The factors of production — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

Firms use different quantities of land, labour, capital and enterprise in producing their products. The ways in which a country’s resources…

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3(a) What is the difference between capital and land? Capital is human-made goods used to produce other products (1) whereas land is a natural resource (1). Capital receives interest as a payment (1) while land receives rent (1). 2 3(b) Explain two reasons why a firm may decide to use more labour and less capital in producing its products. 1 mark each for each of two reasons identified: • may be cheaper • may be more available • may want to make hand-made products • may be subsidised to do so by the government • may be more mobile/less specific • may be less initial cost 1 mark each for each of two explanations given: • costs of production may be lower using labour/labour may be more productive • there may be a shortage of capital goods/it may take time for capital goods to be produced • each product produced may be tailored to customer’s requirements/not standardised • the government may subsidise firms to take on workers in order to reduce unemployment. • capital may not be able to switch to producing other products • example of labour-intensive industry • high cost of purchasing the capital equipment. 4 Question Answer Marks Guidance 3(c) Using a production possibility curve diagram, analyse the effect on an economy’s output when there is a change from full employment to unemployment. Up to 4 marks for diagram: Axes correctly labelled (1) Curve/straight downward sloping line drawn to the axes (1) A production point on the one curve (1) A production point inside the one curve (1). Up to 2 marks for written explanation: Full employment would mean an economy making maximum use of resources (1) making as much output as possible/efficient use of resources (1) unemployment means output is below potential (1) inefficient use of resources/resources lying idle (1) output will fall (1). 6 O e.g. consumer goods e.g. capital goods Question Answer Marks Guidance 3(d) Discuss whether it is always possible for a country to have low unemployment and low inflation at the same time. Up to 5 marks for why it might: If total supply is increasing (1) as total demand increases (1) output will be high (1) causing low unemployment without inflation (1). Advances in technology/improvements in education (1) raises productivity (1) can lower costs of production (1) reducing cost-push inflation (1) and increasing demand for labour (1). Low inflation may stimulate firms to raise output (1) take on more workers (1). Up to 5 marks for why it might not: Low unemployment may mean incomes are high (1) total demand may be high (1) causing demand-pull inflation (1). Low unemployment may result in increased competition for labour (1) this may raise wages (1) increasing firms’ costs of production (1) causing cost-push inflation (1). Inflation may create a price/wage spiral (1) demand-pull inflation leading to cost-push inflation (1). 8

Question 2

In 2012 oil was discovered in Kenya, but in 2014 an American firm stopped its plans to explore for oil in the Arabuko Sokoke forest in the …

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4(a) Define the ‘secondary sector’ and give an example. Manufacturing/turning raw materials into goods (1) e.g. car production, house building (1). 2 4(b) Explain two benefits that an economy may gain as a result of the discovery of oil on its land. 1 mark each for each of two benefits identified: • increase output / income • increased employment / lower unemployment • improved current account position / higher exports • increased tax revenue 1 mark each for each of two explanations given: • the output of oil will contribute to the country’s GDP / increase economic growth • better quality of life / standard of living • jobs will be created extracting/processing the oil • oil may be exported / less oil imported • oil may be taxed; higher output and higher incomes will increase tax revenue 4 4(c) Analyse why the social costs of oil extraction may be greater than the private costs. Private costs are the costs to the oil firms (1) e.g. cost of operating an oil rig (1). Social costs are private costs plus external costs (1) that affect everyone (1). External costs are likely to exist (1) firms will not take these into account (1) e.g. air pollution, water pollution, reduction in fertility of nearby land (maximum 2 marks for relevant examples). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 4(d) Discuss whether a country would benefit from devoting more resources to producing capital goods. Up to 5 marks for why it might: May increase economic growth (1) more capital goods will enable more goods and services to be produced (1) more output may raise living standards (1) increase employment (1). May reduce costs of production (1) prices fall (1) new capital goods may incorporate advanced technology (1) lower average costs may make products more internationally competitive (1) improve current account position (1). May be no opportunity cost (1) if they are unemployed resources (1). Up to 5 marks for why it might not: May involve an opportunity cost (1) example (1) may have to switch resources from producing consumer goods (1) lower living standards in the short run (1) may result in fewer jobs / higher unemployment (1) this will be structural unemployment (1). There may be no need for more capital goods (1) there may be no demand for extra output (1) existing capital goods may be idle (1). 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list-like approach.

Question 3

Indonesia’s output is influenced by its factors of production. A production possibility curve diagram can be used to show this relationship…

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2(a) Identify the two human factors of production. • Labour (1) entrepreneur/enterprise (1). 2 2(b) Explain two economic concepts shown by a production possibility curve diagram. 1 mark each for each of two concepts identified: • opportunity cost • scarcity/economic problem/unlimited wants and limited resources • choice • efficiency/full employment • specialisation • economic growth/the difference between actual and potential economic growth 1 mark each for each of two explanations given: • The curve shows that if more of one type of product is produced, less of another product can be made • The curve shows that there is a limit to the amount that can be produced with existing resources/maximum output of two products • The curve shows that more than one production point cannot be selected • Any point on the curve is efficient/any point inside the curve is inefficient • The curve shows the maximum amount of a product that can be produced if all resources are devoted to one good • Economic growth is shown by a shift to the right of the curve/actual growth is shown by a movement towards the curve and potential growth by a shift to the right 4 Maximum of 2 marks for a list- like approach. Only reward the use of a diagram if the concepts are clearly shown and linked to an explanation. Accept limited resources as an alternative to scarcity. Question Answer Marks Guidance 2(c) Analyse why demand for a product may become more elastic over time. • More substitutes may be available for the product (1) due to more firms/more competition/more innovation/improved versions (1) which means people are more willing to switch to and from the product (1) • The product may be seen to be more of a luxury (1) and less of a necessity (1) • Demand becomes more price sensitive the higher the price (1) as the product becomes less affordable (1) • The product may become less habit forming (1) addictive products have price inelastic demand (1) • It may become easier to postpone purchasing the product (1) so a rise in price may result in more consumers delaying its purchase (1) • The product may take up a higher proportion of income (1) change in price would become more significant (1) • Demand will become more price sensitive as the price of complements rises (1) as the two products combined become less affordable (1) 6 Maximum of 3 marks for a static approach e.g. demand is elastic when there are substitutes. Question Answer Marks Guidance 2(d) Discuss whether small firms can compete successfully against large firms. Up to 5 marks for why they might: • May provide a personal service (1) operate in a niche market (1) may be more in touch with consumers (1) may be more adaptable/flexible in response to changes in consumer demand (1) • May be subsidised by the government (1) which would reduce costs of production (1) allowing small firms to charge lower prices (1) • May be operating in an industry where economies of scale are not significant (1) or there are diseconomies of scale (1) raising average cost (1) example (max 2) • May be able to take advantage of external economies of scale (1) reducing average cost (1) example (max 2) Up to 5 marks for why they might not: • Large firms may benefit from economies of scale (1) enjoy lower average costs (1) example (max 2) • Large firms may take over small firms (1) may drive small firms out of business by charging lower prices (1) • Large firms may have more market power (1) use barriers to entry (1) drive firms out of the industry by e.g. using predatory pricing (1) • Large firms may be better known (1) have brand loyalty (1) • Large firms may have more finance (1) which may enable them to purchase more efficient capital/machinery/technology (1) spend more on advertising (1) 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Do not credit references to just ‘costs’ in relation to EoS/DoS. 1 mark may be awarded for small firms and large firms are able to charge lower prices, if explained separately. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 4

Cigarette smoking in China China has recently experienced rapid economic growth and an improving Human Development Index (HDI) ranking. It …

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Question Answer Mark 1(a) Identify, from the extract, two factors of production employed in 2 producing cigarettes. Workers/labour (1) capital (1). 1(b) Explain two reasons why firms merge. 4 1 mark each for each of two reasons identified: • to take advantage of economies of scale / reduce costs of production • to gain greater market share / market power / reduce competition • to gain access to market outlets • to gain access to raw materials / resources / better methods of production • to diversify • to prevent one firm going out of business • to increase profit • to grow / expand / become larger 1 mark each for each of two explanations: • a merged firm will be larger and due to economies of scale, average costs may be lower, example • a merged firm eliminates a competitor • a vertical merger forwards gives the firm control of the sale of its product • a vertical merger backwards may ensure an adequate supply of a raw material • a conglomerate merger will increase the range of products produced • a combined, larger firm will be able to survive • the combined profit of two merged firms might be greater than the profit of two individual firms • one of the key business goals is growth 1(c)(i) Calculate, using information from the extract, the percentage decrease 2 in the number of cigarette firms in China from 2009 to 2014 80% (2). Correct working e.g. 160/200 × 100 (1). 1(c)(ii) Calculate, using information from the extract, the total tax revenue that 2 the Chinese government received in 2014. 16 000 billion yuan (2). 16 000 billion OR yuan (1). Correct working i.e. 800 billion × 100/5 (1). Note: 16 000 billion = 16 000 000 000 000 or 1.6 × 1013 1(d) Analyse, using a production possibility curve diagram, the effect of 5 moving factors of production from producing cigarettes to producing other products. Up to 3 marks for the diagram: Axes correctly labelled (1). Curve / downward-sloping straight line drawn to the axes (1). Movement along curve from cigarettes to other products (1) shown by an arrow on the curve or by change in combinations. cigarettes A1 A2 O B1 B2 other products Up to 2 marks for explanation: Opportunity cost of producing more other products / devoting more resources to other products (1) means producing fewer cigarettes (1). 1(e) Discuss whether people in countries with a high HDI always enjoy a 5 high standard of living. Up to 3 marks for why they might: Indicates high income per head / high purchasing power / high ability to buy goods (1) high life expectancy / low death rate / good healthcare (1) good education / high literacy (1). 1 mark for a general idea of what the HDI includes. Up to 3 marks for why they might not: May be uneven distribution of income / GDP figure is an average (1) so that not everyone enjoys a high standard of living / there may still be many poor people (1) unemployment may still be high (1) healthcare may still be poor for some (1) literacy levels may be high but there may be no suitable jobs (1). There are other influences on living standards (1) working hours may be long (1) working conditions may be poor (1) there may be high levels of pollution (1). 1(f) Explain, using information from the extract and Fig. 1, what happened 4 to the market for fruit in the UK in 2015. The diagram shows demand increasing (1) price rising (1) revenue increasing (1) supply extending / quantity of fruit consumed increasing (1). This is due to the information campaign / people being better informed about the benefits of fruit (1). Inelastic demand (1) inelastic supply (1). 1(g) Discuss the arguments for and against the Chinese Government 6 increasing the tax on cigarettes. Up to 4 marks for why it should: Demand for cigarettes is price-inelastic (1) so may increase tax revenues (1) which government could spend on public services, e.g. health and education (1). Smoking is harmful (demerit good) (1) tax will raise the price (1) may discourage cigarette smoking / reduce consumption (1) improve smokers’ health (1) prevent early deaths from smoking related diseases (1) reduce external costs (1) e.g. air pollution, passive smoking (1) reduces health costs (1) increases productivity of workers (1). Up to 4 marks for why it should not: May not be very effective in reducing consumption (1) smoking is addictive / demand is price-inelastic (1) and tax will therefore not reduce smoking significantly (1). May reduce output of cigarettes in the country / tobacco firms may close (1) may increase unemployment (1). May lead to an illegal market in cigarettes / cheap alternatives (1) people not paying the tax (1).

Question 5

Singapore is usually ranked as one of the best countries in which to do business. It is an open economy engaging in free trade. It has a hi…

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2(a) Define ‘average costs’. Total cost divided by output (2). Cost per unit / average fixed cost plus average variable cost (1). 2 2(b) Explain two factors that would increase the supply of entrepreneurs in an economy. 1 mark each for each of two factors identified: • rise in education • reduction in corporation tax / tax holidays • increase in subsidies for business/entrepreneurs • reduction in the rate of interest • privatisation / move to market economy • immigration • reduction in barriers to entry / deregulation • economic boom / high level of economic activity • improved legal framework / reduction in crime 1 mark each for each of two explanations given: • rise in education will develop the skills needed to be an entrepreneur • reduction in corporation tax will increase financial return from being an entrepreneur • subsidies may make it easier / cheaper to start-up a business • a lower rate of interest will make it cheaper to borrow to start up a business / increase expectation of higher demand • privatisation / move to market economy will increase the opportunities to set up new firms • a relatively high proportion of immigrants tend to set up their own businesses • lower barriers to entry / deregulation would make it easier to set up new firms • economic boom / high level of economic activity may increase the expectation that firms will be profitable • improved legal framework / reduction in crime would be likely to make entrepreneurs feel more confident. 4 Question Answer Marks Guidance 2(c) Analyse how the market for a product would be affected by a reduction of the tax on the product combined with a fall in the price of a complement. Reducing the tax will lower costs of production (1) increase supply – written or drawn (1). A complement is a product bought to use with another product (1) a fall in its price would increase demand for this product – written or drawn (1). Effect on price is uncertain (1) would depend on relative size of changes (1). Quantity would rise – written or drawn (1). 6 Question Answer Marks Guidance 2(d) Discuss whether low unemployment in a country will encourage multinational companies (MNCs) to set up there. Up to 5 marks for why it might: Low unemployment may indicate a strong economy / economic growth (1) high incomes (1) a high level of demand (1) may expect to be able to sell a large amount in the country (1) make a high profit (1). Low unemployment may mean high tax revenue (1) government spending on education may be high (1) improving quality of workers (1) spending on infrastructure e.g. roads may be high (1) lower MNCs’ costs of production (1). Production may be capital-intensive (1) and so labour shortages may not be a significant problem (1). Other benefits may be greater than higher labour costs (1) e.g. not having to pay an import tariff (1). Up to 5 marks for why it might not: There may be difficulty in recruiting workers (1) may be a shortage of skilled workers (1) may increase trade union power (1) may have to pay high wages (1) which would increase costs (1) lower profits (1). Low unemployment may create demand-pull inflation (1) and cost-push inflation (1) this may make it relatively expensive to produce in the country (1). 8

Question 6

In Pakistan there is a limited choice of cars to buy. The country has a population of approximately 190 million but only about 120 000 cars…

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4(a) Name two factors of production used in making cars. 1 mark each for each of two factors identified: • car workers / labour • car factory / capital • car firm owner / entrepreneur • water/land 2 4(b) Explain how two methods of trade protection may reduce imports. 1 mark each for each of two methods identified: • tariffs • quotas • embargoes • exchange control • voluntary export restraint (VER) • quality standards • subsidies • expensive paperwork 1 mark each for each of two explanations given: • tariffs – tax on imports will raise price of imports which may reduce demand • quotas – a limit on imports will restrict quantity of imports that can be purchased • embargo – a ban on imports will reduce quantity imported to zero • exchange control – a limit on availability of foreign currency will make it difficult to get the currency to buy imports • VER – agreements between governments to restrict exports to each other • quality standards – making it difficult / expensive to achieve requirements • subsidies – given to domestic producers to make them internationally competitive expensive paperwork – increase the costs of exporting to the country 4 Question Answer Marks Guidance 4(c) Analyse the social costs created by car production and car use. Social costs are private costs plus external costs (1). Private costs are the costs to the car firm/buyers of cars (1) example: e.g. wages paid to workers / price paid for the cars (1). External costs are likely to exist in the form of costs to third parties (1) firms/buyers will not take them into account (1) examples: e.g. air pollution / noise pollution / congestion (up to 2). 6 Maximum 4 marks if no reference to cars. Question Answer Marks Guidance 4(d) Discuss whether demand for cars is likely to increase in the future. Up to 5 marks for why it might: Rising incomes (1) people may switch from other forms of transport e.g. bus travel / can afford to buy cars (1). Price may fall (1) cars become more affordable (1). Advances in technology (1) increasing availability of hybrid / electric cars / raise quality (1) any other relevant cause of a fall in price (1). Population is increasing (1) creating more potential buyers (1). Greater availability of bank loans / credit (1) cars may be purchased using bank loans (1). More effective advertisements (1) persuading people to buy more cars (1). Up to 5 marks for why it might not: Other forms of transport may become cheaper (1) example of a substitute (1). Concern for the environment may increase (1) causing people to walk or cycle (1). Prices of complements may rise (1) e.g. petrol / car parking charges / road tolls / inner city charges (1). Governments may increase taxes on car travel / impose restrictions on car use (1) to reduce external costs (1). There may be a global recession / higher unemployment (1) reducing people’s confidence in buying cars (1). 8 Maximum of 4 marks for a list-like approach.

Question 7

Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38 000 cows. Farms in the USA compete with farms in bo…

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3(a) Identify two examples of capital goods that may be used by a farm. One mark each for each of two examples e.g. tractor, farm buildings. 2 3(b) Explain how a country could have a trade in goods surplus but a deficit on the current account on the balance of payments. Trade in goods surplus means exports (of goods) exceeds imports (of goods) (1) trade in goods is only one part of the current account (1) identification of two of the three other components (1) there could be a larger deficit on the trade in services balance (1) example of a service item decreasing (1) there can be a larger deficit on income (primary) balance (1) example of an income item increasing (1) there could be a larger deficit on current transfers (secondary) balance (1) example of a current transfer item decreasing (1) or a combination of deficits on other items (1). A current account deficit means more money will be leaving than entering the country (1). 4 3(c) Analyse the economies of scale from which a farm may benefit. Buying (purchasing) economies (1) e.g. buying seed in bulk at reduced price (1). Technical economies (1) using up to date / efficient equipment e.g. combine harvesters (1). Managerial economies (1) employing specialist workers e.g. farm managers (1). Financial economies (1) borrowing at a lower rate of interest/finding it easier to obtain a loan (1). Risk bearing economies (1) a farm may grow a variety of crops (1). 6 Maximum of 4 marks unless at least one type of economy of scale is related specifically to a farm e.g. buying seed in bulk. Also credit analysis of external economies of scale. Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 3(d) Discuss whether or not developing countries benefit from producing mainly primary products. Up to 5 marks for why they might: May have the resources to produce high quality (1) low cost primary products (1). If more can be exported (1) revenue can be used for development (1). Specialisation can reduce average costs (1) increasing output (1) enabling advantage to be taken of economies of scale (1). Demand for primary products may be increasing (1) some primary products can be sold for high prices (1) e.g. oil (1) increasing living standards (1). May be able to raise revenue (1) as demand for some primary products, e.g. oil, is price- inelastic (1). Countries may lack education (1) primary sector provides some unskilled jobs (1). Up to 5 marks for why they might not: Demand for primary products does not tend to rise as rapidly as demand for manufactured products and services (1) tend to have less valued added (1). The production of some primary products may be adversely affected by bad weather and diseases (1) disrupting supply (1) resulting in fluctuating income (1) working conditions may be poor (1). Developed countries may impose trade restrictions on primary products from developing countries (1). The primary sector does not tend to offer many high skilled jobs (1) low pay (1) low living standards (1). There are risks of overspecialisation (1) a more diversified economy would be in a stronger position to resist economic downturns (1). Developing countries will be dependent on other countries for manufactured goods and services (1). 8 Accept as an alternative to the first two points that developing countries may have the resources to produce high quality primary products at low cost, that they may not have the resources to produce high quality secondary / tertiary products at low cost. Reward but do not expect reference to comparative advantage.

Question 8

The price of gold rose in 2016. This encouraged owners of gold mines to employ more resources to increase the supply of gold. The level of …

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7(a) Identify two factors of production involved in mining gold. Any 2 from: Labour/miner (1) land / gold ore (1) capital/equipment (1) enterprise/owner (1) 2 7(b) Explain two reasons why a government may impose a tariff on imported gold. To discourage the purchase of the foreign gold / reduce the demand for imported gold (1) to improve the current account position on the balance of payments (1). To raise revenue (1) to fund government expenditure (1). If gold is an infant industry (1) enable domestic industries to grow (1) increase output / become more competitive / efficient / natural resources discovered (1) Protect domestic gold industry (1) protect jobs / keep unemployment low (1) encourage expansion of domestic firms (1). Retaliation (1) in response to trade restrictions on gold imposed by other countries (1). 4 Reward but do not expect an argument based on the dumping of gold. 7(c) Analyse how perfect competition differs from a monopoly. In perfect competition there are many sellers (1) in monopoly there is only one (1). In perfect competition there are no barriers to entry and exit / free entry and exit (1) in monopoly there are barriers (1). Firms in perfect competition are price takers (1) a monopoly is a price maker (1). In perfect competition there is perfect knowledge (1) that other firms may not be aware of e.g. the profit being earned by a monopoly (1). In perfect competition there is a low degree of market concentration (1) in monopoly it is 100% (1). In perfect competition there are perfect substitutes / homogenous products / identical products (1) in monopoly there are no substitutes / a unique product (1). 6 Reward but do not expect that perfectly competitive firms can only earn normal profit in the long run, whereas a monopoly can earn supernormal/abnormal profit. Question Answer Marks Guidance 7(d) Discuss whether or not an economy should mine and sell all of its gold now. Up to 5 marks for why it should: Will create employment (1) raise output / higher economic growth (1) increase incomes (1) increase living standards (1). It can be exported (1) demand may be high now (1) improve trade in goods (1) improve the current account position (1). More tax revenue can be earned (1) enable the government to spend more on e.g. education/healthcare (1). Up to 5 marks for why it should not: It will stop future generations (1) being able to benefit from its sale / reduce economic growth (1) as resources will be depleted (1) as a result of higher demand (1) e.g. due to higher income (1). The price of gold may rise in the future (1) now may not be the best time to sell it (1). The exchange rate may currently be low (1) which may reduce the revenue that the country can gain from exporting the gold (1). Advances in technology (1) may lower costs of extraction in the future (1). Gold mining may cause external costs (1) example e.g. pollution (1). In the long run, gold may have to be imported (1) increasing the current account position (1). It may lead to overspecialisation (1) potential for structural unemployment (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

Question 9

High technology (hi-tech) firms use a range of resources including labour and land. One US hi-tech firm has produced a new price index whic…

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7(a) Identify the reward received by labour and the reward received by enterprise. Labour = wages (1). Enterprise = profit (1). 2 7(b) Explain how inflation may affect borrowers and savers. Borrowers may gain (1) if the inflation rate exceeds the interest rate/the real value of what they repay may fall (1). Savers may lose (1) if the inflation rate exceeds the interest rate/the real value of their saving will fall (1). 4 7(c) Analyse why it is important to a government that inflation is measured accurately. It is important to ensure a government/central bank follows the right policies (1). If, for instance, a government overestimates inflation it may increase taxes (1) cut government spending (1) raise interest rates (1) which may increase unemployment (1) reduce economic growth (1). Measures of inflation e.g. CPI/RPI (1) can be the basis of wage claims (1) and rises in some state benefits/indexed linked state benefits (1). Helps planning (1) may encourage investment (1). 6 7(d) Discuss whether or not an increase in investment would reduce a deficit on the current account of the balance of payments. Up to 5 marks for why it might: May lower costs of production (1) make domestic products more internationally price competitive / lower export prices (1) so increasing demand for exports (1). Advanced technology / more efficient production (1) may increase the quality of products produced (1) increase demand for domestically produced products (1) reducing demand for imports (1). Investment in labour (human capital) (1) can increase skills (1) raise productivity (1) increase quality of products (1). Investment abroad could increase primary income/income (1). Up to 5 marks for why it might not: The investment may go on imported capital goods (1) in the short run would increase spending on imports (1). The investment may be in products which are not in demand abroad (1) are not substitutes for imports (1). In the short run investment may increase total (aggregate) demand by more than total (aggregate) supply (1) which may cause inflation (1) making domestic products less internationally competitive (1). Domestic products may become more competitive but net exports may not rise if offset by another change (1) e.g. import restrictions/fall in income abroad / rise in exchange rate (1). Investment may not be big enough to make a difference (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

Question 10

Changes in the supply of enterprise result in the development of new firms. In 2016, a theme park in Hong Kong made a loss with visitor num…

Accepted Answer

4(a) Define a loss. Costs exceed revenue (2). Insufficient revenue / costs too high (1). 2 4(b) Explain, giving examples, the difference between an internal economy of scale and an external economy of scale. Internal economy is the benefit a firm gains from itself (1) e.g. buying economies (1). External economy is the benefit a firm gains from the industry (1) e.g. ancillary industries (1). 4 4(c) Analyse how a government could increase the supply of enterprise. The government could spend more on education and training (1) this will increase people’s skills (1) may increase their ability to start up or run a business (1). The government could cut the rate of the tax on profits (1) provide grants / loans / subsidies (1) this would increase the incentive to be an entrepreneur (1). The government could sell off assets to the private sector / privatise (1) increasing the opportunity to be an entrepreneur (1). Relax immigration laws (1) immigrants may set up new businesses (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not consumers would benefit from a firm changing from being a public limited company to a public corporation (state- owned enterprise). Up to 5 marks for why they might: A public corporation’s main goal may be social costs and benefits (1) may be subsidised by the government (1) it may charge a low price (1) making it more affordable (1). A public corporation may be less likely to go out of business (1) ensuring continuity of supplies (1). A public corporation may take a longer-term view (1) investing in new technology (1). A public corporation may follow health and safety rules / regulations (1) increasing the safety of products (1). Up to 5 marks for why they might not: A lack of profit motive (1) may increase inefficiency (1). A public corporation is likely to be a monopoly (1) the lack of competition (1) may result in higher prices (1) lower quality (1). A public corporation may lack funds to invest (1) during periods of recession (1). 8

Question 11

In March 2017, Peru was hit by floods and the strongest winds in decades. Roads, bridges, houses and capital goods were destroyed. It is ex…

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4(a) Define a capital good. A human-made good (1) used to produce other goods and services (1). 2 4(b) Explain two causes of an increase in a country’s HDI. • an increase in GDP / GNI / income per head (1) raises the goods and services people can consume / due to e.g. higher employment (1) • an increase in life expectancy (1) indicates better healthcare / due to better healthcare / more investment in healthcare (1) • an increase in education / mean and expected years of schooling (1) increases job opportunities / quality of life / due to government investing more in education (1) 4 4(c) Analyse, using a production possibility curve (PPC) diagram, the effect of damaging weather on an economy. Up to 4 marks for the diagram: • axes correctly labelled in terms of two different products or types of products (1) • initial curve or downward sloping line is drawn to the axes (1) • second curve or downward sloping line is drawn to the axes (1) • An indication either by labelling or an arrow that the curve has shifted inwards / left (1) Up to 2 marks for written analysis: Bad weather will reduce the quantity of resources (1). The amount that can be produced with fewer resources will fall (1). 6 O capital goods consumer goods Question Answer Marks Guidance 4(d) Discuss whether countries with a high Gross Domestic Product (GDP) per head will have a faster rate of economic growth than countries with a low GDP per head. Up to 5 marks for why they might: They are likely to have good education (1) good healthcare (1) this will mean skills will be high (1) productivity will be high (1) there may be advances in technology (1) reducing costs of production (1) exports may increase (1). Unemployment may be low (1) with most resources being used (1). MNCs may be attracted to set up in the country (1) contributing to the country’s output (1). Foreign banks may be more willing to lend to the countries’ firms (1) allowing them to expand (1). High incomes are likely to mean high demand / high consumer spending (1) encouraging firms to produce more (1). Up to 5 marks for why they might not: Countries with a low GDP per head may discover raw materials (1) which may be in high world demand (1). People in poorer countries may have more drive to improve their living standards (1) they may work harder (1). Richer countries may have a lower rate of population growth or declining populations (1) this may mean their labour forces are growing more slowly (1) restricting their ability to produce more goods and services (1). Other factors may influence economic growth (1) e.g. type of government policies pursued / deficit on the current account of the balance of payments (1). 8

Question 12

Iceland’s Economic Structure The people of Iceland once depended on farming and fishing as their main source of income. By 2008, the Icelan…

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1(a) Identify, using information from the extract, two industries that are in the primary sector of the Icelandic economy. • farming • fishing 2 1(b) Explain, using information from the extract, two reasons for government regulation of the fishing industry in Iceland. Protect domestic fishermen (1) to ensure they have a stable income (1) to ensure that jobs are preserved (1) can compete with foreign fishermen (1). Protect the stock of fish (1) to ensure sustainability of fish stocks (1) for future generations (1). 4 1(c) Explain, using information from the extract, two reasons, apart from changes in employment, for Iceland’s high growth rate from 2002–2007. • increased availability of bank loans (1) more borrowing (1) to fund consumption (1) and to fund investments (1). • increasing income of its major trading partners, including the European Union and Norway (1) Iceland can now export more to their trading partners (1) increase net exports / external demand / aggregate demand (1) 4 1(d) Calculate, using information from the extract, Iceland’s GDP in 2007. $18.53 billion (2) 18.53 or working e.g. $17bn × 0.09 = $1.53bn (1) 2 Question Answer Marks Guidance 1(e) Analyse, using Fig 1.1, the relationship between changes in the economic growth rate and the unemployment rate over the period shown. They both rose over the period (1) showing a positive relationship (1) unexpected (1) evidence from the data e.g. the unemployment rose from approx. 3.4 to 5% (1) the economic growth rate rose from 0.5 to 1.8% (1) Unemployment rate was relatively constant from 2002 to 2008 (1) while economic growth fluctuated (1). Unemployment was relatively stable from 2009 to 2014 (1). Between 2007 and 2009 the fall in the economic growth rate (1) to a negative value / recession (1) while there was a rise in the rate of unemployment (1). From 2009 to 2014 economic growth increased (1) and unemployment fell (1) the trends are moving in opposite directions (1) as would be expected (1) high economic growth rate should create more jobs (1). Between 2002 and 2004 there’s a significant increase in the economic growth rate (1) while there was only a slight fall in the unemployment rate (1). 5 No marks for a descriptive approach e.g. identifying the growth rate or the unemployment rate for specific years. 1(f) Explain, using information from the extract, whether the supply of Iceland’s fish is price-elastic or price-inelastic. It is price-inelastic (1) because the quantity of fish supplied tends to change by a smaller percentage than the change in its price (1). 2 Question Answer Marks Guidance 1(g) Discuss the advantages and disadvantages of the activities of commercial banks to an economy. Up to 3 marks for advantages to an economy: Lending (1) to consumers (1) enabling them to increase consumption (1) raising their living standards (1) and to firms (1) allowing them to invest (1) increase employment (1) increase output (1) expand into international markets (1) improve the current account of the balance of payments (1). Attract MNCs (1) by providing a range of services to these companies (1). Banks employ many people (1) keeping unemployment low (1) Up to 3 marks for disadvantages to an economy: May encourage saving (1) decreasing consumption/total demand (1) Banks may fail (1) losing customers’ money (1) risking damage to the economy / recession (1). May lend to risky businesses (1) which may cause fluctuations in output (1). May lend to individuals who cannot repay (1) pushing them into debt (1). May charge high interest rates (1) to gain high profits (1) which will increase firms’ costs of production (1) and make it difficult for individuals to repay (1). May lend for purchase of imports (1) worsening the current account (1) Risk of inflation (1) if banks lend too much (1). 5 Question Answer Marks Guidance 1(h) Discuss whether or not a growth in tourism is an advantage to a country such as Iceland. Up to 4 marks for why it might be: Tourism is an export of services (1) bringing in foreign currency (1) improving the current account balance (1). Tourism may increase government tax revenue (1) this could be spent on e.g. education (1). Tourism increases the demand for goods and services (1) creating employment/reducing unemployment (1) e.g. in hotels/restaurants/shops (1) increases output / contributes to economic growth (1). Tourism may attract MNCs/foreign investment (1) e.g. foreign hotel chains may set up in the country (1). More revenue from tourism may result in a rise in the exchange rate (1) this may reduce the price of imports (1) Less reliance on primary / secondary sector (1) benefits of diversification (1). Up to 4 marks for why it might not be: Tourism may create external costs (1) example e.g. pollution (1). Tourism may deplete resources (1) e.g. water (1). Tourism may place a strain on infrastructure, e.g. transport systems (1) Tourism jobs may be low-paid (1) low skilled (1) seasonal (1). Foreign firms may send profits home (1) foreign hotels may bring own employees (1). A high exchange rate may reduce exports / international competitiveness (1). Tourism may increase demand in the economy (1) pushing up the prices the local population have to pay / creating inflation (1). 6

Question 13

Some economists have claimed that the 21st century will be the ‘African century’ because of the growth in their working-age population. For…

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7(a) Define labour. The human factor of production (1) mental and physical effort (1) required for production (1). 2 7(b) Explain two motives for saving. • to gain interest (1) as a form of income / as a return on saving (1) • for the future (1) e.g. for unexpected events, save for pensions (1) • to purchase expensive items (1) e.g. cars, houses, furniture / items which can’t be bought immediately (1) • for children’s education (1) to improve social mobility (1) 4 7(c) Analyse the reasons for countries having different population growth rates. Different birth rates (1) due to different levels of income (1) different levels of education (1) different awareness of contraception / family planning (1) Different death rates (1) because of different healthcare standards prevalance of diseases (1) different availability of hospitals/doctors (1). Different levels of immigration / emigration (1) better standards of living/job opportunities to attract more immigrants/prevent emigrants (1). Different levels of female labour force participation rates (1) more female labour force participation, lower birth rates (1). Different government regulations / incentives / disincentives (1) e.g. one-child policy reducing population growth rates/tax breaks or allowances for couples with children (1). Different cultural/spiritual reasons (1) example (1) 6 Question Answer Marks Guidance 7(d) Discuss whether or not a rise in the working-age population, as a percentage of the total population, will be beneficial to a country. Up to 5 marks why it might be: Increase in working age population will increase the size of labour force / supply of labour (1) increasing incomes (1) consumption (1) and increasing output / economic growth (1). Cost of labour may decrease (1) overall cost of production decreases (1) attracting foreign investments / MNCs (1) increasing aggregate demand (1) The working age population may spend more than other age groups (1). It will reduce the dependency ratio (1) reducing pressures on government spending (1). Up to 5 marks why it might not be: If birth rates are low, population might soon be ageing (1) leading to unsustainable growth (1) decreasing future output (1). If no jobs are available, unemployment will increase (1) example of problems associated with unemployment (1). Working-age people may be unskilled / have skills in the wrong areas (1) slows economic growth (1). More people working may cause increased external costs (1) e.g. pollution, congestion (1). 8

Question 14

New York: A Global Financial Centre New York is the best city in the world in terms of human capital according to the Global Financial Cent…

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1(a) State a factor of production and identify an example of it from the extract. land (1) scarce land in Manhattan / New York (1). labour (1) finance industry workers / wages (1). capital (1) stock exchange (1). enterprise (1) new business start ups (1) 2 1(b) Explain, using information from the extract, two causes of economic growth in New York. • good human capital (1) high skills / labour productivity (1) • economic freedom encouraging business start-ups (1) increased investment / innovation (1) • strong finance/manufacturing growth (1) increased investment/consumption/exports (1) • education (1) improved skills (1) increased productivity/growth of tertiary sector/greater GDP per capita (1) attracts students who spend on local goods and services (1) • falling unemployment (1) greater use of resources (1) 4 Two causes must be explained for maximum marks. 1(c) Calculate, using information from the extract, the total number of workers in New York city. 2m (2). Correct working 1.6m × 100/80, or 80% = 1.6m, or 20% = 0.4m (1). 2 . Question Answer Marks Guidance 1(d) Analyse, using Table 1.1, the relationship between average weekly hours worked and average weekly wages. Expected relationship – they would move in the same direction (1). Reason for expected relationship – more hours to produce more output (1). Evidence in support of expected relationship - data does not support expected relationship (1). Evidence against expected relationship – wages increase (1) hours fall / hours stay same (1) workers getting paid more per hour (1). 5 A pattern of analysis is expected in response to this type of question. If there is no expected pattern of analysis, the following may be worthy of some reward, e.g.: less hours worked will lead to workers becoming more productive; therefore earning more (1) 1(e) Explain, using information from the extract, one reason for differences in earnings between different jobs in New York. • diiferent skills required / lower productivity (1) higher skill leads to higher pay (1) • discrimination (1) men paid more than women / male- dominance in the financial sector leads to higher pay for men (1) • different industries (1) finance paid more than in education (1) 2 Question Answer Marks Guidance 1(f) Explain, using information from the extract, the possible negative effects of economic growth in New York. • pay gap widening/inequality (1) creating more social tensions (1) reducing productivity due to dissastisfaction (1) • external costs / environmental problems (1) increased pollution (1) lack of green, open space (1) • risk of financial crisis / recession (1) bank runs/asset bubbles bursting (1) lack of job security (1) • more people move to New York for employment (1) increasing the shortage of affordable homes (1) increasing housing prices (1) 4 Question Answer Marks Guidance 1(g) Discuss the advantages and disadvantages of a city having a large tertiary sector. Up to 3 marks for advantages: Generates economic growth (1) high value output (1). Generates jobs (1) leading to low unemployment (1). Tertiary sector has high productivity (1) high pay (1) which can lead to increased consumer spending (1). Encourages foreign investment (1) more capital spending (1) may also encourage financial investment (1). Less pollution (1) no need for factories which creates lots of external costs (1). Low transport costs (1) not having to move raw materials (1). Can export services (1) improve the current account of the balance of payments (1). More tax revenue (1) government can spend more on e.g. healthcare (1). Up to 3 for marks for disadvantages: Limited job choices (1) no manufacturing/agricultural jobs (1). Risk of specialising (1) overdependence on other economies (1). Inequality (1) not all will be able to get jobs in high-paying services such as finance (1) need high qualifications to get high pay (1). Congestion/transport problems (1) overcrowding (1) high house prices/housing shortage (1). 5 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease« 1 because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Application can be made to the financial sector, but it is not essential. Question Answer Marks Guidance 1(h) Discuss whether or not opening up to free trade benefits an economy. Up to 4 marks for how it might: Opening up to free trade will increase choices from imports (1) obtain products cannot produce (1) reduce prices (1) standards of living increases (1). More competition from imports (1) improve quality (1) increase productivity (1). Encourage more foreign investments (1) increase employment / decrease unemployment (1) increase capital spending (1) increase innovation (1) May increase the opportunity of specialisation (1) increase exports (1) increase GDP/GDP per capita/income (1). Avoid retaliation (1) that can occur if trade restrictions are imposed (1). Up to 4 for marks for how it might not: Domestic producers might be adversely affected (1) can’t compete with foreign firms (1) who might be more cost competitive (1) unemployment increases (1). Increase imports (1) will increase current account of the balance of payment deficit (1). May become dependent on other countries (1) they may gain monopoly power (1). Free trade may involve the removal of tariffs (1) reducing government revenue (1) 6

Question 15

In May 2017, the price of olive oil rose by more than 10%. This was caused by a drought in Greece, Italy, Spain and Tunisia, the major prod…

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5(a) Identify two examples of land used in growing agricultural crops. • soil • water • natural fertiliser • seeds • weather 2 Note: land on its own is insufficient, but the area of land or farmland can be rewarded. 5(b) Explain why the concept of price elasticity of supply (PES) may be useful to a government in deciding whether to subsidise the production of a product. A subsidy is aimed at increasing supply / lowering price (1). If supply is elastic, supply will change by a greater (1) percentage (1) than price. Should subsidise production of the product (1). If supply is inelastic, supply will change by a smaller (1) percentage (1) than price. Should not subsidise production of the product (1). 4 Note: supply change is greater/smaller than price change (1) supply changes by a greater/smaller percentage than price (2) 5(c) Analyse why the demand for a product may be higher in one country than in another country. Incomes may be higher (1) allowing people to buy more of the product (1). There may be a larger population (1) more potential buyers (1). The product may be more to the taste of people in that country (1) example e.g. falafel is popular in the middle east (1). The product may be more heavily advertised (1) which may increase the attractiveness of the product (1). Price may be lower (1) due to lower costs of production / government subsidy / lower (indirect) taxes (1). Price of substitutes may be higher (1) example (1). Credit may be more available / interest rate lower (1) making it easier for people to borrow to buy the product (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not the government should influence the production of basic food items, such as bread or rice. Up to 5 marks for why it should: The poor may spend a higher proportion of their income on food (1) a subsidy on food (1) may reduce poverty (1) lower indirect tax may reduce poverty (1) lower price (1) basic food items / bread / rice may be regarded to be a basic necessity (1) There may be market failure (1) bread may be overconsumed (1) this may cause obesity (1) a tax will raise price (1) this may discourage demand for basic food items / bread / rice (1) reduce obesity (1) it may also reduce wastage (1). Regulation may be needed (1) to ensure the basic food / bread / rice is produced under clean conditions / with safe ingredients (1). Basic food items / bread / rice may be produced by a monopoly (1) which could use its power to restrict supply (1) push up price (1) regulation may be need to prevent this (1). Demand for basic food items / bread / rice may be inelastic (1) firms may take advantage of this to push up price (1). Up to 5 marks for why it should not: Market forces may produce an efficient output (1) the profit motive (1) may encourage producers to respond to changes in consumer demand (1) surpluses and shortages will be eliminated by changes in prices (1). There may be a high level of competition in the industry (1) encouraging producers to make basic food items / bread / rice of a high quality (1). An indirect tax will be regressive (1) fall more heavily on the poor (1). A subsidy will involve an opportunity cost (1) example (1). Reducing an indirect tax will lower tax revenue (1) lowering government’s ability to spend on e.g. healthcare (1). Government discouragement of production of basic items may result in more being imported (1) which will harm the balance of payments (1). 8 Reward but do not expect reference to price controls.

Question 16

A new capital for Zambia? Zambia is a middle-income country but one with 60% of its population of 15 million living below the poverty line.…

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1(a) Identify, from the extract, two primary sector industries. • agriculture • copper mining • emerald mining 2 1(b) Calculate, using information from the extract, how many people in Zambia lived in poverty in 2017. • 9m (2). • Correct working: 15 m × 60% (1). 2 1(c) Explain, using information from the extract, why Zambia had a high rate of population growth in 2017. • Birth rate exceed death rate / more people being born than dying (2). • High birth rate / high natural increase (1). • Birth rate 41.8 and death rate 12.4 (1). 2 1(d) Explain, using information from the extract, why a depreciation of the kwacha harmed the Zambian economy. • Inflation rate rose (1) from 10.1% in 2015 to 20.6% in 2016 (1). • Growth rate fell (1) from 6.8% after 2014 (1). • Depreciation is a fall in the value of the currency (1) import prices would have been higher (1) increasing costs of production (1) leads to higher prices (1) demand for higher wages (1) creating a wage-price spiral (1). • Higher inflation may have reduced international competitiveness (1) reducing output / economic growth rate (1) leading to lower employment (1) and reduction in living standards (1). 4 Question Answer Marks Guidance 1(e) Analyse, using Fig.1.1, the relationship between copper output and revenue from the sale of copper. Expected relationship - a direct relationship would have been expected / moved in same direction / as copper output rose, revenue should have risen (1). Evidence in support of unexpected relationship • Does not support expected relationship / shows an inverse relationship (1). • Between 2010–14 revenue rose (from 100 to 128) but output fell (from 100 to 90) so prices rose (1). • Between 2014–17 revenue fell (from128 to 90) but output rose (from 90 to 108) which meant that prices fell (1). • In 2014 copper revenue was highest 128 and output at its lowest 90, while in 2017 copper revenue was at its lowest 90 and output at its highest 108, so changes in revenue were greater than changes in output of copper (1). Analysis of inverse relationship: • When output fell, price per unit may have risen more than fall in output, due to loss of economies of scale causing average costs to rise (1). • Price for Zambian copper affected by world market prices (1). • Copper is likely to be inelastic in demand so prices rise by more than fall in output increasing revenue (1). 5 A pattern of analysis is expected in response to this type of question. Do not reward simple statements (repetition) of the figures given in the table. Question Answer Marks Guidance 1(f) Discuss whether or not a central bank should reduce commercial bank lending. Up to 3 marks for why it should: • Lowering consumer expenditure / investment by firms (1) may reduce demand-pull inflation (1) making exports more competitive (1). • May prevent households and firms getting into debt (1) that they cannot repay banks (1) may avoid a financial crisis in the future (1). • May reduce spending on imports (1) improve the current account position (1). Up to 3 marks for why it should not: • It may reduce consumer expenditure (1) investment (1) this will lower total (aggregate) demand (1) which may reduce economic growth (1). • Some firms may go out of business (1) causing unemployment (1) results in poverty (1). • Firms may not keep up with advances in technology (1) reduce international competitiveness (1) harm the current account position (1). • Households may not be able to borrow to pay for their everyday living / their children’s education / their higher education (1) lower their career prospects (1). 5 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease « 1 ... because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) Explain, using information from the extract, two reasons why productivity may have been low in Zambia. • Low investment (1) e.g. fewer workers might be working with new advanced capital equipment (1). • Cut in the government spending on training (1) workers may be less skilled (1). • People living in poverty / poor health (1) more time off work (1). • Lack of infrastructure e.g. lack of roads / lack of school buildings (1) means greater difficulty getting to work / gaining adequate education (1). • Only 48% of the population work (1) less people in work (1). • Life expectancy of only 52.5 years (1) lack of skills / experience (1). 4 1(h) Discuss whether or not building a new city will benefit an economy. Up to 4 marks for why it might: • Jobs will be created (1) reduce unemployment (1) higher total demand / economic growth (1) creating higher income / less poverty (1). • Better housing may be constructed (1) overcrowding may be reduced / less homelessness (1) living standards may rise (1). • MNCs may be attracted into the country (1) by improved facilities (1). • Results in higher tax revenue (1) which government can spend on other objectives e.g. education and health (1). Up to 4 marks for why it might not: • It will involve an opportunity cost (1) money spent/resources used could have been used to e.g. improve education and healthcare (1) may cause a budget deficit (1). • It may cause external costs (1) e.g. damage the environment (1). • People and firms may not want to move (1) new facilities will be wasted (1). • Causes inflation (1) if already at or close to full employment (1). • Pushes up prices (1) causing cost-push inflation (1). • Depletes natural resources / raw materials (1) more dependent on imports (1). 6

Question 17

In 2017, the Brazilian paper industry was booming. Its total revenue increased and it employed both more, and better quality, factors of pr…

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3(a) Define total revenue. The total income / money received (1) from a firm’s sales (1). OR Price (1) multiplied by quantity sold (1). 3(b) Explain two differences between capital and labour. Logical explanation which might include: Capital is a human-made resource / factor of production / machines (1) labour is a human resource / factor of production / workers / type of worker (1) Capital is increased by investment (1) labour is increased by e.g. rises in population (1) The quality of capital is improved by advances in technology (1) the quality of labour is improved by e.g. better education (1) Capital is paid interest (1) labour is paid wages (1). Capital can be a fixed cost (1) whereas labour can be a variable cost (1). Capital can be a one-off investment (1) wages are paid regularly (1). Labour tends to be mobile (1) capital tends to be immobile (1). Capital can work for 24 hours (1) workers have breaks / work for less than 24 hours (1). 4 One mark for each of two differences identified and one mark for each explanation. Question Answer Marks Guidance 3(c) Analyse the possible effects on consumers of a merger between two paper-producing firms. Coherent analysis which might include: This would be a horizontal merger (1) it may enable the merged firm to take greater advantage of economies of scale (1) so lower average costs of production (1) which may lower prices (1) enabling consumers to buy more / save more (1). The merger may increase profits (1) allowing the merged firm to spend more on e.g. R&D (1) gain new ideas (1) increase investment (1) consumers may gain from a rise in the quality of the product (1) new products may be produced(1). The merger may reduce competition / result in a monopoly (1) which may increase prices (1). If the merged firm is a monopoly it may restrict supply / result in outlets being shut down (1) making it more difficult for consumers to obtain the product (1) may reduce choice (1) may result in diseconomies of scale (1). A reduction in competitive pressure (1) may reduce the quality of the product (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not demand for coffee is likely to rise in the future. In assessing each answer, use the table opposite. Why it might: • incomes may rise increasing people’s ability to buy coffee • price may fall (due to e.g. subsidies) increasing people’s willingness and ability to buy coffee • the quality of coffee may rise • population may increase. Why it might not: • price of substitutes, such as tea / coffee produced by other countries, may fall so people may switch away from drinking coffee • there may be a health report suggesting that drinking coffee is harmful to health • the price of complements, such as milk, may rise • taxes / tariffs may be imposed on coffee • Less may be spent on marketing. Example of a Level 2 answer: Coffee is an inelastic good which means the demand for it remains the same irrespective of the price. The demand for coffee increases with time as the population grows, so demand may be a constant growth. However, demand may not rise in the future as there are alternatives to coffee. Education on the harmful effects of coffee has increased leading to less consumption of coffee, reducing the demand for it. 8 Level Description Marks 3 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. 6–8 Question Answer Marks Guidance 3(d) Principal Examiner comment: The answer is two-sided but lacks depth. It starts with a confused statement on the meaning of a product having price-inelastic demand. It then correctly identifies an influence on demand for coffee (population) and shows understanding of how an increase in population will affect demand for coffee. On side two, the influence of alternatives (substitutes) is accurate and there is a clear link between education and reduced demand for coffee. More discussion on, for example, changes in relative price or quality of substitutes would have been appropriate. Level Description Marks 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 18

(a) Calculate Vietnam’s GDP per head in 2017. [1] (b) Identify two rewards to factors of production. [2] (c) Explain what happened to Vietn…

Accepted Answer

Question Answer Marks 1(a) Calculate Vietnam’s GDP per head in 2017. 1 $6900 (1). 1(b) Identify two rewards to factors of production. 2 Wages (1) profits (1). 1(c) Explain what happened to Vietnam’s foreign exchange rate between 2 2010 and 2017. Logical explanation which might include: It fell/depreciated (1) more dong had to be given to buy one dollar (1). 1(d) Explain two benefits an economy may gain from having a young 4 labour force. Logical explanation which might include: May be more flexible (1) switch from doing different tasks (1). May be more mobile (1) able to switch from one job to another or from one place to another place (1). May be more up to date with advances in technology (1) more productive/able to use advanced technology (1). 1(e) Analyse why Vietnam’s budget deficit may decline in the future. 4 Coherent analysis which might include: High economic growth will raise incomes/wages rising (1) higher profits (1) more revenue from direct taxes (1) higher incomes is likely to result in more spending (1) more revenue from indirect taxes (1). Tax rates may be increased (1) reducing the gap between tax revenue and government spending (1). Deregulation / privatisation may increase profits (1) resulting in higher revenue from direct taxes /corporation tax (1). 1(f) Analyse the relationship between government spending on education 5 and the percentage of the labour force employed in the tertiary sector. Coherent analysis which might include: Generally the countries with the highest % spending on education have the highest percentage employed in the tertiary sector and vice versa (1) up to two examples e.g. Norway has the highest % spending and the highest % employed in the tertiary sector, Bangladesh has the lowest % spending and the lowest % employed in the tertiary sector (2) the main exception is Vietnam – second highest % spending but lowest % employed in the tertiary sector (1) there may be a time lag in this case (1). It is the expected relationship as some tertiary jobs require high skills (1) countries that can afford to devote a high percentage of resources to education may have achieved a relatively high level of development (1) a higher percent spent will create jobs in education (1). 1(g) Discuss whether or not an increase in competition is likely to benefit 6 Vietnamese consumers. Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. 0 reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on 1 subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why it might, which may include: • prices may be reduced to attract more consumers (1) making them more affordable to consumers (1) • choice will be increased in terms of sellers (1) and possibly in terms of a greater range of products (1) • quality may rise (1) with pressure being put on producers to produce good products to attract consumers (1) • producers may respond more fully to changes in consumer demand (1) Award up to 4 marks for logical reasons why it might not, which may include: • firms may be smaller (1), less able to take advantage of economies of scale (1), so prices may be higher (1) • firms may have less profit (1) and so spend less improving the quality of the product (1) • some firms may be MNCs (1), less concerned about causing external costs (1) 1(h) Discuss whether or not the increase in borrowing is likely to have 6 caused inflation in Vietnam in 2017. Award up to 4 marks for logical reasons why it might, which may include: • higher consumer demand (1) and investment (1) will increase total (aggregate) demand (1) • higher total demand may cause demand-pull inflation/cause producers to raise prices (1) • government spending may rise, further adding to total (aggregate) demand (1) • the economy has very low unemployment/full employment (1) making it difficult for supply to respond to higher demand (1) • tax rates may rise (1) which may increase costs of production (1) causing cost-push inflation (1) Award up to 4 marks for logical reasons why it might not, which may include: • higher investment may reduce costs of production (1) lowering cost- push inflation (1) • higher consumer spending may enable firms to grow (1) and take greater advantage of economies of scale (1) • increased education (1) may raise labour productivity (1), reduce costs of production (1) and lower cost-push inflation (1) • privatised firms may be more efficient (1) • more competition may reduce price rises (1)

Question 19

There is a smaller proportion of large firms in Africa than in Asia. The two African countries with the largest firms are Nigeria and South…

Accepted Answer

3(a) Define a capital good. 2 Human-made good (1) used in production/used to produce other goods and services (1). 3(b) Explain two challenges facing small firms. 4 Logical explanation which might include: Lack of finance/difficulty raising finance (1) banks may be more reluctant to lend to small firms (1). May not be able to take advantage of economies of scale (1) may have higher average cost (1). Not well known (1) difficult to attract consumers (1). May face fierce competition from large firms (1) which may lower their prices/spend more on advertising (1). Risk of failure (1) due to inexperience of owners (1). 3(c) Analyse, using a demand and supply diagram, how a rise in income 6 may affect the market for gold. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Demand curve shifted to the right (1). Equilibriums – shown by lines P1, P2/Q1, Q2 or marking the equilibrium points E1 and E2 (1). Up to 2 marks for logical analysis: An increase in income will increase people’s ability to buy gold/raise purchasing power (1). Price will rise/quantity traded will rise (1). 3(d) Discuss whether or not MNCs increase production and productivity in 8 their host countries. In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why they might: • may have high demand for their products • may create demand for raw materials from domestic firms • may bring new technology and working practices into the countries • may train workers • may pay higher wages which may motivate workers. Why it might not: • may drive some domestic firms of business • may deplete natural resources, reducing output in the future • may have long/unsociable working hours • may generate external costs including pollution which may reduce the health of workers. Limit to level 2 if only production or productivity is considered.

Question 20

In Nagicho, a small town in Japan, a woman on average has 2.8 children in her lifetime. In Japan as a whole, a woman on average only has 1.…

Accepted Answer

2(a) State two functions of local government. 2 • providing public goods • providing street lights • local recreation activities • cleaning • waste collection and management • infrastructure investment • providing tax incentive • zoning • provision of low income housing • supporting local businesses 2(b) Explain how a lower cost of living can encourage population growth. 4 Logical explanation which might include: Cheaper to bring up a child (1) education and healthcare cost lower or any other example (2) parents don’t have to work so hard (1) more time to raise children (1). Lower cost of living could lower death rate (1) as healthcare is more affordable (1) and people can live longer (1). Lower cost of living could encourage net migration (1) cheaper to live in that country (1). 2(c) Analyse the influences on the mobility of two factors of production. 6 Coherent analysis which might include: Availability of proper infrastructure (1) to move from place to place (1) e.g. trains / roads (1) whether it is affordable or not (1). Cost of living differences (1) whether workers can afford to move to another place (1) e.g. housing costs, cost of education (1). Availability of information (1) on jobs elsewhere (1). Tax rate changes (1) lower tax rates could encourage workers to move to another country to take advantage of lower taxes (1) / entrepreneurs could be encouraged to move to a lower tax economy (1). Regulation changes (1) could limit movement of labour or capital (1). Level of education (1) could make labour more occupationally mobile (1). No reward for only identifying the factors of production. Accept other relevant factors e.g. cultural differences (up to 3 marks each). 2(d) Discuss whether or not increased investment is beneficial to an 8 economy. In assessing each answer, use the table opposite. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 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. 2 A reasoned discussion which makes use of economic 3–5 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. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why it might be beneficial: • Investment is the purchasing of capital goods which increase a country’s productive capacity / supply-side capacity of the economy • Investment increase total demand • Investment increase demand for workers, decrease unemployment, increase income • Increase spending on research and development and increase productivity • Create economic growth Why it might not be beneficial: • Investments may lead to inflation (demand-pull) in the short run • Investments on capital goods has an opportunity cost of consumer goods production • Investments sacrifices current living standards for future living standards • Foreign investments might be very uncertain – knows no loyalty – very mobile. • Capital goods may be a substitute for labour, which creates unemployment.

Question 21

Among the reasons for Malaysia’s continued economic growth are rises in consumer spending and the country’s ability to adapt to changes in …

Accepted Answer

3(a) State two sectors, other than the primary sector, in an economy. Secondary sector (1) Tertiary sector (1) 2 Reward but do not expect the quaternary sector. 3(b) Explain two possible reasons for a fall in the price of a product such as natural rubber. Logical explanation which might include: Decrease in demand for natural rubber (1) emergence of substitutes (1) decrease in future expected price or any other relevant examples (1). Increase in supply of natural rubber (1) due to increase in number of producers / good yield / relevant example (1). 4 3(c) Analyse the influences on spending. Coherent analysis which might include: Income (1) higher income increases the ability to spend / increases purchasing power (1). The rate of interest (1) a change in the rate of interest influences the proportion of income that is spent and saved (1) and affects borrowing (1). Confidence (1) people spend more when they are optimistic (1) about future income / job security (1). Wealth (1) people can spend some of their wealth (1) e.g. sell shares (1) use it as collateral to borrow (1). Inflation (1) spending may fall if prices rise more than money wages (1) spending may rise as people seek to buy products before they increase in price even further (1). Expansionary fiscal / monetary policy may increase spending (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not the growth of the primary sector is beneficial to a country. In assessing each answer, use the table opposite. Why it is beneficial: • can increase total output of the economy, increasing economic growth • can provide employment opportunities that are accessible to all / requires low skill / requires low technology • could increase standards of living in rural areas • provide raw materials for secondary sector • could ensure that country has food security, reduce imports of necessities, if prices of primary sector products are high e.g. high oil price which this could bring huge export revenue to the country. This could reduce current account deficit. Why it is not beneficial: • productivity may be low in the primary sector, very low value added • may be low wages and poor working conditions • overdependence on primary sector may restrict growth of secondary and tertiary sectors • some primary industries may be disrupted by weather conditions and natural disasters • supply and demand are inelastic so there may be considerable price fluctuations • natural resources e.g. copper may be depleted. 8 Level Descriptors Mark 3 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. 6–8 2 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 or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 3(d) Example of an L1 answer: Growth of the primary sector may benefit an economy because it uses renewable and non-renewable resources. It provides the raw materials needed by other sectors. Consumers’ demands cannot be fulfilled without the primary sector as it is needed to produce all goods and services. It may not be as beneficial as other sectors as wages are lower and natural resources may eventually become depleted. Principal Examiner comment: A few relevant identifications.

Question 22

Free trade has allowed the Mexican economy to specialise in low-cost manufacturing. Unemployment nationally is relatively low, but approxim…

Accepted Answer

5(a) State the rewards for labour and capital. Wages (1) for labour Interest (1) for capital 2 5(b) Explain the two types of poverty. Logical explanation which might include: Absolute poverty (1) is when someone cannot afford the basic necessities of life (1) less than $1.90 per day at PPP (1). Relative poverty (1) is when someone earns less than is needed to participate in the normal activities of society (1) when there is inequality (1). 4 One mark for identifying absolute poverty and one mark for an explanation. One mark for identifying relative poverty and one mark for an explanation. 5(c) Analyse how firms can benefit from specialisation. Coherent analysis which might include: Improve skills of workers (1) save time (1) lead to invention of new technology (1) increase productivity (1) raise quality (1) decrease average cost of production (1) decrease prices (1) increase demand (1) enable advantage to be taken of economies of scale (1) increase profits (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures can reduce unemployment. In assessing each answer, use the table opposite. Why they can: • decrease corporation / profit tax, more profits, more investments, more demand for labour, reduction in cyclical unemployment • decrease interest rates, more borrowing, more investment, more demand for labour, reduction in cyclical unemployment • decrease income tax, increase disposable income, more spending / demand for goods and services, more production, increase demand for labour • government subsidies can encourage firms to expand and take on more workers, reduce cyclical unemployment • increase spending on education and training, increase skills / productivity of labour, increase demand for labour, decrease structural unemployment. • provide more information on jobs / job centres, easier for workers to find jobs, decrease frictional unemployment • reduce unemployment benefit to reduce the time workers are between jobs, decrease frictional unemployment. Why they cannot: • may be a time lag • more investments could lead to increased technological development, less demand for workers • education programmes not according to market needs 8 Level Descriptors Mark 3 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. 6–8 2 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 or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) • privatisation could lead to firms cutting amount of workers • decrease in minimum wage could decrease incentive to work • may be a lack of total demand. Example of L2 answer: Supply-side measures such as training and education can help to reduce unemployment as they allow people to become more skilled and therefore increase their opportunities to become hired. Also, when a firm is subsidised by the government, it may have more money to invest in labour, and this would reduce unemployment. Privatisation can also cause a reduction in unemployment, as the private sector may be willing to invest more capital to labour to increase its output and this would reduce unemployment. On the other hand, supply-side measures may not reduce unemployment, because subsidies given to firms may increase its capital, but this may be used to become more capital-intensive rather than labour-intensive, which would not reduce unemployment. Also, if people are trained and educated, but gain skills that are not demanded, they may remain unemployed and therefore unemployment would not decrease. Privatisation may lead to firms becoming more capital-intensive rather than labour-intensive, and this would not reduce unemployment. Principal Examiner comment: Reasonable on both sides.

Question 23

(a) Calculate the external cost per kilometre of driving a car in Manila in 2017. [1] (b) Identify two macroeconomic aims of the Philippine…

Accepted Answer

1(a) Calculate the external cost per kilometre of driving a car in Manila in 2017. $0.54 (1). 1 $ not necessary for 1 mark. 1(b) Identify two macroeconomic aims of the Philippine government. Economic growth (1) full employment (1). 2 Also accept raised labour productivity and low unemployment. If more than two are given, consider the first two only. 1(c) Explain one reason why traffic congestion can reduce labour productivity. Logical explanation which might include: Reduce health of workers / workers arriving tired / stressed (1) this is likely to lead to more days of absence from work / reduce their output per hour (1). Late arrival to work (1) output per day declines / less working time (1). 2 1(d) Explain how an increase in the mobility of Philippine workers would be likely to affect unemployment in the Philippines. Logical explanation which might include: Greater geographical mobility (1) enables moving from areas of unemployment to areas where there are job vacancies / expanding industries such as computer, retail, and education (1) will affect frictional unemployment (1) take jobs overseas (1). Greater occupational mobility (1) through education/training enables moving into jobs requiring different skills/qualifications (1) will reduce structural unemployment (1). 4 Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show how a rise in the price of car parking could affect the market for cars in the Philippines. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q. (1). Demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or by labelling equilibrium points as E1 and E2 (1). 4 Note: if diagram also shows shift in supply curve (e.g. will not get new equilibrium point) it can still get 3 marks. Question Answer Marks Guidance 1(f) Analyse the relationship between the countries’ consumer expenditure and imports. Coherent analysis which might include: Expected relationship: Direct / positive relationship (1) generally countries with higher consumer expenditure import more goods and services (1). As income rises consumption rises for both domestic and imported goods and services (1). Evidence: E.g. Brazil spends the most and imports the most and Panama spends the least and imports the least (1) supportive data (1). Exception: Argentina/Philippines (1) supportive data (1). Analysis: Trade restrictions reduce growth in imports (1) imports include not only consumer goods, but also capital goods bought by firms (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Marks Guidance 1(g) Discuss whether or not the supply of enterprise is likely to increase in the Philippines. Up to 4 marks for why it might: • economy is growing / rising incomes / higher consumer spending (1) so likely to earn higher profit (1) • well-educated population (1) ability to employ skilled labour (1) attracts MNCs (1) • greater skills (1) encourage workers to set up own businesses (1) • population is growing (1) so more potential entrepreneurs (1) larger markets (1) • deregulation (1) so there may be more market opportunities / less barriers to entry (1) • the reduction of traffic congestion (i) will increase productivity of workers (1) raising opportunity to make profits (1) Up to 4 marks for why it might not: • some entrepreneurs may emigrate (1) • high taxes (1) which may reduce the reward to entrepreneurs (1) • traffic congestion (1) can increase costs of production (1) MNCs may be discouraged from entering the country / reducing the supply of foreign entrepreneurs (1) • may not want to take the risk/stress of running own business (1) prefer to stay as employee (1) • growth rate is falling (1) less opportunities for investment / new businesses (1) 6 Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not building more roads in Manila will benefit the Philippine economy. Up to 4 marks for why it might: • reduce traffic congestion (1) lowering journey times / transport costs (1) helps tourism (1) • productivity may rise (1), reduce costs of production (1) encourages higher output / economic growth (1) • government expenditure on roads (1) leads to higher employment (1) and higher spending / total demand (1) • MNCs may be attracted into the country (1) reducing unemployment (1) • lower average costs (1) may increase international price competitiveness (1) increasing exports (1) improving the current account position (1) Up to 4 marks for why it might not: • shortage of land (1) opportunity cost in terms of how the land is used (1) • opportunity cost (1) could have been used for education / health (1) • government may have to raise taxes to fund the road building (1) and taxes are already high (1) • may increase the number of cars on the roads (1) may not reduce traffic congestion in the long run (1) • during the building process there will be disruption to drivers and production (1) • more roads lead to increase in negative externalities (1) example (1) lowering standard of living (1) • rapid growth in population (1) land more expensive to build roads (1) • additional expenditure if at full employment (1) could lead to demand-pull inflation (1) 6

Question 24

In the Netherlands in 2018, there were 1.3 bicycles per person and the world’s largest underground bicycle parking area was built in the ca…

Accepted Answer

3(a) Identify one difference between land and labour. Land is a natural resource (1) labour is a human resource / people (1). Reward for land is rent (1) reward for labour is wages (1). Land is likely to be more geographically immobile than labour (2). Land may be more occupationally mobile than labour (2). Land may be in more fixed supply / scarcer than labour (2). Accept raw materials for natural resource, 3(b) Explain two reasons why demand for a product may be price-inelastic. Logical explanation which might include: Lack of close substitutes (1) not able to switch to other products if the price of the product rises (1). A necessity (1) difficult to do without (1). Takes up a small part of income (1) change in price will not be significant (1). Addictive (1) people find it difficult to stop consuming it (1). New trend (1) brand loyalty being enforced by advertising (1). Time / short period of time (1) may take time to find an alternative (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse why households in one country may borrow more than households in another country. Coherent analysis which might include: A lower interest rate (1) reduces the cost of borrowing (1). Financial institutions may have more funds available to lend in one country (1) making it easier to borrow (1). Households / financial institutions may be more confident that they can repay (1) employment / income may be rising in one country (1). Borrowing may be more socially acceptable in one country (1) people may not mind getting into debt (1). Younger households (1) may be less worried about debt (1). Rise in unemployment / fall in GDP / recession in one country / lower income (1) may result in borrowing to buy basic necessities (1). Inflation (1) borrowers will gain if the rate is higher than the rate of interest (1). 6 Accept an approach that analyses why households in the other country borrow less. A maximum of 3 marks for a list-like approach. This might be in the form of e.g. lower, interest rate, more confidence and more culturally acceptable to borrow. Or In the form of e.g. difference in interest rates, differences in confidence, differences in cultural acceptability of borrowing. Question Answer Marks Guidance 3(d) Discuss whether or not a government should encourage more people to cycle. In assessing each answer, use the table opposite. Why it should: • reduce external costs • improve the environment • improve people’s health • reduce traffic congestion • may reduce need to import petrol Why it should not: • may involve costs e.g. building cycle paths • may result in unemployment in car industry • may lead to more imports of bicycles • market forces will result in the most efficient allocation of resources Example of an L3 answer External benefits are benefits enjoyed by the third party who are neither involved in production or consumption of goods and services. The private benefit of cycling, enjoyed by cyclists, is their fitness will increase. But government can enjoy a more healthy labour force which means it can result in better quality of goods and services, which can be exported to increase export revenue. Moreover, cycling increases fitness, which could also mean that the government will not have to spend more on healthcare. This finance can be used somewhere else, like infrastructure. Lastly, increased cycling would mean that pollution levels will decrease, which not only promotes sustainability, but also reduces external costs such as traffic and noise. 8 Level Description Marks 3 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. 6–8 2 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. 3–5 Question Answer Marks Guidance 3(d) However. If cycling is promoted, the government will have to build cycling parks and parking, increasing the costs and opportunity cost as same money could be used for retraining and reskilling. In addition, if the land is used for cycling parks, opportunity cost will be high as land is scarce, and it could be used for housing. Finally, since cycles are 2-wheelers, they are less safe than cars. So, chances of accidents rises. This means the government will have to spend more on healthcare, which can reduce a budget surplus. Less cars may be bought and lower car production could increase unemployment. Example of an L2 answer If people in Netherlands buy cycles to commute, external costs such as pollution will be lower which means people will fall less ill and less money will be needed for healthcare. Lower pollution in a country means that tourists might also be attracted. If more people bought cycles in a country like Netherlands there will be less congestion on roads which might improve productivity. However, if the government does encourage cycling, it means that they will also have to spend building leisure parks and bike paths across the country which might outweigh costs such as pollution. Sale of low-priced cycles means that the government might also generate less indirect tax e.g. VAT, decreasing the surplus of the government. Example of an L1 answer They should as cars are polluting the world. If people are riding bikes it is good for their health and there will be fewer accidents and they will lose weight. But the government will have to build cycle parks and this will cost money. Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 25

(a) Calculate the value of Nigeria’s exports of goods in 2017. [1] (b) Identify two examples of capital goods. [2] (c) Explain whether Nige…

Accepted Answer

1(a) Calculate the value of Nigeria’s exports of goods in 2017. $43.1bn 1 $ is not essential. 1(b) Identify two examples of capital goods. Two from: • [delivery] vehicles • machines • [office] equipment 2 1(c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. • budget deficit (1) • government spending exceeded tax revenue (1) • government spending was $19.5bn and tax revenue was $12.9bn (1) 2 1(d) Explain how government spending on training may increase tax revenue in the long run. Logical explanation which might include: • Training may increase skills of workers (1) raise productivity (1) raise wages / incomes (1) increase job opportunities / employment / reduce unemployment (1) increase income tax revenue (1). • Higher wages may increase spending / demand (1) increase indirect tax revenue (1). • A more productive labour force may reduce costs of production (1) raise profits (1) increase corporation tax revenue (1). 4 Question Answer Marks Guidance 1(e) Analyse how living standards in Nigeria compare with the living standards in Ethiopia in 2017. Coherent analysis which might include: • Nigeria’s higher GDP per head (income) (1) suggests Nigerians may have been able to enjoy more goods and services (1). • Nigeria has a lower life expectancy (1) suggesting poorer healthcare (1). • Nigeria has a higher average number of years spent at school (1) suggesting the labour force may be more educated (1). • Nigeria has a higher percentage of underweight five-year olds (1) suggesting poor nutrition / income inequality (1). • Overall comment: Nigeria’s income per head and average years spent at school suggests a higher living standard but life expectancy and percentage of five years underweight suggests a lower living standard (1). 4 Question Answer Marks Guidance 1(f) Analyse how a government could encourage firms to increase their investment. Coherent analysis which might include: • Reduce the rate of interest (1) making it cheaper to borrow (1) encouraging borrowing as consumer spending is likely to rise (1). • Lower corporation tax (1) increasing the funds available to invest (1) increasing the incentive to invest as return from investment would rise (1). • Create greater economic certainty / confidence (1) by e.g. keeping inflation low and stable / not changing government spending and taxation frequently (1) making it easier for firms to plan / it can take time to get a return from investment (1). • Provide subsidies/grants/loans (1) decreasing cost of investments (1) encouraging MNCs (1). • Raise tariffs (1) increasing demand for home produced goods (1). • Less government regulation/policies (1) reduces costs for firms (1) more willing to invest (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. Award up to 4 marks for why it might: • Fall in death rate (1) may indicate improved healthcare (1). • Total (aggregate) demand will increase (1) may enable existing firms to expand / increase output (1) new firms to set up (1) attract MNCs (1). • Labour force may increase (1) causing total (aggregate) supply to increase / raise productive capacity (1) increase output / GDP (1). • May move country towards optimum population (1) if there are unused resources (1). • Net immigration will increase labour force (1) and reduce dependency ratio (1) • More tax revenue (1) can be spent on improving e.g., public services (1). Award up to 4 marks for why it might not: • Birth rate is rising (1) will increase dependency (1) resources which may have increased economic growth may have to be devoted to rearing the children (1). • Labour force may fall in the short run (1) to look after the children (1). • Pressure will be put on the environment (1) there may be more pollution (1) causing overcrowding / poor health (1). • If food output cannot be increased (1) may be more malnourishment/famine / poverty (1) more food is required / food may have to be imported (1) food prices may increase (1). 6 Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • Population is rising but age structure may be changing (1) as there is net emigration of young people (1) may result in reduction in labour force (1). • [Opportunity] cost for government (1) which has to spend on health/education rather than infrastructure (1). • Increase in output to meet demand (1) results in faster usage of resources in country (1) and shortages (1). Question Answer Marks Guidance 1(h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. Award up to 4 marks for why it might: • A higher tariff may raise the price of imported rice (1) may reduce demand for / consumption of imported rice (1) may cause Nigerians to demand more home- produced rice as it is cheaper (1) effect would be greater, the greater the elasticity of demand for the import of rice (1) may enable Nigerian rice farmers to raise their price / make more profit (1). • A tariff may raise government tax revenue (1) some of this could be used to subsidise Nigerian rice farmers / modernise farming methods and so raise productivity (1). Award up to 4 marks for why it might not: • Nigerian farmers are less productive than Asian competitors (1) have high(er) costs of production (1) Nigerian price may still be higher even with the higher import tariff (1). • The supply of Nigerian rice may be price-inelastic (1) so even if Nigerian farmers could sell their rice for more, they may have difficulties adjusting supply (1). • More Nigerian rice will not be sold if quality is poor (1) consumers my prefer the varieties of rice produced in other countries (1) other countries retaliate by imposing higher tariffs (1) current account surplus may be reduced (1). • Increase in import tariffs may be small (1) making little difference to import prices and consumption (1). • Not enough resources/ factors of production e.g., farmers (1) to produce more rice in Nigeria (1). 6

Question 26

Australia experienced a drought in 2018 which caused its agricultural output to fall. Australia’s secondary and tertiary sectors performed …

Accepted Answer

5(a) Identify two industries, other than agriculture, that operate in the primary sector. Two from e.g.: Mining, fishing, forestry, oil extraction 2 5(b) Explain two possible disadvantages to an economy of a fall in its agricultural output. Logical explanation which might include: • Shortage of food / famine (1) may have to import more food (1) export less food (1) worsen the current account position (1). • Price of food may rise (1) may increase poverty / might worsen health (1). • Less food production (1) unemployment may increase (1) if lack of labour mobility / structural unemployment (1). • May result in migration from rural to urban areas (1) putting pressure on resources in urban areas (1). • Economic growth / GDP will fall (1) if lower agricultural output is not offset by rise in output of secondary and tertiary sectors (1). 4 One mark each for each of two disadvantages identified and one mark each for each of two explanations. 5(c) Analyse how a central bank could avoid deflation. • Deflation is a fall in the price level (1). • The central bank could lower the rate of interest (1) reduce return from saving (1) encourage borrowing (1) encourage a rise in consumer expenditure (1) encouraging firms to raise their prices (1). • It could increase the money supply (1) increasing bank lending (1) increasing investment (1). • Expansionary monetary policy (1) increases total (aggregate) demand (1) causing prices to rise (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a firm should have growth as its main objective. In assessing each answer, use the table opposite. Why it should: • may increase market share • may increase market power • may increase profits / keep shareholders happy • may enable the firm to take greater advantage of economies of scale • may increase pay and job security of managers / directors • may make it more difficult for another firm to take it over as will involve a greater cost Why it might not: • if demand is falling, survival may be a more appropriate main objective • if demand is limited e.g. a niche market, growth may be an unlikely objective • profit maximisation as an objective, if successful, will provide the funds for growth in the longer run • state-owned enterprise may have social welfare as an objective • growth may result in diseconomies of scale • growth may put pressure on workers which could lower productivity / result in higher labour turnover • may make it more attractive for a firm to take it over 8 Level Description Marks 3 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. 6–8 2 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. 3–5 Question Answer Marks Guidance 5(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 27

Consumers in Uruguay are eating more processed foods. Factors of production, including enterprise, have responded to this change. Firms in …

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3(a) Define enterprise. Risk bearing (1) setting up / owning a business (1) key decision making / organisation of the other factors of production (1) profit incentive / profit is the reward (1). 2 3(b) Explain the influence of opportunity cost on consumers’ decisions. Logical explanation which might include: Opportunity cost is the (next) best alternative (1) forgone / sacrificed (1). Consumers have limited income / time (1) have to make choices (1) cannot have everything they want (1) if buy more of one product may have to buy less of another / example of what product may be given up to buy another product (1). 4 Question Answer Marks Guidance 3(c) Analyse why a firm may become more capital- intensive. Coherent analysis which might include: The cost of capital may fall / the price of labour may rise (1) lowering costs of production (1) making the firm more price-competitive (1) may increase profits (1). Advances in technology (1) may improve the quality of capital (1) making it more productive / efficient (1) may increase the quality of products produced (1) raise demand for the products produced (1). Firms may want to reduce human error / more consistent quality / uniform products (1) reduce wastage (1). Firms may want to avoid disruption to production (1) caused by industrial action / strikes / sickness (1) capital equipment does not need to take breaks / can work 24 hours a day (1). There may be a shortage of labour (1) making it difficult to recruit workers (1). A government may reduce taxes on capital goods (1) provide subsidies (1) the rate of interest may be reduced (1) making capital goods more affordable (1). The firm’s output may rise (1) reducing the average fixed cost of capital / benefiting from economies of scale (1). 6 Question Answer Marks Guidance 3(d) Discuss whether inflation harms a country’s industries. In assessing each answer, use the table opposite. Why it might: • may increase costs of production • may reduce competitiveness, lowering sales at home and abroad • may upset industrial relations, workers pressing for wage rises • may make it difficult to plan • may discourage savings which can reduce funds available for investment • corporation tax may be moved into a higher tax bracket • may be menu costs / shoe leather costs Why it might not: • may be demand-pull inflation with demand for the firm’s products increasing • may be low and stable • may enable a firm to reduce the real cost of any debt • may enable the firm to cut the real cost of wages • may be lower than other countries’ inflation rates • may not be foreign substitutes • some industries may have inelastic demand 8 Level Description Marks 3 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 sided 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. 6–8 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 28

The economic problem means that countries have to decide what to produce. Ghana uses much of its agricultural land to grow cocoa. Cocoa is …

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5(a) Define the economic problem. Finite/limited resources (1) unlimited/infinite wants (1). Wants exceeding resources (2). Scarcity (1). 2 5(b) Explain whether land is mobile. Logical explanation which might include: Most land is geographically immobile (1) fixed in one place / cannot move from one place to another place (1). Some forms of land e.g. wildlife can be moved from one place to another (1). Land is occupationally mobile (1) capable of changing its use / e.g. land can be used for farming or housing (1). 4 Question Answer Marks Guidance 5(c) Analyse the causes of a shift to the right in the supply curve of chocolate. Coherent analysis which might include: A shift to the right of the supply curve means that more will be supplied at each and every price / supply has increased due to a non-price factor/influence (1). Lower costs of production (1) due to any cause (other than tax or subsidy) e.g. lower wages / higher productivity / lower transport costs (1). Subsidy (1) providing an additional income / effectively lowering costs / providing a financial incentive (1). Advances in technology (1) increasing output per unit of resource / increase efficiency / raise productivity of capital (1) Good harvest of cocoa / raw material (1) perhaps due to improvement in weather conditions / improvements in fertilisers (1) reducing price of raw material (1) increasing supply of raw material (1). Lower tax on chocolate / lower indirect tax / lower corporate tax (1) making it more profitable to produce (1). Fall in price/rise in cost of production/ fall in profitability of another product produced by chocolate firms (1) encouraging the switch of some resources to chocolate production (1). 6 Note: no marks for a diagram. Question Answer Marks Guidance 5(d) Discuss whether or not consumers would benefit from a firm becoming a monopoly. In assessing each answer, use the table opposite. Why they might: • a monopoly may have lower average costs of production due to economies of scale • lower costs of production may result in lower prices • a monopoly may have larger profits which can be spent on R&D • higher R&D can improve the quality of the product • may be a state-owned monopoly which seeks to increase social welfare. Why they might not: • monopoly may use market power to increase price • lack of competition may reduce pressure to improve quality • consumers will have less choice • there may be a lack of availability if the monopoly restricts supply to drive up price • a monopoly may have higher average costs due to diseconomies of scale. 8 Level Description Marks 3 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. 6–8 Question Answer Marks Guidance 5(d) Level Description Marks 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 29

Singapore is a high-income country with a shortage of land and labour. Singapore is often given as an example of a market economy. The Sing…

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5(a) Identify the reward to labour and the reward to land. Wages (1) rent (1). 2 Question Answer Marks Guidance 5(b) Explain how an increase in a worker’s income can affect their mobility of labour. Logical explanation which might include: An increase in income will enable a worker to spend more on their education (1) increasing occupational mobility (1). Higher income will make housing more affordable (1) increasing geographical mobility (1). Higher income will make high-tech products more affordable (1) enabling a worker to be better informed (1) increasing both occupational and geographical mobility (1). Higher incomes may discourage a worker from changing jobs / may be content with current job (1) may be satisfied with income level (1) reducing geographical and occupational mobility (1). Higher incomes make it easier to afford car / use public transport (1) increases geographical mobility (1). 4 No marks for causes of higher income. Question Answer Marks Guidance 5(c) Analyse, using a demand and supply diagram, how a greater awareness of the health benefits of eating fruit will affect the market for fruit. Coherent analysis which might include: Up to 4 marks for 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 right (1). Equilibriums–shown by lines P1 and Q1 and P2 and Q2 or equilibrium points E1 and E2 (1). Up to 2 marks for written analysis which might include: Greater awareness of health benefits will encourage more people to eat / demand fruit (1) Raise price / raise quantity traded (1). 6 Note Note: Axes do not have to be labelled price of fruit and quantity of fruit to get mark. No marks for stating price changes from P1 to P2 or quantity changes from Q1 to Q2. To get first mark in written analysis they must refer to fruit. Question Answer Marks Guidance 5(d) Discuss whether or not a market economic system benefits an economy. In assessing each answer, use the table opposite. Why it might:  profit incentive and competition may increase efficiency  wage differentials may encourage effort  price may be low and quality high  country’s products may be internationally competitive  economic growth may be high  consumer choice may be high  consumer sovereignty may be high Why it might not:  risk of market failure  public goods will not be provided  demerit goods are overconsumed and merit goods and under-consumed  problem of pollution and other external costs  unemployment may be high as lack of co-ordination  some countries may lack the support structures e.g., legal system to enforce property rights to allow market forces to work efficiently.  monopolies can be created 8 Level Description Marks 3 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. 68 Question Answer Marks Guidance 5(d) Level Description Marks 2 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. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0

Question 30

(a) Calculate Bhutan’s GDP in 2018. [1] (b) Identify two indicators that are in both the World Happiness Index and the Human Development In…

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1(a) Calculate Bhutan’s GDP in 2018. $2.6 bn / $2600 m / $2 600 000 000 / 2.6  10⁹ (1). 1(b) Identify two indicators that are in both the World Happiness Index and the Human Development Index. Life expectancy (1) GDP per head (1). 2 If more than two indicators are given, consider the first three. 1(c) State why Bhutan’s 2018 government budget is likely to have increased total demand in Bhutan. Government spending was greater than government revenue (1) there was a budget deficit (1) of $70 m (1) the government may have used expansionary fiscal policy (1). 2 1(d) Explain two reasons why someone may prefer to work in the tertiary sector rather than in the primary sector. Logical explanation which might include: Better working conditions / non-wage factors (1) e.g. working inside / not having to work in wet weather / less stress / more job satisfaction / fringe benefits (1). Shorter working hours (1) permitting more leisure time (1). Type of work / less physically demanding / not manual work (1) less risk to health / less tiring / less dangerous / fewer accidents / may lack physical strength (1). Better paid (1) enabling more goods and services to be purchased / higher standard of living / as may require more qualifications / skills/training / value added may greater in the tertiary sector / tertiary sector may be expanding / primary sector contracting / may be higher demand for tertiary workers (1). 4 One mark for each of two reasons identified and one mark for each explanation. Note there is a degree of ‘mix and match’ here. For example, working hours or manual work can be taken as a development of working conditions. Accept an answer that explains the disadvantages of working in the primary sector e.g. may prefer to work in the tertiary sector as working hours are longer in the primary sector. Question Answer Marks Guidance 1(e) Analyse how investment in capital goods and education can increase New Zealand’s productivity. Coherent analysis which might include: Higher investment in capital goods will enable workers to work with better equipment (1) more output per worker / worker hour (1). New capital goods may incorporate advances in technology / be of higher quality (1) result in innovation (1) can work for long hours (1). Higher investment in education can enable more children to be educated / children to be educated for longer / improve quality of education / increase knowledge (1) increase workers’ skills / qualifications (1) enable workers to use more advanced technology (1). Investment in capital goods and/or education can enable capital goods/ workers to work at a faster rate (1) be more efficient (1) make fewer mistakes / less wastage (1). 4 Up to 3 marks for analysis on investment in capital goods and up to 3 marks for investment in education. Note only credit increase efficiency once. Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and net migration. Coherent analysis which might include: Overview Generally, the countries with higher GDP per head have net immigration / net migration / the countries with lower GDP per head tend to have net emigration / positive/direct relationship (1). Supporting evidence Up to 2 marks for two pieces of supporting evidence e.g.  New Zealand has the highest GDP per head and the highest net immigration / net migration / highest positive migration (1)  Cyprus has the second highest GDP per head and the second highest net immigration / net migration / positive migration (1)  the four countries with the highest GDP per head, all have net immigration / positive net migration (1)  the two countries with lowest GDP per head both have net emigration / negative net migration (1) Exception Exception is Kenya or Mozambique (1) Kenya has higher GDP per head but higher net emigration than Mozambique (1). Comments Higher GDP per head may encourage people to move to the country to increase their living standards / income / people who migrate into the country may be high skilled / lower GDP per head may encourage people to emigrate to increase their living standards/income (1) other influences e.g. immigration controls / size of population / wars / political instability (1). 5 There may be an implied comparison e.g. generally countries with a high GDP per head have net immigration. New Zealand has a GDP per head of approx. $55 000 and net immigration of about 40,00 whereas Kenya has a GDP per head of $2,000 and net emigration of about 50 000 (1 mark). For explanation of exception, do not accept that Kenya has ‘lower net migration’ / Mozambique has ‘higher net migration’ – a misinterpretation of the figure. Question Answer Marks Guidance 1(g) Discuss whether or not enterprise is likely to have increased in New Zealand after 2019. Award up to 4 marks for logical reasons why it might, which may include: High labour productivity / high-skilled workers (1) may keep costs down (1) and increase profits (1) which will motivate more people to be entrepreneurs (1). Higher investment / better quality capital goods (1) may increase the number of firms / result in expansion of firms (1) and the opportunities to become entrepreneurs (1). Investment in education / better quality education (1) may increase the people with the skills to become entrepreneurs / increase risk taking ability (1). Higher government spending on mental health / child poverty / pollution (1) may increase workers’ skills / increase workers’ health / increase workers’ productivity (1) higher government subsidies (1) reduce firms’ costs of production (1) higher government spending may increase total demand (1). Higher economic growth (1) may have created more opportunities / greater confidence / higher total demand (1). Net immigration may have continued (1) and some immigrants may have been entrepreneurs / may set up new firms (1) more people in the country may raise total demand (1). Cut in income tax rates (1) could increase demand (1) firms’ revenue / profits (1) create greater profit incentive (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g., incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e., reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e., not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) Award up to 4 marks for logical reasons why it might not, which may include: Uncertainty / lack of confidence (1) reason e.g. there may have been a recession / negative economic growth / unclear what may happen to GDP (1) which could have resulted in the reward to enterprise declining (1) may think there is a greater risk of running / setting up a firm (1). Corporation tax may have increased / tax may have increased (1) which would reduce retained profits / amount of profit that can be kept (1). Government attempts to reduce pollution / poverty / improve mental health (1) may increase firms’ costs of production and reduce profits (1) may have an opportunity cost (1) less spending on something that could increase enterprise (1) e.g. reduction is spending on education (1). Accept tax revenue may have increased for tax may have increased for why it might not Reward recognition that tax revenue may rise without a rise in tax rates or with a fall in tax rates. Question Answer Marks Guidance 1(h) Discuss whether or not a cut in income tax rates will increase living standards. Award up to 4 marks for logical reasons why it might, which may include: Will increase disposable income (1) increase ability to buy goods and services / increase purchasing power (1) buy basic necessities / reduce absolute poverty (1) may be able to fulfil more wants / buy more luxuries (1). May increase spending (1) increase total demand (1) reduce unemployment / increase employment (1) increase output / increase economic growth (1). May increase saving (1) and so provide a safety net (1). May encourage investment (1) which may lower costs of production (1) reduce prices (1). May be able to buy more merit goods / better quality education/healthcare (1) increase health / life expectancy (1). May increase the incentive to work (1) may earn more in work than on unemployment benefits (1). May enable people to work fewer hours (1) enjoy more leisure time (1). 6 Rise in income is not sufficient – need idea of disposable income. Question Answer Marks Guidance 1(h) Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may fall (1) may result in a cut in government spending (1) on e.g. education / health care / mental healthcare / child poverty / pollution / unemployment benefit (1) poor may be most reliant on public services (1). It may increase congestion as people buy more cars (1) may lead to pollution (1). It may increase depletion of non-renewable resources as consumption increases (1). It may benefit mostly the rich / poor may not benefit / will not benefit the unemployed (1) and so not everyone may enjoy higher living standards (1). People may spend on demerit goods (1) higher spending which could reduce health / life expectancy (1). Higher spending / demand may increase prices / cause inflation (1) leave purchasing power unchanged / reduce purchasing power (1).

Question 31

In 1982, Nauru had the world’s highest GDP per head. It had a large primary sector and exported phosphate, a natural fertiliser. However, t…

Accepted Answer

4(a) Define GDP per head. Total output / income / expenditure (1) divided by population / per person (1). GDP per head = Total GDP / Population 4(b) Explain how a country with more imports of goods than exports of goods can still record a surplus on the current account of its balance of payments. Logical explanation which might include: Export prices may be high (1) import prices may be low (1) export revenue may exceed import expenditure (1). Current account consists of trade in goods, trade in services, primary income, and secondary income (1). Therefore, even if there are more imports of goods than exports of goods, which creates a trade of goods deficit (1) if the other three components have a surplus (1) then the overall current account will have a surplus (1). This is likely to be the case if there is a high level of income from investments abroad (1) exports of services (1) a lot of transfer payments (1) such as inflow of aid to a country (1) incomes of nationals working abroad / remittances (1). 4 Question Answer Marks Guidance 4(c) Analyse the causes of market failure. Coherent analysis which might include: Market failure is when market forces cause an inefficient allocation of resources (1). Demerit goods (1) example (1) imperfect information (1) where consumers may not know about the actual costs (1). Merit goods (1) example (1) consumers may not know about actual benefits (1). External costs (1) costs to the third party (1) not considered by consumers and producers (1) therefore goods are overproduced or overconsumed (1). External benefits (1) benefits to the third party (1) not considered by consumers and producers (1) goods are underproduced and under- consumed (1). Public goods (1) non-rivalry (1) and non-excludable (1) free rider problem (1) people want to consume but don’t want to pay for it (1) no profit incentive for firms (1) goods are underprovided by the market (1). Abuse of monopoly power (1) when firms have no competitors (1) they will push up prices (1) or reduce quality (1). Factor immobility (1) where labour cannot move from one job to another (1) or to take up a job somewhere else (1) leads to structural unemployment (1) 6 Question Answer Marks Guidance 4(d) Discuss, whether or not, having a large primary sector is a disadvantage to an economy. In assessing each answer, use the table opposite. Why primary sector is a disadvantage:  lack of value added – low price, low income – low standards of living  unstable prices – unstable income  low productivity – low income  high tariffs – difficult to export  specialisation in any one sector is risky  unsustainable – natural resources could be exhausted Why primary sector is an advantage:  provides employment, especially low skilled in developing countries  provides employment, e.g. high skilled in Saudi Arabian oil  produces high value added exports, e.g. gold in S. Africa  produces exports with inelastic demand, e.g. oil  low start-up costs, low barriers to entry, e.g. farming  may be better than other countries at producing primary products  may be able to diversify with money earned from primary sector  could reduce inequality between urban and rural areas 8 Level Description Marks 3 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. 6–8 Question Answer Marks Guidance 4(d) Level Description Marks 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 32

(a) Calculate the value of US imports from China in 2020. [1] (b) Identify two causes of the increase in the quantity of US factors of prod…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the value of US imports from China in 1 Accept the correct figure without the $ sign. 2020. 560 000 000 000. 5.6  10^11 $560bn (1). 1(b) Identify two causes of the increase in the quantity 2 If more than two causes given, consider the first three. of US factors of production. Accept increase in labour for increase in the labour force. Land reclamation (1) increase in the labour force (1). 1(c) Explain one way that import tariffs could improve 2 One mark for a way identified and one mark for an explanation. the US economy. If more than one way identified, consider the first two. Could improve the current account / trade in goods / To gain two marks, one mark must come from improving the trade in goods and services / balance of payments (1) current account, increase output or raise tax revenue. by reducing imports / making domestic goods more competitive with imports / raising the price of imports Could raise more revenue is not sufficient – need more tax (1) revenue or more government revenue / income. Could increase output / cause economic growth (1) by increasing demand for US goods / raise employment (1). Could raise tax revenue (1) allowing the government to spend more on (e.g. education) / improve the (government budget position) (1). 1(d) Explain two reasons why the US inflation rate fell 4 One mark each for each of two reasons identified and one mark in 2020. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Fall in consumer expenditure (1) lower total demand / reduce demand-pull inflation (1). Reduction in bargaining power may also be linked to lower total Reduction in workers’ bargaining power (1) fall in demand. wage rises / wages / fall in rise in costs / fall in costs / reduce cost-push inflation (1). Higher unemployment (1) reduces confidence / lower total demand / fall in consumer spending (1). Fall in (real) GDP (1) lower incomes / purchasing power / lower total demand (1). Current account deficit (1) lower total demand / reduce demand-pull inflation (1). 1(e) Draw a demand and supply diagram to show the 4 effect of an increase in the price of a complement on the market for ice cream. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). 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 government 5 Alternatively, some candidates may argue that changes in spending and unemployment. unemployment, could lead to changes in government spending. Credit both responses. Coherent analysis which might include: Overview: Inverse relationship / negative relationship (1) generally, the higher government spending, the lower the unemployment rate (1). Supporting evidence: E.g. 2015 to 2019, government spending increased and unemployment fell / 2015 to 2017 government spending increased and unemployment fell (1) processing / interpreting of data e.g. between 2015 to 2019, government spending rose by $700bn and unemployment fell by 1.6% (points) (1). Analysis of the expected relationship: • higher government spending will increase total demand (encouraging firms to expand and employ more workers) (1) • higher government spending may be on e.g. education, training, infrastructure, subsidies which could increase workers’ chances of gaining jobs (1) • higher employment will provide more tax revenue for the government to spend / lower employment will reduce tax revenue for the government to spend (1). Exception: 2020 (1) both government spending and unemployment rose / government spending and unemployment both at their highest (1). 1(f) Analysis of the exception: • government spending on unemployment benefits may have increased / rise in government spending not enough to stop GDP / consumer expenditure falling / GDP fell / there may be a time delay before higher government spending reduces unemployment (1). 1(g) Discuss whether or not a central bank should aim 6 May approach the answer from the point of view of the for a low inflation rate. disadvantages of high inflation. 2nd side should examine either the possible negative effects of Award up to 4 marks for logical reasons why it should, what the central bank may do to reduce the inflation rate or the which may include: possible loss of any beneficial effects of high inflation. • can increase international price competitiveness (1) improve the current account balance / No marks for possible effects on the exchange rate. increase exports (1) increase employment / reduce unemployment (1) Apply this example to all questions with the • can create certainty (1) which may increase command word DISCUSS confidence (1) which may encourage investment / (1g, 1h, 2d, 3d, 4d and 5d) attract MNCs (1) which may increase output / result in economic growth (1) Each point may be credited only once, on either side of an • can prevent a random redistribution of income (1) argument, but separate development as to how / why the outcome e.g. protect savers (1) may differ is rewarded. • may protect purchasing power (1) by promoting price stability (1) Generic example Mark • maintain / increase living standards (1) if wages rise by more than the price level (1) Tax revenue may decrease… 1 • can avoid fiscal drag (1) prevent people being put in higher tax brackets (1) ...because of reason e.g. incomes may be lower. 1 • can reduce menu / shoe leather costs (1) reduce firms’ costs of production (1). Tax revenue may increase because incomes may be 0 higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it should not, which may include: Tax revenue may increase because of a different 1 • increases in the rate of interest (1) contractionary reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may monetary policy (1) can reduce consumer stimulate the economy more than spending on expenditure / can reduce investment (1) can education. reduce total demand (1) 1(g) • lower total demand can increase unemployment (1) cyclical unemployment (1) reduce economic growth (1) • low inflation can turn into deflation (1) leading to a recession (1) • makes it harder to pay off debt (1) increasing the risk of firms going out of business / households getting into difficulties (1) • central bank may aim for economic growth / low unemployment (1) higher demand-pull inflation may provide more encouragement to firms to expand (1). 1(h) Discuss whether or not economic growth benefits 6 everyone in the US. Award up to 4 marks for logical reasons why it might, which may include: • economic growth increases output / GDP (1) increases income per head / higher incomes / higher wages (1) enables more purchasing power / people to enjoy more goods and services (1) • economic growth can increase employment (1) raise living standards (1) may reduce poverty (1) • economic growth can increase tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1) • economic growth may introduce better working conditions (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be an increase in unemployment due to lack of skills / some industries declining / greater use of capital / capital-intensive production (1) structural unemployment may occur (1) • income is unevenly distributed (1) those on low incomes e.g. the sick may not benefit (1) • higher output may result in external costs (1) e.g. pollution (1) people living near factories may suffer (1) • higher output may be the result of more resources being devoted to capital goods (1) may take time for consumers to benefit from more consumer goods (1) 1(h) • higher output may reduce natural resources (1) reducing future generations’ ability to benefit from them / reduce sustainability (1) • higher output may be the result of workers working longer hours (1) in poor working conditions (1) • may cause inflation (1) adversely affecting the poor / savers (1).

Question 33

Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now compete with foreign multinational companies (MNC…

Accepted Answer

2(a) Identify two reasons why people become 2 If more than two reasons given, consider the first three. entrepreneurs. To make money / earn a profit (1) to be independent / not having to be told what to do (1) to follow an interest / be innovative / to run / own business (1) willingness to take risks (1) possess good leadership skills (1) easier to set up a firm / lower barriers to entry (1) for self-esteem / status / become well-known (1) flexible working hours (1) unable to find a job (1). 2(b) Explain two benefits an MNC can bring its host 4 One mark each for each of two benefits identified and one mark country. each for each of two explanations. Logical explanation which might include: If more than two benefits given, consider the first three. Increase employment (1) raise living standards / increase income / higher wages / reduce poverty (1). Increase skills (1) provide training to workers (1). Increase exports / reduce imports (1) improve the current account of the balance of payments (1). Increase GDP / output (1) raise economic growth (1). Increase competition (1) raise efficiency / reduce prices (1). Bring in new technology (1) raise quality / raise productive capacity / productivity / reduce costs of production (1). Increase the range of goods and services available in the country (1) raise living standards (1). Increase tax revenue (1) enable the government to spend more (1). Increase infrastructure (1) an MNC may build e.g. roads / reduce e.g. transport costs (1). 2(c) Analyse how a government could encourage the 6 Note: reference to measures to reduce consumption of demerit consumption of merit goods. goods can only be rewarded if clearly linked to switching to alternative merit goods. Coherent analysis which might include: Provide a subsidy (1) reduce any indirect tax (1) lower price (1) make the goods more affordable (1) raise quality (1). Provide information about the benefits of consuming the goods (1) e.g. health campaigns / advertisements (1) overcome information failure (1). Use regulation (1) make consumption compulsory / impose fines for non-consumption (1) e.g. school attendance (1). Provide services such as education / healthcare (1) free to consumers (1). Set maximum price (1) to make the goods more affordable (1) but may create a shortage (1). Measures to reduce demerit goods clearly linked to idea of encouraging substitution of merit goods (1) relevant example (1). 2(d) Discuss whether or not private sector firms are 8 Level Description Marks likely to charge lower prices than public sector firms. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical analysis Why they might: to evaluate economic issues and • competition may encourage private sector firms to situations. One side of the argument may charge low prices have more depth than the other, but • private sector firms may seek to reduce waste overall, both sides of the argument are and costs to avoid going out of business considered and developed. There is • private sector firms may have more funds to thoughtful evaluation of economic invest concepts, terminology, information and / • higher investment may reduce costs of production or data appropriate to the question. The • may be an MNC with significant economies of discussion may also point out the scale possible uncertainties of alternative decisions and outcomes. Why they might not: 2 A reasoned discussion which makes use 3–5 • profit motive may encourage private sector firms of economic information and clear to charge high prices analysis to evaluate economic issues • private sector firms may be monopolies and situations. The answer may lack • public sector firms may be subsidised some depth and development may be • public sector firms may charge low prices to make one-sided. There is relevant use of the products affordable economic concepts, terminology, • public sector firms may produce on a large scale information and data appropriate to the question. 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.

Question 34

Canada’s private sector firms have a number of different objectives. The quantity and quality of land used by these firms, including farms,…

Accepted Answer

3(a) Identify two objectives of private sector firms. Two from:  profit (maximisation)  growth / high sales  greater market share / market dominance  survival  improving the environment 2 Reward but do not expect profit satisficing, revenue maximisation, sales maximisation. Allow social welfare. If more than two objectives given, consider the first three. 3(b) Explain one reason why the quantity of land may increase and one reason why the quality of land may increase. Logical explanation which might include: Quantity of land Reclamation (1) creating land from the sea (1). Reduction in overfishing / hunting (1) restoring stocks of fish / wildlife (1). Reduction in flooding (1) avoiding soil erosion (1). Discovery of new natural resources (1) e.g. of oil (1). Quality of land Use of fertilisers (1) raising productivity / efficiency / fertility of land (1). Reduction in pollution (1) preventing damage / diseases (1). Good weather (1) raising productivity efficiency / fertility of land (1). Better equipment / more advanced technology (1) raising productivity efficiency / fertility of land (1). 4 One mark for identifying one reason why the quantity of land may increase and one mark for explaining that reason. One mark for identifying one reason why the quality of land may increase and one mark for explaining that reason. Question Answer Marks Guidance 3(c) Analyse how an increase in investment may affect unemployment. Coherent analysis which might include: Spending on capital goods (1) will increase total demand (1) firms may expand their output / new firms may set up / economic growth may occur (1) (may need more workers) to work with the capital equipment / demand for labour may increase / need more workers / increase job opportunities (1) this can reduce cyclical (1) unemployment (1). Investment in education / training/ healthcare / research and development (1) can raise productivity / skills (1) increase mobility (1) reduce structural unemployment (1). Investment in infrastructure (1) increase geographical mobility (1) reduce structural unemployment (1). It could cause unemployment (1) as capital goods may replace workers / production may become more capital- intensive / demand for workers may decrease (1) capital goods can be a substitute for labour (1) cause technological unemployment (1). 6 Credit fall in unemployment / rise in unemployment only once (1). Reference to cyclical / structural / technological (unemployment) can be given an additional mark in each case if linked to a relevant point. Question Answer Marks Guidance 3(d) Discuss whether or not a government should try to prevent a rise in unemployment. In assessing each answer, use the table opposite. Why it should:  may increase output / economic growth  increase tax revenue  reduce spending on unemployment benefit  reduce living standards / poverty Why it should not:  unemployment may be low  reduction in unemployment may cause inflation  the resulting higher incomes may cause a current account deficit  unemployment can create flexibility  opportunity cost of government policy measures  a government may have other objectives. 8 Level Description Marks 3 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. 6–8 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 35

(a) Calculate the total number of people in Cambridge aged 18–29 in 2019. [1] (b) Identify two types of industries in Cambridge that operat…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the total number of people in Cambridge aged 18– 1 29 in 2019. 37 440 (1) 1(b) Identify two types of industries in Cambridge that operate in 2 If more than two types are given, consider the first three. the tertiary sector. Education (1). Healthcare (1). Research and development (1). 1(c) Identify two benefits of having highly knowledge-intensive 2 If more than two benefits are given, consider the first exports. three. Exports highly priced (1). Accept high value for highly priced. Price inelastic in demand (1). Increased demand for exports (due to increased global incomes) (1). 1(d) Explain how having a more educated labour force can 4 reduce poverty. Logical explanation which might include: a more educated labour force will be more skilled / more productive (1) enabling them to earn higher wages (1) able to afford basic necessities (1). a more educated labour force may have more job opportunities / less unemployment (1) wages may be higher than unemployment benefits (1). a more educated labour force has access to more information on health (1) increasing the ability to work (1) have access to better healthcare (1). 1(e) Draw a demand and supply diagram to show the effects of 4 increased global income on the market for education in Cambridge. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New curve shifted to the right (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 the percentage of 5 Responses do not have to be in the format suggested population with a university degree and GDP per head. but they should address the expected / normal relationship, offer supporting evidence of that, highlight Coherent analysis which might include: any exceptions to that, and analyse the overall data. Expected relationship: Positive / direct relationship (1) the higher percentage of population with a university degree, the higher the GDP per head (1). Analysis of expected relationship: as percentage of population with a university degree increases, the more skills / qualification they will have (1) therefore, they have higher productivity and can earn more (1). Supporting evidence: e.g. Indonesia lowest percentage of population with a university degree, lowest GDP per head ; Canada, Switzerland and UK have the highest three in each category; Colombia has the second lowest percentage of population with a university degree and the second lowest GDP per head (2). Exception: Switzerland (1) has lower percentage of population with a university degree than Canada or the UK, but higher GDP per head (1). Analysis of the exception: Other influences, e.g. quality of secondary education, proportion of the population employed in banking (1). 1(g) Discuss whether or not free trade is beneficial for a city 6 Apply this example to all questions with the such as Cambridge. command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which may include: Each point may be credited only once, on either side of an argument, but separate development as to how / why • easier to export (1) increased export revenues (1) increased the outcome may differ is rewarded. revenue / profits for producers (1) higher growth in the city (1). Generic example mark • easier to import / more imports (1) cheaper imports of goods and materials / lower costs for firms (1) lower prices (of Tax revenue may decrease… 1 exports) (1). • more jobs created (1) reducing the level of unemployment ...because of reason e.g. incomes may be 1 (1). lower. • increase size of the market (1) economies of scale (1) e.g. purchasing / technical / marketing / managerial / financial Tax revenue may increase because 0 (1). incomes may be higher i.e. reverse of a • increased choice for consumers (1) from increased imports previous argument. (1) higher quality goods / variety of goods (1). • more competition (1) or more transfer of ideas and Tax revenue may increase because of a 1 knowledge (1) leads to more innovation (1) lower prices (1) different reason i.e. not the reverse of a • encourage entrepreneurship / investment (1) profit incentive previous argument e.g. government (1) spending on subsidies may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • overdependence on foreign markets (1) economic shocks in other countries can negatively affect revenues of firms (1) reduce economic growth and development in the city (1). • free trade could reduce competitiveness of firms (1) other economies might have relatively lower costs (1) cheap imports / more imports (1) stop development of infant industries (1) may lead to job losses in the city (1). • free trade only affects certain producers / firms / workers (1) leads to increased inequality / uneven distribution of income (1). • free trade leads to more environmental degradation (1) due to more production / more need for cross-border transport (1) creating external costs / negative externalities (1). • may increase consumption of demerit goods (1) reduce health (1). • free trade could lead to the creation of global monopolies (1). reducing the ability of smaller domestic firms to compete (1). 1(h) Discuss whether or not firms in Cambridge will continue to 6 grow. Award up to 4 marks for logical reasons why it might, which may include: • ease of access to a large amount of highly-skilled and educated workers, from all over the world (1) easy to find workers (1) to produce goods and services (1) or lower cost of labour (1) • skilled workers are more productive (1) more innovation / new ideas / high quality products (1) • young workers (1) may be up-to-date with modern technology (1) • good infrastructure (1) such as access to ultra-fast broadband (1) productivity is higher (1) faster production / less delays (1) • good transport links to other cities and international airports (1) easy to export / high demand for their exports (1) easy to reach customers (1) faster deliveries (1) increased demand for goods and services (1). Award up to 4 marks for logical reasons why it might not, which may include: • high land and office costs (1) high cost of production (1) higher capital start-up costs (1) lower profits (1) • high house prices (1) poor air quality (1) may discourage workers from locating in Cambridge (1) difficult for firms to find workers (1) • small population (1) small market (1) limited demand (1) limited scope for revenue / profits for Cambridge firms (1) • overdependence on one sector (e.g. education) (1) limits potential growth from other sectors (1) • skilled workers are available in other cities (1).

Question 36

Malaysia once specialised in the production and export of natural rubber. The production of natural rubber was very labour‑intensive. Howev…

Accepted Answer

4(a) Identify, other than natural rubber, two primary-sector 2 If more than two products are given, consider the first products. three. Accept process rather than product e.g. fishing. e.g. coal, oil, fish, wood, wheat 4(b) Explain two reasons why a country may change its 4 One mark each for each of two reasons identified and specialisation. one mark each for each of two explanations. Logical explanation which might include: • Change in quantity / quality of resources (1) discovery of new resources (1) or new technology (1) other economies may be more / less efficient in production of certain products (1). • Change in cost of production (1) change in labour costs (1) e.g. increase in minimum wage (1) change in capital costs (1) e.g. cheaper technology (1) • Changes in demand (1) changes in consumer behaviour (1) change in revenue / profits (1) • Changes in level of competition (1) other countries’ producers may gain a competitive advantage (1). 4(c) Analyse the economic benefits for a country in producing 6 manufactured goods instead of primary sector products. Coherent analysis which might include: • higher price (1) higher output (1) higher revenues / profits (1) higher value added (1) • more exports (1) increased total demand (1) economic growth (1) • higher productivity (1) economies of scale (1) • more demand for workers (1) lower unemployment (1) may be more skilled jobs (1) higher income of workers (1) higher standards of living / reduction in poverty (1) • does not require stock of natural resources (1) skills / technology could be learnt / imported (1) • less dependent on weather changes (1) more stable revenues / income (1) easier to plan / budget (1) • higher tax revenues for the government (1) higher government spending (1) more development spending e.g. healthcare services / education services / infrastructure (1) resulting in higher levels of economic development (1). 4(d) Discuss whether or not labour-intensive production will 8 Level Description Marks harm an economy. 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 it might: economic information and clear and logical analysis to evaluate economic • labour may cost more than capital issues and situations. One side of the • labour may be more unreliable – inefficient / inconsistent. argument may have more depth than • labour may be protected by trade unions – more disruptions the other, but overall both sides of the • labour may be less productive argument are considered and • labour may need more breaks than machines developed. There is thoughtful • labour intensive production may be less cost-effective, evaluation of economic concepts, reducing international competitiveness. terminology, information and / or data appropriate to the question. The Why it might not: discussion may also point out the possible uncertainties of alternative • provides high employment levels – high standards of living decisions and outcomes. • lower levels of unemployment – less government spending on unemployment benefits 2 A reasoned discussion which makes 3–5 • labour may be more flexible than machines – can change use of economic information and clear skills / production / more mobile analysis to evaluate economic issues • labour may be able to respond to people / customers more and situations. The answer may lack easily. 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) 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 0 no creditable content.

Question 37

Botswana uses both capital goods and labour in its diamond mining industry. The country had an average economic growth rate of 3.8% between…

Accepted Answer

2(a) Define, with an example, a capital good. 2 If more than two examples are given, consider the first two. A good used to produce another good or service / a human- made good used for production (1) e.g. a machine (1). 2(b) Explain two reasons why a low inflation rate may 4 One mark each for each of two reasons identified and one increase a country’s economic growth rate. mark each for each of two explanations. Logical explanation which might include: • make the country’s products internationally competitive (1) sell more exports / buy fewer imports (1) • create greater certainty (1) encourage investment / attract MNCs (1) • keep increase in costs low (1) may reduce claims for higher wages/ higher profits (1) • increase confidence (1) may increase demand / increase profits 1). 2(c) Analyse how a government could reduce protectionism 6 Allow deregulation as an alternative to remove quotas or and move towards free international trade. embargoes. Coherent analysis which might include: Reward removing / reducing bureaucracy, voluntary export restraints. • remove tariffs (1) reduce price of imports (1) if firms have lower costs of production, they will be able to Reward but do not expect reference to exchange control. compete (1) • remove quotas / increase quota (limit) (1) remove bans / embargoes (1) increase quantity of imports / reduce limits on imports (1) • remove subsidies (1) firms’ products will not be artificially cheap (1) • other countries may remove their protectionism (1) enabling exports to be sold without restrictions (1). 2(d) Discuss whether or not a country will benefit from 8 Reward but do not expect reference to social welfare will be diamond mining. increased if social benefit exceeds social cost. In assessing each answer, use the table opposite. Leve Description Mark l s Why it might: • high global demand 3 A reasoned discussion which 6–8 • can improve the current account of the balance of accurately examines both sides of payments the economic argument, making • create employment, both skilled and unskilled jobs use of economic information and • increase output / economic growth clear and logical analysis to • may increase tax revenue. evaluate economic issues and situations. One side of the Why it might not: argument may have more depth • demand will fall in a recession than the other, but overall, both • price may fluctuate sides of the argument are • may be competition considered and developed. There • can be accidents is thoughtful evaluation of • can create external costs e.g. pollution economic concepts, terminology, • if mined by an MNC, profit may be sent to the home information and/or data appropriate country to the question. The discussion • supply may be depleted may also point out the possible uncertainties of alternative • price may increase in the future so better to conserve decisions and outcomes. diamonds now • may not be a large proportion of GDP. 2 A reasoned discussion which 3–5 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. 2(d) 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 0 for no creditable content.

Question 38

(a) Calculate Montenegro’s budget deficit as a percentage of its GDP. [1] (b) Identify two examples of capital goods in Montenegro. [2] (c)…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate Montenegro’s budget deficit as a percentage 1 Calculation is -$0.6 bn divided by $4.8 bn of its GDP. Allow 12.5 12.5%. 1(b) Identify two examples of capital goods in Montenegro. 2 These are the only two capital goods mentioned in the text but accept answers such as telecommunications equipment Computers (1) office buildings (1). and aluminium production factories 1(c) Explain one way price elasticity of demand may 2 One mark for the way identified and one mark for an influence firms’ decision making. explanation. If demand is price elastic / high (1) firms will know that if they Note: source material only mentions demand for holidays as raise price, revenue will fall / if they lower price, revenue will being price-elastic. rise (1). No mark for identifying price-inelastic but do allow second mark that price inelastic demand means if they raise price revenue will rise / if they lower price, revenue will fall. Do not reward impact on demand or on profits 1(d) Explain two ways the pattern of employment has 4 One mark each for each of two reasons identified and one changed in Montenegro in recent years. mark each for each of two explanations. Logical explanation which might include: Note: question requires a reason for the change in pattern Higher proportion of workers employed in the tourism of employment industry / tertiary sector (1) growth in tourism / lower proportion employed in primary and secondary sectors (1). More workers employed in the private sector / commercial banks / telecommunications / aluminium products (1) due to privatisation / less employed in state sector (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a minimum price set above the equilibrium price on the market for oranges. Coherent analysis: Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Minimum Price / Price floor line set above the equilibrium and correctly labelled – accept Pmin or Pm or MP but not P2. Supply shown as greater than demand e.g. labelling of Qd<Qs (1). Note: No mark for showing minimum price if also shows a shift in supply or demand curve as it is no longer above market equilibrium. Ignore all written comments. 1(f) Analyse the relationship between countries’ trade in 5 Allow income for primary income and current transfers for goods and services balance and their current account secondary income. balances. Responses do not have to be in the format suggested but There are two approaches to answering this question: they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Approach A: Coherent analysis which might include: and analyse the overall data. Expected relationship: MAX 2 marks. Do not accept relationship is directly proportional. Positive / direct relationship (1). Countries which have a deficit on the trade in goods and services balance might be expected to have a deficit on the current account balance (1). Countries which have a surplus on the trade in goods and services balance might be expected to have a surplus on the current account balance (1). Supporting evidence: MAX 2 Marks Three countries / Bosnia & Herzegovina / Kosovo / Montenegro all have a deficit on the trade in goods and service balance also had a deficit on the current account balance (1) two countries / Bulgaria / Slovenia had a surplus on the trade in goods and service balance but also had a surplus on the current account balance (1). Exception: Max 2 marks Croatia (1) had a deficit on trade in goods and services balance but a surplus on the current account balance (1). Approach B: Expected Relationship: Max 2 marks. 1(f) There is no expected relationship as the current account balance contains other items which can either be positive or negative (1) and are not dependent on the trade in goods and services (1). Supporting evidence: Max 2 marks There are 5 countries where the current account balance is higher than the trade in goods and services balance (1) example (1). Exception: Max 2 marks Slovenia (1) where current account balance is worse that trade in goods and services balance / trade in goods and services is $4.6bn but current account balance is only $3.0bn (1). Analysis for both approaches: Max 3 marks Trade in goods and services is the largest component of the current account (1) current account also includes primary income and secondary income (1) Bosnia & Herzegovina, Bulgaria, Croatia, Kosovo and Montenegro must have had a surplus on the primary and secondary income (1) Slovenia must have had a deficit on the primary and secondary income (1). 1(g) Discuss whether or not privatisation is likely to have 6 Apply this example to all questions with the command word benefited consumers in Montenegro. DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, Each point may be credited only once, on either side of an which may include: argument, but separate development as to how/why the outcome may differ is rewarded. • Firms are profit driven (1) may have increased investment / research & development (1) raising quality Generic Example Marks of goods and services (1) lowered cost of production (1) • more firms entering the market (1) increased Tax revenue may decrease… 1 competition (1) may reduce prices (1) may give more choice to consumers (1) ...because of reason e.g. incomes 1 • firms may respond more quickly (1) to changes in may be lower. consumer demand (1). Tax revenue may increase 0 Award up to 4 marks for logical reasons why it might because incomes may be higher not, which may include: i.e. reverse of a previous argument. • state-owned firms may have been subsidised (1) investment may be now lower (1) Tax revenue may increase 1 • privatised firms may be profit maximisers (1) may because of a different reason i.e. become monopolies (1) and may restrict supply (1) to not the reverse of a previous push up prices (1) lowered quality of goods produced argument e.g. government (1) creates inequality as not all consumers can afford to spending on subsidies may buy (1) stimulate the economy more than • privatised firms may be smaller (1) and so not able to spending on education. take advantage of economies of scale (1) • privatised firms do not take account of external costs (1) Note: The question is about the impact on consumers. Do e.g. pollution (1). not reward answers that relate to the economy or the government. Award one mark for an accurate explanation of what is meant by privatisation. 1(h) Discuss whether or not deflation would benefit the 6 Reward but do not expect explanation of benign and malign Montenegro economy. deflation. Award up to 4 marks for logical reasons why it might, Allow reference to demand-side deflation but not demand- which may include: pull deflation or cost-push deflation as they are not acceptable terms. • could make products more internationally competitive (1) leading to greater exports (1) reducing imports (1) improving the current account balance / reducing a deficit on the current account (1) • if caused by advances in technology / supply side measures e.g. higher labour productivity (1) could increase output (1) and employment (1) and lead to economic growth / higher standard of living (1). Award up to 4 marks for logical reasons why it might not, which may include: • current inflation rate is only 0.4% (1) • greater uncertainty (1) could discourage consumer spending / investment by firms (1) as households and firms could expect prices to fall further (1) • if caused by a fall in total demand (1) could reduce output (1) and causing recession (1) firms make losses / go out of business (1) could cause more unemployment (1) and unemployment is already high at 18% (1) • could increase a budget deficit (1) due to lower tax revenue from lower sales taxes / income taxes (1) increase in unemployment benefits (1). Award one mark for an accurate explanation of what is meant by deflation e.g. a fall in the price level is sufficient here.

Question 39

(a) Calculate the price elasticity of demand for coffee. [1] (b) Identify two rewards to factors of production in Nicaragua. [2] (c) Explai…

Accepted Answer

1(a) Calculate the price elasticity of demand for coffee. () 0.3 (1) 1(b) Identify two rewards to factors of production in Nicaragua. Wages (1) profits (1) 2 Only accept these answers if within the first three listed. 1(c) Explain one way in which unemployment is measured. Claimant count (1) based on workers claiming unemployment benefits (1). OR Labour force survey (1) asking people if they are out of work and looking for employment (1). 2 One mark for a way identified and one mark for an explanation. 1(d) Explain two functions of money in Nicaragua. Medium of exchange (1) used to buy and sell products / used to trade (1). Store of value (1) used to save / keeps its value over a period of time (1). 4 One mark each for each of two functions identified and one mark for each of two explanations. Only accept these answers if within the first three listed. Question Answer Mark Guidance 1(e) Analyse the relationship between the percentage of the labour force employed in agriculture and GDP per head. Coherent analysis which might include: Relationship: Inverse or negative relationship / move in opposite directions (1). Countries with a high percentage of their labour force employed in agriculture tend to have a low GDP per head (1). Supporting evidence: The four countries with the lowest % of the labour force employed in agriculture had the highest GDP per head (1) Specific reference to one or more countries e.g. Bahamas had the lowest % employed in agriculture and the highest GDP per head (1). Use of GDP per head data to show comparison between country with high employment in agriculture and one with low percentage employment in agriculture (1). Analysis of expected relationship: Wages may be low in agriculture (1) wages / value added tends to be higher in the secondary and / or tertiary sector (1). Exception: Nicaragua / Dominica (1) Nicaragua has the second highest % of labour force employed in agriculture but the lowest GDP per head / Dominica had the highest % of labour force employed in agriculture but the second to lowest GDP (1). Analysis of exception: Explanation of another influence on GDP per head (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note the four are: Bahamas Barbados Costa Rica Saint Lucia Question Answer Mark Guidance 1(f) Analyse, using a demand and supply diagram, how a drought could affect the market for coffee. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply 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). Written analysis: A drought will lead to a shortage / will increase costs of production (1). OR The lower supply will push up price / reduce quantity (traded) (1). 5 Question Answer Mark Guidance 1(g) Discuss whether or not small firms benefit Nicaraguan consumers. Award up to 4 marks for logical reasons why they might, which may include:  know customers’ requirements (1) provide a personal service / see them often (1) may be flexible (1)  may be many small firms / competitive markets (1) prices may be low (1) quality may be high (1) may offer wider choice collectively than a few large firms (1)  may provide products for which there is only a low demand (1) niche market (1)  makes goods more accessible in rural areas (1). Award up to 4 marks for logical reasons why it might not, which may include:  may not be able to take advantage of economies of scale (1) examples (1) higher average cost of production (1) higher price (1)  small firms may have lower profits (1) may limit investment / funds available (1) fail to raise quality (1)  may limit choice (1) individual small firms may have a limited range of products (1) cannot provide all that consumers may want (1). 6 Apply this example to all questions with the command word DISCUSS  1(g), 1(h), 2(d), 3(d), 4(d) and 5(d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Only reward reference to quality or prices once. Question Answer Mark Guidance 1(h) Discuss whether or not Nicaragua should devote more of its resources to coffee production. Award up to 4 marks for logical reasons why it should, which may include:  global demand for coffee is increasing (1) demand for coffee is price inelastic (1) revenue / profits may increase (1) more tax revenue for government (1)  firms grow in size (1) greater specialisation / economies of scale may reduce average costs (1) raise quality (1) increase profits (1) more competitive (1)  exports may increase (1) improve the current account of its balance of payments (1) lead to economic growth/higher standard of living (1)  may lead to more job opportunities (1) less poverty / less government payments to unemployed (1)  already twelfth biggest world producer (1) growth will give them more monopoly power (1) more power to raise price of coffee (1). Award up to 4 marks for logical reasons why it should not, which may include:  other countries produce coffee (1) these may be more competitive (1)  output may be affected by changes in weather (1) natural disasters (1) overproduction can exhaust land (1) leading to lower yields in future (1)  opportunity cost (1) resources could be used to produce other products (1) example (1) coffee workers only receive low pay (1)  world market for coffee may fall / demand is unpredictable (1) resulting in surplus capacity / wasted resources (1)  bmore dependent on other countries for imports of other (agricultural) products (1)  firms may suffer from diseconomies of scale (1) reduce profits (1). 6 Do not expect, but reward reference to absolute or comparative advantage.

Question 40

Free goods and economic goods are consumed in Poland. In 2020, demand for both economic goods and factors of production increased in Poland…

Accepted Answer

5(a) Identify two free goods. Two from e.g.:  air / oxygen  sunlight  water  wind 2 BOD on ‘sun’, trees (not wood), wild flowers, wild fruit. Not accepting fish or stone. 5(b) Explain two influences on demand for factors of production. Logical explanation which might include: Demand for the product produced / total demand / economic activity (1) rise in demand for the product/products will be likely to increase demand for the factor/factors of production / derived demand (1). Price of the factor itself (1) lower price will be likely to result in higher demand (1). Price of substitute factors of production (1) e.g. may demand more labour if price of capital rises (1). Price of complementary factors of production (1) e.g. if labour is used with capital, a fall in the price of capital may increase demand for labour (1). Productivity (1) higher productivity will be likely to increase demand (1). Quality / advances in technology / changes in standards of education and training (1) higher quality will increase demand (1). Occupational mobility (1) the more occupationally mobile, the higher demand will tend to be (1). Method of production (1) switch from labour-intensive production will increase demand for capital goods (1). 4 One mark each for each of two influences identified and one mark for each of two explanations. If more than 2 influences are given, consider the first 3. Accept price and / or demand on its own but looking for price of a complement or price of a substitute not just complement or substitute. Question Answer Marks Guidance 5(c) Analyse the effect of an increase in demand for football shirts on demand for football shorts and demand for basketball shirts. Coherent analysis which might include: Demand for football shorts is likely to increase (1) football shirts and shorts are complements (1) bought to be used together / bought to complete the set (1). Demand for basketball shirts is likely to fall (1) basketball shirts and football shirts may be substitutes (1) consumers may switch between them (1). 6 Changes in demand may be shown in the written answer or on diagrams. Question Answer Marks Guidance 5(d) Discuss whether or not an increase in government spending on housing would benefit an economy. In assessing each answer, use the table opposite. Why it might:  may increase total demand  may increase output / GDP  may increase employment / reduce unemployment  may lower the price of housing  may increase living standards  may reduce homelessness  may reduce poverty. Why it might not:  will have an opportunity cost  may increase taxes  quality of housing may be low  private sector may provide better housing  may be external costs during the construction. 8 Level Description Marks 3 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 sided 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. 6–8 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Marks Guidance 5(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 41

Shenzhen, once a fishing village, is now one of China’s richest cities with a large secondary sector. This transformation was possible as l…

Accepted Answer

2(a) Define secondary sector using an example apart from construction. The sector covering construction and manufacturing / the sector that processes raw materials (1) e.g. car manufacturing (1). 2 Accept covers manufacturing / production of goods. 2(b) Explain two key resource allocation decisions. Logical explanation which might include:  what to produce (1) a decision on what types of products that an economy needs to produce e.g. capital goods vs consumer goods / necessities vs luxuries (1)  how to produce (1) seeking the most efficient methods / where the methods to produce the goods and services needs to be decided / capital-intensive vs labour- intensive (1)  for whom to produce (1) for those who can pay for the goods and services / for the target market / sector of the economy for whom the goods should be produced / those who need it vs those who want it (1). 4 One mark each for each of two decisions identified and one mark for each of two explanations. Accept answers based on resource allocation decisions made by firms e.g. demand for a firm's products. Question Answer Mark Guidance 2(c) Analyse why workers may want to migrate to another area. Coherent analysis which might include:  to gain higher incomes (1) as there are more / better jobs opportunities available in another area / more opportunities to use skills (1) since there are more employers / economic activity (1)  to have better living standards (1) better public amenities (1) such as better health and education facilities (1)  to move from areas with housing shortages (1) for cheaper / better housing (1)  to move from areas where prices / cost of living is high (1) move to area with lower taxes (1) increase purchasing power / living standards (1)  to have better working conditions (1) more job security (1)  to be closer to friends / family (1) who have migrated previously (1)  to escape wars / high crime (1) more security (1) to avoid losing lives / lives of family members (1)  to gain more freedom (1) fewer laws / restrictive regulations (1)  climate change (1) original area no longer habitable / cannot plant crops (1) relocate to areas where there are better soil / fewer floods / fewer natural disasters / less pollution (1). 6 Accept internal and external migration. Maximum of 3 marks for identifying reasons. Question Answer Mark Guidance 2(d) Discuss whether or not a government should introduce a maximum price on housing. In assessing each answer, use the table opposite. Why it might:  reduces price of housing / makes housing more affordable  to control (cost-push) inflation  to improve labour mobility / increase labour force available  ensures everyone has shelter, a basic necessity  leaves enough money to buy other needs and wants, increasing living standards  less inequality / reduces relative poverty. Why it might not:  discourages firms from supplying housing / reduces profits  may reduce housing quality if firms wish to maintain profit levels  shortage of housing if maximum price is below the equilibrium  no effect if maximum price is set above the equilibrium price  creation of informal markets at higher prices – lower standards  maximum prices might still be too high and unaffordable  the maximum price introduced may not take location into account. 8 Level Description Marks 3 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. 6–8 2 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. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Mark Guidance Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 42

The Peruvian government is under pressure from its industries to improve the country’s transport system. Peru’s third largest industry is t…

Accepted Answer

5(a) Identify two examples of labour employed in the tourism 2 Also accept skilled and unskilled. industry. Do not accept driver or car driver on their own. Could accept Two from e.g. e.g. a driver who transports tourists, • tour guides • hotel manager / hotel worker • travel agent • flight attendant • coach / bus driver 5(b) Explain two reasons why countries with a good 4 One mark each for each of two reasons identified and one transport system often have a high GDP. mark for each of two explanations. Logical explanation which might include: Accept: increase accessibility. Lower firms’ costs of production (1) cheaper to move goods/imports/exports / move goods/raw materials//imports/exports more efficiently / increase international competitiveness and so increase exports / higher income / increase size of markets / higher total demand (1). Reduce wastage (1) food etc more likely to arrive fresh and so increase earnings for sale of e.g food / higher profits (1). Increase labour mobility / easier to get to work (1) reduce unemployment / increase productivity (1). Less congestion (1) less stress / less time lost (1). Increase (earnings from) tourism (1) cheaper / easier to move around the country (1). Attract MNCs/FDI / increase investment (1) increase employment (1) increase productive capacity (1). Fewer accidents (1) avoid loss of workers / avoid loss of working hours (1). Less pollution (1) healthier labour force (1). 5(c) Analyse the benefits consumers may gain from a 6 competitive market. Coherent analysis which might include: A competitive market has a large number of firms producing the product / no barriers to entry (1) substitutes available (1). Low prices (1) as firms try to gain a larger share of the market / attract consumers / increase purchasing power (1). High quality (1) as competition can increase efficiency (1) increase innovation (1). Choice (1) different versions of the product may be produced / greater range of products / greater variety (1). Responsive to changes in consumer demand (1) consumer sovereignty (1). 5(d) Discuss whether or not an increase in trade union Maximum of L2 4 marks if candidate answers in reverse membership will benefit an economy. based on a misinterpretation – an increase in trade union fees. In assessing each answer, use the table opposite. Level Description Marks Why it might: • rise in wages and improved working conditions may 3 A reasoned discussion which 6–8 increase productivity accurately examines both sides of the • higher wages may increase total demand which may economic argument, making use of increase real GDP economic information and clear and • improved working conditions would increase living logical analysis to evaluate economic standards issues and situations. One side of the • by providing a channel of communication, it may reduce argument may have more depth than conflicts between workers and employers the other, but overall both sided of the • by helping with training may raise output. argument are considered and developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • higher wages may increase inflation appropriate to the question. The • may take industrial action e.g. strikes which could lower discussion may also point out the output / GDP possible uncertainties of alternative • may resist job losses / introduction of new technology decisions and outcomes. which may prevent increases in efficiency. 2 A reasoned discussion which makes 3–5 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. 5(d) 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 0 no creditable content.

Question 43

Estonia’s factors of production are employed in a range of industries including education. In 2022, the country experienced a shortage of t…

Accepted Answer

3(a) Define factor of production. 2 No marks for examples. A resource / input (1) used to produce goods and services / used in the production process (1). 3(b) Explain two reasons why building workers may not become 4 One mark each for each of two reasons teachers. identified and one mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the May lack skills (1) occupationally immobile (1). first three. May not have the necessary qualifications / may not have sufficient education / may lack training / may lack willingness or ability to undertake training (1). May be paid more as building workers (1) a more physically demanding / more dangerous job (1) enjoy a higher standard of living as building workers may be in more demand than teachers (1). May be geographically immobile (1) unable to move to where the teaching jobs are (1). May not like the working conditions experienced by teachers (1) e.g. may want flexible working hours / less stress (1). May be unaware of job vacancies (1) information failure (1). May lack job vacancies (1) demand for teachers may fall (1). May enjoy working outside / gain more job satisfaction from working as a builder (1) benefit of fresh air (1). 3(c) Analyse how a small firm can compete successfully with a large 6 Two relatively easy marks to gain are ‘lower firm in the same industry. prices’ and ‘higher quality’. Coherent analysis which might include: It may provide a personal service / customised service (1) specialist product / unique product (1) catering for a niche part of the market (1). It may build up a relationship with customers / develop consumer loyalty / have a good reputation (1) more aware of their customers’ requirements (1) good location (1) may be easy to manage (1). It may be subsidised by the government / given a government grant (1) may be charged a lower rate of (corporate income) tax (1) more revenue / lower cost (1) this could enable it to charge a low / competitive price (1). It may have a good relationship with workers / good communication with staff (1) increase their motivation (1) May be innovative (1) produce a high quality product (1). It may be more flexible (1) responding quickly to changes in market conditions (1). A large firm may experience diseconomies of scale (1) example of a diseconomy of scale (1) higher average cost / higher cost of production (1) higher prices (1). 3(d) Discuss whether or not an increase in the money supply will benefit 8 Level Description Marks an economy. 3 A reasoned discussion 6–8 In assessing each answer, use the table opposite. which accurately examines both sides of the Why it might: economic argument, • raise consumer expenditure / government spending / investment making use of economic • reduce interest rate information and clear and • increase total demand logical analysis to evaluate • increase economic growth and employment economic issues and • increase bank lending situations. One side of the • provide finance for firms to expand. argument may have more depth than the other, but Why it might not: overall both sides of the • cause demand-pull inflation / fall in internal value of money argument are considered • increase imports and developed. There is • current account deficit may increase / current account surplus may thoughtful evaluation of fall economic concepts, • may cause a fall in the rate of interest terminology, information • increase in bank lending may result in some households and firms and/or data appropriate to getting into debt. the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 3(d) Level Description Marks 2 A reasoned discussion 3–5 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. 1 There is a simple attempt 1–2 at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Question 44

In recent years, the quantity of Latvia’s factors of production has changed. Since 2008, its capital has increased and its land has not cha…

Accepted Answer

3(a) Identify the rewards to capital and land. 2 If just names the two rewards, they can be in any order. • Interest (1) • rent (1) 3(b) Explain two causes of a decrease in enterprise in an 4 One mark each for each of two causes identified and one economy. mark each for each of two explanations. Logical explanation which might include: If more than two causes given, consider the first three. • Decrease in profit / increase in corporate income MAX of two marks if not identifying what changes. (corporation) tax (1) increase in interest rates for borrowing (1) reduce financial incentive to become an entrepreneur (1). • Reduction in education (1) reduce those with the skills to become entrepreneurs (1). • Reduction in immigration / reduction in population (1) reduce the number of people who can become entrepreneurs (1). • Entrepreneurs move abroad (1) better prospects / less tax (1). • Reduction in the retirement age (1) reduces supply of potential entrepreneurs (1). • Recession / war (1) firms may go out of business / reduces willingness to take risks / reduces confidence / certainty (1). • Increased government regulation (1) excessive rules may discourage entrepreneurs (1). • Nationalisation of an industry / growth of monopolies (1) removal of entrepreneurs (1). 3(c) Analyse how changes in conditions of supply can affect 6 Only allow one mark for reference to a rise in price and one a firm’s prices. mark for reference to a fall in price. Coherent analysis which might include: MAX 4 marks if not identifying change in conditions of supply. • Increase in costs of production (1) due to rise in wages / raw material costs / capital goods costs / tariffs (1) raise price (1) to maintain profit (1). • Natural disasters (1) can create a shortage (1) raise price (1). • Changes in weather (1) good weather can create a surplus in supply e.g. agriculture (1) prices fall (1) or poor weather can create a shortage (1) prices rise (1) • Increase in indirect tax / corporate income (corporation) tax (1) a firm may pass this onto consumers as higher prices (1) especially if demand is inelastic (1). • Government subsidies to firms (1) reduce the cost of production (1) the firm may be able to gain the same revenue and profit (1) with a lower price (1). • Discovery of new source of raw materials (1) enabling the firm to supply (1) more at a lower price (1). • Advances in technology (1) example (1) could lower costs of production (1) reducing price (1). • Improvements in education and training (1) raise productivity (1) lower prices (1). 3(d) Discuss whether or not a rise in a national minimum 8 Accurate diagram can achieve Level 1. wage will harm an economy. 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 unemployment if firms cannot afford to pay argument, making use of economic higher wages information and clear and logical • higher unemployment would reduce total demand analysis to evaluate economic issues • lower total demand would reduce output and situations. One side of the • tax revenue may fall, and expenditure on state benefits argument may have more depth than may rise the other, but overall both sides of the • if higher wages are paid, there may be inflation. argument are considered and developed. There is thoughtful Why it might not: evaluation of economic concepts, • reduce poverty as raise the income of the low-paid terminology, information and/or data • encourage more people to enter the labour force appropriate to the question. The • increase productivity as workers may be more discussion may also point out the motivated possible uncertainties of alternative • encourage firms to train workers to gain better return decisions and outcomes. • may be set below the existing equilibrium wage level. 2 A reasoned discussion which makes 3–5 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. 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 0 no creditable content.

Question 45

(a) Calculate St. Kitts and Nevis’s government budget deficit in 2022. [1] (b) Identify two examples of the factor of production ‘land’ in …

Accepted Answer

Question Answer Mark Guidance 1(a) Calculate St. Kitts and Nevis’s Government budget 1 Accept 18m. deficit in 2022. ($)18 000 000 / – ($)18 000 000. $18 m / – $18 m (1). 1(b) Identify two examples of the factor of production land in 2 If more than two examples given, consider the first three. St. Kitts and Nevis. Two from: beaches (1), (coral) reefs (1), marine life / fish (1) rainforests (1) and soil (1). 1(c) Explain how tourism causes external costs in St. Kitts 2 One mark for explanation of external costs. and Nevis. One mark for example based on tourism. • Social costs are greater than private costs / social costs include private costs and external costs / harmful effects on third parties / those not directly involved in producing or consuming the product (1). • Example of an external cost caused by tourism in St Kitts and Nevis e.g. pollution / environmental damage / death of wildlife / death of marine life / overcrowding (1). 1(d) Explain two reasons why a foreign bank may open a 4 One mark each for each of two reasons identified and one branch in St. Kitts and Nevis. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. • High incomes in the country (1) high demand for Most of the explanation points e.g. high profit could be banking services / high demand for loans / may save linked to any of the three identification points except high more / borrowers likely to be able to repay loans / high disposable income should be linked to absence of personal profit / high revenue (1). income tax. • Absence (low) of personal income tax (1) workers would be able to keep all of their income / more disposable Do not give two explanation marks for one identification. income / firms may be able to pay lower wages / increase workers’ motivation (1). Explanation marks here are dependent on the • Relatively high literacy rates (1) awareness of benefits identifications. of having a bank account / saving / skilled workers / high productivity (1). 1(e) Draw a demand and supply diagram to show the effect 4 of an increase in the productivity of onion farmers on the market for onions. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the right (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 healthcare spending 5 Responses do not have to be in the format suggested but as a percentage of GDP and life expectancy. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Expected relationship: and analyse the overall data. Direct / positive relationship (1). Generally, the higher healthcare spending, the higher the life expectancy (1). Supporting evidence should involve interpretation, not just description. Supporting evidence: E.g.: Haiti has the second lowest % healthcare spending and the shortest life expectancy (1) Canada spends a higher % on healthcare than Egypt and has a longer life expectancy / Canada spends the highest percentage on health care and has the second highest longest life expectancy / Canada and Sweden spend a high % on healthcare and have long life expectancy (1). Analysis of the supporting information: Higher spending on healthcare would be expected to raise the health of the population / provide better quality healthcare (1) increase awareness of need for healthy living / provide more check-ups / preventative medical care / reduce the death rate (1). Exception: Monaco (1) spends the lowest % on healthcare but has the longest life expectancy (1). Analysis of exception: 1.9% of a very high GDP can mean higher spending than e.g. 12.9% of a lower GDP / Monaco may have a high GDP (1). There are other influences on life expectancy e.g. nutrition / education/housing/war (1). 1(g) Discuss whether or not an increase in the size of its 6 Award one mark in total for higher / lower average costs, fishing industry would benefit St. Kitts and Nevis. one mark for lower / higher fish prices, one mark for higher / lower profits (1). Award up to 4 marks for logical reasons why it might, which may include: Higher / lower profits should be linked to the fishing industry. • may reduce imports of fish (1) reduce risk of supply-side shocks / imports being cut off (1) enable fish to be Apply this example to all questions with the command exported (1) may improve the current account word DISCUSS balance / improve the balance of payments (1) (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) • may increase employment / increase job opportunities / reduce unemployment (1) raise incomes Each point may be credited only once, on either side of an (1) increase living standards (1) increase argument, but separate development as to how/why the GDP / increase output / cause economic growth (1) outcome may differ is rewarded. higher tax revenue (1) • may enable greater advantage to be taken of Generic example Mark economies of scale (1) example (1) lower average cost (1) lower fish prices (1) Tax revenue may decrease … 1 • (larger boats) may be more efficient / more productive (1) make the industry more profitable / increase profits ... because of reason e.g. incomes may be 1 from fishing (1). lower. Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous argument. Tax revenue may increase because of a different 1 reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • opportunity cost (1) could use resources in other industries / government can spend more on e.g. education / increase budget deficit (1) • over-fishing (1) deplete fish stocks / lose marine life / deplete resources (1) raise fish prices in the long run (1) • may experience diseconomies of scale (1) example (1) higher average cost (1) reduce profit (1) • may cause external costs / environmental harm (1) may damage coral reefs / cause pollution (1) harm tourism (1) • may be a dangerous occupation (1) may be low-paid (1) low-skilled (1) may experience seasonal unemployment (1) • risk of over specialisation / too great a dependency on the industry (1) may be harmed by a fall in demand for fish / rise in competition from other countries (1). 1(h) Discuss whether or not deflation is likely to have 6 Award one mark for malign (bad) deflation is harmful harmed St. Kitts and Nevis. whereas benign (good) deflation is beneficial. Award up to 4 marks for logical reasons why it might, which Mark for higher employment and mark for higher GDP can may include: only be awarded if come from higher total supply. • may have increased real value of debt (1) may default (1) may have decreased investment (1) ‘save more’ may be credited on either side but only once. • may have resulted in a deflationary spiral (1) may have resulted from lower total demand (1) lower GDP / lower output / reduce economic growth / may cause a recession (1) lower employment / increased unemployment (1) lowered wages / income (1) • may reduce confidence (1) may discourage MNCs (1) • may reduce consumer expenditure / save more / create uncertainty (1) delay buying goods and services (until price is lower) (1). Award up to 4 marks for logical reasons why it might not, which may include: • may have increased purchasing power / real income / with the same income more goods and services can be purchased (1) (some) people may spend / consume more (1) • value of saving may have increased (1) increasing wealth (1) • may be the result of higher total supply (1) due to advances in technology / lower costs of production (1) higher output / economic growth (1) higher employment (1) • may have increased international competitiveness of its products / lower export prices (1) increased exports / export revenue (1) reduced imports / import expenditure (1) improve current account balance (1).

Question 46

In the first half of 2022, Guyana’s GDP grew by 36.4%. Most of this growth was due to higher output in the primary sector. The government u…

Accepted Answer

2(a) Identify two examples of primary sector industries. 2 If more than two primary industries are given, consider the first three. Two from: Accept two specific examples, e.g. growing wheat, catching • farming / agriculture tuna, but not from the same industry. • mining • fishing • forestry 2(b) Explain two causes of rising GDP. 4 One mark each for two causes identified and one each for two explanations. Logical explanation which might include: Only reward increase in total demand once. • increased consumption (1) decrease in taxes (1) such as income tax / corporation tax (1) increased disposable income /profits (1) • increase in investment (1) leading to increase in total demand (1) • increase in government spending (1) e.g. spending on infrastructure (1) increasing total (aggregate) demand in the economy (1) • improvements in technology (1) increase in productivity (1) • increase in the quantity (1) and quality of factors of production (1) e.g. increase in size of labour force (1) improved labour skills (1) increase in productive capacity of the economy (1) • decrease in interest rates (1) cost of borrowing falls (1) borrowing increases (1) • decreases in exchange rate (1) price of exports falls / price of imports rises (1) increase exports / decrease imports / increase net exports (1). 2(c) Analyse why house prices may increase. 6 MAXIMUM 4 MARKS for identification of reasons without analysis in terms of demand and / or supply. Coherent analysis which might include the following. Increase in demand (1) due to lower interest rates (1) increasing borrowing for house purchases (1) higher population (1) higher incomes (1) increasing ability to purchase houses (1) higher confidence (1) increasing willingness to buy houses (1). Decrease in supply (1) reduction in subsidies on new house building (1) increased taxation on housing (1) government building fewer houses (1) stricter planning regulation (1) land is used for other things e.g. infrastructure (1). Increasing cost of production of new houses (1) cost of labour (1) cost of raw materials (1) cost of land (1) increased costs passed on to buyers of houses as higher prices (1). Less government intervention (1) removal of price controls (1). 2(d) Discuss whether or not increased government spending 8 Level Description Marks on education will lead to economic development. 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 Why it might: of economic information and clear and logical analysis to evaluate • increase skills / qualifications / knowledge economic issues and situations. One • increase job opportunities side of the argument may have more • encourage more investments depth than the other, but overall, • increase productive capacity both sides of the argument are • reduce consumption of demerit goods considered and developed. There is • improved health / life expectancy thoughtful evaluation of economic • higher HDI concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes 3–5 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. 2(d) Why it might not: Level Description Marks • takes a long time to have an impact on the economy 1 There is a simple attempt at using 1–2 • financial cost of government spending e.g. taxation / economic definitions and borrowing terminology. Some reference may be • opportunity cost e.g. health spending made to economic theory, with occasional understanding. • reduced benefit to the economy if there is emigration of skilled workers / net migration is negative 0 A mark of zero should be awarded 0 • government might spend the money inefficiently for no creditable content. • education programmes may be ineffective.

Question 47

(a) Calculate the number of Malawians who had access to electricity in 2022. [1] (b) Identify two capital goods used in Malawi. [2] (c) Exp…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the number of Malawians who had access to 1 Accept 3.3  106. electricity in 2022. 3.3 m or 3 300 000. 1(b) Identify two capital goods used in Malawi. 2 If more than two capital goods are given, consider the first three. Two from: Factories (1) power stations (1) solar panels (1) electricity (1) fertilisers (1). 1(c) Explain what is likely to have happened to Malawi’s 2 Accept an accurate and fully labelled PPC diagram showing production possibility curve (PPC) in January 2022. the PPC shifting to the left for the first mark. • It is likely to have shifted to the left / inside / inwards / Second mark for any relevant reason from the source contract (1). material. • due to natural disasters / Storm (Ana) / resources destroyed / productive capacity (or land) reduced / less labour (1). 1(d) Explain two reasons why the supply of Malawian tea 4 One mark each for two reasons identified and one mark may increase. each for two explanations. Logical explanation which might include: If more than two reasons are given, consider the first three. • good weather conditions (1) would increase crop yields / Do not accept an answer that links tea with sugar. prevent crops being destroyed (1). • government subsidies (1) provide a financial incentive / additional payment to that received from consumers / reduce costs of production (1). • fall in price of fertiliser (1) which reduces cost of production / increase crop yields / allows farmers to purchase more fertiliser (1). • fall in exchange rate (1) higher demand for Malawian tea (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a report stating the health risks of consuming sugar on the market for sugar. Coherent analysis which might include the following. D&S diagram: • Axes correctly labelled – price and quantity or p and q (1). • Original demand and supply curves correctly labelled (1). • New labelled 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 GDP per head and the 5 Responses do not have to be in the format suggested but percentage of children who complete primary they should address the expected / normal relationship, offer education. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include the following. Supporting evidence should involve interpretation, not just Expected relationship: description e.g. simply quoting data without reference to Generally, a direct / positive relationship (1) the higher the high or low. GDP per head, the higher the percentage of children who complete primary education (1). 1(f) Supporting evidence: Four countries with the highest GDP per head had the highest percentage of children who complete primary education / Malawi / Uganda have the lowest of both (1). South Africa had the highest GDP per head and the highest percentage of children who complete primary education (1). Comparison of two countries (e.g. Namibia and Senegal where GDP falls as does percentage of children completing primary education). Analysis of the expected relationship: Parents in countries with high incomes are more likely to be able to afford to keep their children in primary education (1). Government tax revenue is likely to be higher in countries with high incomes and so will be able to spend more on primary education (1). Completing primary education may increase the chance of skilled / occupationally mobile high income earning workers (1). Exception: Malawi / Uganda (1) Malawi has a lower GDP per head but a higher percentage of children who complete primary education than Uganda (1). Analysis of exception: A higher percentage of children may complete primary education but the quality of the education may be low leading to a low GDP per head / GDP per head may be high but there may be a high degree of inequality with a relatively high proportion of the population unable to keep their children in primary education (1). 1(g) Discuss whether or not Malawi should develop a solar 6 Apply this example to all questions with the command energy industry. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which may include: Each point may be credited only once, on either side of an • a sustainable source of energy (1) enables future argument, but separate development as to how / why the generations to access energy (1) outcome may differ is rewarded. • would create less pollution / external costs than burning wood and charcoal / improve air quality (1) reduce Generic example mark deforestation (1) improve health (1) • may enable more Malawian households to gain access Tax revenue may decrease… 1 to electricity (1) increase living standards / reduce inequality (1) ...because of reason e.g. incomes may be lower. 1 • setting up solar panels creates jobs (1) leads to increased output / economic growth / access to Tax revenue may increase because incomes 0 electricity for Malawian firms (1) may be higher i.e. reverse of a previous • long hours / 3000 hours of sunshine (1) a good / viable argument. source of energy (1) • less need to import energy (1) reduce current account Tax revenue may increase because of a different 1 deficit (1) reason i.e. not the reverse of a previous • develops employment opportunities (1) raising incomes argument e.g. government spending on subsidies (1). may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • opportunity cost of installing (1) example (1) • opportunity cost of land use (1) reduced agricultural output (1) • dependent on weather / sunshine and days lost (1) unstable supply (1) may experience storm damage / natural disasters (1) • visual pollution (1) might reduce tourism / reduce house prices (1) • cost of developing an electricity distribution network may be prohibitive • cost of switching from fossil-fuel burning domestic appliances to electrical ones may not be affordable to households (1) limiting the impact of the switch (1) • expensive to install (1) worsen government budget position (1) • visual pollution (1) might reduce tourism / reduce house prices (1) • solar panels could be damaged by storms (1) making them inefficient (1). 1(h) Discuss whether or not a government should try to stop 6 Note: many candidates provide incorrect analysis e.g. its country’s foreign exchange rate falling in value. wrong way around. Award up to 4 marks for logical reasons why it should try to Maximum of 3 marks if there is no development / evaluation stop it falling in value e.g. the disadvantages of the fall, of reasons given. including: • will increase import prices (1) reducing imports (1) may increase cost of imported raw materials and capital goods cost (1) cause cost-push inflation (1) cause slow economic growth (1) • may reduce pressure on domestic firms to keep prices low (1) quality high (1) • may reduce confidence in the economy (1) reduce investment (1) increase debt (1). Award up to 4 marks for logical reasons why it should allow a fall in value e.g. the advantages of the fall, including: • will reduce export prices (1) increase exports (1) reduce imports (1) • make domestic goods more competitive (1) reduce a current account deficit / improve the balance of payments (1) • may increase economic growth (1) reduce unemployment (1) attract MNCs / attract investment (1) increase tourism (1) • opportunity cost / costly for government to intervene (1) e.g. less funding for education / healthcare / housing (1) • may increase government tax revenue (1).

Question	Answer	Marks	From
1	see sheet	20	0455/22 Feb/March 2017
2	see sheet	20	0455/21 May/June 2017
3	see sheet	20	0455/22 May/June 2017
4	see sheet	30	0455/21 Oct/Nov 2017
5	see sheet	20	0455/22 Oct/Nov 2017
6	see sheet	20	0455/22 Oct/Nov 2017
7	see sheet	20	0455/22 May/June 2018
8	see sheet	20	0455/22 Oct/Nov 2018
9	see sheet	20	0455/23 Oct/Nov 2018
10	see sheet	20	0455/21 May/June 2019
11	see sheet	20	0455/22 May/June 2019
12	see sheet	30	0455/23 May/June 2019
13	see sheet	20	0455/23 May/June 2019
14	see sheet	30	0455/21 Oct/Nov 2019
15	see sheet	20	0455/22 Oct/Nov 2019
16	see sheet	30	0455/23 Oct/Nov 2019
17	see sheet	20	0455/22 Feb/March 2020
18	see sheet	30	0455/21 May/June 2020
19	see sheet	20	0455/21 May/June 2020
20	see sheet	20	0455/23 May/June 2020
21	see sheet	20	0455/21 Oct/Nov 2020
22	see sheet	20	0455/21 Oct/Nov 2020
23	see sheet	30	0455/23 Oct/Nov 2020
24	see sheet	20	0455/22 Feb/March 2021
25	see sheet	30	0455/21 May/June 2021
26	see sheet	20	0455/21 May/June 2021
27	see sheet	20	0455/22 May/June 2021
28	see sheet	20	0455/22 Feb/March 2022
29	see sheet	20	0455/21 May/June 2022
30	see sheet	30	0455/22 May/June 2022
31	see sheet	20	0455/23 May/June 2022
32	see sheet	30	0455/22 Feb/March 2023
33	see sheet	20	0455/22 Feb/March 2023
34	see sheet	20	0455/22 May/June 2023
35	see sheet	30	0455/21 Oct/Nov 2023
36	see sheet	20	0455/21 Oct/Nov 2023
37	see sheet	20	0455/22 Oct/Nov 2023
38	see sheet	30	0455/23 Oct/Nov 2023
39	see sheet	30	0455/21 May/June 2024
40	see sheet	20	0455/22 May/June 2024
41	see sheet	20	0455/23 May/June 2024
42	see sheet	20	0455/22 Oct/Nov 2024
43	see sheet	20	0455/22 Feb/March 2025
44	see sheet	20	0455/21 May/June 2025
45	see sheet	30	0455/22 May/June 2025
46	see sheet	20	0455/21 Oct/Nov 2025
47	see sheet	30	0455/23 Oct/Nov 2025

Questions19 pages

Mark scheme47 answers

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