In 2022, Paraguay’s production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides merit goods and public goods. The country’s private sector is a major producer of shampoo. The firms in the shampoo industry make use of division of labour. There are several firms in the industry, but the number is declining. There is a possibility that soon there may be just one firm in the industry.

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

1. [2] (Output of) two types of product (2).
2. [1] Output (1) one type of product (1) another type of product (1).
3. [1] Two types of products may be shown on the axes on a PPC diagram for two marks.
4. [1] If more than two items are given, consider the first three.
5. [1] A merit good is under-consumed / underproduced / consumers do not appreciate its full value / has external benefits / can be produced by the private sector / can be produced by the private sector and the public sector / is a private good / is rival and excludable (1) e.g. education / healthcare / fruit (1).
6. [1] A public good would not be produced by the private sector / is (usually) supplied / produced by the government / funded by the government (1) non-excludable / non-rival (1) e.g. street lighting / defence / flood control (1).
7. [1] One mark for an explanation of a merit good and one mark for an example of a merit good.
8. [1] One mark for an explanation of a public good and one mark for an example of a public good.
9. [1] Accept but do not expect reference to non-rejectable / zero cost of producing an extra unit for a public good.
10. [1] Allow public park.
11. [1] No mark for roads unless qualified by e.g. uncrowded roads with many entry and exit points.
12. [1] Workers can specialise (1) in what they are best at producing (1) save time / speed up production (1) reduce waste (1) reduce mistakes (1) increase productivity/skill / efficiency (1) increase output/supply (1) lower (average) cost (1).
13. [1] Increase quality (1) lower prices (1) raise demand / increase sales (1) increase revenue (1) increase profits (1).
14. [1] Make it easier to mechanise production (1) reduce labour required (1).
15. [1] Reduce training / training costs (1) as reduce tasks undertaken / division of labour involves breaking production down into different tasks (1).
16. [1] one firm may be able to benefit from economies of scale.
17. [1] lower average cost may lead to lower prices.
18. [1] firm may spend a large amount on research and development due to high profits and security.
19. [1] quality of product may be high.
20. [1] less time / less effort choosing shampoo.
21. [1] lack of competition may drive up prices.
22. [1] lack of choice.
23. [1] if quality is poor, cannot switch to substitutes.
24. [1] firm may experience diseconomies of scale.