Australian firms have been praised for introducing new technology. The actions of some of these firms, however, cause market failure. The Australian government uses subsidies, among other policies, to reduce market failure. Government spending is used both to improve the performance of individual markets and the macroeconomy. The Australian government increased its spending in 2017, in part to reduce unemployment.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [1] One mark each for two from: survival, social welfare, profit maximisation and growth.
2. [1] A payment to increase production (1) and lower price (1) can increase consumption of merit goods (1) products with positive externalities (1) which are under-consumed if left to market forces (1) can be paid to private sector firms to produce public goods (1) would not be produced if left to market forces (1).
3. [1] Up to 4 marks for the diagram: Axes correctly drawn (1). Initial curve drawn as a curve or a downward sloping line to the axes (1). New curve drawn as a curve or a downward sloping line to the axes (1). Shift to the right indicated by arrow or lettering (1).
4. [1] Up to 2 marks for logical analysis: Advances in technology raise the quality of capital (1) increase productive capacity (1).
5. In assessing each answer, use the table below.
6. Level
7. 3
8. Description
9. A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes.
10. Marks
11. 6-8
12. 2
13. A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question.
14. 3-5
15. 1
16. There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding.
17. 1-2
18. 0
19. A mark of zero should be awarded for no creditable content.
20. Why it might:
21. may raise total (aggregate) demand, encouraging firms to hire more workers
22. may be spent on education which may increase people's skills
23. may be spent on healthcare which may make people fitter and more employable
24. may be spent on subsidies to firms which will encourage them to increase output and take on more workers.
25. Why it might not:
26. if spent on unemployment benefits, it may encourage some people to leave their jobs
27. if there is full employment, it will just cause inflation
28. spending on education may be ineffective e.g. develop the wrong skills
29. higher total (aggregate) demand may encourage firms to use more capital goods rather than labour.