Candidate

Name

Centre
Number

Candidate
Number
2

GCE AS/A level

1131/01
ECONOMICS EC1
P.M. FRIDAY, 28 May 2010
1 hour

Maximum
Mark
Mark
Awarded

10

TOTAL

50

DO NOT OPEN THIS BOOKLET UNTIL YOU ARE TOLD TO DO SO.

ADDITIONAL MATERIALS
In addition to this examination paper, you will need a calculator.
INSTRUCTIONS TO CANDIDATES
Write your name, centre number and candidate number in the spaces at the top of this page.
Answer all the questions in the spaces provided. You may use continuation paper on page 14 if
necessary, taking care to number the continuation correctly.
INFORMATION FOR CANDIDATES
Mark allocations are shown in brackets. This paper has a total of 50 marks.
CJ*(S10-1131-01)

1131 01

Question

01

For Examiners use only

Examiner
only

Answer all the questions in the spaces provided.

(a)

1.

Explain what is shown by a production possibility frontier.

[2]

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(b)

Explain the circumstances in which a production possibility frontier would be shown as

a straight line as in the diagram below.
[2]

Good Y

Good X

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2.

Examiner
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UK STEEL PRODUCTION AND EMPLOYMENT

Millions of tonnes of steel produced per year
Thousands employed in the steel industry

60
50
Millions
of tons of steel
produced per year

40
30

Thousands
employed in
the steel industry

20

(a)

How could the data above be used to calculate productivity levels in the UK steel
industry?
[2]

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(b)

Explain why productivity may have changed in the UK steel industry between 1989 and
2007.
[4]

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1131 01

Source: The Independent 27th January 2009

03

10

3.

Examiner
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Rare 1937 Bugatti found in garage

January 2, 2009
An extremely rare 1937 Bugatti car has been found in a garage in England and is expected to
draw a record price when it is auctioned in Paris next month. The dusty, but intact Bugatti
Type 57S Atalante is one of only 17 ever made.
With the aid of a diagram, comment on the price elasticity of supply of this Bugatti car.

[4]

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4.

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FAIRTRADE

During Fairtrade fortnight in 2008 Cadbury announced that they would

triple the amount of Fairtrade cocoa bought from Ghana. Cadbury will
pay a guaranteed minimum price of $1800 per tonne even if the free
market price for Ghanaian cocoa falls below it.

With the aid of a diagram, explain how this scheme will benefit Ghanaian cocoa farmers if
the market price falls below the guaranteed minimum price.
[4]
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1131 01

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05

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5.

Stats of
the Week
Students would turn their
backs on university if they
were charged twice as
much, a study found last
week. Despite this, the
report by Britains vicechancellors calls for tuition
fees to rise to 6,500, a
demand students dismissed
as arrogant. Fees are
currently fixed at 3,145.

Examiner
only

Raising tuition fees will turn

students away from
university

3,145 a year
what students pay
now for tuition

6,500 a year
the amount
universities want
to charge in future

32,000
predicted student debt after
three years if fees rise

Source: The Sunday Times, 4 January 2009

Going to university continues to give young people in the UK a strong advantage in their
earning power according to an international survey. For those graduates who left university a
decade ago, their average earnings are 77% higher than non-graduates.
With the aid of the above data, explain the private costs, private benefits and external benefits
of a university education.
[6]
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6.

PRE-BUDGET REPORT NOVEMBER 2008

After a recession in 2009, economic growth in the UK in 2010 is forecast at between 1.5% and
2%. The 2008 pre-budget report gave a 20bn fiscal boost between November 2008 and April
2010, equivalent to 1% of GDP. A total of 3bn in capital spending was brought forward
from 2010/11. The money will be used to increase motorway capacity, improve and build new
social housing, renew primary and secondary schools and invest in energy efficiency measures.
VAT was cut from 17.5% to 15% from 1 December 2008.
(a)

Using the data and an aggregate demand and aggregate supply diagram, discuss the
possible effects of the fiscal boost on the UK economy.
[6]

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(b)

Examiner
only

In the budget, April 2009 it states, Rich face new 50% top tax rate on earnings above
150,000 a year.
The Institute of Fiscal Studies, however, has stated it is unlikely that the Government
will raise any money at all from increasing taxes on high income earners to 50%.
With the aid of a Laffer Curve diagram, explain this view.

[4]

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7.

Examiner
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American exporters in last-ditch attempt

to stop Obama raising the trade barriers
The barriers go up
Trade tension mounts
over protectionist
threat in Obamas
$825bn stimulus
package
US steelmakers want
Buy America clause
in $64bn infrastructure
spending programme.
European Commission
threatens legal
challenge if Buy
America breaches
WTO rules

Rising tide of protectionism

Russia
Increases tariffs on imported
cars
Triples tariffs on imported
construction steel
US
Triples tariff on Roquefort cheese
EU
Raises duties on Vietnamese
footwear
Resumes export subsidies for
butter, cheese and milk powder
Ecuador
Introduces range of tariffs to cut
imports by $1.5bn

Warning
from US
exporters
that Buy
America
will spur
tit-for-tat
retaliation

Source: The Times, 26 January 2009

Using the above data, evaluate the case for countries introducing protectionist policies.

[8]

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Examiner
only

Euro to the pound

8.

Holidaymakers hit as
1 falls to 1 or less

Source: The Times, NI Syndication, 31 December 2008

To what extent will the fall in the value of the pound against the euro between 2006 and 2008,
as shown in the above data, be damaging to UK firms involved in the tourist trade?
[8]
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