Cambridge IGCSE Economics 0455 — 2025 May/June Paper 2 · Variant 3

1 (a) Calculate the number of people who are in poverty in Egypt. [1] (b) Identify two of Egypt’s primary sector exports. [2] (c) Explain how building a new city can reduce unemployment. [2] (d) Explain why tourism is a good source of economic growth for Egypt. [4] (e) Draw a demand and supply diagram to show the likely effect of falling incomes on the market for housing in the new city. [4] (f) Analyse the relationship between investment (as a % of GDP) and economic growth rates for Egypt. [5] (g) Discuss whether or not deregulation in education in Egypt will increase living standards. [6] (h) Discuss whether or not a fall in the value of the Egyptian currency would harm the Egyptian economy. [6]

Mark scheme: Question Answer Mark Guidance 1(a) Calculate the number of people who are in poverty in 1 30 690 000 Egypt. Accept 30.7 million. 30.69 million 1(b) Identify two of Egypt’s primary sector exports. 2 Accept any two Two from: oil (1), citrus fruits (1), gold (1) 1(c) Explain how building a new city can reduce 2 Only one mark if not linked to building. unemployment. Building a new city requires labour / creates job opportunities / increases demand for labour (1) to work in construction / build new buildings (1). 1(d) Explain why tourism is a good source of economic 4 Award a maximum of 2 marks for just identification of points growth for Egypt. without explanation. Logical explanation which might include: Egypt has many ancient / human-made attractions and buildings (1) not found in many parts of the world / that tourists want to visit (1) creating more employment / tax revenue (1). Egypt has natural attractions, such as beautiful beaches / warm climate / good weather (1) these attract tourists / low government spending required / low investments required (1). Egypt has good infrastructure (1) this can attract tourists as its easier to travel to the country or attractions / can attract investors with lower cost of production (1). Egypt has good security (1) tourists feel safe / investors are confident in the security of their investments (1). Egypt has experienced a fall its currency value (1) making holidays more affordable (1). 1(e) Draw a demand and supply diagram to show the likely 4 effect of falling incomes on the market for housing in the new city. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between investment (as a % of 5 Responses do not have to be in the format suggested but GDP) and economic growth rates for Egypt. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Positive / direct (1) higher / lower investment should lead to higher / lower economic growth rates (1). Supporting evidence: From 2017–2019, Investment rising and economic growth also rising (1) From 2019–2020, investment falling and economic growth also falling (1). Analysis: Higher investment leads to higher economic growth due to higher total demand / investment is a component of total demand (1) and increased productivity / lower cost of production (1). Exception: identification of an exception 2015–2017 or 2020–21 (1), 2015–2017, investment rising but economic growth falling slightly / relatively stable / largely unchanged (1), 2020–2021, investment falling but economic growth rate rising (1). Analysis of the exception: Current investment increase now could lead to a delayed response in economic growth rates (1) data shows percentage not total investment (1). 1(g) Discuss whether or not deregulation in education in 6 Answers not referring to education, max 3 marks. Egypt will increase living standards. Apply this example to all questions with the command Award up to 4 marks for logical reasons why it might, which word DISCUSS may include: (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) • deregulation has led to an increased number of schools / universities in Egypt (1) may increase competition Each point may be credited only once, on either side of an between private schools / universities (1) may lower argument, but separate development as to how/why the fees (1) raise quality (1) outcome may differ is rewarded. • more people have opportunities for education and training (1) making people more educated / skilled / Generic example mark qualified / literate / productive (1) easier to find jobs (1) earn an income (1) increasing affordability of goods and Tax revenue may decrease 1 services (1) more educated people tend to enjoy better health / spend more on healthcare (1) longer life because of reason e.g. incomes may be lower. 1 expectancy (1) increase HDI (1) • more school buildings will increase employment (1) of Tax revenue may increase because incomes 0 builders (1) teachers (1) may be higher i.e. reverse of a previous • may reduce government spending on education (1) argument. allowing the government to spend more on items that could increase living standards e.g. healthcare (1). Tax revenue may increase because of a different 1 reason i.e. not the reverse of a previous Award up to 4 marks for logical reasons why it might not: argument e.g. government spending on • opening more private schools and universities in Egypt subsidies may stimulate the economy more than might increase the level of inequality (1) as private spending on education. education remains unaffordable to lower income groups (1) restricting their employment opportunities (1) as private education is usually more expensive than state- provided education (1) • standards of living only improve for those from higher income groups (1) lower income groups remain in relative poverty (1) widen gap between rich and poor / increase relative poverty (1) • private schools and universities may prioritise profits (1) over the quality / standards of education provided (1). 1(h) Discuss whether or not a fall in the value of the 6 One mark for identifying increase or decrease in investment. Egyptian currency would harm the Egyptian economy. Award up to 4 marks for logical reasons why it might, which may include: • fall in the value of the Egyptian currency may cause cost push (1) inflation (1) reducing the purchasing power of Egyptians (1) as imported goods become more expensive (1) standards of living could decrease (1) • cost of production could increase (1) increasing the price of domestically produced goods (1) some firms may try to cut cost by reducing jobs (1) increase unemployment (1) • may create uncertainty / reduce confidence (1) discourage investment (1). Award up to 4 marks for logical reasons why it might not, which may include: • Egyptian exports become cheaper (1) increasing demand for exports / increasing revenues of domestic producers / incomes (1) causing economic growth (1) demand may switch from imports to domestically produced products (1) may reduce current account deficit (1) • industries such as the tourism industry may benefit (1) as holidays in Egypt become more affordable for non- Egyptians (1) • workers also have more job opportunities (1) since there is more demand for domestically produced goods and services (1) • may increase investment / hot money flows (1) reduced cost to set up an MNC / may expect profit if currency value rises later (1).

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2 One of the world’s more expensive roads opened in Montenegro in 2022. To build the road, the Montenegro Government was helped by a foreign commercial bank and another multinational company (MNC). This new road could help the Montenegro Government achieve its macroeconomic aims and increase Montenegro’s international trade. MNCs can have a significant impact on the host countries in which they locate. (a) Define international trade. [2] (b) Explain the importance of commercial banks to governments. [4] (c) Analyse how building roads can help a government achieve its macroeconomic aims. [6] (d) Discuss whether or not MNCs benefit host countries. [8]

Mark scheme: 2(a) Define international trade. 2 Movement / exchange of goods and services / products (1) between countries (1). Exports and imports (1) of goods and services / products (1). 2(b) Explain the importance of commercial banks to 4 Accept the role of commercial banks in helping implement governments. monetary policy (1) they are likely to change their interest rates in line with that of the central bank (1). Logical explanation which might include: • facilitating transactions for the government (1) e.g. managing government payments to suppliers / workers / receive tax payments (1) • financing government borrowing (1) commercial banks may also lend money to the government / buy bonds from government (1) • lending to the private sector (1) enables investment (1) facilitating economic growth (1) may increase employment (1) • may help to maintain financial stability (1) by helping other commercial banks in trouble (1) • they influence the money supply (1) by lending / creating credit (1). 2(c) Analyse how building roads can help a government 6 achieve its macroeconomic aims. Coherent analysis which might include: Building roads may involve government spending (1) creates jobs / requires labour (1) such as road builders (1) reducing unemployment (1) increase income (1) increase consumption (1) support other industries (1) such as raw material suppliers / private contractors (1) which increases total demand in the economy (1). Building roads may lead to reduced transport costs / cheaper transport (1) due to greater efficiency / productivity / time saving (1) reducing overall costs of production (1) increasing investment / attracting MNCs (1) causing economic growth (1) increased exports (1) improving the current account balance (1) reducing cost-push inflation (1). Building roads could lead to better quality transportation / easier access to places of work (1) reducing unemployment (1) may reduce poverty (1). 2(d) Discuss whether or not multinational corporations 8 Level Description Marks (MNCs) benefit host countries. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why MNCs might benefit host countries: economic information and clear and • bring in new capital and technology logical analysis to evaluate economic • bring in investment issues and situations. One side of the • create jobs argument may have more depth than • may provide high quality training the other, but overall both sides of the • pay taxes argument are considered and • may increase competition developed. There is thoughtful • may buy raw materials from the country evaluation of economic concepts, terminology, information and/or data Why MNCs might not benefit host countries: appropriate to the question. The • may exploit domestic labour by poor work conditions discussion may also point out the • may take profits out of the country and not reinvest possible uncertainties of alternative domestically decisions and outcomes. • may avoid taxes • may dominate domestic market and drive local firms out 2 A reasoned discussion which makes 3–5 use of economic information and clear of the market • are footloose and may leave anytime – more instability analysis to evaluate economic issues and situations. The answer may lack • may deplete natural resources some depth and development may be • may damage the environment one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

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3 The public sector in Andorra is focusing on developing the healthcare, biotechnology and sports industries. Andorra has the natural advantage of being a mountainous country. Several winter sports firms in Andorra have recently merged. This will affect the level of competition in the winter sports market in Andorra. (a) Define public sector. [2] (b) Explain two types of merger. [4] (c) Analyse how differences in healthcare can lead to differences in economic development between countries. [6] (d) Discuss whether or not competitive markets are beneficial for consumers. [8]

Mark scheme: 3(a) Define public sector. 2 Sector which is owned / managed / economic decisions made (1) by the government (1). 3(b) Explain two types of mergers. 4 Accept, but do not expect, explanation of lateral mergers. Logical explanation which might include: Allow vertical backwards and vertical forwards as two • Horizontal merger (1) where two or more firms in the different types of merger. same industry at the same stage of production merge / relevant example (1). • Vertical merger (1) where two or more firms in the same industry but different stage of production merge / relevant example (1). • Conglomerate (1) where two or more firms in different industries merge / relevant example (1). 3(c) Analyse how differences in healthcare can lead to 6 The question can be analysed from either poorer or better differences in economic development between healthcare provision in one country compared with another countries. but the same point should not be rewarded twice. Coherent analysis which might include: If healthcare is better in one country than another, workers will be healthier / take less time off sick (1) the productivity of labour may be higher (1) leading to higher incomes of workers (1) improved standard of living (for workers) (1) longer life expectancy / lower death rate (1) higher HDI (1). Firms may gain higher profits (1) due to lower average cost / higher revenue (1) higher quality output (1) productivity capacity of the economy will increase (1) leading to economic growth (1) exports may increase due to higher competitiveness (1) investment may increase (1) creating more jobs (1) reducing unemployment (1) increasing incomes and reducing (child) poverty (1) may increase spending on education (1). 3(d) Discuss whether or not competitive markets are 8 Level Description Marks beneficial for consumers. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • more firms in the market leads to lower price analysis to evaluate economic issues • higher quality and situations. One side of the argument • more choice may have more depth than the other, but • firms may be smaller and so may not experience overall both sides of the argument are diseconomies of scale considered and developed. There is • more innovation in terms of production methods and thoughtful evaluation of economic products concepts, terminology, information and/or data appropriate to the question. Why it might not: The discussion may also point out the • lower profits for firms – less innovation and quality possible uncertainties of alternative improvement decisions and outcomes. • too many choices – takes up consumer time and effort • firms may spend on advertising, increasing their costs 2 A reasoned discussion which makes use 3–5 and prices of economic information and clear • lower quality due to race to the bottom analysis to evaluate economic issues • firms may be smaller and may not experience and situations. The answer may lack some depth and development may be economies of scale • competition may lead to resource depletion / negative one-sided. There is relevant use of economic concepts, terminology, externalities information and data appropriate to the question. 3(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

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4 As cities experience economic growth, the buildings in the city become taller. This is driven by an increase in the willingness and ability of consumers to live in tall buildings. Changes in the conditions of supply have also increased the number of tall buildings being constructed. However, there is a limit to the height of buildings – above a certain height, the total cost of constructing the building will exceed the total revenue generated. (a) Define total cost. [2] (b) Explain two causes of an increase in the supply of a product. [4] (c) Analyse factors that can increase the willingness and ability of consumers to buy a certain product. [6] (d) Discuss whether or not economic growth will improve living standards in a city. [8]

Mark scheme: 4(a) Define total cost. 2 Total cost is addition of all costs / overall costs (1) fixed cost (1) plus variable cost (1). 4(b) Explain two causes of an increase in the supply of a 4 One mark each for each of two reasons identified and one product. mark each for each of two explanations. Logical explanation which might include: If more than two causes given, consider the first three. • lower costs (1) e.g. cost of raw materials / greater potential profitability (1) • increased productivity (1) e.g. due to better technology (1) • reduced regulations (1) easier / cheaper to produce more (1) • reduced taxes (1) reducing cost of production (1) • increased subsidies (1) enabling producers to be able to produce more with the same amount of financial capital / money / cover some costs / provide additional revenue (1) • better weather / more suitable season (1) increasing crop yield / less destruction or damage to crops(1) • increases in stocks / inventories (1). 4(c) Analyse factors that can increase the willingness and 6 Maximum of two marks for just listing different reasons for ability of consumers to buy a certain product. increase in willingness and ability of consumers to buy a certain product. Coherent analysis which might include: Reward increase in demand only once and reward decrease • decrease in the price of the product itself / subsidy (1) in demand only once. makes the product more affordable (1) increasing demand (1) • increase in the price of substitutes (1) which are goods that provide the similar levels of satisfaction / example of substitutes (1) increasing demand (1) • decrease in the price of complements (1) goods that are in joint demand / example of complements (1) increasing demand (1) • increase in expected price in future (1) consumers willing to buy more now when prices are lower (1) instead of the future when prices go up (1) • increase in incomes (1) consumers more able to buy the product now (1) since affordability / purchasing power increase (1) • change in trends / popularity (1) some products become more fashionable / more popular (1) • increase in quality (1) making the product more desirable (1) • increase in or more effective advertising / marketing (1) informing consumers about the product (1) persuading consumers to buy the product (1) • increased peer pressure to buy the product (1) e.g. conspicuous consumption / to keep in with friends (1) • government health campaigns (1) encouraging consumption of merit goods (1) • change in seasons / weather (1) some products become more needed / desired at certain times (1) relevant example (1). 4(d) Discuss whether or not economic growth will improve 8 Maximum of four marks if no reference to a city. living standards in a city. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which accurately 6–8 Why it might: examines both sides of the economic • increase job opportunities in the city – increase income argument, making use of economic • increase government revenue – more public and merit information and clear and logical goods for the city analysis to evaluate economic issues • increase amount of investment in the city – more choice and situations. One side of the argument of goods and services may have more depth than the other, but overall both sides of the argument are Why it might not: considered and developed. There is • increase negative externalities such as pollution and thoughtful evaluation of economic congestion concepts, terminology, information • overcrowding as more people attracted to come to cities and/or data appropriate to the question. • increase inequality The discussion may also point out the • may produce inflationary pressures – reducing possible uncertainties of alternative affordability decisions and outcomes. 2 A reasoned discussion which makes use 3–5 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. 4(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

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5 Missions to outer space face the same basic economic problem as that experienced on Earth. The African Space Agency was created to improve science and technology on the African continent. This agency also aims to coordinate trade between African countries to help technological development. This may improve how markets work. In 2021, total government spending on this agency was more than $500 million. (a) Define the basic economic problem. [2] (b) Explain how a market allocates resources. [4] (c) Analyse the benefits a country may gain from exporting to and importing from other countries. [6] (d) Discuss whether or not an increase in government spending will benefit an economy. [8]

Mark scheme: 5(a) Define the basic economic problem. 2 The basic economic problem is the scarcity (1) of resources / factors of production (1) compared to unlimited wants of humans (1) . 5(b) Explain how a market allocates resources. 4 One mark for more resources devoted to products in high demand / fewer resources devoted to products in low Logical explanation which might include: demand. A market is made up of buyers (1) and sellers (1) who trade products (1) through the interaction of demand (1) and supply (1) creating market equilibrium (1) Price signals / price mechanism indicate to sellers how to allocate their resources (1) profit provides the incentive for sellers to respond to changes in demand (1). If demand for the product increases, price will rise (1) more resources will be devoted to its production (1). If demand for the product decreases, price will fall (1) fewer resources will be devoted to its production (1). 5(c) Analyse the benefits a country may gain from exporting 6 Reward but do not expect reference to comparative or to and importing from other countries. absolute advantage. Allows countries to specialise (1) in what they are best at producing (1) develop skills (1) increase efficiency (1) Exports create demand for the output of domestic producers (1) causing economic growth in that country (1) creating employment (1) Exports create larger markets (1) able to take advantage of economies of scale (1) produce at a lower average cost (1). Incomes in other countries maybe higher (1) allowing more income to be earned by exporting (1) Exports are a component of total (aggregate) demand (1) so increased exports will lead to higher output / cause economic growth (1). Imports allow consumers to enjoy more goods and services (1) greater choice / variety (1) at low prices (1) increase living standards (1). Imports provide greater competition (1) which can increase quality (1). Imports allow countries to obtain goods / raw materials they cannot produce (1) at a lower price (1) reducing costs of production (1) obtain tariff revenue (1). Spread of ideas / technology (1) increasing productivity (1). 5(d) Discuss whether or not an increase in government 8 Level Description Marks spending will benefit an economy. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • increase total demand analysis to evaluate economic issues • some forms of government spending e.g. education / and situations. One side of the argument healthcare may increase productivity may have more depth than the other, but • reduce unemployment overall both sided of the argument are • increase economic growth considered and developed. There is • reduce inequality thoughtful evaluation of economic • increase access to merit goods concepts, terminology, information • provide public goods and/or data appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative • increased inflation decisions and outcomes. • increase a current account deficit if spent on e.g. imported capital goods 2 A reasoned discussion which makes use 3–5 • increased taxation to pay for increased spending of economic information and clear • increase government debt analysis to evaluate economic issues • government spending may be inefficient – the private and situations. The answer may lack some depth and development may be sector may be more efficient one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 5(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

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