Cambridge International AS & A Level
ECONOMICS 9708/21
Paper 2 Data Response and Essay October/November 2020
MARK SCHEME
Maximum Mark: 40
Published
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.
Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.
Cambridge International will not enter into discussions about these mark schemes.
Cambridge International is publishing the mark schemes for the October/November 2020 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and some
Cambridge O Level components.
This document consists of 12 printed pages.
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9708/21 Cambridge International AS & A Level – Mark Scheme October/November 2020
PUBLISHED
Generic Marking Principles
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.
GENERIC MARKING PRINCIPLE 1:
Marks must be awarded in line with:
• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.
GENERIC MARKING PRINCIPLE 2:
Marks awarded are always whole marks (not half marks, or other fractions).
GENERIC MARKING PRINCIPLE 3:
Marks must be awarded positively:
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.
GENERIC MARKING PRINCIPLE 4:
Rules must be applied consistently, e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.
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GENERIC MARKING PRINCIPLE 5:
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).
GENERIC MARKING PRINCIPLE 6:
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.
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Question Answer Marks Guidance
1(a) Describe the functions of an entrepreneur in the production 2 Candidates need to have both of these functions
process. to gain 2 marks
• For a reference to taking decisions/organising, combining or
coordinating the factors of production (1 mark)
• For a reference to taking a risk (1 mark)
1(b) How does a customs union differ from a free trade area? 2 Customs union:
• an agreement between two or more countries
• For clear explanation of a customs union (1 mark) to remove trade barriers and reduce or
• For a clear explanation of a free trade area (1 mark) eliminate customs duties on mutual trade
• a customs union has a common external tariff
The key difference between them is the common external tariff; this is against non-member countries
part of a customs union, but not part of a free trade area. This
difference needs to be made explicit to gain both marks, e.g. through Free trade area:
words such as ‘whereas’ or ‘however’. • an agreement between two or more countries
that allows the countries to freely trade with
each other
• a free trade area does not have a common
external tariff; the countries are allowed to
charge whatever tariffs they want against
non-member countries
1(c) Use a supply and demand diagram to explain how the exchange 4
rate against the euro was maintained as shown in Fig. 1.1.
• For a supply and demand diagram showing the equilibrium at 0.7
Latvian Lats per euro (Up to 2 marks)
• For an explanation of how a government can intervene in a A government can intervene in a market to
market to maintain a particular price/exchange rate throughout maintain this particular exchange rate on a
the period from 2007 to 2013 (Up to 2 marks) regular basis through:
• sales of foreign reserves
4 marks maximum • buying/selling of currency on the foreign
exchange market
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Question Answer Marks Guidance
1(d)(i) Explain what is meant by a ‘budget deficit’. 2
• A budget shows the details of government expenditure and
government revenue (1 mark)
• A budget deficit is the amount by which government expenditure
exceeds government revenue (1 mark)
1(d)(ii) Analyse, using a diagram, how fiscal measures to reduce the 4 Measures to reduce government expenditure:
budget deficit could be used by the Latvian government to lower • deflationary fiscal policy to reduce public
the relatively high rate of inflation. expenditure
• policy of government to move from a budget
• Analysis of the impact of fiscal measures of reducing government deficit to a balanced budget
expenditure and increasing government taxation to lower the
relatively high rate of inflation in Latvia (Up to 2 marks) Measures to increase government taxation:
• For an AD/AS diagram showing the shift of the AD curve to the • increases in direct taxes, e.g. taxes on
left and a lowering of the general price level (Up to 2 marks) income
• increases in indirect taxes, e.g. taxes on
expenditure
Impact on inflation:
• the impact of reduced government
expenditure and increased government
taxation will be to reduce inflationary pressure
in the economy
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Question Answer Marks Guidance
1(e) Discuss whether it is better for Latvia to specialise in banking 6 Advantages of Latvia specialising in banking
services rather than having a more diversified economy services:
• advantages of specialisation, such as in
• For a discussion of the advantages of Latvia specialising in relation to comparative advantage and the
banking services (Up to 3 marks) existence of a lower opportunity cost ratio
• For a discussion of the advantages of Latvia having a more • builds up expertise
diversified economy (Up to 3 marks) • further establishes its reputation as a banking
• centre
5 marks maximum • banking services do not have significant
Reserve 1 mark for a conclusion transport costs, especially online banking
6 marks maximum
Advantages of Latvia having a more diversified
economy:
• avoids over-specialisation
• this could be advantageous if there is a
reduced demand for financial services
• spreads risks
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Question Answer Marks Guidance
2(a) Explain, with the help of examples, how imperfect information 8 Merit good:
among consumers affects their consumption of merit goods and • a particular type of private good
demerit goods. • it is rival and excludable
• it has intrinsic benefits for an individual
Up to 2 marks for Knowledge and Understanding • examples include education or health care
Demerit good:
• Knowledge and understanding of imperfect information in relation • a particular type of private good
to a merit good and a demerit good, with the help of suitable • it is rival and excludable
examples (Up to 2 marks) • it is potentially damaging for an individual
• examples include alcohol or tobacco
2 marks maximum Imperfect information and a merit good:
Up to 6 marks for Application
• problem of information failure
• merit goods are likely to be under-consumed
• Application of the idea of imperfect information to the under-
and under-produced
consumption of a merit good (Up to 3 marks)
• consumers do not fully appreciate the value
of a merit good
• Application of the idea of imperfect information to the over-
Imperfect information and a demerit good:
consumption of a demerit good (Up to 3 marks)
• problem of information failure
6 marks maximum • demerit goods are likely to be over-consumed
and over-produced
• consumers do not fully understand the
potential dangers of a demerit good
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Question Answer Marks Guidance
2(b) Discuss why in most mixed economies, resources are mainly 12 Features of market forces:
allocated using market forces and the price mechanism. • existence of price mechanism
• prices operate as signals to indicate
Up to 8 marks for Analysis consumer preferences
• private sector ownership/decision-making
• Analysis of market forces/price mechanism element with no or very little government intervention
(Up to 4 marks)
• Analysis of government intervention element (the use of the word Features of government intervention:
‘mainly’ makes it clear that market forces/price mechanism is not • existence of public sector
the exclusive method of resource allocation) (Up to 4 marks) • public goods and merit goods can be
provided by the government
8 marks maximum
Up to 4 marks for Evaluation
For exercising some judgement on why in most mixed economies,
resources are mainly, but not exclusively, allocated using market
forces and the price mechanism
Reserve 1 mark for a conclusion
4 marks maximum
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Question Answer Marks Guidance
3(a) Cross elasticity of demand for bread with respect to the price of 8
rice is +1.4 while the cross elasticity of demand for bread with
respect to the price of butter is -0.7. Explain why the cross
elasticity of demand figures for bread differ.
Up to 2 marks for Knowledge and Understanding
• What is meant by XED (1 mark) Cross elasticity of demand:
• The formula for XED (1 mark) • the percentage/proportionate change in the
quantity demanded of Good A divided by the
2 marks maximum percentage/proportionate change in the price
Up to 6 marks for Application of Good B
• Application to goods as substitutes/positive XED (1 mark)
• Application to bread and rice as substitutes (1 mark)
• Application to figure and strong relationship (1 mark)
•
Application to goods as complements/negative XED (1 mark)
• Application to bread and butter as complements (1 mark)
• Application to figure and weak relationship (1 mark)
6 marks maximum
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Question Answer Marks Guidance
3(b) Explain the implications of price elasticity of demand and 12 Potential usefulness of PED:
income elasticity of demand for business decisions. Discuss • it can be helpful in giving a business an
which measure is likely to be more useful to a business. indication of the extent to which a change in
price may affect revenue
Up to 8 marks for Analysis • this will show that to increase revenue, the
price of an elastic good should be reduced
• Analysis of the usefulness of price elasticity of demand to a and the price of an inelastic good should be
business (Up to 4 marks) increased
• however, to be able to make appropriate
• Analysis of the usefulness of income elasticity of demand to a calculations, a businessman will need to take
business (Up to 4 marks) into account the availability of substitutes, the
width of the definition of the product, the
8 marks maximum amount spent on the product and the time
Up to 4 marks for Evaluation period under consideration
For exercising some judgement on the relative extent to which price Potential usefulness of YED:
elasticity of demand and income elasticity of demand can be of use to • it can be helpful in giving a business an
a business indication of the extent to which a change in
income may affect revenue
Reserve 1 mark for a conclusion • however, to be able to make appropriate
4 marks maximum calculations, a businessman will need to take
into account whether a good is a normal or an
inferior good, the proportion of income that is
spent on a particular good, the width of the
definition of the product and the level of
economic development of the particular
economy
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Question Answer Marks Guidance
4(a) Explain, with the aid of a diagram, the impact of a subsidy to 8
domestic producers of a product on the export revenue from that
product.
Up to 2 marks for Knowledge and Understanding
Both knowledge and understanding marks are for
For correct diagram: the diagram
• Vertical axis correctly labelled: P/Price
Horizontal axis correctly labelled: Q/Quantity (1 mark)
• Shift of the supply curve to the right and new equilibrium price
and equilibrium quantity shown (1 mark)
2 marks maximum
Impact of a subsidy in a market:
Up to 6 marks for Application • government payment of a subsidy to a firm will
reduce the costs of production
• Explanation in relation to the impact of a subsidy to domestic • this will encourage firms to supply more output
producers of a product on the export revenue from that product. at any given price
(Up to 3 marks) • this will cause the supply curve to shift to the
right
• Explanation in relation to the effect of PED/PES on export • the equilibrium price in the market will be
revenue (Up to 3 marks) lower
• the equilibrium quantity in the market will be
6 marks maximum higher
• the effect on change in revenue will depend
on PED/PES
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Question Answer Marks Guidance
4(b) Discuss whether supply-side policies are an effective way of 12 Supply-side policies could include:
correcting a deficit on an economy’s current account of the • increasing incentives to work by lowering
balance of payments. income tax and unemployment benefits, but
this will not necessarily lead to an increase in
Up to 8 marks for Analysis the supply of labour, especially if there are no
jobs
• The potential advantages of supply-side policies • increasing expenditure on education and
(Up to 4 marks) training, but this will not necessarily lead to an
increase in labour productivity or to an
• The potential disadvantages of supply-side policies increase in the occupational mobility of labour,
(Up to 4 marks) and its effect can take a long time to show
• reducing the power of trade unions, but this
8 marks maximum will not necessarily lead to a reduction in the
number of days lost through industrial action
• encouraging the privatisation of firms, but this
Up to 4 marks for Evaluation will not necessarily lead to an increase in the
efficiency of firms and a way of correcting
For exercising some judgement on whether supply-side policies are such a deficit
an effective way of correcting a deficit on an economy’s current • encouraging deregulation, e.g. through
account of the balance of payments reducing the barriers of entry into an industry,
but this will not necessarily lead to an increase
Reserve 1 mark for a conclusion in the number of firms entering an industry
• providing more information about job
4 marks maximum vacancies in different parts of a country, but
this will not necessarily lead to the correction
of a current account deficit
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