Cambridge IGCSE Economics 0455 — 2013 May/June Paper 3 · Variant 1

1 (a) (i) Identify two ways in which a sole proprietor differs from a multinational company. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. ..............................................................................................................................[2] (ii) Why may a sole proprietor have low total costs and high average costs? .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. ..............................................................................................................................[2] (b) Calculate the percentage increase in the average pay of workers in fast food outlets in Hong Kong in 2011. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (c) Using information from the extract, explain two reasons why the introduction of the national minimum wage may not take everyone out of poverty in Hong Kong. .......................................................................................................................................... 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......................................................................................................................................[4] (d) Using information from the extract, explain two reasons why the introduction of a national minimum wage may raise labour productivity. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... 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.......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[4] (e) Discuss what information you would need to assess whether people will seek to work as street cleaners in Hong Kong in the future. .......................................................................................................................................... .......................................................................................................................................... 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......................................................................................................................................[6] [Total: 20] The extract ‘Does Iran’s future lie with oil?’ will be needed for this question.

Mark scheme: 1 (a) (i) One mark each for each of two differences e.g. • number of owners (a sole proprietor has only one owner whereas a multinational company has many owners) • liability (a sole proprietor has unlimited liability whereas a multinational company has limited liability) • location of production (a sole proprietor produces in one country whereas a multinational company produces in a number of countries) • differences in amount of capital employed (a sole proprietor is likely to have limited capital whereas a multinational is likely to have more capital) • differences in number of workers employed (a sole proprietor is likely to employ fewer workers) • differences in the size of output (a sole proprietor is likely to produce less than a multinational) • size of average and total costs (a sole proprietor may have high average and low total costs whereas a multinational company is likely to have low average and high total costs)/it is probable that multinational companies will be able to take greater advantage of economies of scale. Note: a comparison has to be made to gain a mark so e.g. it is not sufficient to state that a sole proprietor is likely to have high average and low total costs. Note: no marks for the statement that a sole proprietor will be smaller than a multinational company. [2] (ii) One mark for low total costs due to low output. One mark for high average costs because it is not able to take advantage of economies of scale/take advantage of a particular type e.g. buying in bulk/able to spread costs only over a low output. [2] (b) Two marks for 40%. One mark for correct working i.e. HK$8/HK$20 x 100. [2] (c) One mark each for each of two relevant reasons identified e.g. • some of the poor are not in work e.g. unemployed/retired • some self-employed are poor • some of those who will benefit are not poor/come from rich households • some employers are not passing on the benefits of the minimum wage/trying to get round the legislation • fringe benefits are being reduced • not every employee is covered by the national minimum wage/legislation • workers losing their jobs/unemployment. One mark each for each of two relevant reasons explained e.g. • the unemployed and retired do not benefit from the minimum wage/their income is NOT from a wage • if those who benefit come from rich households by definition they are not poor/relative poverty may not be reduced • some low paid workers are the children/partners in rich households • some employers are cutting back on holidays and payment for meal breaks • domestic helpers are provided with accommodation instead of a higher wage/not covered by the minimum wage as it is considered they receive a fringe benefit IGCSE – May/June 2013 0455 31 • students not covered by the minimum wage/legislation in Hong Kong may not be taken out of poverty in the short term • higher labour costs may lead to job losses and those who lose their jobs will not be able to benefit from a national minimum wage. NOTE: there are only two marks available for identifying relevant reasons. [4] (d) One mark each for each of two relevant reasons identified i.e. • increased motivation/appreciation • increased spending on training. One mark each for each of two relevant explanations i.e. • higher motivation/appreciation will encourage workers to work harder • increased spending on training will increase workers’ skills/enable workers to work more efficiently. [4] (e) Up to three marks for identifying relevant information e.g. • wage rates • holidays • working conditions • job security • job satisfaction • fringe benefits (free meals, accommodation) • job vacancies • qualifications required • distance to work • status of jobs • immigration controls. Up to four marks for discussion of points e.g. • more people will seek work as cleaners if wage rates increase relative to other jobs • good holidays/holidays increase • good working conditions/working conditions improve • good job security/job security strengthens • immigration into Hong Kong becomes easier. Note: up to three marks for any one point identified and discussed. Up to three marks for a list-like approach. Note: a maximum mark of 6. [6] IGCSE – May/June 2013 0455 31

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2 (a) What percentage of the global output of oil in 2010 was produced by Iran? .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (b) Using information from the extract, comment on whether Iran was producing on or inside its production possibility curve in 2011. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[2] (c) Using the data in Table 1, and assuming production continues at the same rate as in 2010, state which country would (i) run out of reserves first, .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. ..............................................................................................................................[1] (ii) be able to continue to produce oil for the longest period of time. .................................................................................................................................. .................................................................................................................................. .................................................................................................................................. ..............................................................................................................................[1] (d) Explain two reasons why governments impose taxes. 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.......................................................................................................................................... ......................................................................................................................................[4] (e) Using a demand and supply diagram, explain the effect of an increase in income on the market for a luxury product. .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... 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.......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... .......................................................................................................................................... ......................................................................................................................................[4] Question 2(f) is on the next page.

Mark scheme: 2 (a) Two marks for 5%. One mark for correct working i.e. 1.6bn/32bn x 100 (allow 1.6/32 x 100) [2] (b) One mark for concluding that it was producing inside its production possibility curve/an accurate PPC diagram with a production point indicated CLEARLY inside the curve. One mark for providing the relevant evidence i.e. Iran had a relatively high unemployment rate. NOTE – the second mark is dependent on gaining the first mark. If a candidate states that Iran was producing on its curve he/she CANNOT gain either mark. [2] (c) (i) Saudi Arabia. [1] (ii) Iraq. [1] (d) One mark each for each of two relevant reasons identified e.g. to: • raise revenue • redistribute income • reduce total (aggregate) demand • reduce demand for harmful (demerit) goods • reduce demand for imports • internalise external costs. One mark each for each of two explanations e.g. • tax revenue may be spent on education or on cash benefits for the poor • may reduce inflationary pressure • may raise the price of demerit goods • reducing imports can enable infant industries to grow/increase demand for domestic products/reduce a current account deficit • may move cost from third party to those generating the costs. [4] (e) One mark for correct labels – P, Q, D and S. One mark for a shift in the demand curve to the right. One mark for original and new equilibrium. One mark for explaining that price would be expected to rise. [4] IGCSE – May/June 2013 0455 31 (f) Up to four marks for explaining why it should increase, e.g. • increase in real GDP • lower unemployment • higher export earnings • higher living standards • demand for oil may fall in the future. Up to four marks for explaining why it should not, e.g. • will run out of reserves more quickly • lower living standards in the future • will lower price, and if demand is inelastic, will lower revenue • may break OPEC quota agreements. Up to three marks for any one point identified and discussed. Up to three marks for a list-like approach. Note: a maximum mark of 6. [6]

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