Edexcel IAL Economics: Scarcity, models, production possibility frontiers and economic systems (YEC11) – 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 1.3.1 Introductory concepts, items 1 to 6, of the Pearson Edexcel International Advanced Subsidiary/Advanced Level in Economics specification (YEC11), Issue 2, June 2018. This is Unit 1 content, labelled IAS and also part of the full IAL. All figures are invented.

Links: study guide, revision notes, Edexcel economics hub, printable checklist and free 10-minute diagnostics.

Questions

1. State two reasons why economists cannot easily run controlled experiments on a whole economy. [2]

2. A café raises the price of hot chocolate by 10%. Sales fall by 8% that week. The same week had unusually heavy rain that kept people at home. Explain, using ceteris paribus, why the 8% fall cannot be put down to the price rise alone. [4]

3.

(a) Classify each statement as positive or normative. [4] (i) “Unemployment in Country A fell from 9% to 7% over two years.” (ii) “Rents in Town G should be capped.” (iii) “A 5% rise in bus fares caused passenger numbers to fall by 3%.” (iv) “The gap between rich and poor in Country A is unfair.”

(b) Two economists agree that a higher fuel tax would cut fuel use by 6%. They disagree on whether it should be introduced. Explain why. [3]

4. A town council pays for a public park that is free to enter.

(a) Explain why the park is an economic good, not a free good. [3] (b) Give one example of a free good and explain why it fits the definition. [2]

5. A carpenter works 40 hours a week making chairs and tables. A chair takes 5 hours and a table takes 8 hours.

(a) Calculate the maximum number of chairs and of tables that can be made in a week. [2] (b) Calculate the opportunity cost of one table in chairs and explain why it is constant. [3] (c) A new tool cuts the time for a chair to 4 hours. Describe the change to the frontier and recalculate the opportunity cost of a table. [3]

6. Country E’s production possibility frontier is shown (units in thousands).

Capital goods	0	8	16	24	32
Consumer goods	90	84	72	52	0

(a) Calculate the marginal opportunity cost of capital goods when output rises from 16 to 24. [2] (b) Explain why marginal opportunity cost rises along this frontier. [3] (c) Country E produces 16 capital goods and 60 consumer goods. Explain what this shows and calculate the percentage by which consumer goods could rise with no fall in capital goods. [3] (d) Explain whether 24 capital goods and 60 consumer goods is attainable. [1]

7. For each event, state whether it is a movement along a PPF or a shift, and in which direction. [4] (i) A government moves workers from farming to building new factories. (ii) A training programme raises the skills of workers in every industry. (iii) A flood destroys much of a country’s farmland and factories. (iv) Changes in tastes lead firms to make more consumer goods and fewer capital goods.

8. Country H has 400 workers who produce 20,000 units a year. After firms buy new machinery, the same workers produce 24,000 units.

(a) Calculate output per worker before and after, and the percentage rise. [2] (b) Explain how the production of capital goods can shift a country’s PPF. [4] (c) Evaluate whether an economy should always devote more resources to capital goods. [4]

9. A garment workshop employs 5 workers, each paid 90 a day. Working alone, each makes 12 garments a day. After tasks are divided into cutting, sewing and finishing, the workshop makes 75 garments a day.

(a) Calculate the percentage rise in output per worker. [3] (b) Calculate the labour cost per garment before and after. [3] (c) Explain two disadvantages of the division of labour. [4]

10.

(a) Explain how money as a medium of exchange supports specialisation. [3] (b) A saver holds 2,000 units in cash for four years while inflation is 4% a year. Calculate the purchasing power at the end, in today’s units, and explain what this shows about money. [3] (c) An importer must pay 80,000 foreign currency units in three months. A bank offers a forward rate of 4.0 foreign units per home unit. Calculate the home-currency cost at this rate and at a spot rate of 3.2 in three months, and explain the benefit of the forward contract. [3]

11.

(a) Distinguish between a command economy and a free market economy. [3] (b) Explain two roles of the state in a mixed economy. [3] (c) Evaluate whether a mixed economy is better at resource allocation than a free market economy. [6]

Answers

1. Any two: people change behaviour when they know they are being studied [1]; other factors cannot be held constant in a real economy [1]; experiments on livelihoods raise ethical objections. [2] Examiner insight: Two separate reasons earn more than one reason restated, and each should refer to economies or people, not to science in general.

2. Ceteris paribus means all other factors are held constant [1]. Here the rain also changed [1], so part of the 8% fall may be due to fewer customers [1]. To isolate the price effect, compare weeks with similar weather [1]. [4] Examiner insight: Applying the idea to the café, naming the rain, tends to do better than a general definition.

3. (a) (i) positive [1]; (ii) normative [1]; (iii) positive [1]; (iv) normative [1]. [4] (b) The prediction of a 6% fall is positive and can be tested [1]. They differ on value judgements, such as how to weigh environmental gains against the cost to households [1]. Evidence cannot settle a value judgement, so policy needs both [1]. [3] Examiner insight: A number does not make a statement positive. “Should” and “unfair” signal value judgements.

4. (a) Building and running the park uses land, labour and capital [1]. These could have been used elsewhere, for example for housing [1], so there is an opportunity cost, paid through taxes rather than a price [1]. [3] (b) Sunlight or air in a remote area [1]. One more person’s use requires nothing to be given up, and there is enough to meet all wants at zero price [1]. [2] Examiner insight: “Free to the user” is not “free good”. The test is opportunity cost.

5. (a) Chairs 40/5 = 8 [1]; tables 40/8 = 5 [1]. [2] (b) 8/5 = 1.6 chairs per table [1]. It is constant because every hour makes the same quantity of either good [1], so the frontier is a straight line with a fixed slope [1]. [3] (c) Maximum chairs rise to 40/4 = 10 [1]; tables stay at 5, so the frontier pivots outward on the chair axis [1]; the opportunity cost of a table rises to 8/4 = 2 chairs [1]. [3] Examiner insight: State opportunity cost in the good given up, with units.

6. (a) Consumer goods lost = 72 − 52 = 20 [1]; 20/8 = 2.5 consumer goods per capital good [1]. [2] (b) Resources are not equally suited to both goods [1]. The resources best at capital goods move first [1]. Later moves take resources better suited to consumer goods, so more is lost per extra capital good [1]. [3] (c) The point is inside the frontier, so resources are unemployed or misallocated [1]. The maximum at 16 capital goods is 72 [1]. (72 − 60)/60 = 20% [1]. [3] (d) The maximum consumer goods at 24 capital goods is 52, which is below 60, so the point is unobtainable [1]. [1] Examiner insight: Show the subtraction and the division. The divisor is the gain, not the loss.

7. (i) Movement towards capital goods [1]; (ii) outward shift [1]; (iii) inward shift [1]; (iv) movement towards consumer goods [1]. [4] Examiner insight: Give the reason as well as the label: reallocation is a movement, a change in potential is a shift.

8. (a) Before 20,000/400 = 50; after 24,000/400 = 60 [1]; rise 10/50 = 20% [1]. [2] (b) Capital goods raise productivity [1]. The same resources produce more [1]. Potential output of both goods rises [1], so the PPF shifts outward, which is economic growth [1]. [4] (c) More capital goods mean fewer consumer goods now, which is the opportunity cost [1]. The gain is higher future output [1]. Whether it is worth it depends on the quality of investment and the value placed on present against future consumption [1]. Judgement: not always, as it depends on how urgent current needs are [1]. [4] Examiner insight: Evaluation needs a conclusion that depends on stated conditions, not a repeat of the explanation.

9. (a) Before 12; after 75/5 = 15 [1]; (15 − 12)/12 [1] = 25% [1]. [3] (b) Wage bill 5 × 90 = 450 [1]; before 450/60 = 7.50 [1]; after 450/75 = 6.00 [1]. [3] (c) Repetitive work lowers motivation [1], raising absence and turnover [1]. The process depends on every stage [1], so one absence or breakdown can stop the line [1]. [4] Examiner insight: Total garments before is 5 × 12 = 60. Check the denominator.

10. (a) Barter needs a double coincidence of wants [1]. Money is accepted for any good, so a worker can sell output for money [1] and buy what they need, making narrow specialisation workable [1]. [3] (b) 2,000/1.04⁴ [1] = 1,709.61 [1]. Inflation has cut purchasing power by 290.39, so money is a weaker store of value [1]. [3] (c) Forward cost: 80,000/4.0 = 20,000 [1]. At the spot rate: 80,000/3.2 = 25,000, so the contract avoids an extra 5,000 [1] and gives certainty for planning [1]. [3] Examiner insight: Link each function of money to the question. A bare list explains little.

11. (a) In a command economy, the state owns resources and decides what is produced through planning [1]. In a free market, private owners and consumers decide through the price mechanism [1]. The contrast is who decides, and what coordinates decisions [1]. [3] (b) Two roles, such as providing public goods [1] and regulating externalities [1]. One is explained: free riding stops private firms charging for public goods [1]. [3] (c) A free market may underprovide public goods, ignore external costs and leave inequality [1]. In a mixed economy, the state can respond through provision, regulation and redistribution [1]. But the state may lack information, impose costs and weaken incentives [1]. Too much intervention can harm efficiency [1]. The answer also depends on the weight given to equity against efficiency, a value judgement [1]. Judgement: a mixed economy is usually better, provided intervention is targeted at identified failures [1]. [6] Examiner insight: Tie each evaluative point to a named problem and finish with a supported judgement.

Where marks are usually lost

• Writing “ceteris paribus” without saying which other factor changed in the question.
• Marking a statement positive because it has a number, ignoring a “should”.
• Calling a service “free” when it is paid for by taxes.
• Dividing by the loss, not the gain, when calculating marginal opportunity cost.
• Treating a point inside the PPF as unobtainable.
• Confusing movements with shifts.
• Listing functions of money, advantages or roles of the state without explaining them.
• Evaluating without a conclusion.

Next steps

• Re-read the study guide and use the revision notes.
• Tick off coverage on the printable checklist or the hub.
• Take one of the free 10-minute diagnostics.
• Book a free trial class: /trial/.

Official syllabus

Source: Pearson Education Limited, Edexcel International Advanced Subsidiary/Advanced Level in Economics (specification, Issue 2, June 2018; first teaching September 2018), section 1.3.1 Introductory concepts, items 1 to 6.