on chewing gum • a specific tax on chewing gum.

Explain one benefit of the division of labour to a firm. [2 marks]

• increased specialisation • increased productivity • increased profitability • marketing advantage • cheaper products • time saving • more scope to use specialised machinery.

Explain what is meant by diseconomies of scale. [2 marks]

• increases in a firm's average costs of production as it increases its scale of operations • rising unit costs as a firm expands output • the disadvantages to a firm from growing in terms of increased average costs. (opposite of economies of scale)

The following are price elasticity data for two products, petrol and foreign holidays. Petrol: -0.3 Foreign holidays: -2.0 Using the above data, analyse possible reasons for the different values for price elasticity of demand of the two products. [6 marks]

• petrol is a necessity and so is inelastic • foreign holidays are a luxury and so are elastic • petrol has few substitutes and so has low elasticity of demand • foreign holidays have numerous substitutes and so have higher elasticity of demand.

State two characteristics of an oligopolistic market.

• relatively high barriers to entry • differentiated products • imperfect information • price stability • interdependence • non-price competition.

Define market failure. [2 marks]

• the inability of the market system to allocate resources efficiently • a misallocation of scarce resources.

Explain what is meant by opportunity cost. [2 marks]

• the next best alternative given up when a choice is made • the next best alternative foregone.

EXPLAIN two possible external costs arising from chewing gum litter. [6 marks]

• visual pollution (eyesore) • damage to clothing and subsequent cleaning costs • costs of removal from streets • possible health risks/costs • deterrent to visitors/tourists.