2025 OCR GCSE Economics - J205 Practice Paper with Answers

A negative externality is a cost imposed on a third party who is not part of the transaction. Noise and air pollution suffered by local residents is such a cost. A is a positive externality; B and D are costs paid by the decision maker.

C = 1 mark (AO1). A is a positive externality; B and D are private costs, not spill-overs to third parties.

Solar power gives benefits to third parties (cleaner air). Left to the market it is under-provided, so a subsidy lowers costs and encourages more output and consumption.

A = 1 mark (AO1/AO2). B describes a tax or regulation; C is wrong because a subsidy is government spending; D is not an aim of subsidies.

An indirect tax per unit raises producers' costs, so at every price firms supply less: the supply curve shifts left (upwards), raising the equilibrium price and reducing quantity.

B = 1 mark (AO1/AO3). A and C wrongly treat the tax as a change in consumers' income or tastes; D would reduce price.

Total exports = 140 + 90 = £230 billion. Total imports = 170 + 50 = £220 billion. Balance = 230 - 220 = +£10 billion, a surplus.

B = 1 mark (AO2, quantitative skills). C is the goods deficit only (140 - 170). A is the wrong sign. D ignores imports of services.

Rising incomes increase spending on imports. If imports grow faster than exports, the current account moves towards deficit. A, C and D would all tend to raise export earnings.

B = 1 mark (AO1/AO2). A, C and D would increase exports and so reduce a deficit.

% change in quantity supplied = 100/500 x 100 = 20%. % change in price = 0.20/1.00 x 100 = 20%. PES = 20 / 20 = 1.0 (unit elastic).

B = 1 mark (AO2, quantitative skills). A and D are not supported by the data; C comes from dividing new quantity by old quantity (600/500).

GDP per capita = GDP / population = £600,000,000,000 / 40,000,000 = £15,000.

C = 1 mark (AO2, quantitative skills). A and B are place-value errors or an incorrect division; D multiplies the two figures' digits (600 x 40).

An oligopoly is a market dominated by a small number of large firms, which are interdependent: one firm's pricing decision affects the others.

C = 1 mark (AO1). A and D describe a highly competitive market; B describes a monopoly.

Globalisation increases international trade and competition, so consumers can buy a wider range of goods, often at lower prices. B and D are the opposite of globalisation's effects; C is a possible cost to workers, not a benefit to consumers.

A = 1 mark (AO1). B and D contradict globalisation; C is a cost, and is not true for all industries.

A negative externality is a cost imposed on a third party who is not part of the transaction. Runway noise affects residents who are not involved in the flights, so B is correct. A is a positive externality; C is a private cost to the firm; D is a cost the producer pays itself.

Award 1 mark for B (AO1). Distractors: A positive externality, C and D are costs borne by the producer, not third parties.

Vaccination creates positive externalities: society benefits beyond the person vaccinated. Left to the market, too little would be consumed. A subsidy lowers costs, raises supply and encourages consumption, so C is correct.

Award 1 mark for C (AO1/AO2). A and D are the opposite of a subsidy's effect; B is incorrect because a subsidy is government spending.

Information provision gives consumers facts so they can make better choices. Calorie labels do this. B is taxation, C is legislation/regulation and D is state provision.

Award 1 mark for A (AO1). Each distractor is a different government policy.

Total exports = 80 + 50 = £130bn. Total imports = 95 + 38 = £133bn. Balance = 130 - 133 = -£3bn, a deficit of £3 billion.

Award 1 mark for D (AO2, quantitative skills). B is the services surplus only; C is the goods deficit only; A has the wrong sign.

Higher domestic incomes raise spending, including on imports, so import spending rises relative to exports and the deficit widens. A reduces imports; C and D raise export earnings.

Award 1 mark for B (AO2/AO3).

PES = % change in quantity supplied ÷ % change in price = 12 ÷ 8 = 1.5. The product is elastic in supply.

Award 1 mark for B (AO2, quantitative skills). A inverts the formula; C subtracts; D multiplies.

GDP per capita = GDP ÷ population = £450,000,000,000 ÷ 15,000,000 = £30,000.

Award 1 mark for C (AO2, quantitative skills). Other options are place-value errors.

Globalisation increases trade and competition, giving consumers more choice and often lower prices. A, B and C are not typical consumer benefits; globalisation increases imports, competition and can reduce job security in some industries.

Award 1 mark for D (AO1).

The dust and noise are costs imposed on third parties (residents) who are not part of the transaction, and they arise from the firm's production. This is a negative externality of production. A is wrong because the effect is a cost, not a benefit. C is wrong because the residents, not the firm, bear the cost. D is unrelated.

Award 1 mark for B (AO2). Do not award for any other letter.

Total exports = 120 + 80 = £200 billion. Total imports = 150 + 60 = £210 billion. Balance = 200 - 210 = -£10 billion, a deficit of £10 billion. C is the goods balance only (120 - 150). D is the services balance only (80 - 60). A has the sign reversed.

Award 1 mark for B (AO2, quantitative skills item). Working: total exports 200 minus total imports 210 = deficit of 10. Do not award for any other letter.

Lower input costs make production more profitable at every price, so firms supply more at each price and the supply curve shifts right. A raises costs and shifts supply left. C shifts the demand curve, not supply. D causes a movement along the supply curve (a contraction).

Award 1 mark for B (AO1). Do not award for any other letter.

Change in GDP = 836 - 800 = £36 billion. Percentage growth = 36 / 800 x 100 = 4.5%. B results from dividing by the new figure (36 / 836). D is the absolute change in £ billion, not a percentage. A is a miscalculation.

Award 1 mark for C (AO2, quantitative skills item). Working: (836 - 800) / 800 x 100 = 4.5%. Do not award for any other letter.

A negative externality is a cost to a third party not involved in the production or consumption of the good. The fishers lose income because of the pollution but are not paid for it, so the factory ignores this cost.

Award 1 mark for identifying a cost to a third party / people not involved in the transaction.
Award 1 additional mark for applying to the context (fishers lose income, harmed fish, factory not paying for the damage).
Answers might include:
- cost borne by someone other than the producer or buyer
- social cost greater than private cost
- fishers not compensated
NB: a definition alone with no application gets 1 mark maximum. ARA.

An indirect tax increases the cost to producers, who pass some of it on in higher prices. Demand falls (a contraction along the demand curve), so less of the drink is consumed and the negative externality of poor health falls.

Award 1 mark for stating that the tax raises the price / cost of sugary drinks.
Award 1 additional mark for explaining that quantity demanded falls so consumption and the related harm (health costs to the NHS) fall.
Answers might include:
- higher price discourages purchase
- tax revenue could fund health campaigns
- producers may reformulate drinks
Be careful of repetition. ARA.

Vaccination creates a positive externality because other people are protected from disease spreading. Free provision also removes price as a barrier, so more people use it.

Award 1 mark for each valid benefit, up to 2 marks.
Answers might include:
- reduced spread of disease / positive externality
- lower future health care costs
- higher productivity as fewer working days lost
- fairer access for low-income households
NB: 'it is free' alone is not credited. Be careful of repetition. ARA.

Balance = exports − imports = 84 − 97 = −13. Because imports exceed exports, this is a deficit of £13 billion.

Working: 84 − 97 (1) = £13 billion deficit (1).
Award 2 marks for the correct answer (with or without workings), i.e. a deficit of £13 billion or −£13 billion.
Award 1 mark for 97 − 84 = 13 with no indication of deficit, or for a correct method with an arithmetic slip, or for correctly identifying a deficit without the figure.
OFR applies for a maximum of 1 mark.

A weaker currency lowers the foreign-currency price of exports, increasing demand for them, and raises the domestic price of imports, reducing import demand. Export revenue rises and import spending falls, so the deficit narrows.

Award 1 mark for stating exports become cheaper to foreign buyers OR imports become more expensive.
Award 1 additional mark for explaining the effect on the quantity of exports/imports and so on the balance.
Answers might include:
- exports more price competitive abroad
- consumers switch to home-produced goods
- export revenue rises, import spending falls
NB: do not credit the effect on inflation. ARA.

Higher input costs reduce profit at each price, so the quantity supplied at every price falls. This is a leftward (upward) shift of the supply curve, not a movement along it.

Award 1 mark for stating that the supply curve shifts left (or upwards/inwards).
Award 1 additional mark for explaining that higher costs reduce profit so less is supplied at each price.
NB: a movement along the curve gains no credit for the first mark. ARA.

Change = 416 − 400 = 16. Percentage growth = \(\frac{16}{400} \times 100 = 4\%\).

Working: (416 − 400) ÷ 400 × 100 (1) = 4% (1).
Award 2 marks for the correct answer (with or without workings).
Award 1 mark for 16 or 0.04 or for a correct method with an arithmetic slip.
OFR applies for a maximum of 1 mark. Accept 4.0%.

Globalisation describes how economies become more closely linked as goods, services, money, people and ideas move more freely between countries, often helped by transport and communications improvements and multinational firms.

Award 1 mark for a basic description (e.g. countries becoming more connected / trading more).
Award 1 additional mark for development (e.g. through trade, multinational companies, movement of capital or labour, falling transport and communication costs, so economies depend on each other).
Answers might include:
- greater interdependence of countries
- rise of multinational firms
- free movement of goods, money and people
A relevant example may be used for development. ARA.

Legislation forces firms to change behaviour. Replacing plastic bags with costlier alternatives raises unit costs, which may lower profit or require higher prices that reduce sales.

Award 1 mark for identifying a disadvantage (e.g. higher costs, compliance costs, loss of sales, enforcement burden).
Award 1 additional mark for developing in context (e.g. alternative bags cost more so profit falls or prices rise and customers buy less).
Answers might include:
- higher costs of alternatives
- time or cost of staff training and compliance
- penalties for breaking the law
NB: disadvantages for the government or environment are not credited. ARA.

Current account balance = exports - imports = \(64 - 71 = -7\). The negative value means a deficit of $7 billion.

Award 1 mark for the correct calculation of the difference (\(71 - 64\) or \(64 - 71\)) = 7.
Award 1 mark for identifying it as a deficit (accept -$7 billion).
Award 2 marks for the correct answer ($7 billion deficit) with or without workings.
OFR applies for a maximum of 1 mark. Reject a surplus of $7 billion for the second mark.

Variable costs = \(1500 \times 0.60 = £900\). Total cost = \(900 + 900 = £1800\). Average cost = \(\frac{1800}{1500} = £1.20\).

Award 1 mark for calculating total cost = £1,800 (method mark).
Award 1 mark for dividing total cost by output to give £1.20 (accuracy mark).
Award 2 marks for the correct answer (£1.20) with or without workings.
Accept the alternative method: average fixed cost (£0.60) + average variable cost (£0.60).
OFR applies for a maximum of 1 mark.

Change in GDP = \(873.6 - 840 = 33.6\). Growth rate = \(\frac{33.6}{840} \times 100 = 4\%\).

Award 1 mark for the correct change in GDP (33.6) or the correct fraction \(\frac{33.6}{840}\) (method mark).
Award 1 mark for the correct answer of 4% (accuracy mark).
Award 2 marks for the correct answer (with or without workings).
OFR applies for a maximum of 1 mark. Accept 4.0%; reject 104%.

Revenue = tax per litre x litres sold = \(0.15 \times 3{,}200{,}000 = \$480{,}000\).

Award 1 mark for multiplying the tax per litre by the quantity sold (\(0.15 \times 3{,}200{,}000\)) (method mark).
Award 1 mark for the correct answer: $480,000 (accuracy mark).
Award 2 marks for the correct answer (with or without workings).
Accept 48,000,000 cents. OFR applies for a maximum of 1 mark.

Negative externalities: the factory's production imposes a cost on third parties (ill residents) that is not paid by the firm or buyers, so the market overproduces bricks and the price is too low.

A tax of £4 per 1 000 bricks is an extra cost of production. Supply decreases (shifts left or up by the amount of the tax) from S to S1. Price rises from P1 to P2 and quantity demanded falls from Q1 to Q2 (contraction along demand). Lower output means less coal burned and less smoke, so fewer residents suffer breathing problems. The firm now pays part of the external cost, so the externality is internalised and the market moves closer to the socially efficient output. The tax revenue could also be spent on health care for local residents.

Diagram: price (£) on vertical axis, quantity of bricks on horizontal axis; downward-sloping D; upward-sloping S; S1 parallel and to the left/above S; equilibria and P1, P2, Q1, Q2 labelled.

Levels of response. Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). Best-fit. AO split: 1 mark knowledge (AO1), 2 marks application (AO2), 3 marks analysis (AO3).

Answers might include:
AO1 (knowledge):
- Negative externality is a cost to third parties not paid by producer or consumer (1)
- A tax increases costs of production / is an indirect tax (1)
AO2 (application):
- Smoke from kilns causes breathing problems for local residents (1)
- Tax of £4 per 1 000 bricks raises the factory's costs / coal is burned in kilns (1)
- Council could use revenue for local health care (1)
AO3 (analysis):
- Supply shifts left because costs rise (1)
- Price rises and quantity falls, so less smoke is produced (1)
- Externality is internalised; output moves closer to socially efficient level (1)

Diagram: a correct, labelled diagram showing a leftward shift of supply with higher price and lower quantity is required for Level 3 (top marks). Without a diagram maximum 4 marks. NB: a shift of demand is incorrect. Be careful of repetition. Any other relevant points to be credited (ARA).

A current account deficit occurs when the value of imports of goods and services is greater than the value of exports. Here 48 - 55 = -7, so Corvania has a deficit of $7 billion.

Reason 1: Exports of timber fell because a major buyer switched to a cheaper supplier. Less demand for Corvania's timber means lower export revenue, so the gap between exports and imports widens.

Reason 2: Rising incomes mean households have more to spend, so demand for imported cars and phones rises. Import spending increases, which raises the value of imports relative to exports.

Both changes push imports above exports, causing or increasing the deficit. (Other valid reasons: weak competitiveness, a strong exchange rate making exports dear.)

Levels of response. Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). Best-fit. AO split: 1 mark knowledge (AO1), 2 marks application (AO2), 3 marks analysis (AO3). No diagram is required for this question.

Answers might include:
AO1 (knowledge):
- A current account deficit is when imports are worth more than exports (1)
AO2 (application):
- Deficit of $7 billion calculated from $48bn - $55bn (1)
- Timber exports fell because a buyer found a cheaper supplier (1)
- Higher incomes led to more spending on imported cars and phones (1)
AO3 (analysis):
- Lower demand for exports reduces export revenue, so the gap widens (1 per developed chain, max 2 for the first reason)
- Higher incomes raise demand for imports, so import spending rises and exceeds export earnings (1 per developed chain)

Two reasons are needed for Level 3. If only one reason is developed, maximum 4 marks. Accept alternative reasons that are developed, for example uncompetitive prices, a high exchange rate, low productivity (ARA). Be careful of repetition. NB: do not credit a government budget deficit.

Flour and energy are costs of production. When costs rise, bakeries are less willing and able to supply at each price, so supply decreases. The market supply curve shifts left from S to S1; at £2.00 the quantity supplied falls by 3 000 loaves from 10 000 to 7 000.

At the old price there is now excess demand (shortage), which pushes the price up. As the price rises, consumers move up the demand curve: quantity demanded contracts, and bakeries extend supply along S1. A new equilibrium is reached at a higher price (P2) and a lower quantity (Q2).

Consequences: bread buyers pay more and buy fewer loaves; bakeries pass on part of the cost rise but may still make less profit, and some may close or cut jobs.

Diagram: price (£) vertical, quantity of loaves (thousands) horizontal; downward-sloping D; S and S1 with S1 to the left; P1, P2, Q1, Q2 marked.

Levels of response. Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). Best-fit. AO split: 1 mark knowledge (AO1), 2 marks application (AO2), 3 marks analysis (AO3).

Answers might include:
AO1 (knowledge):
- Supply is the quantity producers are willing and able to supply at each price (1)
- Costs of production affect supply / a rise in costs shifts supply left (1)
AO2 (application):
- Flour price rose because of a poor harvest and energy bills increased (1)
- Supply at £2.00 fell from 10 000 to 7 000 loaves (1)
- Many bakeries reduced supply, so this affects the whole market (1)
AO3 (analysis):
- Supply curve shifts left, so a shortage at the old price (1)
- Equilibrium price rises and equilibrium quantity falls / contraction of demand along the curve (1)
- Consumers pay more and buy less; producers' profit may fall or some may leave the market (1)

Diagram: a correct, labelled diagram showing a leftward shift of supply with price rising and quantity falling is required for Level 3. Without a diagram, maximum 4 marks. NB: a shift of demand or a rightward supply shift is not creditable. Be careful of repetition. ARA.

Application: bag use fell from 9 million to 3 million, a 66.7% fall, so fewer bags become litter and the £150,000 clean-up cost may fall. Analysis: the charge raises the private cost of using a bag, so the price paid moves closer to the social cost. Demand contracts, so negative externalities (litter, harm to wildlife and the river) fall and the money raised can fund environmental projects. Counter-points: the charge is regressive (a larger share of a low income), small shops face extra admin costs, shoppers may switch to other packaging such as paper or 'bags for life' that may also harm the environment, and bags are cheap so the charge may be too small for some. Evaluation: the 66.7% fall suggests it is highly effective, but the extent depends on the size of the charge relative to the external cost, the substitutes used, and whether alternatives such as a ban or education would work better. Judgement: effective overall, with the strongest evidence being the fall in use.

Levels of response (best fit). AO split: 1 mark application, 2 marks analysis, 3 marks evaluation.

Level 3 (5-6 marks): Detailed, well-developed chains of reasoning on both the effectiveness and the limitations of the charge, using the extract. A supported judgement on the EXTENT of effectiveness is made. For more than 2 evaluation marks the 'extent' must be explicitly addressed.
Level 2 (3-4 marks): Some application and some analysis of at least one side, with limited or partly supported evaluation.
Level 1 (1-2 marks): Limited knowledge of externalities or taxes, little or no application, generic statements.
0 marks: no creditable response.

Answers might include:
Application (AO2)
- Bag use fell from 9 million to 3 million (a two-thirds fall, 66.7%)
- Litter clean-up cost of £150,000 a year could fall
- Money raised goes to environmental projects
- Small shops face extra paperwork; low-income shoppers find the charge unfair
Analysis (AO3)
- The charge raises the cost of using bags, demand contracts, and external costs fall towards the socially efficient level
- Revenue can be used to reduce the externality further
- Regressive effect: larger share of low incomes
- Substitutes may be equally harmful
Evaluation (AO3)
- Depends on the size of the charge compared with the external cost
- Depends on the availability of alternatives and on enforcement
- Compare with a ban, legislation or information campaigns
- Judgement on whether the charge is largely, partly or not effective

NB: Be careful of repetition. Do not reward a definition of externality alone. ARA. Any other relevant points to be credited.

Application: the deficit is $55bn - $48bn = $7bn, about 14.6% of export earnings. Spending on imported cars and electronics shows it is linked to consumption. Analysis: a persistent deficit means more money flows out than in, so Veltria must borrow, sell assets or run down reserves; this can cause debt, reduce the exchange rate and make imports dearer, raising inflation. Reducing it through export grants and training could raise export competitiveness and jobs. Counter-points: if imports are capital goods, they raise future productive capacity; consumers benefit from cheaper, wider choice; cutting imports could reduce living standards; grants have an opportunity cost. Evaluation: the importance depends on the size relative to GDP, how long it lasts, how it is financed and the cause. Judgement: it matters if persistent, but five years is a long period and growth may matter more.

Levels of response (best fit). AO split: 1 mark application, 2 marks analysis, 3 marks evaluation.

Level 3 (5-6 marks): Well-developed analysis of why the deficit matters and why it may not, applied to Veltria, with a supported judgement on its IMPORTANCE.
Level 2 (3-4 marks): Some application and analysis, limited evaluation or one-sided.
Level 1 (1-2 marks): Limited knowledge, for example a definition of a deficit, with little application.
0 marks: no creditable response.

Answers might include:
Application (AO2)
- Deficit of $7 billion ($55bn - $48bn)
- Imports of cars and electronics driven by consumer spending
- Plans for export grants and engineer training; five-year target
Analysis (AO3)
- Persistent deficit: borrowing, debt, selling assets, falling currency, imported inflation
- Greater exports raise output, employment and growth
- Grants have an opportunity cost for the government
Evaluation (AO3)
- Depends on size relative to GDP, persistence and how it is financed
- Deficit less serious if imports are capital goods and the country is growing
- Cutting imports may reduce consumer choice and living standards
- Judgement on importance

NB: A correct calculation alone earns application credit only. ARA. Any other relevant points to be credited.

Application: percentage change in quantity supplied 2% divided by percentage change in price 25% gives PES = 0.08, very inelastic. Analysis: with inelastic supply the farm cannot quickly increase output when price rises, so it loses extra revenue and profit; polytunnels (£20,000 each) could lengthen the growing season, making supply more elastic. For shoppers, inelastic supply means price rises sharply when demand rises, and shortages can occur; a more elastic supply keeps prices steadier and availability higher. Evaluation: importance is greater in the short run and for perishable fruit that cannot be stored; in the long run supply is more elastic. The tunnel cost must be weighed against the benefit, and weather and labour availability also matter. Judgement: very important to the farm's profit and planning, moderately important to shoppers who can buy substitutes.

Levels of response (best fit). AO split: 1 mark application, 2 marks analysis, 3 marks evaluation.

Level 3 (5-6 marks): Developed chains of reasoning on the importance of PES to both the farm and shoppers, applied to the extract, with a supported judgement on importance.
Level 2 (3-4 marks): Application and analysis for one group or limited for both; limited evaluation.
Level 1 (1-2 marks): Definition of PES or generic points with little application.
0 marks: no creditable response.

Answers might include:
Application (AO2)
- PES = 2% / 25% = 0.08, very inelastic
- Plants take a year to grow; extra pickers needed
- Polytunnels cost £20,000 and extend the season
Analysis (AO3)
- Farm: slow response limits extra revenue and profit; more elastic supply lets the farm gain from price rises
- Shoppers: inelastic supply means bigger price rises when demand increases and risk of shortages
- Elastic supply gives steadier prices and availability
Evaluation (AO3)
- Short run versus long run; perishable goods
- Cost of tunnels versus extra profit
- Substitutes available to shoppers; supermarkets' buying power
- Judgement on importance for each group

NB: Accept any correct PES calculation shown as an answer, but calculation is not required. ARA. Any other relevant points to be credited.

A negative externality is a cost imposed on third parties who are not part of the transaction. Dust and noise suffered by nearby residents is a cost to third parties. Wages, subsidies and fares are all costs or payments between the parties directly involved.

Award 1 mark for C. A (wages), B (subsidy) and D (fares) are incorrect as they do not impose costs on third parties. AO1.

A tax per unit increases producers' costs, so at every price firms are willing to supply less. The supply curve shifts to the left (upwards). It is a shift, not a movement along the curve, because the cause is a change in cost rather than in the price of the good itself.

Award 1 mark for A. B: wrong direction. C: confuses a shift with a movement along the curve. D: the tax is paid by producers. AO1/AO2.

Total exports = 42 + 30 = £72bn. Total imports = 55 + 21 = £76bn. Balance = 72 - 76 = -£4bn, which is a deficit of £4bn.

Award 1 mark for B. D is the deficit on goods only (42 - 55 = -13). A has the correct size but the wrong sign. C is a miscalculation. AO2, quantitative skills item.

A fall in the value of the currency lowers the foreign-currency price of exports, so overseas demand for exports is likely to rise. Imports become more expensive, so fewer are bought. Together these reduce the deficit. The other options increase imports or reduce export competitiveness.

Award 1 mark for D. A increases spending on imports. B reduces price competitiveness of exports. C reduces demand for exports and increases demand for imports. AO2.

Cheaper aluminium lowers costs of production, so producers can supply more at every price and the supply curve shifts right. Higher incomes affect demand. A rise in the price of bicycles causes a movement along the supply curve. A tax raises costs and shifts supply left.

Award 1 mark for A. B: demand factor. C: movement along the curve. D: shifts supply left. AO1/AO2.

GDP per capita = GDP divided by population = 800 000 000 000 / 40 000 000 = £20 000.

Award 1 mark for B. A and C are place-value errors. D is an arithmetic slip (800 x 40 000). AO2, quantitative skills item.

Globalisation is the growing connection of economies. Cheaper transport and communication make it easier and less costly to trade goods and services and to organise production across countries. Tariffs and capital controls restrict trade and investment.

Award 1 mark for B. A and C reduce integration between economies. D is not a driver of globalisation. AO1.

More firms means more competition for customers. Firms tend to lower prices and differentiate their products to attract buyers, so consumers benefit from lower prices and greater choice.

Award 1 mark for C. A, B and D each contain a statement inconsistent with increased competition. AO1/AO2.

The dust is a cost imposed on third parties who are not part of the transaction, and it arises from producing cement. It is therefore a negative externality of production.

Award 1 mark for B (AO1). Distractors: A confuses the direction of the externality; C ignores third parties; D is a type of good, not a spill-over cost.

First aid training creates positive externalities. Left to the market it is under-provided, so a subsidy lowers costs and encourages more output.

Award 1 mark for D (AO1). A, B and C all describe effects opposite to the purpose of a subsidy.

A per-unit tax raises producers' costs, so at every price firms supply less. The supply curve shifts to the left.

Award 1 mark for A (AO2). B and C reflect a fall in costs or a price rise; D ignores the effect on costs.

Total exports = 120 + 80 = 200. Total imports = 150 + 60 = 210. Balance = 200 - 210 = -10, a deficit of £10 million.

Award 1 mark for C (AO2, quantitative skills). B and D use goods only or services only; A has the wrong sign.

A weaker currency lowers the foreign-currency price of exports and raises the price of imports, so export revenue is likely to rise and import spending to fall.

Award 1 mark for B (AO2). A, C and D would each increase imports or reduce exports, widening the deficit.

Flour is a cost of production. Higher costs reduce profit at every price, so bakers supply less at each price and the curve shifts left. A movement along the curve would only follow a change in the price of bread itself.

Award 1 mark for A (AO2). C and D confuse a shift with a movement along the curve.

GDP per capita = GDP divided by population = 600,000,000,000 / 20,000,000 = £30,000.

Award 1 mark for D (AO2, quantitative skills). Distractors come from misplacing zeros in the division.

A higher interest rate raises the reward for saving and the cost of loans, so households tend to save more and borrow and spend less.

Award 1 mark for A (AO1). B and D describe the effect of a fall in the interest rate; C is inconsistent.

An oligopoly is a market dominated by a small number of large firms, which are aware of each other's decisions.

Award 1 mark for C (AO1). A and D describe highly competitive markets; B describes a monopoly.

A legal ban on lorries is a rule enforced by law, so it is legislation and regulation. A subsidy is a payment to producers, information provision uses campaigns or labels, and state provision means the government supplies the good or service itself.

Award 1 mark for B (AO1). A: subsidy involves payments, not bans. C: no information campaign is described. D: government is not supplying a service.

Total exports = 120 + 80 = £200 billion. Total imports = 150 + 60 = £210 billion. Balance = 200 - 210 = -£10 billion, a deficit of £10 billion.

Award 1 mark for C (AO2, quantitative skills). B is the goods-only balance (120 - 150). D is the services-only balance (80 - 60). A has the sign reversed.

Higher costs of production reduce the quantity bakers will supply at every price, so supply shifts left. With demand unchanged, equilibrium price rises and equilibrium quantity falls.

Award 1 mark for A (AO1). B: direction of shift wrong. C: a change in costs shifts the curve rather than causing a movement along it. D: demand is not affected by a cost change.

Change in GDP = 836 - 800 = £36 billion. Growth rate = 36 / 800 x 100 = 4.5%.

Award 1 mark for D (AO2, quantitative skills). C comes from dividing by the new GDP (36/836). A and B are not supported by the data.

A negative externality is a cost of production or consumption borne by a third party, not the producer or consumer. Here the plant causes pollution, and tourist businesses suffer lost trade without being compensated.

Award 1 mark for identifying that an externality is a cost/side-effect on a third party (not involved in the transaction).
Award 1 additional mark for applying to the Extract (tourist businesses lose custom / beaches less attractive; plant owners do not pay).
Answers might include:
- third party costs
- costs not paid by the plant (private cost lower than social cost)
- tourism businesses harmed
NB: simply saying 'pollution is bad' = 0 marks. ARA.

Gym use is under-consumed in a free market because people ignore the benefits to others. A subsidy lowers price and raises consumption, capturing the external benefits.

Award 1 mark for stating that a subsidy lowers price/cost and so encourages more people to use gyms (or that the good is under-consumed).
Award 1 additional mark for explaining the benefit to third parties/society (positive externality), e.g. fewer days lost from work, lower health costs.
Answers might include:
- lower price raises demand
- positive externalities
- improved public health
- healthier workers more productive
Be careful of repetition. ARA.

Alternative policies to correct a negative externality include legislation/regulation, taxes on producers, subsidies for alternatives and information provision.

Award 1 mark for each valid method (maximum 2).
Answers might include:
- ban/limit on plastic bags (legislation or regulation)
- tax on manufacturers of bags
- advertising/education campaigns (information provision)
- subsidy for reusable or biodegradable bags
NB: do not credit a charge on shoppers (already in the Extract). The first 2 methods only can be accepted. ARA.

Balance = exports - imports = 48 - 55 = -7. Imports exceed exports, so this is a deficit of $7 billion.

Award 1 mark for correct method: 48 - 55 (or 55 - 48).
Award 1 mark for the correct answer of -$7 billion / deficit of $7 billion.
Award 2 marks for the correct answer (with or without workings).
OFR applies for a maximum of 1 mark. Answer of 7 billion without stating deficit = 1 mark.

Change = 23 - 20 = 3. Percentage change = 3 / 20 x 100 = 15%.

Award 1 mark for the correct working: (23 - 20) / 20 x 100.
Award 1 mark for the correct answer of 15% (increase).
Award 2 marks for the correct answer (with or without workings).
OFR applies for a maximum of 1 mark. Accept 15. Answer of 13% (dividing by 23) = 1 mark.

Supply falls when costs of production rise: higher fuel costs reduce profit at every price, so farmers supply less at each price.

Award 1 mark for identifying a valid factor (higher costs of production/fuel, fewer producers, tax increase, fall in subsidy, new technology failure).
Award 1 additional mark for explaining the effect on supply (less profitable at each price, supply curve shifts left).
NB: floods cannot be credited. Fuel costs accepted as the extract factor. ARA.

GDP per capita = GDP / population = $315 billion / 20 million = $315 000 million / 20 million = $15 750.

Award 1 mark for the correct method: 315 billion divided by 20 million.
Award 1 mark for the correct answer of $15 750.
Award 2 marks for the correct answer (with or without workings).
OFR applies for a maximum of 1 mark. Answer of 15.75 with unit error = 1 mark.

Globalisation lets firms locate production where costs are lowest and sell in wider markets, increasing profit.

Award 1 mark for identifying a benefit (lower costs, access to larger market, economies of scale).
Award 1 additional mark for explanation applied to Pelmar (lower wages cut costs so profit rises / more sales across 60 countries).
Answers might include:
- lower labour costs
- larger customer base
- economies of scale
NB: benefits to consumers or workers only = 0 marks. ARA.

Producers compete to attract customers away from rivals, which raises sales and profits, and helps them stay in business.

Award 1 mark for a valid reason for competition (to increase market share/sales/revenue/profit, to survive).
Award 1 additional mark for development or application (e.g. cutting price or free delivery attracts customers from the supermarket).
Answers might include:
- gain customers
- higher profit
- avoid being forced out of business
Be careful of repetition. ARA.

Step 1: Define the term: a cost to a third party, outside the transaction between buyer and seller, that is not paid for by the producer or consumer (1 mark).
Step 2: Apply it to the extract: the generator fumes cause breathing problems for residents, who are not part of the sale, and the owner pays nothing for this (1 mark).

Award 1 mark for a correct definition of a negative externality (a cost to a third party that is not reflected in the price / not paid by the producer or consumer).
Award 1 additional mark for applying it to the extract.

Answers might include:
- Cost imposed on someone not involved in the transaction
- Residents suffer breathing problems from the generator fumes
- The owner does not pay for the harm / the cost is not included in the price of the meals
- Social cost is greater than private cost

NB: Application mark requires a reference to the context (fumes, residents, generator, health). A definition alone, or context alone with no link to a third-party cost, scores a maximum of 1 mark.
Be careful of repetition. ARA. Any other relevant points to be credited.

Total exports = 640 + 310 = £950 million.
Total imports = 820 + 190 = £1,010 million.
Balance = 950 - 1,010 = -£60 million, so a deficit of £60 million because imports are greater than exports.

Award 1 mark for correctly totalling exports (£950m) and imports (£1,010m), or for a correct balance of -£60m / £60m without a label.
Award 1 additional mark for stating the answer as a deficit of £60 million.
Award 2 marks for the correct answer (with or without workings).
Accept the alternative method: goods balance (640 - 820 = -180) plus services balance (310 - 190 = +120) = -£60m deficit.
OFR applies for a maximum of 1 mark: a candidate who makes an arithmetic slip but correctly labels their own result as a surplus or deficit can earn 1 mark.
NB: do not award the second mark for 'deficit' if no numerical answer is given; reject £60 (units missing) only if the units are inconsistent with the table.

Change = 500 - 400 = 100 tonnes.
Percentage change = \( \frac{100}{400} \times 100 = 25\% \) increase.

Award 1 mark for the correct change in quantity (100 tonnes) or for the correct fraction \( \frac{100}{400} \).
Award 1 additional mark for the correct percentage (25%).
Award 2 marks for the correct answer (with or without workings).
Accept 25, +25% or 'a 25% increase'.
OFR applies for a maximum of 1 mark: for example 500 - 400 = 100 then \( \frac{100}{500} \times 100 = 20\% \) earns 1 mark only for the correct change.
NB: reject 100% or 125% as these do not show the percentage change from the original figure.

GDP per capita = GDP divided by population.
Year 2: £198 billion divided by 12 million = \( \frac{198\,000\,000\,000}{12\,000\,000} = £16{,}500 \) per person.

Award 1 mark for dividing GDP by population (198 / 12, or 198 billion / 12 million) showing the correct method.
Award 1 additional mark for the correct answer of £16,500.
Award 2 marks for the correct answer (with or without workings).
Accept 16,500 or £16.5 thousand.
OFR applies for a maximum of 1 mark: for example an error in converting billions and millions, such as £16.5, can earn the method mark only.
NB: reject use of Year 1 figures (£15,000); reject GDP growth of 10% as this is not GDP per capita.

Define a negative externality: a cost to third parties (here residents, especially children) not paid by the haulage firms. Without a tax, firms only consider private costs, so too many lorry journeys occur (market output Q1 above socially optimal Q2). The £12 charge raises firms' costs, shifting the private supply (marginal private cost) curve upwards/leftwards towards the marginal social cost curve. The price of using the docks rises and the quantity of lorry journeys falls from Q1 to Q2. Fewer idling lorries means less pollution and fewer breathing problems, so the external cost is internalised. Diagram: price/cost on the vertical axis, quantity of lorry journeys on the horizontal axis, demand curve, supply (MPC), higher supply curve (MSC = MPC + tax), with Q1, Q2 and the welfare area marked.

Levels of response: Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). AO split: 1 mark AO1 knowledge, 2 marks AO2 application, 3 marks AO3 analysis. Level 3 requires a correctly labelled diagram plus a developed chain of reasoning applied to Extract A; best fit applies.

Answers might include:
AO1: negative externality = cost to a third party; tax = indirect tax that raises costs of production; firms ignore external costs.
AO2: £12 per lorry per day; about 400 lorries; breathing problems in children; haulage firms' higher costs; council aim to cut traffic.
AO3: tax shifts supply up/left; price rises and quantity of journeys falls from Q1 to Q2; less pollution and improved health; external cost internalised; tax revenue could be used for health or transport; diagram showing MPC, MSC, Q1, Q2.

NB: a diagram without any explanation is limited to Level 2. Be careful of repetition. ARA. Any other relevant points to be credited.

Current account deficit: the value of imports (money leaving) is greater than the value of exports (money entering). In Norvale, 17 - 14 = a £3 billion gap. As incomes rise, households have more disposable income and buy more goods, including foreign cars and electronics. Because Norvale does not produce many of these goods, extra spending goes abroad, so imports rise. Exports of coffee depend on foreign incomes and demand, not Norvale's incomes, so they do not rise at the same rate. Import spending therefore grows faster than export earnings and the deficit widens year after year. No diagram is required.

Levels of response: Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). AO split: 1 mark AO1 knowledge, 2 marks AO2 application, 3 marks AO3 analysis. Best fit applies.

Answers might include:
AO1: current account deficit = imports greater than exports; income rise raises demand for imports.
AO2: £17bn imports against £14bn exports, deficit of £3bn (accept 17 - 14 = 3 for application credit); foreign cars and electronics; coffee exports; imports rising each year.
AO3: higher incomes lead to higher consumer spending, some on imports; domestic producers cannot supply these goods, so spending goes abroad; exports depend on overseas incomes so grow more slowly; the gap widens over time; reliance on one export reduces the ability to earn more.

NB: do not credit a description of the data alone for analysis marks. Be careful of repetition. ARA. Any other relevant points to be credited.

Supply is the quantity producers are willing and able to supply at each price. A lower cost of production per tonne makes wheat more profitable at every price, so farmers supply more at each price and the supply curve shifts right from S1 to S2. Demand is unchanged, so at the old price of £200 there is excess supply. Price falls, causing an extension along the demand curve and a contraction along the new supply curve until a new equilibrium is reached at a lower price (below £200) and a higher quantity (above 50 000 tonnes). Diagram: price (£ per tonne) on vertical axis, quantity (tonnes) on horizontal axis, demand D, S1 and S2, with equilibrium points P1 Q1 and P2 Q2 labelled. Consumers such as bakers benefit from lower prices.

Levels of response: Level 1 (1-2 marks), Level 2 (3-4 marks), Level 3 (5-6 marks). AO split: 1 mark AO1 knowledge, 2 marks AO2 application, 3 marks AO3 analysis. Level 3 requires a correctly labelled diagram showing a rightward shift of supply with the new equilibrium, plus developed reasoning. Best fit applies.

Answers might include:
AO1: supply = amount producers are willing and able to sell at each price; technology reduces unit costs; equilibrium = where demand equals supply.
AO2: £200 per tonne and 50 000 tonnes as starting equilibrium; new harvesting machine; lower cost per tonne; wheat farmers in Tamsin Valley.
AO3: supply shifts right (S1 to S2); excess supply at £200; price falls; quantity demanded extends; new equilibrium at lower price and higher quantity; benefits to consumers; farmers' revenue depends on elasticity of demand.

NB: the drought in the neighbouring valley is a distractor; do not credit a leftward shift of supply in Tamsin Valley, though credit can be given for a recognised comment about its possible effect on demand for Tamsin wheat. Do not credit a movement along the supply curve as the initial effect. Be careful of repetition. ARA. Any other relevant points to be credited.

Application: 2 million bags a year; a 70% fall would leave 600 000 bags (1.4 million fewer), so litter and the £150 000 clean-up cost should fall. Analysis: the charge raises the private cost of bags, so consumers move up/along the demand curve and quantity falls, bringing the quantity closer to the socially efficient level; revenue could fund clean-ups or other spending. Evaluation: the result in a nearby town may not be repeated in Marlow; demand may be inelastic for some shoppers (e.g. those who forget bags); the charge is a small cost to consumers but may reduce sales for small shops; a ban, legislation or information provision could be more effective or work alongside the charge; the benefit depends on whether people switch to reusable bags, which have their own environmental costs. Judgement: the charge is likely to be fairly effective but not a complete solution.

Level 3 (5-6 marks): balanced, developed analysis and evaluation with a supported judgement that addresses 'the extent'. Level 2 (3-4 marks): some application and analysis with limited or one-sided evaluation. Level 1 (1-2 marks): simple statements about the charge or externalities, little or no application. Mark split: 1 mark AO2 application, 2 marks AO3 analysis, 3 marks AO3 evaluation. Best-fit applies.

Answers might include:
Application: 70% cut means 1.4 million fewer bags; clean-up cost of £150 000; 40 000 residents; small shops fear lost sales.
Analysis: charge raises price/private cost so demand falls; external cost of litter and river damage reduced; revenue can be used for clean-ups; consumers change behaviour.
Evaluation: nearby town's result may not apply; demand may be inelastic for some; effect on small shops and low-income households; legislation (ban) or information provision may be alternatives; reusable bag substitutes have environmental costs; short run versus long run; enforcement costs.
NB: more than 2 evaluation marks needs explicit engagement with 'the extent' or a justified judgement. Be careful of repetition. ARA. Any other relevant points to be credited.

Application: deficit Year 1 = 84 - 96 = -£12 billion; Year 2 = 90 - 105 = -£15 billion, so it is widening. Imports rose by 9.4% (9/96) compared with exports by 7.1% (6/84). Analysis: a persistent deficit means the country must borrow or sell assets to pay for it, which may raise debt and interest payments and put downward pressure on the exchange rate; reliance on fuel imports exposes the economy to price shocks. Evaluation: imported machinery boosts productive capacity and future exports; the deficit may be small relative to national income; a deficit can reflect strong consumer demand and growth; reducing it through tariffs or lower spending has opportunity costs such as higher prices and slower growth; a falling exchange rate could correct it over time. Judgement depends on size, duration and the type of imports.

Level 3 (5-6 marks): developed analysis and evaluation of the importance of the deficit, with a supported judgement. Level 2 (3-4 marks): some application and analysis, limited evaluation. Level 1 (1-2 marks): simple statements about deficits or imports. Mark split: 1 mark AO2 application, 2 marks AO3 analysis, 3 marks AO3 evaluation. Best-fit applies.

Answers might include:
Application: deficit widened from £12 billion to £15 billion; imports grew faster than exports; machinery and fuel imports; farm exports.
Analysis: borrowing and debt; pressure on the exchange rate; dependence on fuel imports and vulnerability to price changes; money leaving the economy.
Evaluation: machinery imports can raise future productivity and exports; size of deficit relative to GDP; deficits can accompany growth; cutting the deficit through tariffs or spending cuts has opportunity costs; exchange rate adjustment; short run versus long run.
NB: do not credit simple definitions only. Accept calculation of percentage changes as application. ARA. Be careful of repetition. Any other relevant points to be credited.

Application: output rose by only 5% when 30% more was requested, so supply is inelastic in the short run; fish is seasonal and storage is costly. Analysis: with inelastic supply, a rise in demand raises price more than quantity, so the firm may lose orders or customers if it cannot deliver, but higher prices can raise revenue; with a second freezer, stock can be built up and supply becomes more elastic, so the firm can meet demand and earn more revenue and profit. Evaluation: the £8 000 cost must be weighed against extra profit; elasticity may differ between the short and long run; the fishing season and quotas limit supply regardless of the freezer; stored fish may lose quality or incur running costs; restaurant demand might be unstable. Judgement: elasticity is important to a firm facing sudden demand changes, but the freezer alone is not enough.

Level 3 (5-6 marks): developed analysis and evaluation of the importance of elasticity of supply with a supported judgement. Level 2 (3-4 marks): some application and analysis, limited evaluation. Level 1 (1-2 marks): simple definition or statements on supply. Mark split: 1 mark AO2 application, 2 marks AO3 analysis, 3 marks AO3 evaluation. Best-fit applies.

Answers might include:
Application: 5% output rise against 30% extra demand; seasonal catching; frozen storage costs; £8 000 freezer; restaurant customers.
Analysis: inelastic supply means price rises and lost orders; stock lets output respond faster; more elastic supply raises revenue and profit; customer loyalty.
Evaluation: cost of freezer against extra profit; short run versus long run; fishing season and limits on catch; storage costs and quality; demand uncertainty; time to respond; other ways to raise elasticity such as more suppliers.
NB: accept PES calculation if correct. Do not credit a definition alone beyond Level 1. ARA. Any other relevant points to be credited. Be careful of repetition.