Cambridge O Level Economics: Supply-side policy (2281) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover section 4.5 (4.5.1 to 4.5.3, supply-side policy) of the Cambridge O Level Economics 2281 syllabus for examination in 2026, in topic 4. There is no tiering. All countries, firms and figures are made up. Learn the content first from the study guide and the revision notes. The course hub and printable checklist show what else to cover, and the wider topic has its own practice set.

Questions

1. Define supply-side policy. [2]

2. Explain one difference between supply-side policy and policy that works through changing spending. [3]

3. A pottery workshop employs 8 workers. They make 400 mugs a week and the weekly wage bill is 4,800. After a government-funded training scheme the same workers make 460 mugs a week and the wage bill is unchanged.

(a) Calculate the percentage change in output per worker. [3] (b) Work out the labour cost of one mug before and after the scheme, then the percentage change, to one decimal place. [3]

4. Explain two ways in which labour market reforms could reduce unemployment. [4]

5. A worker in Country R is offered an extra hour at 40. The tax rate on the extra pay is cut from 35% to 25%.

(a) Calculate the amount she keeps from the hour under each tax rate. [2] (b) Calculate the percentage rise in the amount kept, to one decimal place. [1] (c) Explain one reason why the tax cut might not lead her to work more hours. [2]

6. A firm makes a profit of 150,000. Corporation tax is cut from 25% to 20%.

(a) Calculate the tax paid before and after, and the change in government revenue if profit does not change. [3] (b) Calculate the profit needed for the government to collect the same revenue as before at the new rate. [2] (c) Explain why a government might still cut the rate. [2]

7. A state-owned bus company is sold to private investors.

(a) Explain how privatisation could improve efficiency. [3] (b) Explain one way privatisation could harm consumers. [3]

8. A government removes licence limits on taxi firms in a city. The average fare falls from 8 to 6.80.

(a) Calculate the percentage change in the fare. [2] (b) Explain why more firms in the market might lead to lower fares. [3] (c) State and explain one drawback of removing the limits. [2]

9. Country D carried out supply-side reforms over three years. The figures are illustrative.

	Before	After
Labour force (million)	20.0	20.5
Unemployed (million)	1.6	1.025
Real GDP (billion)	300	321
Price index	100	106
Exports (billion)	80	92
Imports (billion)	90	96

(a) Calculate the unemployment rate before and after. [2] (b) Calculate the percentage growth of real GDP. [1] (c) Calculate the percentage rise in the price index. [1] (d) Calculate the balance of trade (exports minus imports) before and after. [2] (e) Explain how supply-side policy could have contributed to the change in the balance of trade. [3]

10. Explain how supply-side policy could help a government achieve (a) stable prices and (b) balance of payments stability. [6]

11. Evaluate whether education and training is the most effective supply-side measure for reducing unemployment. [8]

12. Country E (invented) has taxable income of 200 billion and an income tax rate of 30%. The government cuts the rate to 25% to improve incentives to work.

(a) Calculate the revenue before and after the cut if taxable income stays at 200 billion. [2] (b) The cut raises taxable income by 8%. Calculate the new taxable income and revenue. [2] (c) Evaluate whether the cut is a good way to achieve economic growth and redistribution of income. [6]

Answers

1. Government action to increase the economy’s ability to produce [1] by raising the productivity and efficiency of labour, capital and markets [1]. [2] Examiner insight: Include productive capacity or the ability to produce in the definition. “Policy that helps the supply side” repeats the question and gives little to reward.

2. Supply-side policy aims to raise productive capacity or potential output, for example through training [1]. Fiscal or monetary policy changes how much people and firms spend, for example through lower interest rates [1]. Supply-side effects are usually slower and lasting, while spending changes work faster but can push up prices [1]. [3] Examiner insight: Both policies must appear in a comparison. Writing about supply-side policy alone answers a different question.

3. (a) Before: 400 ÷ 8 = 50 mugs per worker [1]. After: 460 ÷ 8 = 57.5 [1]. Change = (57.5 − 50) ÷ 50 × 100 = 15% [1]. [3] (b) Before: 4,800 ÷ 400 = 12 [1]. After: 4,800 ÷ 460 = 10.43 [1]. Change = (10.43 − 12) ÷ 12 × 100 = −13.0% [1]. [3] Examiner insight: Show the division before the percentage. A clear method line lets a small slip stay small.

4. Easier hiring and dismissal, or less union blocking of change, lowers the risk of employing someone [1], so firms are more willing to take on workers and unemployment falls [1]. Better job information and retraining help jobseekers find vacancies and move between regions and occupations [1], so the time spent unemployed falls [1]. [4] Examiner insight: Two separate ways are needed, each with a link to lower unemployment. Two examples of the same idea earn credit once.

5. (a) Before: 40 × 0.65 = 26 [1]. After: 40 × 0.75 = 30 [1]. [2] (b) (30 − 26) ÷ 26 × 100 = 15.4% [1]. [1] (c) She may reach her target income with fewer hours, so she works less [1], because higher take-home pay on each hour lets her earn the same total in less time [1]. [2] Examiner insight: A reason must be developed. “People might not respond” is a statement. Add why they might not.

6. (a) Before: 150,000 × 0.25 = 37,500 [1]. After: 150,000 × 0.20 = 30,000 [1]. Revenue falls by 7,500 [1]. [3] (b) 37,500 ÷ 0.20 [1] = 187,500 [1]. [2] (c) Firms keep more profit to reinvest, so investment and output may rise [1], and the extra activity may bring in tax from workers and spending, offsetting some lost revenue [1]. [2] Examiner insight: Part (b) needs revenue divided by the new rate. Using the old rate gives the original profit, which is a common slip.

7. (a) Private owners want profit, so they have a reason to cut waste and costs [1]. If rivals exist, competition pushes the firm to keep costs low and service good [1], so output per unit of input rises and unit costs fall [1]. [3] (b) If the firm has no rivals on its routes, it may raise fares [1] because customers have no alternative [1]. Routes that lose money may be cut, leaving some areas with no service [1]. [3] Examiner insight: A harm should be tied to the situation. The reason a private owner can raise prices (little competition) is what turns a statement into analysis.

8. (a) (6.80 − 8) ÷ 8 × 100 [1] = −15% [1]. [2] (b) More firms means more competition for passengers [1]. A firm that charges more loses customers to rivals [1], so firms cut fares and costs to attract passengers [1]. [3] (c) Safety standards or driver conditions may be weaker [1], because firms cut costs and the rules may have been protecting passengers [1]. [2] Examiner insight: A drawback needs a reason. State what goes wrong and why removing the rule causes it.

9. (a) Before: 1.6 ÷ 20.0 × 100 = 8.0% [1]. After: 1.025 ÷ 20.5 × 100 = 5.0% [1]. [2] (b) (321 − 300) ÷ 300 × 100 = 7% [1]. [1] (c) (106 − 100) ÷ 100 × 100 = 6% [1]. [1] (d) Before: 80 − 90 = −10 [1]. After: 92 − 96 = −4 [1]. The deficit narrows. [2] (e) Lower costs or better quality help firms sell more exports [1]. Exports rose by 12, more than imports at 6 [1]. Better home products may also reduce the need to import, so the deficit fell from 10 to 4 [1]. [3] Examiner insight: Use the figures given. A link to the data (exports rose by more than imports) is more convincing than general statements.

10. (a) Training, investment and competition raise output per worker and lower unit costs [1]. Firms can hold prices down or cut them [1], so inflation is lower, unless wages rise as fast as productivity [1]. [3] (b) Lower costs and better quality make exports more competitive abroad [1]. Home goods become more attractive than imports [1], so exports rise and imports fall, which narrows a deficit [1]. [3] Examiner insight: Write a chain for each named aim.

11. Award credit for balanced points such as these:

• Training matches skills to vacancies, which reduces structural unemployment [1].
• Skilled workers are more productive, so firms may hire more as costs per unit fall [1].
• It is slow: courses and results take years [1].
• It costs the government money with an opportunity cost [1].
• Trained workers may leave, or skills may not match jobs [1].
• Labour market reform could act faster by easing hiring [1].
• Incentives or lower taxes might draw more people into work, but they do not teach skills [1].
• Judgement: training is likely best where unemployment comes from missing skills, but a package works better, because no single measure fixes every cause [1]. [8] Examiner insight: The judgement should answer “most effective” and give a reason. A list of advantages and disadvantages with no decision leaves the question unanswered.

12. (a) Before: 200 × 0.30 = 60 billion [1]. After: 200 × 0.25 = 50 billion [1]. [2] (b) New income = 200 × 1.08 = 216 billion [1]. Revenue = 216 × 0.25 = 54 billion [1]. [2] (c) Growth: more reward for work may increase labour supply and effort, raising output [1]. Revenue still falls by 6 billion (60 − 54), which may reduce spending on services such as schools [1]. Break-even income is 60 ÷ 0.25 = 240 billion, a rise of 20%, which is unlikely from a rate cut alone [1]. Redistribution: the cut gives most cash to high earners and may widen the gap [1]. Lower revenue could limit welfare help for the poor [1]. Judgement: the cut is weak for redistribution and may help growth only if the response is large and timely, so a targeted measure such as training for low earners may do better [1]. [6] Examiner insight: Use your own numbers from parts (a) and (b) in the evaluation. Analysis that uses the figures earns more than general comment.

Where marks are usually lost

• Defining supply-side policy as any policy that affects the economy, without productive capacity.
• Describing a measure without a chain to the named macroeconomic aim.
• Forgetting the “× 100” in percentage changes, or using the new figure as the base instead of the old one.
• Calculating break-even revenue with the old tax rate.
• Saying a tax cut will increase tax revenue without any figures or reasoning.
• Giving only benefits when asked to evaluate, and ending without a judgement.
• Mixing up privatisation (ownership) with deregulation (rules).
• Ignoring the data in a table and writing general points.

Next steps

• Revisit the revision notes and the study guide.
• Check coverage on the course hub and the printable checklist.
• Try the free 10-minute diagnostics to find other gaps.
• Book a free trial class if you want to talk through a topic.

Official syllabus

Cambridge O Level Economics 2281, syllabus for examination in 2026 (version 2), Cambridge University Press & Assessment, section 4.5.