UNITED PRIME × EXAM EXPERTS

PRE-MOCK 2025

Economics Suggested Answers

Paper 1

1. B 26. A
2. C 27. C
3. B 28. C
4. C 29. D
5. C 30. A

6. A 31. B
7. A 32. C
8. A 33. D
9. A 34. D
10. B 35. B

11. A 36. C
12. A 37. C
13. B 38. C
14. D 39. D
15. D 40. B

16. C 41. A
17. A 42. B
18. D 43. D
19. C 44. B
20 D 45. D

21. C
22. A
23. C
24. B
25. D

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Paper 2
Section A

1. a. No, because (1)

the fireworks products cannot be concurrently used/consumed by many
individuals. (1)
[Accept: rival in consumption / excludable in consumption]

b. No, because (1)

it involves a value judgement / people may still disagree on whether it is
reasonable even if data about the danger of fireworks are presented / the
statement is not refutable by facts. (1)

2. Monopolistic competition (1)

Features:
- Many (buyers and) sellers
- No entry barriers
- Price/non-price competition 1@
- Selling differentiated/heterogenous products [NOT accept: different products] max: 2
- Imperfect market information
- Any other relevant points
[Mark the FIRST TWO points ONLY.]

3. a. The use of land (input) increases when output increases. (1)

b. The law of diminishing marginal returns states that when more units of a
variable factor are continuously added to a given quantity of fixed factors, the
marginal product of the variable factor will eventually decrease (holding
technology constant). (1)
When land increases from 4 to 5 units, the marginal product of land drops from
12 to 11 units. (1)
Hence, the law of diminishing marginal returns is illustrated by the data. (1)

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4. The right to transfer (1)
It is very hard to transfer the tickets to others because the recipients cannot attend
the concert even if they obtain the tickets from the original buyer / the tickets cannot
be resold to others for use. (1)

5. Indicate in the diagram:

- Correct upward shift of supply curve (1)
- Correct position of deadweight loss (DWL) (1)
- Correct position of underproduction (1)
Figure 1
Price ($) S1

S0

DWL

D0
0 Quantity
Underproduction

6. The opportunity cost of holding cash is the nominal interest rate. (1)
Since the nominal interest rate equals the real interest rate plus the expected
inflation rate, when the expected inflation rate increases, the nominal interest rate,
which is the cost of holding cash, will rise accordingly. (1)

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7. a. Indicate in the diagram:
- Correct position of LRAS curve and inflationary gap (Gap0) (1)

Verbal elaboration:
Inflationary (output) gap is the difference between the short run equilibrium
output (Ye) and the potential output / full employment output / long run
equilibrium output (Yf) when Ye > Yf. (1)

b. Indicate in the diagram:

- A rightward shift of the AD curve (1)
- A larger inflationary gap (Gap1) (1)

Verbal elaboration:
The currency of Country A (A$) depreciates against the USD. The goods
exported to the US will become cheaper (while goods imported from the US will
become more expensive). (1)
Country A’s exports increase (while imports decrease). (1)
As a result, AD and the short run equilibrium output will increase. The
inflationary (output) gap will become larger. (1)
Figure 2
Price level
LRAS0

SRAS0

Gap0
AD0 AD1
Aggregate
0
output
Gap1

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8. a. M0 = 1000 + 1200 = 2200 ($million) (1)

b. New RRR = 1200/4000 – 0.05 = 0.25 (1)

New Ms = 1000 + (1200  1/0.25) = 5800 ($million) (1)
Change in Ms = 5800 – (4000 + 1000) = +800 ($million) (1)

c. QTM: MV = PY where M = money supply, V = velocity of circulation of

money, P = price level and Y = real output. (1)
Assume V is constant. (1)

The effect:
- When % increase in Ms > % increase in Y ⇒ P will increase.
- When % increase in Ms < % increase in Y ⇒ P will decrease.
any ONE
- When % increase in Ms = % increase in Y ⇒ P will remain unchanged. max: 2
- When Ms increases and Y decreases ⇒ P will decrease.
- The change in P is uncertain because the change in Y is unknown.

9. a. Disagree. Since Country B requires fewer resources (6 man-hours) to produce

1 unit of shirts than Country A (12 man-hours), Country B has an absolute
advantage in producing shirts. (2)

b. Opportunity cost of producing 1S in Country A = 12/2 = 6W (1)

Opportunity cost of producing 1S in Country B= 6/3 = 2W (1)
Country B will export shirts, and the per unit gain = 5/2 – 2 = 0.5W (1)

c. Range of terms of trade: 2.05W < 1S < 5.95W (2)

10. a. Current account balance = 300 – 400 – 150 + 100 = -150 ($million) (1)

b. BoP = -150 + 180 – 30 = 0 ($million) (1)

BoP = 0 means a balanced balance of payment. (1)
The change in reserve assets will be zero, not the reserve assets. (1)

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Section B

11. a. Reasons:
- The tasks of carers are not standardised / the amount of work is hard to
quantify/measure. (1)
Hence, it is difficult/costly to calculate the payment. (1)
- The quality of service tends to be better (1)
as carers may rush under a piece rate. (1) 2@
- It is difficult to calculate individual contributions within the team (1) max: 4
as some tasks need teamwork, such as showering or providing food. (1)
- Any other relevant points: max 2@
[e.g., a time rate makes it easier to maintain a steady team (1), as a piece rate
may increase the risk of zero income and lead to a shortage of workers. (1)]
[Mark the FIRST TWO points ONLY.]

b. Economic principles/concepts
- Division of labour: (1)
most suitable people may be assigned to the tasks / other advantages of
division of labour that raise productivity. (1)
2@
- Economies of scale: (1) max: 4
a larger care home may use more tools or machines that can help increase
productivity. (1)
- Increase in capital or productivity (1), better training in the care home. (1)
[Mark the FIRST TWO points ONLY.]

c. No. (1)
GDP will increase because (1)
the $20000 fee paid for her parent should be counted as consumption
expenditure in GDP. (1)

d. Expansionary fiscal policy means aggregate output would rise as a result of the
policy that changes government revenue and/or expenditure. (1)

Demand side factor:

Government consumption expenditure increases. (1)
Hence, AD increases. (1)

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 Supply side factor:
Elderly care homes and daytime childcare allow housepersons to join the labour
force and the labour supply increases. (1)
Hence, SRAS/LRAS increases. (1)

12. a. Indicate in the diagram:

- Vertical supply curve (at 54000) (1)
- Price below equilibrium (1)
- Correct position of excess demand (1)

Figure 3
P

S0 S1 ED = excess demand

ED1
P1
P0

ED0
D0 D1
Q
0

Verbal elaboration:
The (official) price is set below the equilibrium. (1)
Hence, excess demand / shortage exists. (1)

b. Allocative function. (1)

The price and excess demand situation reflect the demand for larger capacity,
and the club decides to allocate more resources to supply more tickets. (1)

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 c. Reasons:
- The expansion project may use imported building materials.
- The project may use goods that are produced in previous years.
1@
- The project may last longer than one year, so the increase in GDP in one max: 2
particular year should be less than 60 million GBP.
- Any other relevant points
[Mark the FIRST TWO points ONLY.]

d. Indicate in the diagram:

- Rightward shift of supply curve (to 61000) (1)
- Rightward shift of demand curve (1)
- Increase in price (1)
- Correct position of larger excess demand (1)

e. A fixed/same amount of travelling expenses is added to both types of tickets. (1)

From the viewpoint of international fans, the relative price of hospitality tickets
in terms of ordinary tickets will fall. (1)
[Or: The percentage increase in the price of ordinary tickets is greater than that
of hospitality tickets. (1)]

13. a. Reason:
- Income distribution may be more uneven, (1)
so some people cannot benefit from the increase in real GDP. (1) 2@
- Less leisure for workers in 2023 / more pollution / more crime (1) max: 2
+ elaboration (1)
[Mark the FIRST point ONLY.]

b. Issuing new bonds to the public will result in a reduction in money supply. (1)
Hence, the interest rate will rise. (1)

c. Verbal elaboration:
The increase in national insurance for employees will increase the cost of
employing a worker and reduce the labour demand. (1)
The effective minimum wage has increased. (1)
As a result, the excess supply of labour will increase.

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 Indicate in the diagram:
- Original wage above equilibrium (1)
- Correct position of original surplus of labour (unemployment0) (1)
- Leftward shift of labour demand curve (1)
- Higher wage (1)
- Correct position of larger surplus of labour (unemployment1) (1)
- Original deadweight loss (DWL0) (1)
- New deadweight loss (DWL1) (1)
Low-skilled workers
Wage ($)

S0
unemployment1

W1
unemployment0
W0

DWL1 DWL0

D1 D0
Number of
0 workers

d. Effects on labour productivity:

- Increase in public health care spending improves workers’ health and
increases labour productivity.
- Increase in education spending improves the future quality of workers and
1@
increases future labour productivity. max: 2
- Increase in transportation infrastructure results in higher labour productivity
in the transportation and logistics industries as workers have more capital to
work with.
[Mark the FIRST TWO points ONLY.]

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 e. Marks for effective communication (EC: max 2 marks)
Marks Performance
• Supports arguments with the source/data and appropriate economic
theories.
• Presents relevant material.
2 • Presents well-organised and coherent answers without repetition of
ideas.
• Uses language that expresses ideas clearly and fluently with appropriate
use of words/terms/symbols.
• Presents arguments with some support of the source/data and economic
theories.
• Presents some irrelevant material.
1
• Presents answers in a less organised way with some repetition.
• Uses language that conveys a clear message with some inappropriate
use of words/terms/symbols.
• Presents arguments with no support of the source/data and economic
theories.
0 • Presents material unrelated to the gist of the question.
• Presents inconsistent arguments.
• Expresses limited ideas with inappropriate use of words/terms/symbols.

The maximum mark for content is 12 marks.

Effect on short run aggregate output:

- The increase in public spending involves an increase in G and I, which will
have an expansionary effect on AD. (1)
- The increase in tax reduces disposable income, which will have a
contractionary effect on AD. (1)
- Overall, it is a deficit budget (1), so it is an expansionary policy / it results in
an increase in AD and Y. (1)
Effect on long run aggregate output:
- Labour productivity increases due to better education/health. (1)
- LRAS / potential output / production capacity of the economy increases. (1)
(max:6)

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 Effect on income inequality:
- The increase in minimum wage may increase the income of the low-income
group. (1)
- The increase in tax mainly affects the middle class and higher-income
group (1), e.g., capital gains tax or stamp duty on investors / national
insurance mainly on employers. (1)
- This will narrow the income gap / improve income inequality. (1)
(max: 3)

Effect on private investment expenditure:

- Increase in (national) debt will result in a rise in interest rates (1) and private
investments will fall. (1)
- The increase in tax on employers (i.e., national insurance) will also reduce
the profits of firm / worsen business environment/confidence (1), and may
result in less investment. (1)
(max: 2)
[NOT accept: increase in capital gain tax / stamp duty reduces investment (due
to the fact that the I in GDP does not include financial investment and
expenditure on second-hand properties in general.)]

Evaluation on the longer-term effect of the budget on economic growth (long

run aggregate output):
- The fall in private investment may result in fewer capital goods in the future
/ less research and development. (1)
- Any negative side-effect on economy, e.g.,
The increase in taxes on firms or high-income groups may lead to the
emigration of firms or high-income individuals. (1)
- The expansionary effect on long run aggregate output may be partly offset /
not as large as intended by the government. (1) [Accept: cannot achieve the
goal]
(max: 3)

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Section C

14. a. Verbal elaboration:

The profit-maximising output (and price) is determined by the condition where
marginal revenue equals marginal cost. (1)

Indicate in the diagram:

- Correct position of marginal revenue curve and horizontal marginal cost
curve (1)
- Correct position of QM (1)
- Correct position of PM (1)

Figure 4
Price ($)

old deadweight loss

new deadweight loss

PM
P2

MC1

MC2
MR D
0 Quantity
QM Q2

b. Indicate in the diagram:

- Correct position of horizontal marginal cost curve below the original one (1)
- Correct position of Q2 (1)
- Correct position of P2 (1)

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 c. Indicate in the diagram:

- Correct position of old deadweight loss (1)

- Correct position of new deadweight loss (1)

[Accept: increase + decrease in deadweight loss]

d. Yes, because (1)

the producer charges different customers (UK customers and Indian customers)
different prices for the same product (electronic books) produced at the same
cost. (2)

e. i. Exclusive dealing / exclusive selling. The platform becomes the only seller
of the products, so it faces less competition from other platforms. (2)

ii. Price fixing. This reduces price competition among major retailers. (2)

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15. a. No, because (1)
NA is outside the production possibility frontier and the country does not have
enough resources to produce at NA. (1)

b. The slope of the PPF is the opportunity cost of producing Good X. (1)
The slope of Country B’s PPF is 50/50 = 1Y (1)
The slope of Country A’s PPF at EA > 1Y (1)
Since Country B’s cost of producing Good X is lower, Country B has a
comparative advantage in producing Good X. (1)

c. Indicate in the diagram:

i. Correct position of CPFA (1)
Correct position of PA (1)
ii. Correct position of CA (1)
iii. Correct position of IMA (1)

Good Y Figure 5

50 B

CPFA

⚫
NA
A

PA⚫

⚫ CA
⚫
EA B Good X
0
A 30 50
IMA

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 d. Country B’s opportunity cost of producing Good X is now 50/40 = 1.25Y, which
is still lower than the world price (= 50/30). (1)
Hence, Country B is still the exporter of Good X and the direction of trade
remains unchanged. (1)

e. i. The per capita real GDP falls / economic growth is worsened. (1)
This is because foreign investment falls / some higher-skilled workers may
leave the country. (1)
[Accept: any reason that results in a fall in per capita real GDP.]

e. ii. The political unrest may worsen healthcare in the country, resulting in a fall
in life expectancy. (2) 2@
Political unrest may lead to a reduction in government funding for education, max: 2
reducing the expected years of schooling. (2)
[Mark the FIRST point ONLY.]
[NOT accept: any reason related to GDP]

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