Factors of production, private and external costs and opportunity costs are all important concepts in Economics.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [4] Up to 2 marks: capital can be defined as any human-made good (1) that is used to produce other goods and services (1), i.e. they are aids to production. Up to 2 marks: examples (two needed) could include offices, factories, tools, machinery and equipment (1 x 2). N.B.: Do not reward money that is used to buy equipment.
2. [4] Two marks for the distinction, and two marks for the examples Up to 2 marks: private cost is the cost to the consumer or producer (1) e.g. the cost of borrowing the finance, building a factory, purchasing machinery and the cost of labour and raw materials (1), whereas Up to 2 marks: external cost is a harmful effect/e.g. pollution, congestion (1), to a third party/people not involved in consuming or producing a product (1) Or: External cost is social cost minus private cost (1) so will include costs such as pollution, congestion (1).
3. [4] 1 mark for explanation of the term 'scarcity' in terms of the finite resources. 1 mark for insufficient resources to satisfy the unlimited wants. 1 mark for stating that this gives rise to the need to make a choice. 1 mark for stating that this choice will involve an opportunity cost in terms of the (next) best alternative that is foregone.
4. [8] Up to 5 marks for stressing that it is an appropriate use of a scarce resource: Up to 2 marks: cutting down trees for wood will create employment (1) which will increase incomes in the economy (1). Up to 3 marks: cutting down trees for wood can be used to build houses, bridges and furniture (1), improving the country's infrastructure (1), satisfying people's wants/demand (1). Up to 3 marks: the wood can be sold (1), creating profit (1), leading to an increase in GDP (1). Up to 2 marks: replacement trees can be planted (1) enabling trees to be harvested in the future (1). Up to 2 marks: wood could be exported (1), improve current account/balance of payments (1). Up to 5 marks for stressing that it is an inappropriate use of a scarce resource: Up to 2 marks: it could destroy the livelihoods of people who live and work in the forests (1), leading to a rise in unemployment (1). Up to 3 marks: examples of environmental damage e.g. such as loss of wildlife habitats and cause global warming (1 + 1) causing negative externalities (1). Up to 2 marks: there is a need to take into account the interests of future generations (1), and so there is an issue of sustainability (candidates do not need to use that particular term) (1). Up to 2 marks: decision may be informed by a C.B.A. (1) recommendation would depend on the relationship of social benefits and social costs (1). Maximum of 3 marks for a list or list-like answer.