Q: Explain the economic problem and why it is always likely to exist. [4]

• Mark Scheme:
• Finite / limited resources (1).
• Infinite / unlimited wants (1).
• Scarcity (1).
• Wants grow faster than resources (1).
• Never enough resources to satisfy wants (1).
• Population growth increases needs (1).

• Q: Define a free good. [2]
• Mark Scheme:
  • No opportunity cost (1).
  • Uses no scarce resources / naturally abundant (1).

Q: State a factor of production and give an example. [2]

• Mark Scheme: Land - farmland; Labour - workers; Capital - machinery; Enterprise - business owner.

Q: Analyse, using a PPC, the opportunity cost of producing more consumer goods. [6]

• Mark Scheme:
  • Axes labelled capital/consumer goods (1).
  • Downward curve (1).
  • Movement along curve (1).
  • Reduction in capital goods shown (1).
  • Opportunity cost = best alternative forgone (1).
  • Resources reallocated between goods (1).

• Q1: Discuss whether allocating more resources to agriculture benefits an economy.
• Mark Scheme:
  • Why it might: Efficiency, exports, balance of payments, self-sufficiency, employment.
  • Why it might not: Low wages, weather risks, opportunity cost, demand shifts, water usage.
• Q2: Define market disequilibrium. [2] - Quantity demanded not equal to quantity supplied (shortage/surplus).
• Q3: Identify two key resource allocation questions. [2] - What to produce? How to produce?

• Q: Define 'demand'. [2]
• Mark Scheme: Willingness and ability to buy a product in a given period.

• Q: Define supply. [2]
• Mark Scheme: Willingness and ability to sell a product in a given time; making goods available to consumers.

• Q: Define market disequilibrium. [2]
• Mark Scheme: Market where demand and supply are not balanced; surplus or shortage occurs.

• Q: Analyse how price elasticity of demand affects pricing decisions. [6]
• Mark Scheme:
  • Elastic: price down -> revenue up; substitutes exist.
  • Inelastic: price up -> revenue up; few substitutes.
  • Unitary: revenue unchanged.
  • Difficult to calculate PED; other factors influence price.

• Q: Identify two determinants of PED. [2]
• Mark Scheme: Substitutes, complements, income share, luxury vs necessity, addiction, postponability, brand loyalty.

• Q: Explain, using the extract, whether Iceland's fish supply is price-elastic or price-inelastic. [2]
• Mark Scheme: Price-inelastic - percent change in supply smaller than percent change in price.

• Q: State the PES formula. [2]
• Mark Scheme: percent change in quantity supplied divided by percent change in price.

• Q: Discuss whether a market economic system benefits an economy. [8]
• Mark Scheme:
  • Why it might: Efficiency, low prices, innovation, choice, growth.
  • Why it might not: Market failure, inequality, no public goods, pollution, unemployment, monopolies.

• Q: Define market failure. [2]
• Mark Scheme: Market failure occurs when demand and supply fail to allocate resources efficiently.