Cambridge International AS & A Level

ECONOMICS 9708/42
Paper 4 Data Response and Essays February/March 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 4 1 1 8 1 7 1 3 2 7 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages.

DC (CJ) 202981/1
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 Equality in markets and economic performance

Adam Smith’s proposition that free markets organise economic resources for the benefit of
everyone rests upon the even distribution of power between the market participants. Without that
even distribution, the proposition fails.

The reality of markets today is that the distribution of power is uneven and the markets are
exploited by the powerful for their own gain. Markets are imperfect.

These imperfections hinder economic equality. Economic equality is linked to economic power
and requires ownership and control over economic resources. Concentration of economic power,
particularly in the hands of large global companies can adversely affect local economies. For
example, local business owners have to work longer hours to compete with giant corporations.

The growth in the power of large companies is a cause of inequality in the distribution of income
and wealth. The companies have an ability to make high profits, to practise price discrimination
and exploit consumers. This sometimes leads to regulation by governments. Consumer protection
is usually the aim. Take-overs are monitored. Progressive taxes on high incomes are used. Social
welfare, inheritance taxes and greater workers’ rights all attempt to deal with excessive inequality.

However, it is also said that large companies contribute disproportionately more to a country’s
economic growth than smaller ones. Such companies are more productive, pay higher wages,
enjoy higher profits and are more successful in international markets.

Therefore, differences in economic growth between countries, it is argued, could be linked to the
difference in the number of large firms.

In Spain and Italy, firms are on average 40% smaller than those in Germany. Increasing the size of
firms in Spain and Italy, it is said, is the key to improving their comparative economic growth.

Firms with more than 250 employees are only 5% of manufacturing firms in Spain and Italy. This
compares with a much higher 11% of firms in Germany. The average firm size in Spain is 49.3
employees, and in Italy it is 42.7 employees. Both are lower than the average of 76.4 employees
per firm in Germany.

Sources: adapted from [Link] and [Link]

Table 1.1 shows GDP and inflation rates for Germany, Italy and Spain in 2017.

Table 1.1

GDP growth rate (% p.a.) Inflation (% p.a.)

Germany 2.2 1.7
Italy 1.5 1.3
Spain 3.1 2.0

Source: RSA Journal, Issue 1 2018

© UCLES 2021 9708/42/F/M/21

 3

(a) Explain what is meant by ‘a free market organises economic resources for the benefit of
everyone’. [4]

(b) Analyse why the article says that some markets are ‘imperfect’. [4]

(c) Distinguish between equality and equity and use the information to give two examples of
policy measures that might promote equality in the distribution of income. [4]

(d) Some argue that large firms are beneficial. Consider whether the evidence in the information
supports their opinion. [8]

© UCLES 2021 9708/42/F/M/21 [Turn over

 4

Section B

Answer two questions.

2 ‘Smoking cigarettes causes negative externalities and negative externalities cause market failure,
which can only be solved by government intervention.’

To what extent do you agree with this statement? [25]

3 (a) ‘A firm in a perfectly competitive market can make either a supernormal profit or a loss in the
short run but will only make normal profit in the long run.’

Assess whether this statement is true. [12]

(b) Discuss the view that a firm operating in a perfectly competitive market will achieve economic
efficiency but a monopoly firm will not. [13]

4 (a) Distinguish between transfer earnings and economic rent. With the help of diagrams, consider
the links between transfer earnings, economic rent, the elasticity of supply of labour and an
individual worker’s wage rate. [12]

(b) ‘Trade unions can gain an increase in wage levels only at the expense of higher levels of
unemployment.’

To what extent do you agree with this statement? [13]

5 (a) Distinguish between productivity and the level of production and discuss why productivity is
likely to be lower in a developing economy than in a developed economy. [12]

(b) ‘Rising population levels in a developing economy create many problems while falling
population levels in a developed economy cause even greater problems.’

To what extent do you think this is a true statement? [13]

6 Explain why an economy might be in equilibrium at less than a full employment level of output and
critically evaluate alternative policy measures which might be used to move the economy to a full
employment level of output. [25]

7 (a) ‘Economic growth should be the most important macroeconomic aim.’

Discuss this view. [12]

(b) To what extent do you agree that it is not possible to solve a persistent balance of payments
deficit without sacrificing other key macroeconomic aims? [13]

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at [Link] after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2021 9708/42/F/M/21

 Cambridge International AS & A Level

ECONOMICS 9708/41
Paper 4 Data Response and Essays May/June 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 0 0 1 0 1 0 4 5 1 5 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Any blank pages are indicated.

DC (KS) 202768/1
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 Public services – better or worse?

A government usually has macroeconomic policy aims that it hopes will enable some success in
raising the quality of life, or well-being, of the population. In doing this the government also hopes
to achieve efficiency in the use of resources.

Efficiency is measured by relating inputs to outputs. Inputs are relatively easy to count: they are
financial costs of public services. Output can also be counted, but it is not necessarily a good
measure of the outcome. The outcome is much harder to calculate. It is broader and more
subjective – how do we assess whether a public service is ‘better’ or ‘worse’?

This is where a knowledge of well-being makes an enormous difference. It could provide a much
clearer view of the trade-offs that have to be made in allocating taxpayers’ money to public
services. Take the example of healthcare. To maximise the impact of expenditure on well-being,
the budget may need to be adjusted to give more to mental health services and less to building
general hospitals. For older people it could mean giving priority to programmes that would keep
them out of hospital.

A focus on well-being should lead to better outcomes. This is where policymakers need a better
understanding of behavioural economics. Governments have established Behavioural Insights
teams, or Nudge Units. They have had some success. A small change in the wording of a letter
to people who owed tax demonstrated how more behaviourally sensitive language sped up
payments. The unit also found that jobseekers were nearly twice as likely to turn up for a job fair
if the text message from the job centre used their names, and nearly three times as likely if the
person sending the text message added ‘good luck’.

Do tax reliefs persuade people to save? No. So enrol them instead automatically in a pensions
programme as a default position, with the possibility of opting out. Allowing people to learn from
mistakes is good: it reduces dependency on the public sector and helps people make better
decisions for themselves. But some errors, such as failing to save anything until you are too old to
earn, cannot be reversed. Then an early ‘nudge’ is justified. It has proved successful in spreading
the habit of saving for retirement into groups not persuaded by tax reliefs alone.

In the long term this, and similar behavioural changes, may well have more influence on well-being
than can be represented by concentrating on a monetary calculation of GDP. Other economic
indicators could be used to assess this change in well-being.

Source: RSA Issue 1, 2017

(a) The article refers to macroeconomic policy aims. Identify and explain two such macroeconomic
policy aims. [4]

(b) Is there evidence in the article that a knowledge of behavioural economics can help public
policy? [4]

(c) The article says that ‘efficiency is measured by relating inputs to outputs’. Is this how economic
theory states that efficiency is determined? [5]

(d) The article deals with an improvement in well-being. Discuss whether there are any economic
indicators that could be used to assess whether well-being has become better or worse. [7]
© UCLES 2021 9708/41/M/J/21
 3

Section B

Answer two questions.

2 Assess the suggestion that a free market economy is neither possible nor desirable. [25]

3 (a) Explain what is meant by the concept of the ‘equilibrium position of a consumer’ and how the
concept might be used to construct a demand curve for a good. [12]

(b) Distinguish between the income and substitution effects of a change in a good’s price and
analyse why the effect of a change in price is not always the same for different goods. [13]

4 (a) What costs ought a profit-maximising firm take into consideration when making decisions
about price and output? [12]

(b) ‘Price discrimination is always possible but never desirable.’

Do you agree with this opinion? [13]

5 ‘Wage differentials can be explained by economic theory. They are a sign of the power of a firm to
exploit its workforce and are unjust.’

Do you agree with this view? [25]

6 (a) Distinguish between a country’s national debt and its public sector budget deficit and consider
which is the more important. [12]

(b) Discuss the effectiveness of alternative macroeconomic policies used to reduce a public
sector budget deficit. [13]

7 (a) Explain and critically evaluate the quantity theory of money. [12]

(b) Monetary policy relies heavily on the theory of a monetary transmission mechanism.

Explain how a monetary transmission mechanism works and discuss its effectiveness. [13]

© UCLES 2021 9708/41/M/J/21

 Cambridge International AS & A Level

ECONOMICS 9708/42
Paper 4 Data Response and Essays May/June 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 0 4 2 0 4 0 1 8 4 5 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Any blank pages are indicated.

DC (CJ) 202982/2
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 Competition in passenger aircraft manufacturing

Two companies produce all of the world’s passenger aircraft with a seating capacity of over
150 passengers. The supply of these is about 1600 aircraft a year and is divided almost equally
between the two competing companies, who both benefit from extremely strong brand identity and
customer loyalty.

The aircraft are made in two versions: single-aisle aircraft that carry 200 passengers and double-
aisle aircraft that carry 300 to 350 passengers.

In 2018 both companies took over other firms which produced a range of aircraft seating between
40 and 150 passengers. The owners of the other firms had difficulties in financing and developing
their new aircraft.

Recent competition in the aircraft manufacturing industry has aimed at improving fuel efficiency,
developing longer non-stop flying ranges and developing very large aircraft with a capacity of 500
passengers. The companies have been successful in achieving the first two aims.

The third aim of developing very large aircraft was intended to move larger numbers of passengers
between ‘hub’ airports, where they would transfer to smaller aircraft for onwards transport to
regional airports. Whilst it has achieved increased passenger capacity, this development has not
been a success for the airlines that bought these very large aircraft. The need for these was
undermined by the success of the first two competitive developments.

The nature of the aircraft manufacturing industry is that it involves significant fixed costs. The
research and development (R&D) costs of a new aircraft can rise to US$26 billion.

Currently the two companies are concerned that China, in its drive to increase the value of its
exports, will enter the aircraft manufacturing industry in the next 10 to 15 years and add a new
level of competition.

Source: adapted from The Economist, 5 February 2019 and 27 April 2019

(a) Using the information, explain the market structure that exists in aircraft manufacturing. [2]

(b) Explain why the two companies might be concerned about the potential entry of China into
the aircraft manufacturing industry. [4]

(c) ‘The nature of the aircraft manufacturing industry is that it involves significant fixed costs.’

(i) Using an example from the information, explain the meaning of fixed costs. [2]

(ii) With the aid of a diagram, explain the link between an increase in an aircraft
manufacturer’s level of output and its average fixed costs. [4]

(d) Discuss whether economic theory can explain how two companies will compete with each
other when they dominate a market. [8]

© UCLES 2021 9708/42/M/J/21

 3

Section B

Answer two questions.

2 (a) What is meant by ‘efficiency’ in relation to the use of resources? [12]

(b) ‘Market failure can always be overcome to increase economic efficiency.’

How far do you agree with this statement? [13]

3 (a) Use indifference curve analysis to explain how an individual’s demand curve for an inferior
good is derived. [12]

(b) Discuss the relative importance of marginal cost and average variable cost in determining
short-run production decisions. [13]

4 Evaluate whether the theory of wage determination can account for wage differentials (i) between
a director and a general worker in the same company and (ii) between two workers doing the
same job in different companies. [25]

5 Discuss the extent to which the Human Development Index (HDI) and the Measure of Economic
Welfare (MEW) provide better measures of living standards than Gross National Income (GNI).
[25]

6 (a) Explain the causes of unemployment and consider which is most likely to occur in a developing
country. [12]

(b) Discuss whether solving the problem of unemployment should be the main policy objective
for the government of a developing country. [13]

7 (a) Explain what is meant by quantitative easing (QE) and consider whether it is an effective
policy to be used in a recession. [12]

(b) ‘Policies to achieve economic growth will inevitably cause a government budget deficit.’

How far do you agree with this statement? [13]

© UCLES 2021 9708/42/M/J/21

 Cambridge International AS & A Level

ECONOMICS 9708/43
Paper 4 Data Response and Essays May/June 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 5 2 0 7 8 1 5 6 6 5 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Any blank pages are indicated.

DC (NF) 212777
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 Public services – better or worse?

A government usually has macroeconomic policy aims that it hopes will enable some success in
raising the quality of life, or well-being, of the population. In doing this the government also hopes
to achieve efficiency in the use of resources.

Efficiency is measured by relating inputs to outputs. Inputs are relatively easy to count: they are
financial costs of public services. Output can also be counted, but it is not necessarily a good
measure of the outcome. The outcome is much harder to calculate. It is broader and more
subjective – how do we assess whether a public service is ‘better’ or ‘worse’?

This is where a knowledge of well-being makes an enormous difference. It could provide a much
clearer view of the trade-offs that have to be made in allocating taxpayers’ money to public
services. Take the example of healthcare. To maximise the impact of expenditure on well-being,
the budget may need to be adjusted to give more to mental health services and less to building
general hospitals. For older people it could mean giving priority to programmes that would keep
them out of hospital.

A focus on well-being should lead to better outcomes. This is where policymakers need a better
understanding of behavioural economics. Governments have established Behavioural Insights
teams, or Nudge Units. They have had some success. A small change in the wording of a letter
to people who owed tax demonstrated how more behaviourally sensitive language sped up
payments. The unit also found that jobseekers were nearly twice as likely to turn up for a job fair
if the text message from the job centre used their names, and nearly three times as likely if the
person sending the text message added ‘good luck’.

Do tax reliefs persuade people to save? No. So enrol them instead automatically in a pensions
programme as a default position, with the possibility of opting out. Allowing people to learn from
mistakes is good: it reduces dependency on the public sector and helps people make better
decisions for themselves. But some errors, such as failing to save anything until you are too old to
earn, cannot be reversed. Then an early ‘nudge’ is justified. It has proved successful in spreading
the habit of saving for retirement into groups not persuaded by tax reliefs alone.

In the long term this, and similar behavioural changes, may well have more influence on well-being
than can be represented by concentrating on a monetary calculation of GDP. Other economic
indicators could be used to assess this change in well-being.

Source: RSA Issue 1, 2017

(a) The article refers to macroeconomic policy aims. Identify and explain two such macroeconomic
policy aims. [4]

(b) Is there evidence in the article that a knowledge of behavioural economics can help public
policy? [4]

(c) The article says that ‘efficiency is measured by relating inputs to outputs’. Is this how economic
theory states that efficiency is determined? [5]

(d) The article deals with an improvement in well-being. Discuss whether there are any economic
indicators that could be used to assess whether well-being has become better or worse. [7]
© UCLES 2021 9708/43/M/J/21
 3

Section B

Answer two questions.

2 Assess the suggestion that a free market economy is neither possible nor desirable. [25]

3 (a) Explain what is meant by the concept of the ‘equilibrium position of a consumer’ and how the
concept might be used to construct a demand curve for a good. [12]

(b) Distinguish between the income and substitution effects of a change in a good’s price and
analyse why the effect of a change in price is not always the same for different goods. [13]

4 (a) What costs ought a profit-maximising firm take into consideration when making decisions
about price and output? [12]

(b) ‘Price discrimination is always possible but never desirable.’

Do you agree with this opinion? [13]

5 ‘Wage differentials can be explained by economic theory. They are a sign of the power of a firm to
exploit its workforce and are unjust.’

Do you agree with this view? [25]

6 (a) Distinguish between a country’s national debt and its public sector budget deficit and consider
which is the more important. [12]

(b) Discuss the effectiveness of alternative macroeconomic policies used to reduce a public
sector budget deficit. [13]

7 (a) Explain and critically evaluate the quantity theory of money. [12]

(b) Monetary policy relies heavily on the theory of a monetary transmission mechanism.

Explain how a monetary transmission mechanism works and discuss its effectiveness. [13]

© UCLES 2021 9708/43/M/J/21

 Cambridge International AS & A Level

ECONOMICS 9708/41
Paper 4 Data Response and Essays October/November 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 2 4 7 4 5 7 5 7 5 7 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages.

DC (CJ/FC) 202979/2
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 The economic impacts of the increasing use of all-electric cars

Some governments have agreed targets to reduce air pollution and, as part of this, are
concerned about the social costs caused by the use of petrol and diesel vehicles. In response,
car manufacturers are producing all-electric cars. The sales of these are increasing, especially in
developed countries. The success of this switch to all-electric cars will depend on improving both
battery technology as well as building an infrastructure in which, as drivers reduce their use of
fossil fuels, electricity charging points will replace petrol pumps.

Fig. 1.1 shows the cumulative number of all-electric cars in the world between 2010 and 2016.

1.6

Number of 1.2
all-electric cars
(millions) 0.8

0.4

0
2010 2011 2012 2013 2014 2015 2016

Fig. 1.1

Fig. 1.2 shows the annual sales of all cars in the world between 2010 and 2016.

80
69
70 66 66
61 63
60 58
56
50
All car sales
40
(millions)
30
20

10

0
2010 2011 2012 2013 2014 2015 2016

Fig. 1.2

© UCLES 2021 9708/41/O/N/21

 3

Some forecasters predict that about one third of the world’s cars will be all-electric by 2040. Their
forecasts are based on the assumption that the costs of batteries to run these cars will have
declined steeply from their present levels. Battery costs are dependent on supplies of various
metals which are used as component parts. Supplies of these metals are finite and their prices,
linked to mining costs, will be crucial in increasing the scale of all-electric car production.

In 2016, the cost of the batteries was 49% of the total cost of the car. In 2017 it was stated at a
New Energy conference in Shanghai that battery prices would need to drop by more than half
before all-electric cars would become competitive with cars powered by petrol and diesel engines.

Oil producers claim that growth in sales of all-electric cars will not substantially reduce world
demand for oil. The world needs oil for much more than just cars. Cars account for only about a
fifth of the 95 million barrels the world consumes every day. Most of the rest is used in industry or
to fuel heavy goods vehicles, aircraft and ships, which do not have easy non-oil alternatives. In
developing economies, petrol sales are expected to continue rising because these countries do
not have the infrastructure or sufficient capital investment to enable the switch to electric vehicles.

Source: The Times, 31 July 2017; letters to the Guardian, 8 August 2017;
World Motor Vehicle sales of new vehicles 2005–2016 published by OICA, accessed 8 August 2017

(a) Comment on the relative significance of the growth in the number of all-electric cars for
2010–2016 compared with annual sales of all cars in the world. [2]

(b) Use the information to discuss what might happen to the long-run average cost of producing
batteries for all-electric cars. [5]

(c) Use the information to assess whether it is likely that the switch to all-electric cars will
substantially reduce world demand for oil. [6]

(d) Assess the effects on the social costs of transport of replacing diesel and petrol engine cars
with all-electric cars. [7]

© UCLES 2021 9708/41/O/N/21 [Turn over

 4

Section B

Answer two questions.

2 ‘The cause and extent of market failure depends entirely upon the type of market structure under
consideration.’

Discuss this statement. [25]

3 (a) Explain the factors which determine the elasticity of demand for labour and discuss the
importance of the elasticity of demand for labour in relation to the effectiveness of a
government’s minimum wage policy. [12]

(b) ‘Monopsonist employers cause labour market failure while trade unions can solve this labour
market failure.’

To what extent do you agree that this view is accurate? [13]

4 (a) Explain what economists mean by the marginal propensity to consume and consider the
importance of this concept in relation to government macroeconomic policy. [12]

(b) Discuss what determines the level of savings in an economy and assess the impact of an
increase in the level of savings upon economic growth and employment. [13]

5 (a) Explain the quantity theory of money and discuss why the theory might not work in practice.
[12]

(b) To what extent do you agree with the view that the control of inflation should be the most
important macroeconomic aim? [13]

6 ‘In developing economies an increase in GDP determines an increase in the standard of living.
Foreign direct investment (FDI) will produce an increase in GDP therefore governments in
developing economies should encourage FDI.’

How far do you agree with this statement? [25]

7 (a) Explain what is meant by infrastructure and consider the view that an increase in investment
in infrastructure will promote an increase in both actual and potential economic growth. [12]

(b) To what extent do you agree that it is not possible to achieve economic growth without
simultaneously causing a balance of payments deficit? [13]

Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.

To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at [Link] after the live examination series.

Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.

© UCLES 2021 9708/41/O/N/21

 Cambridge International AS & A Level

ECONOMICS 9708/42
Paper 4 Data Response and Essays October/November 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 7 7 4 4 9 0 9 7 9 5 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Any blank pages are indicated.

DC (CJ) 202980/3
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 Competition in the skies over Europe

In the sixteen months to April 2019 thirteen airlines ceased trading in Europe. This reflected a
global trend where small airlines found it increasingly difficult to compete against large airlines,
which have continued to grow.

Large airlines charge a price for a flight that includes meals and entertainment for passengers.
Smaller airlines charge a price for the flight only and passengers need to pay extra for other
services such as meals.

Large airlines benefit from economies of scale. Without these cost-reductions some smaller
airlines have gone bankrupt.

The reduction in the number of airlines has not reduced the overcapacity in the market because
the aircrew and aircraft of the bankrupt airlines were acquired by the remaining companies, which
have developed into super-airlines. This has left passengers with fewer airlines to choose from
and more expensive fares. It was predicted that this would lead to an increase in the market share
for the top five European airlines from 50% of the European market in 2019 to match the top five
United States (US) airlines, which control 77% of the US market.

The development of super-airlines took place at the same time as increasing regulation of the
airline market. For example, the European Union (EU) will only grant operating licences for flights
between EU countries to an EU airline. This has prevented non-EU airlines from competing on EU
routes.

For the super-airlines, large scale is the easy way to avoid the stresses and strains of open
competition. For passengers this will lead to higher prices and poorer service.

Sources: adapted from Financial Times, 6 October 2017 and The Economist, 27 April 2019

(a) Using the information, explain the predicted effect of the development of super-airlines on the
concentration ratio in the European airline market. [2]

(b) ‘Large airlines benefit from economies of scale.’

With the use of an example and a diagram, explain how a large airline can benefit from
economies of scale. [5]

(c) Explain what is meant by a contestable market and discuss how making the airline market
more contestable could benefit passengers. [6]

(d) Identify the market structure for airlines in Europe in 2019 following the development of the
super-airlines and discuss how airlines may compete in this market structure. [7]

© UCLES 2021 9708/42/O/N/21

 3

Section B

Answer two questions.

2 Discuss whether market failure can be successfully eliminated by governments. [25]

3 (a) Use marginal utility analysis to explain the derivation of the individual demand curve
for a good. [12]

(b) Use indifference curve analysis to discuss whether the demand curve for a good will always
slope downwards. [13]

4 (a) Explain the link between diminishing marginal returns and the shape of a firm’s short-run
marginal cost curve and short-run average total cost curve. [12]

(b) Discuss whether consumers or producers benefit more from the practice of price discrimination.
[13]

5 Discuss the extent to which gross domestic product (GDP) is a useful measure of living standards
and economic development. [25]

6 (a) Explain the difference between frictional unemployment and real wage (classical)
unemployment. [12]

(b) Evaluate the policies available to a government to reduce the level of structural unemployment.
[13]

7 (a) Explain the quantity theory of money and consider its relevance for a country’s macroeconomic
policy. [12]

(b) Discuss whether fiscal policy alone can promote a more equal distribution of income. [13]

© UCLES 2021 9708/42/O/N/21

 Cambridge International AS & A Level

ECONOMICS 9708/43
Paper 4 Data Response and Essays October/November 2021

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 6 1 5 7 6 1 7 5 3 6 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer three questions in total:
Section A: answer Question 1.
Section B: answer two questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
● You may answer with reference to any economy you have studied where relevant to the question.

INFORMATION
● The total mark for this paper is 70.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 4 pages. Any blank pages are indicated.

DC (SLM) 192959/1
© UCLES 2021 [Turn over
 2

Section A

Answer this question.

1 The effects of European Union (EU) labour migration

In 2016 in the EU labour market there was free movement of people seeking work among the
EU’s 28 member countries. One country reported that an extra 252 000 workers from other EU
countries came to work there during 2014–2015. This meant that the total number of EU workers
was 2.1 million, or 6.8% of the country’s workforce. The eight Eastern European countries that
joined the EU in 2004 supplied 987 000 of those workers by 2015.

A critic of this free movement of labour stated that “It is the workers on low pay in the receiving
country – and those out of work – who feel the consequences of uncontrolled migration. They
are forced to compete for jobs with thousands of people from abroad, and they suffer downward
pressures on their wages.”

In contrast, other studies have shown that migration of workers has been good for both economic
growth and public finances. These studies reported “There is no correlation between high migration
and unemployment. Unemployment fell significantly as total migration rose to a record level of
392 000 in May 2014. Migration is acknowledged to be positive for public finances. In the EU,
migrants contributed US$25 billion more in taxes in the decade to 2011 than they used in welfare
and public services. Wages may have been affected for low-skilled workers but only marginally
downward.”

Other economists have argued that, in theory, “the impacts of immigration on wages and
employment critically depends on whether migrants’ skills are complements to, or substitutes for,
the skills of existing workers. These impacts vary between the short run and long run. In the short
run if the skills of migrants and existing workers are substitutes, immigration can be expected to
increase competition in the labour market and drive down wages. If, on the other hand, the skills
of migrants are complementary to those of existing workers, all workers experience increased
productivity which can be expected to lead to a rise in wages of existing workers. In the long run
the economy can adjust to the increase in labour supply.”

Some governments have introduced a minimum wage to help those workers on low pay. The
wage is set to increase to match any increase in inflation.
Sources: The Times, 18 May 2016, Daily Telegraph, 18 May 2016, BBC, 19 May 2016

(a) Use a marginal revenue product diagram to illustrate what will happen to wages as a result of
the changes mentioned by the critic of the free movement of labour (in the second paragraph).
[3]

(b) What do the high numbers of workers migrating from Eastern Europe to other countries in the
EU suggest about the state of their own economies compared with the country to which they
migrate? [4]

(c) Explain whether the introduction of a minimum wage will always result in a different outcome
for employment from that which would occur in a free market. [5]

(d) With the help of information in the article assess whether the increasing numbers of migrant
workers are an advantage or a disadvantage to the receiving country. [8]

© UCLES 2021 9708/43/O/N/21

 3

Section B

Answer two questions from this section.

2 Analyse the reasons why it might be thought necessary for a government to control dominant
firms in an industry and consider the methods it might use to achieve such control. [25]

3 (a) Explain the theory of how a consumer decides to achieve the situation described as
‘equilibrium’ when purchasing two different products. [12]

(b) Two shops sell clothes. One has luxury fashionable designs. The other has cheaper inferior
alternatives. Both shops decided to have promotional sales with price reductions.

Consider how indifference curve analysis could be used to explain a consumer’s reaction to
both the price reductions. [13]

4 (a) Explain the difference between, and the purpose of, integration between firms and a cartel.
[12]

(b) ‘In large firms the long-run average cost falls as output increases and consumers benefit from
lower prices. In small firms it does not. There is, therefore, no place in a modern economy for
small firms.’

Do you agree with these statements? [13]

5 (a) Explain the role of liquidity preference in the determination of interest rates and assess its
importance. [12]

(b) Keynes argued that the rate of interest will not ensure that the level of savings will equal
the level of investment in an economy because savings and investment are undertaken by
different individuals for different reasons.

Explain this statement and discuss how far you would support this view. [13]

6 (a) Explain how governments measure economic growth and discuss why this measurement is
important. [12]

(b) ‘Economic growth will always decrease the level of unemployment but this will usually create
significant problems in relation to attaining other key macroeconomic aims.’

How far do you agree with this statement? [13]

7 The International Monetary Fund (IMF) lends money to developing countries but requires that
these countries reduce existing restrictions on imports, focus on the export of primary goods and
accept a devaluation of their currencies.

Based upon the above, assess whether developing countries should continue to borrow money
from the IMF. [25]

© UCLES 2021 9708/43/O/N/21