OCR A Level Economics: Supply-side policy (H460) – 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 the topic Supply side policy in the OCR A Level Economics (H460) specification, Version 3.0 (June 2026), for first assessment in 2021, Macroeconomics content. The specification labels no content AS or Extension. All data are invented and illustrative.

Read the study guide and revision notes first, and see the OCR Economics hub, the checklist and the free diagnostics.

Questions

1. Explain one supply-side policy that raises the quality of labour and one that raises the quantity of capital. [4]

2. In Country L, income up to 12,000 is untaxed, income from 12,000 to 48,000 is taxed at 25%, and income above 48,000 at 45%. A worker earns 60,000.

(a) Calculate the tax paid. [2] (b) The top rate falls to 40%. Calculate how much of a 3,000 pay rise the worker keeps, before and after the cut. [2] (c) Explain one reason the cut may not raise the hours this worker supplies. [2]

3. A worker pays 20% tax and loses benefit equal to 60% of net earnings on any extra pay.

(a) Calculate the effective marginal rate on an extra 200. [2] (b) The benefit loss falls to 40% of net earnings. Calculate the new rate. [2]

4. Country P raises its NMW from 8.00 to 8.40 an hour. 20,000 workers earn it, each working 25 hours a week. Wage elasticity of demand for labour is −0.4.

(a) Calculate the percentage rise in the wage. [1] (b) Calculate the change in employment, in workers. [2] (c) Calculate the new weekly wage bill and its percentage change. [2]

5. Distinguish between a National Minimum Wage and a living wage. [3]

6. A job in Region S pays 2,800 more a year than the same job in Region N, but housing costs 3,500 more a year.

(a) Calculate the net gain from moving. [2] (b) Explain one housing policy that would improve labour market flexibility. [2]

7. Country M has population 25m and GDP 750bn. Net immigration of 0.2m adds 150,000 workers, each producing 30,000.

(a) Calculate new GDP. [2] (b) Calculate GDP per head before and after, and comment on the change. [3]

8. Explain one benefit and one risk of privatising a state-owned firm. [4]

9. In a market, demand is P = 80 − Q and supply is P = 20 + 2Q.

(a) Find equilibrium price and quantity. [1] (b) A subsidy of 9 per unit shifts supply to P = 11 + 2Q. Find the new quantity and the price consumers pay. [2] (c) Calculate the price producers receive and the cost to the government. [2] (d) State one limitation of subsidies. [1]

10. A new rail link saves 15 minutes on each of 8,000 journeys a day. Time is valued at 12 an hour and there are 250 days a year. The link costs 80m.

(a) Calculate the annual time-saving benefit. [2] (b) Calculate the number of years to repay the cost, ignoring discounting, and explain why this may overstate the project’s worth. [2]

11. Explain how trade union reform might raise potential output, and give one limitation. [4]

12. Evaluate the effectiveness of supply-side policies in achieving a government’s macroeconomic objectives. [10]

Answers

1. Education and training build workers’ skills, lifting productivity [1], which lowers unit costs and improves the quality of labour [1]. Infrastructure investment, such as a rail link, adds to the capital stock [1], which lowers firms’ transport costs and shifts LRAS right [1]. [4] Examiner insight: Name the factor each policy changes and give a link to output; naming a policy alone is descriptive.

2. (a) Tax = 0.25 × 36,000 = 9,000 [1] plus 0.45 × 12,000 = 5,400 gives 14,400 [1]. (b) Before: 3,000 × 0.55 = 1,650 [1]. After: 3,000 × 0.60 = 1,800 [1]. (c) The higher take-home pay creates an income effect [1]: the worker can reach the same income with fewer hours and may choose more leisure [1]. [6] Examiner insight: Work band by band; applying one rate to all income is the usual slip. Part (c) needs a reason, not a repeat of the theory.

3. (a) Tax = 40, net = 160 [1]. Benefit lost = 96, kept = 64, so rate = 68% [1]. (b) Benefit lost = 64, kept = 96, rate = 52% [1]. The rate falls by 16 percentage points [1]. [4] Examiner insight: Apply the taper to net, not gross, earnings, and state the answer as a rate on the extra 200.

4. (a) 0.40 ÷ 8.00 = 5% [1]. (b) −0.4 × 5% = −2% [1]; 2% of 20,000 = 400 workers lost [1]. (c) Old bill = 20,000 × 25 × 8.00 = 4,000,000. New bill = 19,600 × 25 × 8.40 = 4,116,000 [1], a rise of 2.9% [1]. [5] Examiner insight: Show the old and new bill; setting out each step lets an examiner see your method even if a slip occurs.

5. The NMW is a legal minimum which employers must pay [1]. A living wage is a rate linked to estimated living costs [1] which is promoted and paid voluntarily [1]. [3] Examiner insight: A distinction needs both items contrasted, ideally on compulsion.

6. (a) 2,800 − 3,500 = −700 [1], a net loss, so the worker will not move [1]. (b) Easing planning restrictions allows more homes to be built [1], lowering rents in Region S and making the move worthwhile, which reduces vacancies [1]. [4] Examiner insight: Link the policy to the figures in the stem rather than writing generally about housing.

7. (a) Extra output = 150,000 × 30,000 = 4.5bn [1]. New GDP = 754.5bn [1]. (b) Before: 750bn ÷ 25m = 30,000 [1]. After: 754.5bn ÷ 25.2m = 29,940 [1]. GDP rises 0.6% but GDP per head falls 0.2%, because migrants produce less than the average [1]. [5] Examiner insight: Divide by the new population; using the old one hides the fall.

8. Benefit: the profit motive and shareholder pressure encourage cost cutting [1], which can lower costs and prices [1]. Risk: a private monopoly may use its market power to raise prices [1], harming consumers unless regulated [1]. [4] Examiner insight: Each point needs a developed chain; “efficiency” alone is an assertion.

9. (a) 80 − Q = 20 + 2Q gives Q = 20 and P = 60 [1]. (b) 80 − Q = 11 + 2Q gives 3Q = 69, so Q = 23 [1] and consumers pay P = 57 [1]. (c) Producers receive 57 + 9 = 66 [1]. Cost = 9 × 23 = 207 [1]. (d) The subsidy is a cost to taxpayers and may keep inefficient firms going [1]. [6] Examiner insight: Producers receive price plus subsidy; many answers stop at the consumer price.

10. (a) 8,000 × (15 ÷ 60) × 12 = 24,000 a day [1]; × 250 = 6m [1]. (b) 80 ÷ 6 = 13.3 years [1]. Benefits arrive over time and are worth less than money now, and the link may also carry costs, so ignoring discounting overstates the value [1]. [4] Examiner insight: Give a unit with each figure and a reason for the limitation.

11. Union reform, such as limits on strikes, may reduce days lost and make hiring and pay more flexible [1], lowering unit labour costs [1]. Lower costs raise profitability and investment, so LRAS shifts right [1]. Limitation: unions may also raise productivity through worker voice, so productivity could fall if morale drops [1]. [4] Examiner insight: Reach the shift in LRAS; stopping at “less strikes” leaves the chain unfinished.

12. Definition: supply-side policies raise productive capacity and shift LRAS right [1]. Chain 1: training raises productivity, lowers unit costs, so the trend growth rate and competitiveness improve [2]. Chain 2: lower marginal tax and reformed benefits raise labour supply, so unemployment falls and output rises [2]. Evaluation: policies take years to work [1]; they cost money, for example subsidies or infrastructure [1]; gains depend on spare capacity and demand [1]; tax cuts and weaker unions may widen inequality [1]. Judgement: policies work best on growth and structural unemployment, and are weaker on short-term inflation, so a mix with demand-side policy suits best [1]. [10] Examiner insight: Weigh the measures against each other rather than listing them, and end with a reasoned judgement.

Where marks are usually lost

• Shifting AD instead of LRAS.
• Applying one tax rate to all income.
• Dividing by the old population in per-head figures.
• Forgetting that producers receive the subsidy.
• Giving the NMW effect with no elasticity.
• Listing policies without a chain.
• Omitting units.
• Ending with a summary that never picks a side.

Next steps

• Review the revision notes and study guide.
• Visit the OCR Economics hub and the checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OCR, A Level in Economics (H460), specification Version 3.0 (June 2026), for first assessment in 2021: Macroeconomics, The application of policy instruments, topic Supply side policy.