Please write clearly in block capitals.

Centre number Candidate number

Surname

Forename(s)

Candidate signature
I declare this is my own work.

A-level
ECONOMICS
Paper 3 Economic Principles and Issues

Time allowed: 2 hours

Materials
For Examiner’s Use
For this paper you must have:
• the Insert Section Mark
• a calculator.
A

Instructions B
• Answer all questions. TOTAL
• Use black ink or black ball-point pen. Pencil should only be used for
drawing.
• Fill in the boxes at the top of this page.
• You will need to refer to the Insert provided to answer Section B.
• You must answer the questions in the spaces provided. Do not write
outside the box around each page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at the end of
this book. Write the question number against your answer(s).
• Do all rough work in this answer book. Cross through any work that you
do not want to be marked.

Information
• The maximum mark for this paper is 80.
• The marks for questions are shown in brackets.
• No deductions will be made for wrong answers.

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 2
Do not write
outside the
Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each question completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to select
as shown.

0 1 A positive statement
[1 mark]

A does not take into account irrational behaviour.

B enables accurate forecasts to be made.

C includes a value judgement.

D may be true or false.

0 2 Which one of the following is a nudge technique that could be used to encourage healthy
eating?
[1 mark]

A Banning supermarkets from selling high-calorie energy drinks

B Increasing taxes on high-fat products to raise their price

C Moving products with a high sugar content away from

supermarket checkouts

D Subsidising fruit and vegetables to reduce their prices

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0 3 Figure 1 shows the production possibility diagram for an economy producing capital goods box

and consumer goods.

Figure 1

The opportunity cost of producing an additional unit of capital goods is

[1 mark]

A greater at X than Y.

B greater at Z than Y.

C the same at X, Y and Z.

D zero when 300 units of consumer goods are produced.

Turn over for the next question

Turn over ►

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0 4 Table 1 shows the individual price indices and the weightings of the three goods that make box

up a price index.

Table 1

Price Index in April 2022

Good Weighting
(April 2021=100)
X 0.1 102

Y 0.4 104

Z 0.5 103

What was the percentage increase in the overall price index between April 2021 to April
2022?
[1 mark]

A 1.1%

B 3%

C 3.3%

D 9%

0 5 When using data to make international comparisons of the standard of living, purchasing
power parity (PPP) exchange rates are more useful than market exchange rates.

This is because PPP exchange rates take into account differences in countries’
[1 mark]

A distribution of income.

B levels of taxation.

C price levels.

D rates of population growth.

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0 6 Figure 2 shows two aggregate demand (AD1 and AD2) curves and the short-run aggregate box

supply (SRAS) curve for an economy.

Figure 2

Which one of the following is the government most likely to increase if it wishes to use
fiscal policy to reduce national output from Y1 to Y2?
[1 mark]

A Infrastructure expenditure

B Interest rates

C Rates of income tax

D The budget deficit

Turn over for the next question

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0 7 Which one of the following is a reason why the extension of property rights is likely to box

reduce market failure?

[1 mark]

A Merit goods will no longer be underconsumed in a free market.

B Producers will be more likely to have to pay compensation for

pollution.

C Public goods will no longer be subject to the free-rider problem.

D The inequality in the distribution of income and wealth will be

reduced.

0 8 Figure 3 shows the demand curve for a firm’s scarves.

Figure 3

Which one of the following statements is true when the price of scarves is reduced from
£30 to £25?
[1 mark]

A Demand for scarves is price elastic.

B Price elasticity of demand is –0.5.

C The firm’s total revenue falls.

D The firm’s total revenue increases.

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0 9 A firm charging different customers different prices for the same product is practising box

[1 mark]

A limit pricing.

B marginal cost pricing.

C price discrimination.

D price leadership.

1 0 In an economy, an index showing the change in the money supply multiplied by the
velocity of circulation increases from 100 to 115.5. At the same time, the final output
produced by the economy increases from 100 to 110.

According to Fisher’s equation of exchange, the price level will increase by

[1 mark]

A 5%

B 5.5%

C 10%

D 15.5%

1 1 Systemic risk is most likely to occur in financial systems when

[1 mark]

A investment banks have low capital-output ratios.

B most banks carry out both commercial and

investment banking activities.

C the central bank acts as lender of last resort

to financial institutions.

D the commercial banks have high liquidity ratios.

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1 2 Figure 4 shows the aggregate demand (AD) curve, the short-run aggregate supply box

(SRAS1 and SRAS2) curves and the long-run aggregate supply (LRAS1 and LRAS2)
curves for an economy.

Figure 4

All other things being equal, which one of the following is most likely to move the economy
from point M to point N?
[1 mark]

A A decrease in the natural rate of unemployment

B A loss of consumer and producer confidence

C A natural disaster, damaging productive capacity

D A rise in factor prices, resulting in cost-push inflation

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1 3 Which one of the following is a role of the World Trade Organisation? box

[1 mark]

A Helping countries settle disputes over tariffs and quotas

B Lending money to countries with balance of payments problems

C Monitoring the stability of the international monetary system

D Providing loans at low rates of interest to low-income countries

1 4 Which one of the following is a reason why the supply of cars is likely to be price elastic in
the short run when the price of cars increases?
[1 mark]

A Car manufacturers’ stocks of unsold cars are low

B The demand for cars is also price elastic

C The marginal cost of producing cars increases significantly with output

D There is considerable spare capacity in the car industry

Turn over for the next question

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1 5 Which one of the following diagrams, A, B, C or D, shows the most likely short-run impact box

on an economy of an improvement in technology in the production process?

[1 mark]

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1 6 Which one of the following best explains the existence of relative poverty? box

[1 mark]

A Some households have to pay more in income tax than other households.

B The Gini coefficient in some countries is low.

C The income of some households is significantly less than the median

household income.

D The prices of items that are essential for life differ between countries.

1 7 Table 2 shows the amount paid in tax by individuals at different levels of income.

Table 2

Income (£) Tax paid (£)

20 000 4 000

30 000 5 400

40 000 6 400

50 000 7 000

This tax is an example of a

[1 mark]

A lump sum tax.

B progressive tax.

C proportional tax.

D regressive tax.

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1 8 Which one of the following is a supply-side policy aimed at reducing the natural rate of box

unemployment?
[1 mark]

A Government retraining schemes for structurally unemployed workers

B Increasing legal protection against unfair dismissal for employees

C Increasing the real value of the national minimum wage

D New government subsidies for developers of artificial intelligence

1 9 Figure 5 shows the average revenue (AR), marginal revenue (MR) and marginal cost
(MC) curves for an industry which was perfectly competitive but is now a monopoly. The
cost and revenue curves remain unchanged.

Figure 5

Which of the following areas shows the total deadweight loss of consumer and producer
surplus resulting from the structure of the industry changing from perfect competition to
monopoly?
[1 mark]
A 1+2

B 3+4

C 5+6

D 7+8

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2 0 There is a reduction in the market demand for the product supplied by firms operating in a box

perfectly competitive industry.

All other things being equal, which one of the following will happen to firms’ average and
marginal revenue as a result of this change?
[1 mark]

A Average revenue and marginal revenue will both fall.

B Average revenue and marginal revenue will not change.

C Average revenue will fall and marginal revenue will increase.

D Average revenue will increase and marginal revenue will fall.

2 1 Figure 6 shows the marginal utility that a consumer gains from eating apples.

Figure 6

When 7 apples per day are consumed

[1 mark]

A average utility is maximised.

B marginal utility is maximised.

C opportunity cost is minimised.

D total utility is maximised.

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2 2 Table 3 shows different combinations of performance for three macroeconomic indicators. box

Which one of the combinations, A, B, C or D, is most likely to indicate an economy

experiencing an economic boom?
[1 mark]

Table 3

Imports Price level Job vacancies

A Decreasing Increasing Decreasing

B Decreasing Decreasing Increasing

C Increasing Increasing Increasing

D Increasing Decreasing Decreasing

2 3 Table 4 shows the values of nominal GDP and a price index in two different years.

Table 4

Year 2015 2019

Nominal GDP (£ billions) 250 290

Price index 100 110

What was the value of real GDP in 2019, to the nearest £ billion, expressed in 2015 prices?
[1 mark]

A £227 billion

B £261 billion

C £264 billion

D £319 billion

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2 4 Figure 7 shows the average revenue and marginal revenue (AR and MR) curves and the box

average cost and marginal cost (AC and MC) curves for a firm in monopolistic competition
in the short run.

Figure 7

At the profit maximising price and output the firm will

[1 mark]

A make supernormal profits.

B produce the allocatively efficient output.

C produce where average revenue = average cost.

D set price equal to minimum average costs.

Turn over for the next question

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2 5 The price of a government bond was £10 000 when it was issued. The bond does not box

have a maturity date and the government is not intending to buy back the bond. The bond
pays £200 per year to the bond holder and has a market price of £8 000.

Which one of the following fractions represents the yield on the bond?
[1 mark]

1
A
50
1
B
40
1
C
5
4
D
5

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2 6 Table 5 contains figures from the balance sheet of a commercial bank. box

Table 5

Item Value (£ bn)

Cash 45

Share capital 100

Loans advanced 135

Fixed assets 115

Long-term liabilities 85

Investments 50

Reserves (retained profit) 30

Balances at the central bank 25

Deposits and other liabilities 185

Other liquid assets 30

What is the value of this bank’s total liquid assets?

[1 mark]

A £70 bn

B £100 bn

C £130 bn

D £175 bn

Turn over for the next question

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2 7 Changing patterns of consumption have meant that summer holidays at UK seaside towns box

have become less popular. As a result, UK seaside holiday towns are affected by
seasonal unemployment and increasing structural unemployment.

Which one of the following is the most likely consequence of this change in the pattern of
consumption?
[1 mark]

A Occupational immobility of labour will help to reduce structural unemployment.

B The cost of living for people who live in UK seaside towns will fall.

C Unemployment is likely to be higher in the summer than the winter.

D Wages in UK seaside towns will rise because firms want to retain workers.

2 8 Figure 8 shows the marginal cost (MCL), average cost (ACL) and marginal revenue
product (MRPL) curves for labour in a specialised computer programming industry.

Figure 8

Following a series of mergers between firms in this industry, a single large firm remains as
a monopsony employer.

Which one of the following is the most likely to result from a competitive labour market
being replaced by a monopsony employer?
[1 mark]

A The total amount paid in wages will fall from (W2 × Q2) to (W3 × Q1).

B The total amount paid in wages will increase from (W3 × Q1) to (W1 × Q1).

C The wage rate will fall from W1 to W2.

D The wage rate will increase from W3 to W2.

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2 9 Table 6 shows the value of the UK’s Human Development Index (HDI) over the period box

2015 to 2019.

Table 6

Year 2015 2016 2017 2018 2019

UK HDI Value 0.916 0.918 0.919 0.920 0.932

All other things being equal, which one of the following is most likely to explain the trend
shown in Table 6?
[1 mark]

A A fall in the sterling exchange rate

B Falling emissions of greenhouse gases

C Increasing life expectancy at birth

D Reductions in income inequality

3 0 Unemployed workers in the south of a country are unable to take up jobs in the north of the
country due to higher housing costs. This is an example of
[1 mark]

A cyclical unemployment.

B frictional unemployment.

C geographical immobility of labour.

D occupational immobility of labour. 30

Turn over for Section B

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Section B box

Answer all questions in this section.

Refer to the Insert for Extracts A, B, C and D.

Total for this Investigation: 50 marks

The commercial aircraft manufacturing industry

INVESTIGATION

Scenario

You are an economist working for an organisation that is investigating the commercial aircraft
manufacturing industry.

You have been asked to review the changes to the industry that have taken place since 2014.

As part of this investigation, you are to provide answers to three questions.

Referring to the Insert, study Extracts A, B and C, and then use these and your knowledge of
economics to help you answer Questions 31 and 32. There is also a news report, Extract D, which
is to be used with the other extracts to help you answer Question 33.

3 1 To what extent do the data support the view that Boeing has been more successful
than Airbus since 2014? You must use the data in Extract B to support your assessment.
[10 marks]

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Extra space

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3 2 Explain the factors that a commercial aircraft manufacturer, such as Boeing or Airbus, box

should consider when forecasting the future sales of its aircraft.

[15 marks]

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3 3 After considering Extract D, and the original evidence in Extracts A, B and C, would box

you recommend that the UK government provides financial and other support to
companies involved in the production of commercial aircraft? Justify your
recommendation.
[25 marks]

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50

END OF QUESTIONS

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DO NOT WRITE ON THIS PAGE

ANSWER IN THE SPACES PROVIDED

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box
Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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box
Question Additional page, if required.
number Write the question numbers in the left-hand margin.

Copyright information

For confidentiality purposes, all acknowledgements of third-party copyright material are published in a separate booklet. This booklet
is published after each live examination series and is available for free download from www.aqa.org.uk

Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright-holders may have
been unsuccessful and AQA will be happy to rectify any omissions of acknowledgements. If you have any queries please contact the
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*226A7136/3*
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 Please write clearly in block capitals.

Centre number Candidate number

Surname

Forename(s)

Candidate signature
I declare this is my own work.

A-level
ECONOMICS
Paper 3 Economic Principles and Issues

Time allowed: 2 hours

Materials
For Examiner’s Use
For this paper you must have:
• the insert Section Mark
• a calculator.
A

Instructions B
• Answer all questions. TOTAL
• Use black ink or black ball-point pen. Pencil should only be used for
drawing.
• Fill in the boxes at the top of this page.
• You will need to refer to the insert provided to answer Section B.
• You must answer the questions in the spaces provided. Do not write
outside the box around each page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at the end of
this book. Write the question number against your answer(s).
• Do all rough work in this answer book. Cross through any work that you
do not want to be marked.

Information
• The maximum mark for this paper is 80.
• The marks for questions are shown in brackets.
• No deductions will be made for wrong answers.

*JUN217136301*
IB/M/Jun21/E8 7136/3
 2
Do not write
outside the
Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each question completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to select
as shown.

0 1 The average university graduate can expect to earn more over their working life than the
average school leaver.

This is most likely to be explained by

A discrimination in the labour markets for non-graduates.

B the higher marginal revenue productivity of graduates.

C the higher price elasticity of demand for graduates.

D the relatively low elasticity of supply of non-graduates.

[1 mark]

0 2 Which one of the following statements regarding supply-side policies is correct?

Supply-side policies

A can have microeconomic as well as macroeconomic effects

on the economy.

B can increase the potential output of an economy but not its

trend rate of growth.

C cannot be used to correct market failures and improve the

operation of markets.

D do not affect competitiveness or the current account of the

balance of payments.
[1 mark]

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0 3 Figure 1 shows the marginal private benefit and marginal social benefit (MPB and MSB) box

curves and the marginal private cost and marginal social cost (MPC and MSC) curves in
the market for a good.
Figure 1

The diagram represents a good with

A negative externalities in production and consumption.

B negative externalities in production and positive externalities in

consumption.

C positive externalities in production and consumption.

D positive externalities in production and negative externalities in

consumption.
[1 mark]

Turn over for the next question

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0 4 Which one of the following changes in macroeconomic performance is most likely to box

involve a trade-off, at least in the short-run, between the objectives of government

macroeconomic policy?

A Economic growth increases and the deficit on the balance of

payments on current account is eliminated

B Inflation declines to match its target rate and the government’s

budget position moves into balance

C The distribution of income becomes more equal as economic

growth increases

D The government’s budget deficit increases as the rate of

unemployment is reduced
[1 mark]

0 5 Table 1 contains data for GDP per capita and the Human Development Index (HDI) for four
countries in a given year.

Table 1

GDP per capita

HDI
($)
Country 1 32 860 0.45

Country 2 29 440 0.77

Country 3 23 230 0.51

Country 4 22 650 0.92

Which one of the following statements is most consistent with the data?

A Country 1 has the highest living standards of the four countries

B Country 2 has a higher rate of growth than countries 3 and 4

C Country 3 is the least developed of the four countries

D Country 4 has the highest life expectancy and literacy rates

[1 mark]

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0 6 Figure 2 shows the production possibility curve for an economy producing capital and box

consumer goods.

Figure 2

The opportunity cost of increasing the output of capital goods from G1 to G2 is shown by

A H - H2

B H2KLH1

C G2 - G1

D H1 - H2
[1 mark]

Turn over for the next question

Turn over ►

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0 7 Table 2 contains a simple balance sheet for a bank. box

Table 2

Assets (£ billion) Liabilities (£ billion)

Customer
Cash 20
Deposits 700
Cash held at Money owed to
Central Bank 70 Central Bank 30
Money owed to
Securities held 130
other banks 170
Shareholders
Loans 730
Equity 100
Other assets 50

Total assets 1000 Total liabilities 1000

From the balance sheet it can be concluded that this bank is

A a threat to financial stability because it holds no capital.

B an investment bank because it holds non-interest bearing cash.

C earning large profits because most of its assets are loans.

D most likely to be a commercial bank because its main liabilities

are customer deposits.
[1 mark]

0 8 The free-rider problem in economics means that government intervention is necessary to

prevent market failure in the supply of

A inferior goods.

B merit goods.

C private goods.

D public goods.
[1 mark]

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0 9 Figure 3 shows the demand curve (Demand) and the supply curve (Supply) for bus travel box

within a city. The initial market equilibrium price is P.

Figure 3

To reduce pollution, the city council pays bus companies to provide bus travel free of
charge. As a result of this policy, consumer surplus will increase by the area

A OFHJ

B FGH

C OPHJ

D QHJ
[1 mark]

Turn over for the next question

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1 0 At the end of the previous financial year, a country had a national debt of £20 000 billion. box

The government’s planned expenditure for the current year exceeds its projected income
by £100 billion.

All other things being equal, which one of the following is most likely to enable the
government to complete its planned expenditure and reduce the national debt?

Increasing its

A planned borrowing by more than £100 billion.

B projected income and borrowing by £100 billion.

C projected income by £100 billion and reducing new borrowing

by £100 billion.

D projected tax revenue by more than £100 billion.

[1 mark]

1 1 A person is considering buying a used motorbike from a dealer on the internet. The
motorbike is described as being in perfect condition and is being offered at a
correspondingly high price.

In this situation, asymmetric information is most likely to lead the person to

A buy the motorbike because they believe the price is justified

by its condition.

B know more about the motorbike’s market value than

the dealer.

C maximise their utility by buying a cheaper used motorbike

from a different dealer.

D not buy the motorbike because they do not know as much

about the motorbike as the dealer.
[1 mark]

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1 2 Figure 4 shows two aggregate demand (AD1 and AD2) curves and two long-run aggregate box

supply (LRAS1 and LRAS2) curves for an economy.

Figure 4

All other things being equal, which one of the following is the most likely explanation
for the movement of the economy from E1 to E2?

A A decline in the capital stock resulting from a significant decline in

bank funding for business investment

B An increase in net foreign investment by firms following a reduction

in the rate of inflation

C An unexpected reduction in the rate of interest following a fall in the

rate of inflation

D The growth of government borrowing to fund increased expenditure

on infrastructure
[1 mark]

Turn over for the next question

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1 3 A feature of the UK government’s workplace pension scheme is that employers are box

required to enrol their employees in the scheme unless the employees make a conscious
decision to opt out and join another scheme.

An individual choosing to remain in their workplace pension scheme is an example of a

person

A accepting the default choice.

B acting irrationally by ignoring an economic incentive.

C being anchored by a previous financial decision.

D using a rule of thumb to make the choice.

[1 mark]

1 4 The Bank of England’s Monetary Policy Committee increases Bank Rate to reduce the risk
of an increase in inflationary pressure in the economy. All other things being equal, which
one of the following is most likely to result from the policy change?

A Consumption will increase since house prices will rise and

increase wealth.

B Investment will increase as the return on investment projects rises.

C Savings will increase as interest rates rise in real terms.

D The exchange rate will fall as a result of increased capital inflows.

[1 mark]

1 5 An increase in the national minimum wage may be used to make the distribution of income
more equal. Such a policy is most likely to be effective when the elasticity of demand for
labour in low-paid work is

A elastic.

B inelastic.

C perfectly elastic.

D unitary elastic.
[1 mark]

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1 6 Figure 5 shows the demand (D) curve and the average and marginal cost (AC and MC) box

curves for a firm operating in a perfectly competitive market for eggs.

Figure 5

The firm is in equilibrium at the initial market price of £1.25 for a box of 6 eggs. If the
market price increases to £1.50 for a box of eggs the firm will

A have a marginal revenue of £0.25.

B increase its average revenue by 20%.

C make supernormal profits in the long run.

D sell 180 boxes per day in the short run.

[1 mark]

Turn over for the next question

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1 7 Table 3 contains labour market data, in millions, for the UK in 2019. box

Table 3

Population aged 16 years and over 53.3

Economically active labour force 34.3

Total employment 33.0

Total unemployment 1.3

Source: ONS

Which one of the following, calculated in accordance with international guidelines,

represents the UK’s unemployment rate in 2019?

A 2.4%

B 3.7%

C 3.8%

D 4.0%
[1 mark]

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1 8 Figure 6 represents the market for sugar in a country. It shows the demand (D) curve and box

two supply (S1 and S2) curves in the market for sugar before and after the imposition of an
indirect tax on sugar.

Figure 6

According to Figure 6, which one of the following combinations: A, B, C, or D, is correct?

Change in price Government tax revenue

% generated (£)
A 20 200

B 20 400

C 50 200

D 50 400

[1 mark]

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1 9 According to the accelerator process, a slowdown in the rate of growth of national income box

will lead to a fall in the

A level of investment.

B marginal propensity to save.

C rate of interest.

D value of the multiplier.

[1 mark]

2 0 A monopolistically competitive firm’s demand curve for good X has a price elasticity of
demand of minus 1.0 throughout its entire range. All other things being equal, which one
of the following is most likely to result in an increase in the firm’s profits?

A A decrease in the cost of producing the good

B A decrease in the price of the good

C An increase in the price of the good

D An increase in the scale of its operation

[1 mark]

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2 1 Figure 7 shows the average and marginal revenue (AR and MR) curves and the average box

and marginal cost (AC and MC) curves for a firm. The firm is in equilibrium producing an
output of Qe.

Figure 7

From the diagram it can be inferred that the

A firm is a price taker and will reduce its supply if the market price falls
below Pe.

B firm is making abnormal profits but this will not attract new firms into
the market because the firm has a monopoly.

C firm is maximising its abnormal profit and has no incentive to expand

its production.

D firm’s abnormal profit will lead it to expand its production and shift its
market supply curve to the right.
[1 mark]

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2 2 Which one of the following combinations of possible shocks: A, B, C, or D, is most likely to box

move an economy from a negative output gap to a positive output gap?

An unexpected increase in

A productivity growth combined with a larger than expected decrease

in inflation.

B the exchange rate combined with an unexpected fall in business

confidence.

C the government’s budget surplus combined with a downturn in

world trade.

D the marginal propensity to consume combined with a fall in the

exchange rate.
[1 mark]

2 3 All other things being equal, which one of the following is the most likely consequence of
technological innovation in the production process by the firms within an industry?

A A decrease in the number of firms in the industry

B A reduction in firms’ unit costs of production

C The elimination of entry barriers into the industry

D The invention of a product that did not previously exist

[1 mark]

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2 4 Figure 8 shows two demand (D1 and D2) curves and two supply (S1 and S2) curves in the box

market for tea.

Figure 8

Tea and coffee are substitutes. All other things being equal, which one of the following is
the most likely explanation of the move from E1 to E2 in the market for tea?

A A fall in the price of tea and a rise in productivity in coffee production

B A rise in the price of coffee and an increase in the cost of producing

tea

C An increase in competition in the market for tea and a fall in the price
of coffee

D The removal of a subsidy to tea producers and a fall in the price of

coffee
[1 mark]

2 5 In 2019, an economy operating at full capacity on its long-run aggregate supply curve grew
at its trend growth rate of 5% per annum. It had a national income of £200 billion. In 2020,
the economy experienced 2% actual growth.

It follows that in 2020 there was

A a negative output gap equal to £4 billion.

B a negative output gap equal to £6 billion.

C a positive output gap equal to £4 billion.

D a positive output gap equal to £6 billion.

[1 mark]

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2 6 The money market is the financial market in which box

A companies issue new shares to the public and financial institutions.

B dealers are able to trade foreign currencies.

C long-term company securities and government bonds are traded.

D short-term finance is provided for companies and governments.

[1 mark]

2 7 Figure 9 shows two labour supply (S1 and S2) curves for workers qualified to the level
necessary to be employed in a particular industry.

Figure 9

All other things being equal, the shift of the supply of labour curve from S1 to S2 is most
likely to be explained by a reduction in

A job security for qualified workers in the industry.

B the average wage rate in the industry.

C the productivity of workers in the industry.

D the qualifications required by the industry.

[1 mark]

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2 8 The index of real GDP for an economy was 100 in 2017, its base year, and 105 in 2020. box

In 2017, real GDP was £500 billion. The monetary value of real GDP for this economy in
2020 must therefore have been

A £395 billion.

B £475 billion.

C £525 billion.

D £605 billion.
[1 mark]

2 9 Which one of the following is an expenditure switching policy that would help to reduce a
deficit on the balance of payments on current account?

An increase in

A government expenditure on public goods.

B income tax to reduce consumer expenditure.

C quotas on exports of demerit goods.

D tariffs to raise the price of imports.

[1 mark]

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3 0 Figure 10 shows two aggregate demand (AD1 and AD2) curves and two short-run box

aggregate supply (SRAS1 and SRAS2) curves for an economy.

Figure 10

All other things being equal, which one of the following is the most likely explanation for the
movement of the economy from E1 to E2?

A A depreciation of the currency and an increase in interest rates

B A fall in the prices of raw materials and an increase in investment

C An increase in exports and the rate of Value Added Tax

D An increase in the supply of money and the level of money wages 30

[1 mark]

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Answer all questions in this section.

Refer to the insert for Extracts A, B, C, D and E.

Total for this Investigation: 50 marks

Climate change – it is not too late

INVESTIGATION

Scenario

You are an economist working for an organisation which investigates the impact of climate change
policies on the economy.

You have been asked to review the contribution of the UK to reducing greenhouse gas
(GHG) emissions and the potential impact of climate change policies on the UK economy.

As part of this investigation, you are to provide answers to three questions.

Referring to the insert, study Extracts A, B, C and D, then use these and your knowledge of
economics to help you answer Questions 31 and 32. There is also a news report, Extract E, which
is to be used with the other extracts to help answer Question 33.

3 1 The UK government has set a target to reduce net greenhouse gas (GHG) emissions to
zero by 2050.

To what extent, if at all, do the data suggest that to achieve its net-zero emissions target,
the government should focus on reducing GHG emissions from the transport sector?
You must use the data in Extract C to support your assessment.
[10 marks]

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3 2 Explain why, without government intervention, markets are likely to allocate too few box

resources to dealing with the problem of climate change.

[15 marks]

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3 3 After considering Extract E, and the original evidence in Extracts A, B, C and D, which box

policies, if any, would you recommend that the UK government should introduce to ensure
that it achieves its zero-emissions target by 2050. Justify your recommendation.
[25 marks]

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50

END OF QUESTIONS

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DO NOT WRITE ON THIS PAGE

ANSWER IN THE SPACES PROVIDED

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

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Question Additional page, if required.
number Write the question numbers in the left-hand margin.

Copyright information

For confidentiality purposes, all acknowledgements of third-party copyright material are published in a separate booklet. This booklet
is published after each live examination series and is available for free download from www.aqa.org.uk.

Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright-holders may have
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 Please write clearly in block capitals.

Centre number Candidate number

Surname

Forename(s)

Candidate signature
I declare this is my own work.

A-level
ECONOMICS
Paper 3 Economic Principles and Issues

Monday 8 June 2020 Morning Time allowed: 2 hours

Materials
For Examiner’s Use
For this paper you must have:
• the insert Section Mark
• a calculator.
A

Instructions B
• Answer all questions. TOTAL
• Use black ink or black ball-point pen. Pencil should only be used for
drawing.
• Fill in the boxes at the top of this page.
• You will need to refer to the insert provided to answer Section B.
• You must answer the questions in the spaces provided. Do not write
outside the box around each page or on blank pages.
• If you need extra space for your answer(s), use the lined pages at the end of
this book. Write the question number against your answer(s).
• Do all rough work in this answer book. Cross through any work that you
do not want to be marked.

Information
• The maximum mark for this paper is 80.
• The marks for questions are shown in brackets.
• No deductions will be made for wrong answers.

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Section A box

Answer all questions in this section.

Only one answer per question is allowed.

For each question completely fill in the circle alongside the appropriate answer.

CORRECT METHOD WRONG METHODS

If you want to change your answer you must cross out your original answer as shown.

If you wish to return to an answer previously crossed out, ring the answer you now wish to select
as shown.

0 1 Economics is a social science because

A all economic hypotheses are based on value judgements.

B economic policies can only be based on positive analysis.

C it involves the study of human behaviour and economic decision

making

D quantitative data cannot be used to test economic theories.

[1 mark]

0 2 All other things being equal, the demand for labour is more likely to be wage elastic if

A it is difficult to substitute capital for labour.

B the cost of labour is a low percentage of total costs.

C the final product has a high price elasticity of demand.

D the supply curve for labour is wage elastic.

[1 mark]

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0 3 Table 1 contains data for the rates of growth of nominal and real GDP and the rate of box

inflation for an economy in a given year. Which one of the following combinations,
A, B, C or D, shows the correct relationship between the three variables?

Table 1

Nominal GDP Real GDP

Inflation
growth growth
A –2% 0% +2%

B +4% +3% –1%

C +5% +5% +1%

D –5% –2% –3%

[1 mark]

0 4 Figure 1 shows three aggregate demand (AD) curves, a short-run aggregate supply
(SRAS) curve and a long-run aggregate supply (LRAS) curve.

Figure 1

In Figure 1, when

A aggregate demand shifts from AD1 to AD2, cyclical unemployment is

likely to be eliminated.

B aggregate demand shifts from AD1 to AD3, the rate of economic

growth is equal to (Y3 – Y1).

C the economy is producing at Y1, there is a positive output gap.

D the economy is producing at Y2, there is no unemployment.

[1 mark]

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0 5 In an economy, over the last decade, each of the top five decile groups has experienced a box

fall in their share of total income. In contrast, the bottom five decile groups have
experienced a substantial increase in their share of total income.

It can be concluded that, over this period, the distribution of income is most likely to have
become

A more equal.

B more equal but less equitable.

C more equitable.

D more equitable but less equal.

[1 mark]

0 6 In an economy, the marginal propensity to consume is 0.6. All other things being equal,
which one of the following statements is correct?

A A £5 billion reduction in the economy’s national income will

result in a £3 billion fall in consumption

B If injections into the circular flow of income equal £20 billion,

national income will equal £32 billion

C If injections into the circular flow of income rise by £10 billion,

national income will rise by £6 billion

D When the economy’s national income equals £100 billion,

consumption will equal £60 billion
[1 mark]

0 7 Which one of the following combinations, A, B, C or D, shows the essential characteristics

of a customs union?

Internal trade Common external

Common currency
barriers tariffs
A Yes No Yes

B No Yes No

C Yes Yes No

D No No Yes

[1 mark]

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0 8 Figure 2 shows the equilibrium position, point E, of a profit-maximising firm in a box

monopolistically competitive industry.

Figure 2

All other things being equal, which one of the following applies to the firm’s equilibrium
at point E? The firm is

A in short-run equilibrium, but not in long-run equilibrium.

B making normal profit because AC = AR.

C making supernormal profit because MC = MR.

D productively efficient but not allocatively efficient.

[1 mark]

0 9 A long-dated £100 government bond with a coupon rate of 5% has a current market value
of £125. This implies that the

A current yield on the bond is 4%.

B current yield on the bond is 5%.

C market rate of interest is 2.5%.

D market rate of interest is 5%.

[1 mark]

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1 0 All other things being equal, in which one of the following circumstances is the box

Bank of England most likely to raise Bank Rate to maintain financial stability?

A A fall in bank liquidity and capital ratios following several years of

rapid growth in bank lending and a boom in house prices

B An increase in the government’s target for the rate of inflation

following a significant increase in the rate of productivity growth

C An increase in the savings ratio as the economy recovers from a

recession

D A rise in share prices on global stock markets due to the growth in

world trade
[1 mark]

1 1 Figure 3 shows a firm’s total revenue (TR) curve.

Figure 3

Which one of the following combinations, A, B, C or D, describes how the firm’s average
revenue and marginal revenue will change as the firm expands its output?

Average revenue Marginal revenue

A Increases Increases

B Constant Constant

C Decreases Decreases

D Increases Constant

[1 mark]

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1 2 According to the hypothesis of diminishing marginal utility, when marginal utility is zero box

A average utility is negative.

B the good is a demerit good.

C total utility from consuming the good is maximised.

D total utility will increase by consuming more of the good.

[1 mark]

1 3 Table 2 shows the inflation rate and the rate of growth of the money supply for an economy
between 2016 and 2019.
Table 2

Rate of growth
Year Inflation
of money supply
2016 3.1% 3.5%

2017 3.5% 3.3%

2018 2.9% 3.2%

2019 2.5% 2.0%

From the data in Table 2 it may be concluded that, all other things being
equal, there was

A a fall in the value of money throughout the entire period.

B a policy of quantitative easing in operation throughout the entire

period.

C an inverse relationship between inflation and the rate of growth of

the money supply.

D continuous disinflation throughout the entire period.

[1 mark]

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1 4 Increased output results from specialisation and the division of labour because box

they enable

A countries to produce outside their production possibility boundary.

B more efficient use of the available resources.

C people to exchange goods and services with each other.

D the use of money as a medium of exchange and store of value.

[1 mark]

1 5 Figure 4 shows a firm’s demand (D) curve and its marginal revenue (MR) curve for
good X. The firm initially sells OQ1 units of X per day at a price of OP1.

Figure 4

If the firm increases its price by 10%

A price elasticity of demand will decrease.

B price elasticity of demand will not change.

C total revenue will decrease.

D total revenue will increase.

[1 mark]

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1 6 Which one of the following distinguishes a private good from a pure public good? box

A A private good can only be provided by private firms and not the
government

B Consumption of a private good creates negative externalities for

other consumers

C Consumers of a private good have full knowledge of any

externalities in its production

D One person’s consumption of a private good reduces the amount

available for other consumers
[1 mark]

1 7 Table 3 shows the demand for and supply of oranges at a range of prices between 10
pence and 30 pence.

Table 3

Quantity Quantity
Price (pence) supplied demanded
(000s) (000s)
10 100 125

15 120 120

20 122 108

25 125 100

30 128 88

As a result of an increase in consumers’ incomes, the demand for oranges increases by

25% at each of the prices shown in Table 3.

After the rise in incomes:

A at a price of 10 pence, excess demand increases by 50%.

B at a price of 30 pence, excess supply falls by 75%.

C the equilibrium market price increases by two-thirds.

D the price elasticity of demand increases by 25% at each price.

[1 mark]

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1 8 Which one of the following government policies is most likely to reduce market failure and box

to improve the allocation of resources?

A A higher rate of tax on all firms earning profit

B A minimum price for demerit goods above their free market price

C Free market pricing for the provision of public goods

D Subsidies paid to all loss-making firms to maintain full employment

[1 mark]

1 9 The long-run Phillips curve shows that

A the expected rate of inflation is zero.

B there is an inverse relationship between unemployment and inflation

in the long run.

C there is no trade-off between reducing inflation and lower

unemployment in the long run.

D unemployment can only be reduced in the long run by an increase in

aggregate demand.
[1 mark]

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2 0 Figure 5 shows the market demand for labour (DL = MRPL), the market supply box

of labour (SL=ACL), and the marginal cost of labour (MCL), in a particular industry.
The employer in this industry is a monopsonist.

Figure 5

From Figure 5, it can be concluded that, in the absence of a trade union or a minimum
wage, the firm will employ

A OQ1 workers at a wage of OW1.

B OQ2 workers at a wage of OW1.

C OQ2 workers at a wage of OW2.

D OQ2 workers at a wage of OW3.

[1 mark]

2 1 All other things being equal, which one of the following is most likely to increase the
national debt?

A Foreign companies increasing their direct investment into the

economy

B The central bank using its reserves of foreign currency to fund

a trade deficit

C The government reducing its budget surplus by increasing its

expenditure on infrastructure

D The government running a budget deficit, financed by selling

bonds to foreign investors
[1 mark]

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2 2 Table 4 shows the weights used in the Consumer Prices Index (CPI) for a selection of box

items in 2008 and 2018.

Table 4

Category 2008 weight 2018 weight

Food and non-alcoholic beverages 109 101

Alcoholic beverages and tobacco 42 42

Clothing and footwear 63 70

Transport 152 156

All goods 547 519

All services 453 481

The data in Table 4 indicate that between 2008 and 2018 the

A average price of goods fell, whereas the average price of services

increased.

B percentage increase in the price of ‘Clothing and footwear’ was

greater than the percentage increase in the price of ‘Transport’.

C proportion of total expenditure, by a typical household, on

‘Alcoholic beverages and tobacco’ did not change.

D total expenditure of a typical household on ‘Food and non-alcoholic

beverages’ fell.
[1 mark]

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2 3 Figure 6 shows the marginal private and social benefit (MPB and MSB) curves and the box

marginal private and social cost (MPC and MSC) curves in the market for domestically
produced solar panels. The initial market equilibrium is at E1.

Figure 6

To correct the market failure, the government introduces a subsidy to domestic

manufacturers of solar panels of £200 per unit produced. Which one of the following
represents the total amount of subsidy payments made by the government in the first
year of the scheme?

A £20 million.

B £25 million.

C £75 million.

D £100 million.
[1 mark]

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2 4 Moral hazard results when individuals and organisations make investment decisions box

A based on asymmetric information.

B because they expect to make a large profit.

C based on the returns made on previous investments.

D knowing that others will bear the loss if things go wrong.

[1 mark]

2 5 An economy is estimated to be experiencing a 2% rate of frictional unemployment plus a

3% rate of structural and real wage unemployment. If it is also experiencing cyclical
unemployment of 4%, its natural rate of unemployment is most likely to be

A 3%

B 5%

C 6%

D 9%
[1 mark]

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2 6 Figure 7 shows two aggregate demand (AD1 and AD2) curves and two long-run aggregate box

supply (LRAS1 and LRAS2) curves for an economy.

Figure 7

All other things being equal, which one of the following combinations, A, B, C or D, is
most likely to explain the movement of the economy from E1 to E2?

An increase in the

A budget surplus and size of the multiplier.

B exchange rate and supply of money.

C rate of inflation and positive output gap.

D volume of exports and potential output.

[1 mark]

2 7 Which one of the following is correct for a proportional tax on income?

A The amount of tax paid increases as income increases

B The marginal rate of tax is lower than the average rate

C The average rate of tax falls as income increases

D The average rate of tax is lower than the marginal rate

[1 mark]

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2 8 Table 5 contains data for a firm’s marginal cost of producing different outputs of shirts per box

day. The firm operates in a perfectly competitive market.

Table 5

Output of shirts per day Marginal cost (£s)

800 8

900 9

1000 10

1100 11

If the market price is £10 per shirt, at which one of the following outputs per day,
A, B, C or D, will the firm maximise its profit?

A 800

B 900

C 1000

D 1100
[1 mark]

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2 9 Figure 8 shows two supply (S1 and S2) curves and the demand (D) curve for euros on the box

foreign exchange market and the price of euros in terms of pounds sterling.

Figure 8

Which one of the following is the most likely explanation for the change in the exchange
rate shown in Figure 8?

An increase in eurozone

A companies buying factories in the UK.

B exports of manufactured goods to the UK.

C interest rates relative to those in the UK.

D productivity growth relative to that in the UK.

[1 mark]

3 0 The behaviour of a consumer buying a 75-inch large screen TV is biased due to bounded
rationality and the anchoring effect. This implies that the choice of which TV to buy is
based on the price of

A all available 75-inch TVs, given sufficient time to obtain the

information.

B the cheapest available 75-inch TV, in order to maximise utility.

C the first 75-inch TV seen and imperfect information about available

alternatives.

D the most expensive 75-inch TV, believing that this indicates the 30
best quality available.
[1 mark]

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Section B box

Answer all questions in this section.

Refer to the insert for Extracts A, B, C and D.

Total for this Investigation: 50 marks

Changing living standards and inequality in the UK

INVESTIGATION

Scenario

You are an economist working for an organisation which investigates ways to improve the standard
of living of UK citizens.

You have been asked to review changes in living standards and inequality since the 2007–2008
financial crisis.

As part of this investigation, you are to provide answers to three questions.

Referring to the insert, study Extracts A, B and C and then use these and your knowledge of
economics to help you answer Questions 31 and 32. There is also a news report, Extract D, which
is to be used with the other extracts to help you answer Question 33.

3 1 To what extent, if at all, do the data suggest that living standards in the UK improved
between 2007 and 2017? You must use the data in Extract B to support your
assessment.
[10 marks]

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3 2 Explain how a sustained slowdown in the world economy is likely to affect living standards box

in the UK.
[15 marks]

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3 3 After considering Extract D, and the original evidence in Extracts A, B and C, would you box

recommend that the government implement a further substantial increase in the National
Living Wage? Justify your recommendation.
[25 marks]

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50

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