Economics 9708 · syllabus 8
Cambridge A Level Economics 9708 — Government microeconomic intervention (A Level) topical past papers
Policies to correct market failure and where they fail, equity and the redistribution of income and wealth, and how labour markets, unions and minimum wages set pay.
- Questions
- 680
- Years
- 2002–2026
- With mark scheme
- 100%
- Questions 2022–2026
- 213
Anyone can browse these pages. Opening the questions and their mark schemes takes a free Momentum account.
What Government microeconomic intervention (A Level) covers
Governments can move a market towards its social optimum in several ways. A tax equal to the marginal external cost at the optimum makes producers pay the full social cost, and a subsidy equal to the marginal external benefit raises the output of a good with positive externalities to its optimum; regulation sets limits directly; tradable pollution permits fix the total amount of pollution and let a market price it, so cuts are made where they are cheapest; property rights and better information tackle other causes of failure. Competition policy restrains monopoly power by controlling prices, mergers and collusion, and nationalisation and privatisation change who owns an industry. Intervention can fail too: government failure leaves resources allocated less efficiently than before, through poor information, unintended consequences, administrative costs or political pressure.
Equity means fairness, which is not the same as equality. A Lorenz curve shows how far the distribution of income departs from equality, and the Gini coefficient measures it, from 0 for complete equality to 1 for complete inequality. Absolute poverty is being unable to afford basic needs; relative poverty is having much less than is usual in one's own society. Progressive taxes, means-tested and universal benefits, state provision and minimum wages all redistribute, and each has costs, such as the poverty trap, in which a rise in earnings is largely lost to tax and withdrawn benefits.
The demand for labour is derived from the demand for the product: a firm hires until the marginal revenue product of the last worker, the extra revenue that worker brings, equals the marginal cost of employing them, so in a competitive labour market the MRP curve is the demand curve for labour. Supply depends on pay and a job's other advantages, and an individual's supply can bend backwards at high wages, when the income effect outweighs the substitution effect; earnings divide into transfer earnings, the minimum needed to keep a worker in the job, and economic rent above it. A monopsony employer pays less and hires fewer workers than a competitive market would, a trade union can push wages above the market level at a possible cost in jobs, and a minimum wage in a monopsony can raise both pay and employment. This is A Level content, examined on Papers 3 and 4.
In the syllabus
The headings this topic has in the Cambridge International 2026–2028 syllabus, as the board prints them.
- 8 Government microeconomic intervention (A Level)
- 8.1 Government policies to achieve efficient resource allocation and correct market failure
- 8.2 Equity and redistribution of income and wealth
- 8.3 Labour market forces and government intervention
What you should be able to do
- Analyse taxes, subsidies, regulation, tradable permits, property rights and information as remedies for market failure, using externality diagrams
- Explain competition policy, nationalisation and privatisation as responses to monopoly power
- Explain the causes of government failure and identify it in examples
- Interpret Lorenz curves and Gini coefficients, and distinguish absolute from relative poverty
- Evaluate policies that redistribute income and wealth, including their effects on incentives and the poverty trap
- Use marginal revenue product theory to explain the demand for labour, and analyse wage determination in competitive and monopsony labour markets
- Explain transfer earnings and economic rent, and analyse the effects of trade unions and minimum wages
Key ideas
- A tax equal to the marginal external cost at the social optimum brings output to where MSC = MSB
- Gini coefficient = area between the line of equality and the Lorenz curve ÷ total area below the line of equality
- MRP = MPP × MR; in a competitive product market MR is the price, so MRP = MPP × P
- A profit-maximising firm employs labour up to where MRP = MCL; in a competitive labour market MCL equals the wage
- Monopsony: the marginal cost of labour lies above the supply curve, so employment and the wage are both below their competitive levels
- Economic rent is the part of earnings above transfer earnings: on a diagram, the area below the wage and above the supply curve
How Government microeconomic intervention (A Level) has been examined
From 2022 to 2026, Government microeconomic intervention (A Level) was on Paper 4 · A Level Data Response and Essays in 14 of 14 exam series, worth about 25% of that paper’s marks.
| Paper | Questions | Share of marks | Series |
|---|---|---|---|
| Paper 3 · A Level Multiple Choice | 166 | 16% | 14 of 14 |
| Paper 4 · A Level Data Response and Essays | 47 | 25% | 14 of 14 |
Momentum’s own count, over the questions in its bank for these years: a series is one exam session, every zone included, and a question filed under two chapters counts in both. Median marks per question: 1. The bank files this topic together with neighbouring ones, so these figures count every question in its chapters, including some on those topics.
Filed in Momentum under: Government Microeconomic Intervention.
A worked example
A firm sells its output in a perfectly competitive market at $5 a unit and can hire as many workers as it wants at $150 a day. With 1 to 5 workers, its daily output is 50, 90, 120, 140 and 150 units. How many workers should it employ?
- Marginal physical product of each worker: 50, 40, 30, 20 and 10 units
- Marginal revenue product = MPP × price: $250, $200, $150, $100 and $50
- Each of the first three workers brings in at least the $150 wage, so the firm hires them
- A fourth worker would add $100 of revenue for $150 of cost, cutting profit by $50
- If the wage fell to $100, the firm would hire four workers, which is why the MRP curve is its demand curve for labour
Answer: 3 workers, where the marginal revenue product equals the $150 wage
Written by Momentum for this page, with its own numbers; it is not taken from a past paper.
Mistakes that cost marks
- Saying a pollution tax should end pollution — the aim is the socially optimal amount, where MSC = MSB, which is usually above zero because cutting pollution has costs too
- Reading a Lorenz curve that sags further from the diagonal as more equal — the closer the curve is to the line of equality, the more equal the distribution and the lower the Gini coefficient
- Saying a minimum wage always causes unemployment — set above equilibrium in a competitive labour market it reduces employment, but in a monopsony it can raise both the wage and employment, up to a point
- Using marginal physical product alone to decide how many workers to hire — the firm compares the extra revenue a worker brings with the extra cost, so output must be valued at marginal revenue
- Explaining wage differences by skill alone — compensating differentials for danger or unpleasant work, immobility of labour, discrimination, union power and monopsony all play a part
Exam technique
- In Paper 3, check which curve a policy moves before choosing an answer: a tax on producers shifts the supply curve, an information campaign shifts the demand curve, and a quota fixes the quantity whatever the curves
- In monopsony diagrams, label MRP, the supply curve (the average cost of labour) and the marginal cost of labour; read employment where MCL = MRP and the wage down from that point to the supply curve
- In data-response questions on inequality, use the source's figures, such as income shares by group or Gini coefficients over time, to support each judgement
- In essays, evaluate intervention against the risk of government failure: how good the information is, how incentives change, what the policy costs to run and enforce, and whether another policy would reach the aim more cheaply
Practising in Momentum
- Every question in a chapter as one list, from every paper and year in the bank, newest first or shuffled.
- Each question turns over to its own part of the mark scheme, where the board published one.
- Narrow by paper, year, session, zone and marks, and star the questions worth keeping.
- Pick chapters, a number of questions and a time, and the exam builder draws a mock to sit and mark.
Past-paper questions and mark schemes are the copyright of Cambridge International. Momentum shows them to signed-in learners for revision and does not publish them on these pages.