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A-level
ECONOMICS
Paper 3 Economic Principles and Issues

Friday 7 June 2024 Morning Time allowed: 2 hours

Materials
For Examiner’s Use
For this paper you must have:
• the Insert Section Mark
• a calculator.
A

Instructions B
• Answer all questions. TOTAL
• Use black ink or black ball-point pen. Pencil should only be used for drawing.
• Fill in the boxes at the top of this page.
• You will need to refer to the Insert provided to answer Section B.
• You must answer the questions in the spaces provided. Do not write outside the box around each
page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at the end of
this book. Write the question number against your answer(s).
• Do all rough work in this answer book. Cross through any work that you do not want to be marked.

Information
• The maximum mark for this paper is 80.
• The marks for questions are shown in brackets.
• No deductions will be made for wrong answers.

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Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each question completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to select
as shown.

0 1 Which one of the following is a consequence of the basic economic problem of limited
resources and unlimited wants?
[1 mark]

A All goods and services will have a market price

B Employment of factors of production has an opportunity cost

C Markets are unable to allocate resources efficiently

D There will not be an excess supply in markets

0 2 A profit-maximising firm, in the service sector, needs to recruit a new employee. Which
one of the following explains why asymmetric information could mean that the most
suitable person is not chosen?
[1 mark]

A It is difficult to calculate the marginal revenue productivity of workers in the

service sector

B Occupational immobility of labour means that there is a limited supply of

workers with the right skill set

C The firm may have to recruit the worker from the local area because labour
is often geographically immobile

D The firm is unlikely to know everything about job applicant’s skills, abilities
and motivation

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0 3 box
Figure 1 shows the production possibility boundary for petrol-powered cars and electric-
powered cars in a country's car industry.

Figure 1

If production has moved from Point A to Point B, which one of the following must be true?
[1 mark]

A Allocative efficiency in the car industry is unchanged

B Demand for electric-powered vehicles has increased

C Productive efficiency in the car industry is unchanged

D Static efficiency in the car industry has improved

0 4 A household's annual income increases from £35 000 to £38 500. All other things being
equal, if the household's income elasticity of demand for Good X is –0.2 and its income
elasticity of demand for Good Y is 0.4, which one of the following statements is correct?
[1 mark]

A Spending on Good X will fall by £70 and spending on Good Y will

increase by £140

B Spending on Good X will fall by £700 and spending on Good Y will

increase by £1400

C Spending on Good X will fall by 2% and spending on Good Y will

increase by 4%

D Spending on Good X will fall by 20% and spending on Good Y will

increase by 40%

Turn over ►

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0 5 Table 1 shows the effect of cash benefits and taxes on household incomes in the UK in box

2020–21.

Table 1

Income of
Income of top Ratio of top to
bottom quintile
quintile (£s) bottom quintile
(£s)
Original
107 551 8 196 13.1
income
plus cash
2 581 7 267 0.4
benefits
Gross income 110 132 15 463 7.1
less direct
32 000 2 267 14.1
taxes
Disposable
78 131 13 196 5.9
income
less indirect
7 133 3 024 2.4
taxes
Post-tax
70 998 10 172 7.0
income
Source: Office for National Statistics

Which one of the following can be concluded from the data in Table 1 regarding the
distribution of income between the top and bottom quintile of households?
[1 mark]

A Cash benefits were less effective than direct taxes in redistributing income
from the bottom quintile of households to the top quintile

B Direct taxes made the distribution of income more unequal

C Indirect taxes made the distribution of income more unequal

D Indirect taxes were more effective than cash benefits in redistributing income
from the top quintile of households to the bottom quintile

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0 6 Table 2 shows the UK's balance of trade in goods and services in successive quarters. box

Table 2

Quarter 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022 Q1 2022 Q2

Balance
of trade –8.5 3.6 0.9 –12.1 –4.7 –25.3 –25.0
(£bn)

What was the UK's median quarterly balance of trade over the period shown in Table 2?
[1 mark]

A –£12.1bn

B –£10.2bn

C –£8.5bn

D £11.4bn

0 7 Which one of the following is an injection into the circular flow of income?
[1 mark]

A Factor incomes

B Government borrowing

C Investment

D Savings

Turn over for the next question

Turn over ►

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0 8 Figure 2 shows the total utility that a consumer derives from their daily consumption of box

bananas.

Figure 2

Based on the information in Figure 2, which one of the following statements is correct?
[1 mark]

A A rational consumer will choose to consume 3 bananas each day

B Diminishing marginal utility sets in with the consumption of the 4th banana

C Marginal utility is maximised with the consumption of the 3rd banana

D Marginal utility from consuming the 3rd banana is less than the 2nd

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0 9 A government introduces a number of supply-side policies that increase the size of the box

country's working population and labour productivity. All other things being equal, which
one of the following statements identifies the most likely effects of the policies on the
country's economy?
[1 mark]

A An increase in real national income and a reduction in the balance of

payments deficit

B An increase in short-run economic growth and inflation

C An increase in the trend rate of economic growth and a growing balance

of payments deficit

D A reduction in unemployment and an increase in inflation

1 0 Figure 3 shows how the markets for Good X and Good Y are affected by an increase in
the demand for Good X.

Figure 3

It can be concluded that Good X and Good Y are in

[1 mark]

A competitive demand.

B composite demand.

C derived demand.

D joint supply.

Turn over ►

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1 1 Figure 4 shows the short-run average costs (AC), marginal costs (MC), average revenue box

(AR) and marginal revenue (MR) curves for a typical firm in a monopolistically competitive
market.

Figure 4

In the long run, market forces are most likely to cause the firm's revenue curves to
[1 mark]

A shift left and become flatter.

B shift left and become steeper.

C shift right and become flatter.

D shift right and become steeper.

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1 2 According to the kinked demand curve model of oligopoly, which one of the following box

would be most likely to explain price stability in an oligopolistic market?

[1 mark]

A A firm's revenue would fall with any change in price

B Collusion between firms is likely to lead to price-fixing

C Firms do not seek to maximise their profits

D Individual firms do not have the ability to set prices

1 3 Table 3 shows how the price affects the number of shirts a shop sells in a week.

Table 3

Price of shirts Number of shirts sold

£40 10

£36 11

£33 12

The marginal revenue of the 12th shirt sold is

[1 mark]

A –£3

B £0

C £33

D £396

Turn over for the next question

Turn over ►

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1 4 In 2015, the UK government introduced a tax on firms using landfill sites to dispose of box

waste. After the tax was introduced, there was a significant rise in illegal dumping of
waste. This is most likely to be an example of
[1 mark]

A a negative externality in consumption.

B government failure due to unintended consequences.

C market failure resulting from imperfect information.

D the tragedy of the commons.

1 5 Which one of the following functions of money is likely to be most effective during a period
of deflation?
[1 mark]

A Measure of value

B Standard of deferred payment

C Store of value

D Unit of account

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1 6 An economy's long-run trend rate of economic growth in real gross domestic product box

(GDP) is 2.8% per annum. In 2018, the economy's actual real GDP was equal to its trend
level of real GDP. Table 4 shows the economy's actual rate of growth in real GDP over a
five-year period.

Table 4

Year Change in real GDP

2019 2.0%

2020 2.8%

2021 3.5%

2022 3.4%

2023 1.8%

All other things being equal, in which year was the economy likely to experience the most
inflationary pressure?
[1 mark]

A 2020

B 2021

C 2022

D 2023

Turn over for the next question

Turn over ►

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1 7 Table 5 shows a household's income and the amount the household has to pay in tax for box

three taxes.

Table 5

Income Tax F Tax G Tax H

(£) (£) (£) (£)
10 000 1 000 500 500
30 000 2 500 1 500 1 800
60 000 4 000 3 000 4 000

Which one of the following statements is correct?

[1 mark]

A Tax F is a progressive tax and Tax H is a progressive tax

B Tax F is a regressive tax and Tax G is a progressive tax

C Tax F is a regressive tax and Tax G is a proportional tax

D Tax F is a regressive tax and Tax H is a regressive tax

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1 8 Figure 5 shows the short-run average cost curve (SRAC) for a firm producing electrical box

components.

Figure 5

Which one of the following is most likely to explain the change in short-run average cost
when output rises from 5 units to 10 units?
[1 mark]

A Falling total costs of production

B Increasing marginal returns to labour

C Increasing returns to scale

D Technical economies of scale

Turn over for the next question

Turn over ►

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1 9 Table 6 shows the national debt and gross domestic product (GDP) for the UK in the box

second quarters of 2020 and 2022.

Table 6

National debt GDP

Year
(£bn) (£bn)
2020 2069 2190
2022 2437 2391

All other things being equal, which one of the following is most likely to help the
government manage the impact of the changes shown in Table 6?
[1 mark]

A Contractionary monetary policy by the Bank of England

B Falling demand for government bonds from foreign investors

C Rising interest rates in global financial markets

D Sustained rises in nominal national income in future years

2 0 A firm has a downward-sloping average revenue curve and a U-shaped average total cost
curve. Which one of the following meets the condition required for the firm to be
productively efficient?

The firm is producing the quantity at which

[1 mark]

A average revenue equals average total cost.

B average revenue equals marginal cost.

C marginal cost equals average total cost.

D marginal revenue equals marginal cost.

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All other things being equal, Table 7 shows how the number of workers employed by a
profit-maximising firm affects its total output per hour and the price it is able to charge for
the product produced.

Table 7

Number of workers Total output per hour Price (£)

1 3 5.00
2 7 4.50
3 15 4.20
4 20 4.10
5 24 4.00

The firm pays its workers £18 per hour. It does not have any other variable costs and its
fixed costs are £3 per hour.

How many workers will the firm employ?

[1 mark]

A 2

B 3

C 4

D 5

Turn over for the next question

Turn over ►

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Figure 6 shows a perfectly competitive labour market. The left-hand diagram shows the
supply of labour (SLI) and demand for labour (DLI) for the industry. The right-hand diagram
shows the demand for labour (DLF) for one firm in the industry.

Figure 6

All other things being equal, which one of the following is most likely to cause an increase
in the wage rate paid by the firm?
[1 mark]

A A decrease in the price of a substitute for the industry's product

B A price increase for a good jointly demanded with the industry's product

C An increase in the number of workers qualified to work in the industry

D An increase in the price of the industry's product caused by changing tastes

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Figure 7 shows two long-run aggregate supply curves (LRAS) for an economy.

Figure 7

Which one of the following is most likely to explain the shift of the long-run aggregate
supply curve from LRAS1 to LRAS2?
[1 mark]

A A reduction in the basic and higher rates of income tax

B A reduction in the geographical mobility of labour

C An increase in immigration

D An increase in imports of goods and services

Turn over for the next question

Turn over ►

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2 4 box
Following a reduction in the level of cash reserves required by the regulator, a commercial
bank increases its mortgage lending.

Which one of the following describes how the bank’s liquidity and profitability are most
likely to change?
[1 mark]

A Liquidity and profitability both improve

B Liquidity and profitability both worsen

C Liquidity improves and profitability worsens

D Liquidity worsens and profitability improves

2 5 A country joins a customs union. Which one of the following is the most likely
consequence of its membership?
[1 mark]

A Exports to non-member countries will increase

B Exports to other member countries will be more expensive

C Imports from non-member countries will be cheaper

D Imports from other member countries will increase

2 6 Which one of the following helps to explain why, in a freely floating exchange rate system,
market forces are likely to automatically reduce a deficit or surplus on a country's balance
of trade?
[1 mark]

A A deficit will lead to excess demand for the country's currency and a
depreciating exchange rate.

B A deficit will lead to excess supply of the country's currency and an

appreciating exchange rate.

C A surplus will lead to excess demand for the country's currency and an
appreciating exchange rate.

D A surplus will lead to excess supply of the country's currency and a

depreciating exchange rate.

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Table 8 shows an index of copper exports for a country during the years 2020 to 2023.

Table 8

Index of copper exports

Year
(2020 = 100)
2020 100.0
2021 106.0
2022 112.1
2023 118.0

Which one of the following statements is correct?

[1 mark]

A Between 2020 and 2023, the mean annual rate of growth in the country's
exports of copper was 6%

B In 2022, the country's exports of copper grew by 6.1%

C The highest rate of growth in the country's exports of copper was in 2023

D The rate of growth in the country's exports of copper was higher in 2021
than in 2022

Turn over for the next question

Turn over ►

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2 8 box
Table 9 shows the price index for an economy at the end of each of the years from 2019 to
2023.

Table 9

Year Price index

2019 110
2020 108
2021 117
2022 123
2023 135

In which year did the economy experience disinflation?

[1 mark]

A 2020

B 2021

C 2022

D 2023

2 9 Which one of the following might be part of a market-based strategy for promoting
economic growth and development in a less-developed economy?
[1 mark]

A Adopting a fixed exchange rate

B Encouraging overseas aid

C Privatising key industries

D Subsidising exports

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3 0 box
Figure 8 shows the market demand (DL) and supply (SL) of labour in a labour market with
a trade union. The initial trade union negotiated wage is W 2.

Figure 8

The trade union negotiates an increase in the wage from W 2 to W 3. All other things being
equal, unemployment in this labour market will increase by
[1 mark]

A 3 000

B 5 000

C 8 000

D 16 000 30

Turn over for Section B

Turn over ►

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Section B box

Answer all questions in this section.

Refer to the Insert for Extracts A, B, C and D.

Total for this Investigation: 50 marks

Regional inequality in the UK

INVESTIGATION

Scenario

You are an economist working for an organisation that was established to promote policies that help
to improve the well-being of people living in relative poverty.

You have been asked to review the extent to which there are differences between the economic
prosperity of people living in different regions of the UK and the policies that might be used to
reduce these differences.

As part of this investigation, you are to provide answers to three questions.

Referring to the Insert, study Extracts A, B and C, then use these and your knowledge of
economics to help you answer Questions 31 and 32. There is also a news report, Extract D, which
is to be used with the other extracts to help answer Question 33.

3 1 To what extent, if at all, do the data suggest that people living in the South East (SE) of
England are better off than people living in the North East (NE) of England?
[10 marks]

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Extra space

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3 2 box
Explain why investment in infrastructure in the less-prosperous regions could help to
improve the prosperity of people living in these regions.
[15 marks]

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3 3 After considering Extract D, and the original evidence in Extracts A, B and C, would you box

recommend that the government intervene in the economy to try to reduce the differences
in the economic prosperity of the various regions of the United Kingdom?

Justify your recommendation.

[25 marks]

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50

END OF QUESTIONS

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ANSWER IN THE SPACES PROVIDED

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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ANSWER IN THE SPACES PROVIDED

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