Cambridge IGCSE Economics 0455 — 2011 May/June Paper 3 · Variant 1

1 (a) What is meant by a finite resource? .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (b) Explain, using a demand and supply diagram, the effect of setting the price of water too low. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[4] (c) (i) Define opportunity cost. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. .................................................................................................................................. ................................................................................................................................. ..............................................................................................................................[2] (ii) Using the extract, calculate the opportunity cost in terms of wheat of using the water needed to produce one kilogram of beef. ................................................................................................................................. .............................................................................................................................[1] (d) Explain two possible reasons why the world’s demand for water may not grow as rapidly as the extract suggests. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... 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.......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[4] (e) Discuss the arguments for and against taxing household use of water. .......................................................................................................................................... .......................................................................................................................................... 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.......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[7] [Total: 20] The extract ‘Economic challenges facing Brazil’ will be needed for this question.

Mark scheme: 1 (a) A factor of production/input (1) that is limited in supply/scarce (1). Note: Do not reward examples. [2] (b) D Price S of water P D S 0 QS QD Quantity of water 1 mark for correct labels (D, S, P and Q). 1 mark for price being set below the equilibrium level. 1 mark for stating or showing that demand will exceed supply. 1 mark for supply will fall and demand will rise. 1 mark for explaining that there will be a shortage of water or clearly showing this on the diagram. Note: maximum mark of 4. [4] (c) (i) Best alternative/next best alternative (1) foregone/example bringing out the meaning of foregone (1). [2] (ii) 16 kilograms of wheat. [1] (d) 1 mark for each of two possible reasons identified, such as: • world population may not increase as much as predicted • agriculture/manufacturing may become more efficient • vegetarianism may increase • global warming may not continue • global incomes may fall • tax on water may be introduced by a number of countries • government campaigns to encourage households to save water. 1 mark for each of two possible explanations, such as: • If growth of the world population is less than predicted, the demand for water in general will increase less. • If agriculture becomes more efficient, less water will be needed for each kilogram of food produced. • A rise in vegetarianism will reduce the demand for meat which uses a lot of water to produce it. • If global warming does not continue, there will be fewer droughts and floods. • A fall in global incomes will be likely to reduce the demand for water and the products which use water to produce them. [4] IGCSE – May/June 2011 0455 31 (e) Arguments for taxing household use of water, such as: • may move price to the equilibrium level • would ration a scarce resource • would encourage people not to waste water • would raise revenue. Arguments against taxing household use of water, such as: • difficult to know where to set the tax • the tax will be regressive • the rich may prove unresponsive to the price rise • the tax may cause health problems • agriculture and manufacturing use more water. Up to 5 marks for a one-sided approach. Maximum of 4 marks for a list. [7] $

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2 (a) What is meant by the exchange rate? .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (b) Using the extract: (i) calculate the percentage of Brazil’s output accounted for by the tertiary sector ................................................................................................................................. .............................................................................................................................[1] (ii) identify a Brazilian industry that operates in the secondary sector. ................................................................................................................................. .............................................................................................................................[1] (c) What is meant by a relatively self-sufficient economy? .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (d) What has attracted investment into Brazil? .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (e) (i) Explain what happened to the price level in Brazil over the period shown in Table 1. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. ................................................................................................................................. .................................................................................................................................. ..............................................................................................................................[2] (ii) Explain one consequence of inflation referred to in the extract. ................................................................................................................................. 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................................................................................................................................. ................................................................................................................................. ................................................................................................................................. .............................................................................................................................[3] (f) Discuss whether the Brazilian Government’s approach to reducing poverty is likely to be successful. .......................................................................................................................................... .......................................................................................................................................... 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Mark scheme: 2 (a) Price/value/cost of one currency (1) in terms of another currency/currencies (1) e.g. £1 = $2 (1). Note: maximum mark of 2. [2] (b) (i) 62% [1] (ii) Machinery industry or electrical equipment industry (1). Also allow reference to coffee, cotton, iron ore, maize, soya if in the context of processing the commodity, e.g. a coffee factory/industry. Do not accept manufacturing or construction. Also do not accept coffee or any other commodity on its own nor a reference to producers of a commodity. [1] (c) An economy that produces most of what it consumes (1) and does not import much from abroad/does not trade much (1). [2] (d) Two from, e.g. • seen as having considerable growth potential • rising GDP/rising demand for Brazil’s products • rising consumer expenditure • high exchange rate • good supply of raw materials • increased demand for Brazilian commodities • low wages in Brazil. (There is information in the extract but a valid reason not drawing upon the extract can be accepted.) [2] IGCSE – May/June 2011 0455 31 (e) (i) It rose (1) at different rates or most rapidly at the start/more stable in later years (1). Note: do not give any marks for just a year by year description. [2] (ii) 1 mark for identifying one from: • loss of international competitiveness • uncertainty • claims for wage rises. Up to 2 marks for explanation: • If the rate of inflation is higher than in rival countries, the demand for exports is likely to fall whilst the demand for imports is likely to rise. • Inflation can create uncertainty as people and firms will not be sure what prices will be in the future/uncertainty may discourage investment. • Inflation reduces the value of real wages and so workers may press for wage rises to maintain the purchasing power/may lead to industrial disputes. [3] (f) 1 mark for recognising it is increasing its spending on education. This must be mentioned to access the other marks. Up to 3 marks for explaining why a rise in government spending on education may reduce poverty, such as: • raise the skills and qualifications of workers • increase the chances of gaining employment • increase earning potential • may result in better health • more control over family size. Note: up to 3 marks for one strong explanation. Up to 3 marks for considering what will influence its likelihood of being successful, such as: • the amount spent • opportunity cost involved • what type of education it is spent on • implied multiplier effect • who can access the education • educated workers may emigrate • the time period it will take • whether an alternative policy measure might be more successful. Note: up to 3 marks for strong discussion of one factor. Maximum of 4 marks for a list. Note: if no mention of education, no marks can be gained. [7]

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