June 2013 Ec3

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ADDITIONAL MATERIALS
In addition to this examination paper, you will
need a calculator.
INSTRUCTIONS TO CANDIDATES
Use black ink or black ball-point pen.
Write your name, centre number and candidate number in the spaces at the top of this page.
Answer all the questions in Section A. You may use continuation paper on page 10 if necessary,
taking care to number the continuation correctly.
Answer one question from Section B.
You are advised to spend no more than one hour on Section A.
INFORMATION FOR CANDIDATES
The number of marks is given in brackets at the end of each question or part-question. Section A
has 40 marks and Section B has 20 marks.
You are reminded that assessment will take into account the quality of written communication used
in answers that involve extended writing (Section B).
You are reminded that the essay questions in Section B are synoptic and so will test understanding
of the connections between the different elements of the subject.
VP*(S13-1133-01)
Surname
Other Names
Candidate
Number
2
Centre
Number
WJEC CBAC Ltd.
GCE A level
1133/01
ECONOMICS EC3
P.M. TUESDAY, 4 June 2013
1
3
4
hours
For Examiners use only
Question
Maximum
Mark
Mark
Awarded
1. 7
2. 3
3. 8
4. 8
5. 4
6. 4
7. 6
8 or 9
or 10
20
Total 60
2
(1133-01)
SECTION A
Answer all questions in this section.
1. The diagram below shows the short-run situation for a firm in monopolistic competition.
WJEC CBAC Ltd.
Costs /
Revenue
P
0
Q
MR
AC
MC
Output
Demand
(AR)
(a) Using the diagram, explain what is meant by abnormal profit. [3]

(b) Explain why a firm in monopolistic competition might be able to earn abnormal profit
in the short-run. [2]

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(1133-01) Turn over.
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(c) Explain why the firm will make only normal profits in the long run. [2]

2. The diagram below shows a firm operating in an imperfect market.
WJEC CBAC Ltd.
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3
Costs /
Revenue
AR
MR
AC
MC
Output
Using the diagram explain what the firms price and output would be if it decided to maximise
sales revenue. [3]

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only
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(1133-01)
3. UK tax share of petrol pump price drops
The Governments share of the petrol pump price fell in the last decade
The Office for National Statistics (ONS) yesterday reported that from April 2001 to March
2010 average petrol prices increased by 52% while duties on petrol increased by half that. The
average British car driver travelled 165 miles fewer in the last year because of rising petrol
prices.
Although petrol duty has been rising, it has not kept up with overall price rises, said ONS
statisticians.
The ONS data also showed that the average UK household spends 677 on fuel duties a year,
or 2.3% of its disposable income. The poorest 20% of households are paying far more of their
income in duties on fuel than the richest 20%.
There has been considerable pressure on the government to freeze fuel duties in 2012 and not
to increase them by 4 pence per litre, as is currently planned.
Daily Telegraph 15 Nov 2011
WJEC CBAC Ltd.
Evaluate the case for the government freezing fuel duties at their current rate in 2012. [8]

http://www.petrolprices.com
Petrol
Product
VAT
Retailers
Duty
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(1133-01)
4. Bank lending to firms still falling
Bank lending to businesses continued to fall during 2011. The interest rates paid by firms,
particularly small and medium-sized enterprises, also increased during this period.
WJEC CBAC Ltd.
-15
-10
-5
-0
5
10
15
20
25
30
Quarterly
% change
in bank
lending to
business
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p
r

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a
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Bank of England Quarterly January 2012
(a) Explain what the chart shows about bank lending to firms between 2008 and 2011. [2]

(b) Explain the likely effects of higher interest rates and lower bank lending on the UK
economy. [6]

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5. UK Unemployment and average earnings
WJEC CBAC Ltd.
8
4
Discuss what the data suggests about the relationship between earnings and unemployment
between June 2010 and December 2011. [4]

UK average earnings
( per week)
UK unemployment % rate
(Labour Force Survey)
June 2010 449 7.8
Dec 2011 465 8.4
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(1133-01)
6. UK had record trade deficit in September 2011
The gap between the value of imports and exports of goods and services in September 2011 was
9.8bn, the worst since data began in 1998.
The trade deficit rose from 8.6bn in August, thanks to a record jump in imports (driven by oil,
chemicals and silver) and a 1.6% fall in exports particularly into the Eurozone where austerity
programmes in countries such as Greece and Portugal have held down growth.
It is particularly disappointing that the UKs trade balance has failed to improve despite an
on-going period of weak sterling.
BBC adapted
Explain why the weaker value of sterling might not have helped to reduce the UKs trade
deficit. [4]

WJEC CBAC Ltd.
4
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only
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9
7.
WJEC CBAC Ltd.
Price level
PL
PL
1
b
a
LRAS
SRAS
AD
1
AD
2
Y
1
Y
FE
Real GDP
In an economy, a world recession reduces Aggregate Demand from AD
1
to AD
2
. Using the
diagram, discuss whether the economy will return to the Full Employment Level of output
(Y
FE
) in the long run. [6]

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(1133-01)
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SECTION B
Answer one question from this section.
8. Discuss whether university students should pay the full cost of their education rather than
being subsidised by the government. [20]
9. To what extent is privatisation likely to benefit the UK economy? [20]
10. Discuss the argument that the efficiency of the economy would be maximised if all markets
were perfectly competitive. [20]
Answer the question from Section B using the following pages.

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(1133-01)
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(1133-01)
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(1133-01)
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END OF PAPER
WJEC CBAC Ltd.
Examiner
only

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