Questions as text
Q1 · One way in which governments seek to reduce market failure is to introduce regulation 0455/22 Feb/March 2017
7 One way in which governments seek to reduce market failure is to introduce regulation. Governments also produce some goods and services by employing workers in the public sector. (a) Define ‘regulation’. [2] (b) Explain two causes of market failure. [4] (c) Analyse the possible opportunity costs of an increase in government spending on higher education services. [6] (d) Discuss whether government policy measures can reduce unemployment. [8]
20 marks
Mark scheme: 7(a) Define ‘regulation’. Rules/laws (1) set by a government or organisation (1) which place controls on the activities of economic agents/example such as price controls, ban on smoking (1). 2 7(b) Explain two causes of market failure. 1 mark each for each of two causes identified: • failure to take into account all costs and benefits/external costs and benefits • abuse of market failure/exploitation of monopoly power 1 mark each for each of two explanations of the causes: • not considering external costs and benefits will result in under-consumption/under-production and over-consumption/over-production. • Abuse of market power may result in higher price, restricted supply and lower quality. 4 Do not expect but reward references to merit goods, demerit goods, public goods and information failure. 7(c) Analyse the possible opportunity costs of an increase in government spending on higher education services. Opportunity cost is the (next) best alternative forgone (1). An increase in government spending on higher education would leave less funds available to spend on alternatives (1) examples e.g. healthcare/defence (2) effect of a fall in government spending on e.g. healthcare/defence (2). Opportunity cost may be lower in the long run (1) increase in spending on education may raise productivity/output (1) increase government revenue (1) more to spend on alternatives (1). An increase in government spending on higher education may result in increased taxation (1) this would leave households and firms with less income (1) creating an opportunity cost for taxpayers (1) fall in disposable income (1) lower purchasing power (1). 6 Question Answer Marks Guidance 7(d) Discuss whether government policy measures can reduce unemployment. Up to 5 marks for why they might: Cut income tax (1) increase disposable income (1) increase consumer spending (1) raise total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1) raise reward from working (1) reduce voluntary unemployment (1). Cut interest rates (1) can increase borrowing (1) reduce saving (1) increase consumer spending (1) increase total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1). Introduce supply-side policy measures (1) e.g. education (1) can raise productivity (1) increase labour productivity (1) reduce structural unemployment (1). Direct employment by the government (1). Up to 5 marks for why they might not: Consumers may lack confidence (1) so they will not spend more if income tax or interest rates are reduced (1). Firms may lack confidence (1) so will not expand output (1) and will not take on more workers (1). Firms may expand output without taking on more workers (1) due to employing more capital (1) getting existing workers to work overtime (1). Education may be in the wrong areas (1) privatisation may result in firms cutting employment to reduce costs (1). There may be external shocks (1) e.g. a global recession (1) which could offset government policy measures (1). 8
This question in 0455/22 Feb/March 2017
Q2 · The New Suez Canal In August 2015 the Egyptian Government opened a second Suez Canal… 0455/21 May/June 2017
1 The New Suez Canal In August 2015 the Egyptian Government opened a second Suez Canal, alongside the original canal, to enable more and larger ships to sail from the Mediterranean Sea to the Gulf of Suez. It cost more than US$8 billion to build, with land having to be purchased, capital equipment acquired and wages paid to the workers building the canal. This was at a time when there were calls for increased spending on healthcare, in particular improving the quality of public hospitals and improving education, especially adult literacy. The Egyptian Government believes that the canal will attract more ships, both those carrying goods and those carrying people. The number of goods and people using sea transport is influenced by a variety of factors. These include the speed of the transportation, the level of economic activity and the price of other forms of transport. Some goods have to be transported quickly, and recent years have shown how sensitive demand for sea transport is to recessions and economic booms. Fig. 1 shows how the market for sea transport has recently been affected by the change in the market for air transport. S price of sea transport P1 P2 D1 D2 O Q2 Q1 quantity of sea transport Fig. 1 The market for sea transport The Egyptian Government is hoping that new industries connected to the shipping industry will be built along the canal. Developing infant industries may help to reduce the country’s unemployment rate, which in 2015 was 12.5%. In 2015, the country had a population of 90 million, a population growth rate of 1.5% and a labour force of 28 million. Its death rate was falling. The government’s spending on healthcare was equivalent to 4% of Gross Domestic Product (GDP). 2015 also saw GDP at US$280 billion with an economic growth rate of 5%. (a) Define ‘private cost’ and give an example from the extract. [2] (b) Explain opportunity cost and give an example from the extract. [4] (c) Calculate, using information from the extract: (i) the number of people unemployed in Egypt in 2015 [2] (ii) the amount the Egyptian Government spent on healthcare in 2015. [2] (d) Analyse how a global recession could affect demand for sea transport. [5] (e) Discuss whether a fall in a country’s death rate will always result in an increase in its population size. [5] (f) Explain, using information from the extract and Fig. 1, what happened to the market for sea transport as a result of the fall in the price of air transport. [4] (g) Discuss whether a government should protect infant industries. [6]
30 marks
Mark scheme: 1(a) Define ‘private cost’ and give an example from the extract. A cost borne by those directly producing or consuming a product (1) cost of land/capital/equipment/wages/$US8 billion to build second Suez canal) (1). 2 1(b) Explain opportunity cost and give an example from the extract. Opportunity cost is the (next) best alternative (1) forgone (1). Government spending on the canal (1) could have been used on e.g. healthcare/education (1). Land used for the canal (1) could have been used for e.g. farming (1). 4 1(c)(i) Calculate, using information from the extract, the number of people unemployed in Egypt in 2015. 3.5 million (2). Correct method i.e. 12.5% of 28 million (1). 2 1(c)(ii) Calculate, using information from the extract, the amount the Egyptian government spent on healthcare in 2015. $11.2 billion. (2). 11.2 billion or $11.2 or 11.2 (1). Correct working i.e. 4% of $280 billion (1). 2 1(d) Analyse how a global recession could affect demand for sea transport. A global recession means that global output/supply will fall / two or more quarters of negative growth (1). Fewer goods will be transported/moved (1) less trade/lower imports and exports (1) demand for freight/sea transport will fall (1). Incomes will fall (1) spending will fall (1) demand for leisure travel by sea will decrease (1) demand for passenger transport will fall (1). 5 Maximum of 1 mark for demand for sea transport falls, however many times it is mentioned. Maximum of 2 marks for a list-like approach. Question Answer Marks Guidance 1(e) Discuss whether a fall in a country’s death rate will always result in an increase in its population size. Up to 3 marks for why it might: A fall in the death rate may mean people live longer (1) maybe due to improvements in health (1) the birth rate may now exceed the death rate (1) resulting in an increase in population (1). A lower death rate may attract more people to migrate to the country (1) resulting in net immigration (1). Up to 3 marks for why it might not: The death rate may still exceed the birth rate (1) so a fall in the death rate may just reduce the decline in population size (1). The death rate may equal the birth rate (1) and so population size may not change (1). The death rate may be less than the birth rate (1) but this may be exceeded by net emigration (1). Birth rate may also fall (1) if related to higher standard of living / improved healthcare (1) 5 A response may develop a mixture of relevant points to achieve up to 3 marks on either side. Maximum of 2 marks for a list-like approach. 1(f) Explain, using information from the extract and Figure 1, what happened to the market for sea transport as a result of the fall in the price of air transport. The diagram shows demand decreasing (1) price falling (1) supply contracting/falls (1) air transport is a substitute for sea transport (1). Supply is inelastic (1). Demand is inelastic (1). 4 Maximum of 2 marks for a list-like approach. Question Answer Marks Guidance 1(g) Discuss whether a government should protect infant industries. Up to 4 marks for why it should: Infant industries may struggle to compete against foreign competitors (1) because they are not large enough to take advantage of economies of scale (1) example/s of economies of scale (1) average cost higher (1). To offset predatory pricing from overseas (1) or to develop a strategic or innovative new industry (1) to reduce reliance on other countries (1). Imposition of tariffs (1) would benefit the government through higher tax revenue (1). Infant industries may grow (1) increasing output/GDP/economic growth (1) increasing employment/reduce unemployment (1). Up to 4 marks for why it should not: Infant industries may become reliant on protection (1) not become efficient/not reduce average costs (1) may not work (1). It is difficult to determine which industries have the potential to grow (1). Protection of infant industries may provoke retaliation (1) reducing exports of other industries (1). There is an opportunity cost (1) example (1). 6 A response may develop a mixture of relevant points to achieve up to 4 marks on either side. Maximum of 3 marks for a list-like approach.
This question in 0455/21 May/June 2017
Q3 · Sales of bottled water in China doubled between 2010 and 2015 0455/21 May/June 2017
2 Sales of bottled water in China doubled between 2010 and 2015. In 2013 China overtook the USA as the biggest market for water by volume, but not value as the price of a bottle was higher in the USA. The increase in global consumption of bottled water has increased the size of firms producing bottled water but has also increased pollution. (a) Why is pollution an example of market failure? [2] (b) Explain two causes of a shift of a supply curve to the right. [4] (c) Analyse why the price of a product may be higher in the USA than China. [6] (d) Discuss whether large firms or small firms benefit consumers more. [8]
20 marks
Mark scheme: 2(a) Why is pollution an example of market failure? It is a cost/harmful effect/external cost (1) on a third party (1) not taken into account by the market (1) will cause social costs to exceed private costs (1) may result in the inefficient use of resources (1). 2 2(b) Explain two causes of a shift of a supply curve to the right. 1 mark each for each of two causes identified: • a reduction in the costs of production • advances in technology • increase in labour productivity • cuts in indirect taxes • government subsidies • good weather • reduction in diseases affecting livestock and crops • fall in price of other products produced by the firms 1 mark each for each of two explanations given: • lower costs of production will make firms more willing and able to supply/raise profits • advances in technology makes it cheaper to produce • cuts in taxation effectively lower costs of production • government subsidies provide a financial incentive to produce more • good weather increases fertility of land/increases crop yields • reduction in diseases increase crop yields and the number of livestock that can be sold • fall in price of other products produced by firms may lower their profitability, encouraging firms to switch resources 4 Do not accept a change in the price of the product. Question Answer Marks Guidance 2(c) Analyse why the price of a product may be higher in the USA than China. • Demand may be higher in the USA (1) due to e.g. higher incomes (1) • The product may be advertised more in the USA (1) the product may have fewer substitutes in the USA (1) • Difference in markets (1) monopoly in USA (1) lower output/higher prices (1) greater competition in China (1) greater output and lower prices (1) • Good may be imported from china (1) higher transportation costs raises price (1) • Supply may be lower in the USA (1) due to e.g. higher costs of production (1) • The tax on the product may be higher in the USA (1) • The Chinese government may subsidise the product (1) • Demand may be more inelastic in USA (1) hence producers can charge higher price (1) • Diseconomies of scale in the USA (1) lead to higher average costs and higher prices(1) economies of scale in China (1) lead lower average costs and lower prices (1) • Chinese exchange rate has fallen (1) will mean difference in the price of goods imported (1) resulting in higher costs of importing into the USA (1) 6 Maximum of 3 marks for a list-like approach. 2(d) Discuss whether larger firms or smaller firms may benefit consumers more Up to 5 marks for why larger firms* might: They may be able to benefit from economies of scale (1) example/s of economies of scale (1) lower average costs (1) lower prices for consumers (1). They may have more funds to invest (1) increase innovation / research (1) improve the quality of products (1). Large firms may offer greater variety to consumers (1). Up to 5 marks for why larger firms* might not: They may experience diseconomies of scale (1) example/s of diseconomies of scale (1) higher average costs (1) higher prices for consumers (1). They may provide less of a personal service (1) they may be less responsive to changes in consumer demand (1) as may be less in touch with consumers (1). A larger firm may be a monopolist (1) can restrict output and charge a higher price (1) lack innovation (1). Smaller firm may have monopoly power (1) in a niche market (1). 8 *Opposite wording of the argument is acceptable, i.e. why smaller firms may benefit consumers more than larger firms. 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.
This question in 0455/21 May/June 2017
Q4 · In 2012 oil was discovered in Kenya, but in 2014 an American firm stopped its plans to… 0455/21 May/June 2017
4 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 country. The relative sizes of Kenya’s primary, secondary and tertiary sectors are changing. The amount of capital goods in the country is also increasing. (a) Define the ‘secondary sector’ and give an example. [2] (b) Explain two benefits that an economy may gain as a result of the discovery of oil on its land. [4] (c) Analyse why the social costs of oil extraction may be greater than the private costs. [6] (d) Discuss whether a country would benefit from devoting more resources to producing capital goods. [8]
20 marks
Mark scheme: 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.
This question in 0455/21 May/June 2017
Q5 · Coal mining Coal is used directly to heat homes throughout the world and produces more… 0455/23 May/June 2017
1 Coal mining Coal is used directly to heat homes throughout the world and produces more than 40% of the world’s electricity. There are, however, a number of challenges facing the coal industry. These include increasing concerns about the environmental effects of using coal and the increased competition from other fuels. Mining and using coal to produce electricity causes air pollution. Coal-fired power stations emit carbon dioxide, which has a harmful effect on people’s health. Wildlife habitats are damaged when new mines are opened and when coal waste is dumped on landfill sites. However, demand for coal has declined recently. This resulted in the price of a tonne of coal falling from US$300 in 2010 to US$150 in 2015. Even China, the world’s largest consumer of coal, purchased less in 2015. Some high-cost deep mines were closed in the USA. In the same year, Europe’s largest producer, Poland, sold coal at a loss of US$37 a tonne. The fall in demand for coal arises partly from competition from renewable energy. For instance, advances in technology are reducing the costs of producing energy from wind power. Fig. 1 shows how the market for wind power changed in 2015. S1 S2 price of wind power P1 P2 D1 O Q1 Q2 quantity of wind power Fig. 1 The market for wind power in 2015 Some countries protect their energy industries from foreign competition, in some cases to reduce a current account deficit. The governments of a number of coal-producing countries also regulate their coal industries. The extent of government intervention is influenced by the type of economic system operated. (a) Identify, using information from the extract, two external costs that arise from using coal to produce electricity. [2] (b) Explain two reasons why a firm may continue to produce a good despite making a loss. [4] (c) Calculate, using information from the extract: (i) the percentage fall in the price of coal between 2010 and 2015 [2] (ii) the cost (in US$) of producing a tonne of coal in Poland in 2015. [2] (d) Analyse how resources are allocated in a mixed economy. [5] (e) Discuss whether governments should regulate the coal industries of their countries. [5] (f) Explain, using information from the extract and Fig. 1, what happened to the market for wind power in 2015. [4] (g) Discuss whether a government should use trade protection to reduce a current account deficit. [6]
30 marks
Mark scheme: 1(a) Identify, using information from the extract, two external costs that arise from using coal to produce electricity. Air pollution/carbon dioxide emissions (1) damage to wildlife habitats (1) ill health (1). 2 1(b) Explain two reasons why a firm may continue to produce a good despite making a loss. 1 mark each for each of two reasons identified: • expectation revenue/profits may increase (1) expectation costs may fall (1) • government subsidy (1) to preserve jobs (1) sales maximisation as a goal (1) • aim is social welfare (1) it is a strategic industry (1) the firm has seasonal demand (1) • the firm cannot produce any other product (1) the firm may be state owned (1) • the firm does not make an overall loss (1) but covers losses from other products (1) 1 mark each for each of two explanations: • expectation revenue will rise if anticipate demand will be higher in the future (1) • expectation costs will fall e.g. as the firm expands or new resources are discovered (1) • a government subsidy may cover a loss (1) • jobs preserved in the short term in anticipation of an upturn in future (1) • sales maximisation in the short-term for greater future profits e.g. monopoly (1) • non-profit making organisations cover losses by e.g. donations, government support (1) • firm will make losses in winter but anticipate profits in summer (1) • the firm will keep producing its only product until bankrupt (1) • nationalised industries e.g. railways, providing a public service (1) 4 1(c)(i) Calculate, using information from the extract, the percentage fall in the price of coal between 2010 and 2015. Correct answer: 50% (2) Correct working: e.g. 150 ÷ 300 × 100 (1) 2 Question Answer Marks Guidance 1(c)(ii) Calculate, using information from the extract, the cost in (US$) of producing a tonne of coal in Poland in 2015. Correct answer: $187 (2) Correct working: e.g. $150 + $37 (1) 2 $ sign required for 2 marks 1(d) Analyse how resources are allocated in a mixed economy. A mixed economy consists of resource allocation by both public and private sectors (1) Up to 3 marks for analysis of the role of the public sector: • Government production of goods which private sector is unable/unwilling to do (1) government sets prices (1) • Government influencing prices through taxes and subsidies (1) • Government laws and regulations to protect public (1) • Government redistributing incomes (1) Up to 3 marks for analysis of the role of the private sector: • Role of price mechanism (1) responding to changes in demand and supply (1) signalled by price changes (1) • resources moving to making products in increasing demand (1) away from products falling in demand (1) profit incentive (1) creating an efficient use of resources (1) • Those earning the highest income (1) have the greatest purchasing power (1) differences in income provide incentives (1) 5 Question Answer Marks Guidance 1(e) Discuss whether governments should regulate the coal industries of their countries. Up to 3 marks for why they should: • Control of negative externalities (1) harmful effects on third parties (1) e.g. regulations on air pollution or noise pollution (1) • To ensure regular fuel supplies (1) by having output targets (1) • Consumer protection (1) price controls (1) through maximum and/or minimum prices (1) • Worker protection (1) regulation of working conditions/safety in coal industry (1) • Control of any monopoly power (1) preventing price being driven up (1). Up to 3 marks for why they should not: • Regulation may be difficult to enforce (1) expensive to enforce/uses up resources (1) difficult to determine who has caused the pollution (1) coal industry not the only pollution source (1) • May reduce coal industry output (1) reducing GDP economic growth (1) creating unemployment (1) reducing coal exports (1) may reduce government tax revenue (1) • May add to firms’ costs (1) increasing coal prices (1) causing cost-push inflation (1) • May discourage investment in the coal industry (1) raising production costs (1) increasing prices (1) 5 Pollution on its own is insufficient, it needs to be a specific example. 1(f) Explain, using the information from the extract and Figure 1, what happened to the market for wind power in 2015. The diagram shows: • supply increasing/more wind power produced (1) • price falling (1) • demand extending (1) • more wind power traded (1) • costs of production fell (1) due to advances in technology (1) • inelastic demand (1) inelastic supply (1) 4 Question Answer Marks Guidance 1(g) Discuss whether a government should use trade protection to reduce a current account deficit. Up to 4 marks for why it should: • Trade protection/tariffs may increase import prices (1) import volumes will fall (1). • Trade protection/quotas will reduce the quantity of imports (1) • Trade protection/embargoes will stop imports of certain products (1) may cause lower import expenditure (1) reducing a current account deficit (1) • Trade protection may prevent other countries from dumping their output (1) • A reduction in a current account can increase output (1) raise incomes (1) reduce unemployment (1) Up to 4 marks for why it should not: • Trade protection may provoke retaliation (1) if other countries impose trade restrictions (1) the current account may not improve (1) GDP may fall (1) unemployment may rise (1). • Trade protection may discourage firms from becoming efficient (1) this will mean the deficit will continue (1). • Other policies may be more effective (1) e.g. increase in income tax (1). • Trade protection can disadvantage domestic consumers/producers (1) raise price (1) reduce imports of e.g. raw materials (1) reduce quality (1). • Some products cannot be produced domestically (1). 6
This question in 0455/23 May/June 2017
Q6 · Argentina once had one of the highest levels of Gross Domestic Product (GDP) per head in… 0455/23 May/June 2017
7 Argentina once had one of the highest levels of Gross Domestic Product (GDP) per head in the world and one of the highest economic growth rates. Many multinational companies were producing in the country. Some suggest that for Argentina to regain its position among the top ten richest countries, it needs to increase spending on education and move towards free trade. (a) Define ‘free trade’. [2] (b) Explain two reasons why governments aim for economic growth. [4] (c) Analyse why the social benefits of education are greater than the private benefits. [6] (d) Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. [8]
20 marks
Mark scheme: 7(a) Define ‘free trade’. Trade without restrictions/having no barriers (1) example of a trade restriction (1) without intervention of governments (1). 2 7(b) Explain two reasons why governments aim for economic growth. 1 mark each for each of two reasons identified: • Higher living standards/higher incomes (1) • higher employment (1) • less government spending on benefits (1) • more tax revenue (1) allowing more spending on e.g. health (1) • more exports (1) • reduced poverty (1) • To attract investment from abroad/MNCs (1) 1 mark each for each of two explanations given: • higher living standards as people can enjoy more goods and services (1) • more workers will be needed to produce the higher output (1) • government may be able to spend more on e.g. education and healthcare (1) • fewer unemployed workers will reduce the burden on government expenditure (1) • current account position will improve if there is the demand for exports (1) • incomes will rise which may allow more people to enjoy basic necessities (1) • growth means foreign firms have the potential to earn high revenues/make high profits (1) 4 7(c) Analyse why the social benefits of education are greater than the private benefits. • Social benefits are private benefits plus external benefits (1) • Private benefits include self-fulfilment (1) increased job opportunities (1) higher income/standard of living (1) better health (1) • Education also provides external benefits (1) higher output/GDP/economic growth (1) better quality output (1) improved literacy (1) more skilled workers (1) • improved productivity (1) more tax revenue (1) 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 7(d) Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. Up to 5 marks for why some will: • The countries will have high average incomes (1) there may be a high demand for the firms’ products (1) can sell at high prices (1) increase revenue (1) raise profits (1) • The countries may have a skilled labour force (1) high labour productivity (1) low costs of production (1) • The countries may have better infrastructures, e.g. motorways (1) reducing transport costs (1) making transport more reliable (1) Up to 5 marks for why some will not: • Countries with a high GDP per head may not have supplies of specific raw materials/they may be expensive (1) which the companies can use for their production (1) • Countries with a high GDP per head may have few unemployed workers (1) that the firms can recruit (1) at low wages (1) • Countries with a high GDP per head may have more expensive labour (1) land (1) making production costs high (1) • The government of the country may provide subsidies for the firms to set up there (1) this would, in effect, reduce average costs (1) • There may already be (similar) MNCs in the country (1) increasing competition (1) increasing PED for the firm’s products (1) reducing ability to charge high prices (1) 8 Accept arguments from the perspective of countries with a low income per head, but don’t count them twice. 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.
This question in 0455/23 May/June 2017
Q7 · In Pakistan there is a limited choice of cars to buy 0455/22 Oct/Nov 2017
4 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 a year are produced there. The firms producing cars in Pakistan are protected from foreign competition by a range of methods of trade protection. (a) Name two factors of production used in making cars. [2] (b) Explain how two methods of trade protection may reduce imports. [4] (c) Analyse the social costs created by car production and car use. [6] (d) Discuss whether demand for cars is likely to increase in the future. [8]
20 marks
Mark scheme: 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.
This question in 0455/22 Oct/Nov 2017
Q8 · More governments are imposing taxes on unhealthy food and drinks 0455/21 May/June 2018
7 More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually regressive. Some of these governments are also increasing their spending on healthcare. In other countries healthcare is provided by the private sector. The number of state-owned enterprises is declining in a number of countries due to privatisation. (a) Define regressive tax. [2] (b) Explain why the social benefit of healthcare is greater than the private benefit. [4] (c) Analyse why a government imposes taxes. [6] (d) Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms. [8]
20 marks
Mark scheme: 7(a) Define regressive tax. A tax that takes a lower percentage of the income of the rich/higher percentage of the income of the poor (2). A tax that falls more heavily on the poor (1). Disadvantages the poor/higher burden on the poor/higher rate for the poor (1). 2 7(b) Explain why the social benefit of healthcare is greater than the private benefit. Social benefit includes both private and external benefits (1). Healthcare also provides external benefits(1). Example of private benefits identified as a private benefit e.g. profits of provider, wages of doctors, higher life expectancy of consumer (max 2). Examples of external benefits identified as external benefits/recognised as 3rd party impacts e.g. higher labour productivity, higher output, reduction in spread of diseases (max 2). 4 7(c) Analyse why a government imposes taxes. To raise revenue (1) to finance government spending/example of spending (1). To discourage the consumption of certain products (1) example/external costs (1). To discourage the production of certain products (1) example/external costs (1). To discourage the consumption of imports (1) improve the current account position on the balance of payments (1). To redistribute income (1) taxing the rich more (1). To influence economic activity (1) raising taxes to reduce total (aggregate) demand (1) to control (demand-pull) inflation (1). 6 Accept but do not expect reference to public and merit goods. Question Answer Marks Guidance 7(d) Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms. Up to 5 marks for why they might: There may be more competition in the markets (1) this may force down prices (1) increase quality (1). Firms will be influenced by the profit motive (1) this may make them more responsive to changes in consumer demand (1). State-owned enterprises may be slow in making decisions (1) due to bureaucratic control (1) may not respond quickly enough to consumer demands (1). Up to 5 marks for why they might not: State-owned enterprises might have taken into account social costs and social benefits (1) rather than just private costs and private benefits (1) main goal may be economic welfare (1). Private sector firms may merge (1) form monopolies (1) (use market power to) push up price (1) they may become complacent (1) lower quality (1). Private sector may not have sufficient finance for large-scale projects (1) consumers would lose out on the benefits (1). 8 Accept quality and prices on either side, but only one mark if given on both sides. More marks can only be awarded if a reason for change in quality/prices are given.
This question in 0455/21 May/June 2018
Q9 · Swaziland is a small African country where six in ten people live in poverty and most… 0455/22 May/June 2018
2 Swaziland is a small African country where six in ten people live in poverty and most firms are small and use little capital equipment. In October 2015 it opened a new airport. Some economists suggest that the building of the airport involved a high opportunity cost and caused a range of external costs. The building of the airport is part of the government’s plan to turn the country from a developing into a developed country. (a) What may be the opportunity cost of building an airport? [2] (b) Explain two reasons why a government would want to turn its country from a developing into a developed country. [4] (c) Analyse the external costs that can be caused by the building and expansion of an airport. [6] (d) Discuss whether people would prefer to buy a product from a small firm or a large firm. [8]
20 marks
Mark scheme: 2(a) What may be the opportunity cost of building an airport? Opportunity cost is the (next) best alternative foregone (1). Relevant example e.g. building a hospital (1). 2 2(b) Explain two reasons why a government would want to turn its country from a developing into a developed country. Developed countries tend to have higher GDP/output/economic growth (1) reduces poverty (1) Developed countries tend to have higher living standards (1) due to earning higher incomes / higher GDP per head (1) Developed countries may have better education (1) e.g. resulting in more skilled workers (1) so improving productivity (1). Developed countries tend to have better healthcare (1) resulting in longer life expectancy / lower death rate (1). Developed countries tend to have more economic power (1) stronger in international negotiations (1). Developed countries tend to have a higher proportion of workers employed in the tertiary sector (1) which may mean better working conditions (1). Tax revenue may be higher (1) enabling more government expenditure (1). 4 Accept response from the perspective of the disadvantages of developing countries. Accept any reason that is linked to improved macroeconomic performance or improved living standards. 2(c) Analyse the external costs that can be caused by the building and expansion of an airport. External costs are harmful effects on third parties / social costs minus private costs (1). Building and operating an airport will cause noise pollution (1) air pollution (1) which will be experienced by those living near the airport (1) reducing their health (1). Traffic congestion may be caused (1) delaying people’s journeys (1). The prices of houses close to the airport may fall (1) reducing local residents’ wealth (1) local residents may be displaced (1). Train companies may lose revenue (1) as people switch from train travel to air travel (1). Environmental damage / global warming (1) e.g. loss of wildlife habitats (1). 6 Accept pollution on its own as one example. Also allow visual pollution, but maximum of 2 marks for types of pollution. Question Answer Marks Guidance 2(d) Discuss whether people would prefer to buy a product from a small firm or a large firm. Up to 5 marks for why they might prefer to buy from a small firm: May be flexible (1) quick to respond to changes in consumer demand (1) as do not have to consult others (1). May provide a personal service (1) can get to consumers and their requirements (1) adapt to particular requirements (1). May be specialised (1) produce high quality products (1). Small firms may receive government subsidies (1) enabling them to keep price low / quality high (1). Unlikely to experience diseconomies of scale (1) example (1). Up to 5 marks for why they might prefer to buy from a large firm: Lower prices (1) due to lower costs (1) because of economies of scale (1) example (1). Better known brands (1) due to advertising (1). Wider variety (1) better quality (1) better after sales (1) due to more funds to invest (1). 8 Accept response from either perspective. Accept better quality for either side, but only one mark if given on both sides. More marks can only be awarded if it is established why there may be better quality.
This question in 0455/22 May/June 2018
Q10 · The global water crisis In 2015, the World Economic Forum identified the water crisis as… 0455/23 May/June 2018
1 The global water crisis In 2015, the World Economic Forum identified the water crisis as the world’s biggest risk. Across many Asian and African nations the water supply was at critically low levels, insufficient to meet the rising demand. Demand has risen because of the expansion of cities and population growth requiring much more agricultural production. Water scarcity is a problem shared by many developing countries which have a low life expectancy. A third of all their healthcare facilities are estimated to lack access to safe water and basic sanitation. Water shortages harm public health – 80% of all illnesses in developing countries are caused by poor water and sanitation conditions. Water shortages also restrict the amount of food production. Table 1 shows the risk of water shortage (highest risk is 5) and Gross Domestic Product (GDP) per head measured in US$. Table 1 Risk of water shortage and GDP per head for countries / regions in 2015 Country / region Risk of Water Shortage GDP per head (highest risk = 5) (US$) Algeria 3.4 4 318 Canada 1.2 43 332 Germany 1.9 40 997 Pakistan 4.3 1 450 Saudi Arabia 5.0 20 813 Western Sahara 5.0 2 500 The shortage of water has led various countries and regions to experiment with privatising their supply. However, because water is a necessity, private supply has in some cases resulted in consumers suffering from significant price increases. A 10% increase in the price of water is estimated to result in only a 0.7% decrease in quantity demanded. This means that governments have to regulate water markets to protect consumers. Some economists argue that consistent undervaluing of water has led to it being used inefficiently. This is because prices fail to take into account the long-run consequences of not conserving this valuable resource. With much of the world facing a hotter and drier future as a result of climate change, water will become increasingly scarce. More than 663 million people are estimated to live without access to clean water. The World Bank funds a range of projects designed to tackle this and in doing so reduce levels of absolute poverty. Improving access to natural resources is seen as essential in promoting economic development in some of the world’s poorest nations. (a) Identify, using information from the extract, two causes of low life expectancy in developing countries. [2] (b) (i) Explain, using information from the extract, how the water shortage is an example of the economic problem. [4] (ii) Explain, using information from the extract, why the problem of water shortages is likely to become even worse in the future. [4] (c) Analyse, using Table 1, the extent to which a high risk of water shortage in a country/region causes low GDP per head. [5] (d) Calculate, using the information in the extract, the price elasticity of demand for water. [2] (e) Discuss whether or not private firms supplying water should increase their prices. [5] (f) Explain what is meant by absolute poverty. [2] (g) Discuss whether or not a country’s economic growth rate depends mostly on the availability of its natural resources. [6]
30 marks
Mark scheme: 1(a) Identify, using information from the extract, two causes of low life expectancy in developing countries. • Poor healthcare facilities • lack of access to safe water • lack of basic sanitation • not enough food production • absolute poverty 2 1(b)(i) Explain, using information from the extract, how the water shortage is an example of the economic problem. The economic problem consists of the allocation of scarce resources amongst competing ends (1). Water supply is at critically low levels (1) showing resources are scarce / limited (1). Rising demand from growth of cities (1) and rising agricultural production (1) wants are unlimited (1). 4 1(b)(ii) Explain, using information from the extract, why the problem of water shortages is likely to become even worse in the future. Water is being undervalued (1) this has led to it being wasted (1) and the prices do not reflect scarcity that will arise in the future (1) this means that as demand continues to rise (1) the gap between wants and the amount of the resource will increase (1). Climate change (1) will cause water supplies to become increasingly scarce (1). Population will continue to rise / cities will expand (1) increasing demand (1) and exceeding the ability of supply to match demand (1). 4 Question Answer Mark Guidance 1(c) Analyse, using Table 1, the extent to which a high risk of water shortage in a country / region causes low GDP per head. The data indicates a link (1) the greater the degree of water scarcity (i.e. the higher the water risk score) the lower the GDP per capita. (1) Canada / Germany have the lowest water risk scores and the highest GDP per capita (1). Pakistan / Western Sahara have high water risk scores and low GDP per capita (1). Saudi Arabia illustrates that this relationship is not perfect (1) and demonstrates that other factors contribute towards GDP per capita (1) 5 1(d) Calculate, using the information in the extract, the price elasticity of demand for water. PED = (–) 0.07 (2) Correct working –0.7% / 10% or –0.07% or 0.7 (1) 2 Question Answer Mark Guidance 1(e) Discuss whether or not private firms supplying water should increase their prices. Up to 3 marks for why they should: An increase in price will increase total revenue (1) as demand is price inelastic (1) meaning an increase in price causes a less than proportional decrease in quantity demanded (1) some of the extra funds could be used to increase the supply of water (1) reducing its shortage (1) and improve the quality of water (1). Higher prices may reduce demand (1) helping to eliminate the shortage / achieve market equilibrium (1). As population is increasing (1) rising prices are needed to ration extra demand (1). Current prices do not take account of the long run costs of failing to conserve supplies (1) higher prices will encourage more efficient use of water / less waste (1). Up to 3 marks for why they should not: Water is a necessity / has very inelastic demand (1) raising prices will harm consumers (1) and will fall more heavily on the poor / the poor will be unable to afford water (1) increase absolute poverty (1) increase inequality (1). Higher water prices can reduce health (1) reduce life expectancy (1) as less people will have access to safe water / basic sanitation (1). Higher water prices reduce income available to spend on other necessities e.g. education (1). 5 1(f) Explain what is meant by absolute poverty. Individuals cannot afford the necessities essential for survival (1) such as food, water, shelter, warmth and clothing (1) individuals living on less than a certain amount per day, e.g. $1. 2 Question Answer Mark Guidance 1(g) Discuss whether or not a country’s economic growth rate depends mostly on the availability of its natural resources. Up to 4 marks for why they might: Natural resources are an important factor of production (1) Countries endowed with natural resources have a good productive capacity as a result (1), boosting the growth that they can enjoy (1). A lack of natural resources such as water can cause poverty / ill health (1). This can harm productivity (1). Countries with insufficient natural resources are reliant on other countries to provide them (1) worsening the current account and reducing the economic growth rate (1) and if a country does not have enough other resources to trade it must rely upon its own natural resources (1). Natural resources are important in agriculture (1) countries with a lack of natural resources may not produce enough food (1) leading to poorer nutrition (1) poorer health and lower productivity (1). Natural resources are essential for the construction of infrastructure e.g. roads and schools (1) Other economic sectors (secondary and tertiary) depend upon natural resources (primary) (1). Up to 4 marks for why they might not: Other factors of production are equally / more important e.g. capital investment or education for skills (1). Through trade (1) a country can obtain from other countries the natural resources it lacks (1) It depends upon what countries specialise in (1) and whether they face trade restrictions (1) if they can import raw materials from other countries their growth will not be limited (1). Finding natural resources can take a long time (1) slowing down economic growth (1). There are many countries in the world with significant natural resources but poor economic growth rates / standard of living (1) and many countries with limited resources but high growth rates, such as Singapore (1). 6
This question in 0455/23 May/June 2018
Q11 · The production process in the oil industry is capital-intensive 0455/23 May/June 2018
6 The production process in the oil industry is capital-intensive. The pollution it generates means it is one cause of environmental market failure. A Nigerian oil monopoly is starting to produce more environmentally friendly liquefied petroleum gas (LPG), rather than kerosene, in an attempt to reduce pollution. The Nigerian government intends to split the monopoly firm into separate companies to improve efficiency. (a) Identify two features of a capital-intensive production process. [2] (b) Explain how market failure might occur in the oil industry. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of reallocating resources from kerosene to LPG. [6] (d) Discuss whether or not removing a firm’s monopoly power will benefit consumers. [8]
20 marks
Mark scheme: 6(a) Identify two features of a capital-intensive production process. Process which relies heavily on capital goods e.g. machines (1) does not use much labour (1) relies less on other factors of production e.g. land (1). 2 6(b) Explain how market failure might occur in the oil industry. Market failure is when there is an inefficient allocation of resources (1). There is over-consumption / over-production of oil (1) because the external costs (1) are ignored by the market mechanism (1), such as pollution / global warming / harm to the environment (1). There are cases of monopoly power (1) restricting output (1) pushing up price (1). 4 Question Answer Mark Guidance 6(c) Analyse, using a production possibility curve (PPC) diagram, the effect of reallocating resources from kerosene to LPG. Award up to 4 marks for a correct diagram: • Axes labels LPG and kerosene (1) • Curve / downward sloping line drawn to axes (1) • Two production points illustrating increased production of LPG (1) • New production point indicated (1) Award up to 2 marks for associated explanation: Reallocating resources will involve a movement along the PPC (1) this will involve an opportunity cost (1). 6 Accept points on the curve with arrow from A to B. kerosene LPG K1 L1 L2 K2 A B Question Answer Mark Guidance 6(d) Discuss whether or not removing a firm’s monopoly power will benefit consumers. Up to 5 marks for why it might: More choice for consumers (1) improved competition (1) will causes prices to fall (1) which will increase consumers’ real disposable income (1). The monopoly may be experiencing diseconomies of scale (1) with high (average) costs of production (1) Quality is likely to improve (1) as firms will innovate in order to win customers (1). Competition will force firms to be more efficient in order to survive (1). They will look to reduce costs in order to remain competitive (1) and will invest in research and development to maintain market share (1). Up to 5 marks for why it might not: A monopoly firm can take advantage of economies of scale (1) reducing (average) costs of production (1) example (1) the removal of monopoly power may increase prices for consumers, reducing their welfare (1) Consumers may rely upon the reputation of a monopoly (1) for quality / customer service (1) too much choice can lead to confusion / inconvenience for consumers (1). The firm may be state owned (1) may take into account the full social costs and benefits (1) may have charged low prices (1) to make products affordable (1). 8
This question in 0455/23 May/June 2018
Q12 · Droughts in the Pacific Coast region of the US and regulations, in the form of limits on… 0455/21 Oct/Nov 2018
3 Droughts in the Pacific Coast region of the US and regulations, in the form of limits on the amount of salmon that can be caught in the wild, have reduced the supply of wild salmon. These limits were imposed to avoid market failure in the salmon market. However, the effect of this on the revenue of salmon producers is uncertain. In addition, producers of farmed salmon in the US states of Washington and Alaska have received subsidies from the US government. (a) Define supply. [2] (b) Explain one market failure that may occur in the salmon market. [4] (c) Analyse how information on changes in a firm’s revenue can be obtained from price elasticity of demand calculations. [6] (d) Discuss whether or not government subsidies are beneficial to producers. [8]
20 marks
Mark scheme: 3(a) Define supply. The number of products firms are willing to provide/sell (1) and are able to provide/sell (1) at a given price (1). 2 3(b) Explain one market failure that may occur in the salmon market. Market mechanism fails to allocate resources efficiently / not all costs are considered (1). Social cost is greater than private cost (1) as there are external costs / negative externalities (1) consumption at the current rate may lead to depletion of stock (1) consumption becomes unsustainable (1) overconsumption / resources are overused (1) these resources could be conserved for future generations (1) cost to future generations who will not be able to enjoy the product (1) pollution may occur e.g. water pollution (1). Monopoly / one large producer (1) no competition (1) can charge high prices / exploit consumers (1) excess profits of producers (1). Inequality (1) high price (1) poor cannot afford the product (1) and will not be able to attain any health benefits of consuming the product (1). 4 Question Answer Marks Guidance 3(c) Analyse how information on changes in a firm’s revenue can be obtained from price elasticity of demand calculations. PED definition or formula (1) PED provides information on how consumers react to a change in price (1). If PED is elastic / PED > 1, a fall in price will raise revenue (1) as quantity demanded will increase more (1) than proportionately/percentage (1). A rise in price will decrease revenue (1) as quantity demanded will decrease more than proportionately (1). If PED is inelastic / PED < 1, a rise in price will raise revenue (1) as quantity demanded will decrease less (1) than proportionately / percentage (1). A fall in price will decrease revenue (1) as quantity demanded will increase less than proportionately (1). If PED is perfectly elastic, a rise in price will cause revenue to fall to 0 (1) as consumers will stop buying completely (1) If PED is perfectly inelastic / PED = 0, a rise in price will raise revenue (1) as consumers will continue to buy the same amount (1) If PED has unit elasticity / PED = 1, a change in price will keep revenue unchanged (1) as quantity demanded will change by the same proportion (1). 6 Maximum 4 marks for reference to only elastic OR inelastic. Question Answer Marks Guidance 3(d) Discuss whether or not government subsidies are always beneficial to producers. Up to 5 marks on how subsidies are beneficial to producers: Subsidies will lead to a decrease in cost of production (1) leading to a decrease in the price of products / shown on a diagram (1) and an increase the quantity demanded for producers / shown on a diagram (1). Total revenue for producers may increase (1) increasing profits (1). Subsidies will enable producers to increase investment (1) increasing future output (1) Producers can maintain a stable livelihood (1) ensure a stable income (1) ensure jobs can continue to be provided (1). Subsidies can encourage new entrants to an industry (1) increasing competition (1) Up to 5 marks on how subsidies are not beneficial: Subsidies may be relatively small (1) and not be enough to offset the firm’s losses (1) or not enough to offset higher costs (1). Subsidies can lead to complacency (1) where producers do not use subsidies in an effective way (1) they will be reluctant to lose the subsidies (1) and producers not receiving the subsidy e.g. those in a competing industry will be at a disadvantage (1). Subsidies have opportunity cost for the government (1). Other government provisions might be sacrificed (1) e.g. healthcare and education (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.
This question in 0455/21 Oct/Nov 2018
Q13 · Mexico has recently experienced relatively low inflation and the Mexican government wants… 0455/22 Oct/Nov 2018
2 Mexico has recently experienced relatively low inflation and the Mexican government wants to maintain this price stability. Despite this its currency has fallen in value with each Mexican peso exchanging for less foreign currency. The government is also trying to reduce pollution in the country. One key cause of pollution in Mexico is car travel. Driving has both private and external costs. (a) Define private cost. [2] (b) Explain two ways a government could reduce external costs. [4] (c) Analyse how a high rate of inflation affects the functions of money. [6] (d) Discuss whether or not a fall in its foreign exchange rate will benefit an economy. [8]
20 marks
Mark scheme: 2(a) Define private cost. Private costs are costs borne by those producing the product (1) consuming the product (1) example of such a cost (1) social costs – external costs (1). 2 2(b) Explain two ways a government could reduce external costs. Up to 2 marks for two explanations from: Impose a tax (1) to discourage production / discourage consumption / turn external into private cost (1). Regulation (1) ban or restrict production / ban or restrict consumption / may be enforced by fines (1). Provide information (1) to discourage consumption / discourage production (1). Government subsidies (1) to encourage cleaner production methods / the consumption of healthier food e.g. fruit instead of high fat foods (1). 4 Reward but do not expect explanation of tradeable / pollution permits / property rights. 2(c) Analyse how a high rate of inflation affects the functions of money. People may not want to save money (1) as it may lose value (1) stop acting as a store of value (1). People may not accept money as a payment (1) as it may lose value / people may not know what its value is (1) stop acting as a medium of exchange (1). People may not be willing to lend money (1) inflation rate may be higher than interest rate (1) stop acting as a standard of deferred payments (1). People may stop valuing products in monetary terms (1) due to instability of prices (1) stop acting as a unit of account / measure of value (1). 6 Maximum 2 marks for a list-like approach applied to high inflation. Maximum 1 mark for a list of three or more functions of money. Question Answer Marks Guidance 2(d) Discuss whether or not a fall in its foreign exchange rate will benefit an economy. Up to 5 marks for why it might: A lower exchange rate will reduce the price of exports (1) raise the price of imports (1) net exports may rise / exports may rise / imports may fall (1) current account of the balance of payments may improve (1) total (aggregate) demand may increase (1) real GDP may increase economic growth (1) employment may rise (1). Up to 5 marks for why it might not: Higher import prices may not reduce spending on imports if demand for imports is inelastic (1) export revenue may not rise if demand for exports is inelastic (1) import restrictions imposed on other countries may make it difficult to sell more exports (1). Higher import prices may cause inflation (1) imported raw material costs may rise (1) causing cost-push inflation (1) imported finished products may not be replaced by domestic products (1) rise in net exports may cause demand – pull inflation (1). Domestic citizens may be able to purchase fewer imports (1) lower living standards (1). If the country is in debt (1) it may increase the cost of repaying the debt (1). If the country is operating at full employment (1) it may not be possible to produce more exports / substitutes for imports (1). Demand for the country’s exports may be low (1) if quality is poor / incomes abroad are falling abroad (1). If the fall is used as a way to capture markets abroad / protect domestic industries (1) there may be retaliation (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.
This question in 0455/22 Oct/Nov 2018
Q14 · Nigeria adopts a floating exchange rate In June 2016, Nigeria adopted a floating exchange… 0455/23 Oct/Nov 2018
1 Nigeria adopts a floating exchange rate In June 2016, Nigeria adopted a floating exchange rate after the country’s central bank had spent months trying to maintain its fixed exchange rate. It had used foreign currency reserves to buy its currency, imposed tariffs and limited the amount of foreign currency that Nigerians could purchase. Most economists thought that the value of Nigeria’s currency would depreciate. A lower value of the Nigerian naira might help increase output and reduce the deficit on the current account of the country’s balance of payments. In 2015, Nigeria experienced a deficit on its current account for the first time in 20 years. Countries with a current account deficit often have a higher inflation rate and a lower economic growth rate than those with a current account surplus. Fig. 1 shows the inflation rate, economic growth rate and the current account balance of selected countries in 2015. Fig. 1 The inflation rate, economic growth rate and current account balance of selected countries in 2015 China Colombia Germany Nigeria Turkey -8 -6 -4 -2 0 2 4 6 8 10 Inflation rate Economic growth rate Current account balance (% of GDP) A current account deficit can lower the exchange rate and so may increase import prices. A higher price of imports, including imported food, can accelerate inflation. In 2015, as well as experiencing a current account deficit, tax revenue fell in Nigeria and was lower than government expenditure. Some economists predicted that the government would cut spending on education and healthcare in 2016 to reduce the gap between tax revenue and government spending. The Nigerian government has been trying to reduce poverty in the country. In 2015, more than 60% of the population were living in poverty. Among the causes of the high level of absolute poverty was an unemployment rate of 9.5%. One policy measure proposed to reduce poverty in Nigeria is for the government to raise the wages of low-paid workers. The government also wants to diversify the economy because the oil industry accounts for almost 90% of the country’s export earnings. The oil industry pays high wages to some of its workers and relatively high interest rate payments to local banks. It also creates water pollution and air pollution. (a) Identify, from the extract, two methods of trade protection. [2] (b) Analyse what may cause a depreciation in an exchange rate. [5] (c) Analyse to what extent the information in Fig. 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. [4] (d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–16. [4] (e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. [5] (f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. [4] (g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. [6]
30 marks
Mark scheme: 1(a) Identify, from the extract, two methods of trade protection. Tariffs (1) Exchange control/limit on foreign currency that people can buy (1). 2 1(b) Analyse what may cause a depreciation in an exchange rate. A deficit on the balance of payments on current account (1) imports are greater than exports resulting in fall in market price (1). A fall in demand for the currency (1) a rise in the supply of the currency (1). A fall in exports/rise in imports (1) due to higher inflation (1) lower quality of goods being produced (1) higher costs of production (1). A rise in imports/fall in exports (1) due to increase in demand in the economy/economic growth (1). A fall in the rate of interest (1) due to a fall in FDI/speculation (1). An expansionary government monetary policy (1) to sell currency to encourage exports (1). 5 1(c) Analyse to what extent the information in Table 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. The three countries with current account deficits do have higher inflation rates (1). Correct identification of Columbia/Nigeria/Turkey as the three countries with a deficit (1). China and Germany have lower inflation (1). The picture is less certain in terms of economic growth (1). Evidence (up to 2) e.g. Columbia has a deficit but relatively high economic growth (1). Germany had a surplus but low economic growth (1). 4 Question Answer Marks Guidance 1(d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–2016. Higher price of imported food (1) the poor spend a high proportion of their income on food (1). Current account deficit (1) results in lower demand and unemployment rises (1). Inflation (1) people can afford less (1). Spending on education and health care may have been cut (1) this may have reduced some people’s ability to access this services/reduced employment in these sectors/unable to get jobs due to lack of skills/illness (1). Unemployment may have increased/high unemployment (1) reducing some people’s income (1). Lower tax revenue (1) spending on welfare benefits may have fallen (1). Water pollution (1) clean drinking water is seen as a necessity (1). 4 Question Answer Marks Guidance 1(e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. Up to 3 marks for why it might: Spending on education may form a relatively high percentage of government spending/a reduction will reduce overall government spending (1) this could have big impact on gap if government does not raise spending on other items (1) if tax revenue remains unchanged (1). The government may have used the tax revenue to spend on stimulating the economy (1) raising tax revenue (1). Up to 3 marks for why it might not: Lower government spending on education may reduce skills (1) lowering employment (1) reducing incomes (1) lowering tax revenue (1) increasing government spending on benefits (1) gap may widen (1). Government may increase spending elsewhere e.g. infrastructure (1) therefore gap is not reduced (1). May encourage emigration (1) fewer people to pay taxes (1). 5 For all ‘Discuss’ questions 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. Generic example Mark Tax revenue may decrease 1 because of reason« e.g. incomes may be lower 1 Tax revenue may increase (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 1(f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. Water pollution (1) imposing a cost on fishermen/poor quality drinking water affects health of local people/cost on third parties/government may have to spend money clearing up the pollution (1). Air pollution (1) imposing a cost on local people e.g. quality of air affects breathing/damage to the environment/global warming (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. Up to 4 marks for why it might: One cause of poverty is low pay (1) raising the pay of the poor can take them out of poverty/increase their income (1) their spending is likely to increase (1) enabling them to buy more basic necessities (1) reducing absolute poverty (1) stimulating higher output/demand (1) reducing unemployment (1). Enables low-income families to spend on education of children (1) raising skills and pay in long-run (1). Raising the pay of low-paid workers may increase their motivation (1) which may increase their productivity (1) increasing their chances of keeping their jobs/gaining promotion (1). Up to 4 marks for why it might not: Increase may be very small (1) insufficient to take people out of poverty (1) Increase maybe less than inflation rate (1) leaves poor worse off (1). Poor may not have jobs (1) increase in pay has no affect for them (1). The rise in pay (1) may increase firms’ costs of production (1) causing them to make some workers redundant (1) reducing their income (1). 6 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.
This question in 0455/23 Oct/Nov 2018
Q15 · The price of dental treatment is increasing in most countries 0455/23 Oct/Nov 2018
3 The price of dental treatment is increasing in most countries. For example, the average price of filling a tooth is $180 in the US. The number of dentists is increasing in the US. The largest proportion of the US labour force is employed in the tertiary sector. Price changes have an impact on the supply of products in the tertiary sector as well as in the primary and secondary sectors. (a) Identify two reasons why someone may choose to train to become a dentist. [2] (b) Explain two reasons why manufactured goods are usually in more price-elastic supply than agricultural goods. [4] (c) Analyse the advantages of an increase in a country’s labour force. [6] (d) Discuss whether or not a government should provide free dental treatment. [8]
20 marks
Mark scheme: 3(a) Identify two reasons why someone may choose to train to become a dentist. High pay (1) fringe benefits (1) job security (1) good working conditions/environment (1) Interest/vocation/passion/high job satisfaction (1) high status (1). 2 3(b) Explain two reasons why manufactured goods are usually in more price elastic supply than agricultural goods. The difference in the time it takes to produce the goods (1) it is usually quicker to make manufactured goods/it takes time for crops to grow and/or animals to be raised (1). May have more skilled workers (1) more flexible in adjusting to changes in demand (1). May have more mobile factors of production (1) e.g. land itself is geographically immobile (1). The difference in storage time (1) it is usually easier to store manufactured goods (1). 4 3(c) Analyse the advantages of an increase in a country’s labour force. A larger labour force increases (potential) output (1) if the increased labour force are employed (1) output will rise (1) higher GDP/economic growth will occur (1). Tax revenue will rise (1) enables increase in government expenditure on e.g. education and health (1) the level of dependency may fall (1). New workers may bring new skills to the labour force (1) labour productivity may rise (1) the new workers may be more geographically mobile (1) occupationally mobile (1) may attract MNCs (1). Higher labour supply (1) may reduce wages (1) reduce cost-push inflation/lower prices (1). Higher output results in increased exports (1) improving balance of payments on current account (1). 6 3(d) Discuss whether or not a government should provide free dental treatment. Up to 5 marks for why it should: Some low paid people may not be able to afford dental treatment (1) it is an essential service (1) reduces poverty (1) enables people to spend on other essential goods/services e.g. education (1). Dental treatment can improve the health of the population (1) raising the productivity of workers (1) increasing output (1) raising living standards (1) providing an external benefit (1). Some people may not appreciate the true benefits of dental treatment to themselves (1). The government’s main motive may be to promote economic welfare (1). Up to 5 marks for why it should not: It may increase government spending (1) It will involve an opportunity cost (1) e.g. higher spending on education/raise taxes to cover cost/results in budget deficit (1). The private sector is motivated by the profit motive (1) may provide a better service (1) be more responsive to consumer demand (1). Some dental treatment is cosmetic (1) not an essential service (1). Rich people able to pay for private treatment (1) waste of government resources in supporting low income families/children (1). People may not take care of their teeth (1) as treatment is free (1) resulting in more resources devoted to dental treatment (1). People who do not need treatment may go to the dentist (1) wasting resources (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. Reward but do not expect reference to dental treatment being a merit good and being under-consumed.
This question in 0455/23 Oct/Nov 2018
Q16 · The United Nations (UN) has set out development goals for countries to achieve by 2050 0455/23 Oct/Nov 2018
6 The United Nations (UN) has set out development goals for countries to achieve by 2050. These goals include: • conserve natural resources • ensure education for all • end poverty everywhere • promote sustained economic growth (a) Identify two ways a government could conserve its country’s resources. [2] (b) Explain two external benefits that can arise from education. [4] (c) Analyse how a cut in the rate of interest could reduce poverty. [6] (d) Discuss whether or not economic growth always increases living standards. [8]
20 marks
Mark scheme: 6(a) Identify two ways a government could conserve its country’s resources. One mark for each appropriate action identified. Examples include: Ban/place a limit on the amount of resource consumed. Import resources to reduce consumption of country’s own resources. Reduce exports to reduce consumption of limited resources. Put tax/increase tax on resources to reduce demand. Educate consumers to reduce consumption/conserve resources. Control immigration to reduce consumption of resources. Encourage recycling of resources e.g. metals/plastic. Subsidise firms that conserve natural resources. 2 6(b) Explain two external benefits that can arise from education. Higher output (1) due to more skilled workers (1). Better quality output (1) due to more efficient workers (1). More advanced technology (1) due to ideas/ability to operate new technology (1). Improved health/reduction in spread of diseases (1) more informed population (1). Less pollution (1) if population educated on environmental issues (1). Firms may have to spend less on training (1) due to greater supply of skilled workers (1). 4 6(c) Analyse how a cut in the rate of interest could reduce poverty. A lower interest rate will increase the purchasing power of the poor who have borrowed before (1) will make it easier/cheaper to borrow (1) enabling them to buy more necessities (1) spend on education (1) enabling them to get a job / better paid job (1). A lower rate of interest may encourage a rise in consumer expenditure (1) encouraging firms to expand (1) providing cheaper finance for the expansion (1) increase output (1) raise employment (1) raise income (1). Higher output and spending may increase tax revenue (1) enabling the government to increase its spending to reduce poverty (1). 6 6(d) Discuss whether or not economic growth always increases living standards. Up to 5 marks for why it might: Higher output (1) may enable people to enjoy more goods and services (1) especially if GDP per head rises (1) may increase employment (1) raise incomes (1) Higher output may increase tax revenue (1) more resources/higher quality of resources (1) may enable there to be better healthcare (1) increasing life expectancy (1) more/better education (1). Higher output may enable more resources to be devoted to improving environmental conditions (1) e.g. reduce pollution (1). Up to 5 marks for why it might not: The benefits may not be evenly spread (1) income and wealth may be unevenly distributed (1) there may still be high levels of poverty (1). Higher output may have been achieved by increasing working hours (1) working conditions may have declined (1) there may be greater stress (1) quality of output may be lower (1). Expansion of heavy industries (1) may have created pollution (1) reduce health/life expectancy (1). Non-renewable resources may have been depleted (1) reducing the opportunity to achieve sustainable development (1). Economic growth may not be sustainable (1) increase in supply may not match increase in demand (1) causing inflation (1). Economic growth achieved by exporting goods and services (1) economy producing more investment goods at expense of consumer goods (1) resulting in fewer goods available in domestic market (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.
This question in 0455/23 Oct/Nov 2018
Q17 · Botswana has a number of conservation projects 0455/22 Feb/March 2019
6 Botswana has a number of conservation projects. These are thought to provide a social benefit to local communities. Botswana has a mixed economic system with tax revenue as a percentage of GDP at 27% in 2017. Some Botswanan economists suggest that the country should move towards a market economic system, taking care to avoid market failure. (a) Define social benefit. [2] (b) Explain two advantages of conserving natural resources. [4] (c) Analyse how taxation could reduce market failure. [6] (d) Discuss the advantages and disadvantages of a market economic system. [8]
20 marks
Mark scheme: 6(a) Define social benefit. 2 The total benefit to society of an economic activity or external benefit + private benefit (2). A beneficial effect on society (1). 6(b) Explain two advantages of conserving natural resources. 4 • resources will last longer / decrease rate of depletion (1) future generations will be able to benefit from the resources (1) • economic growth / development may be more sustainable (1) income may be generated over time / value may rise in the future (1) • over use of natural resources (1) may cause external costs (1) • tourism may increase (1) increase export revenue / employment (1). 6(c) Analyse how taxation could reduce market failure. 6 Monopolies may be taxed (1) if they exploit their market power (1) by charging high prices (1). Production and consumption that generates external costs may be taxed (1) example (1) this will turn an external cost into a private cost (1) increase costs of production (1) reduce output (1). Tax revenue can be used to e.g. subsidise products with external benefits (1) example (1). 6(d) Discuss the advantages and disadvantages of a market economic 8 system. Up to 5 marks for why it might: In theory, there is consumer sovereignty (1) consumers determine what is produced (1) firms will respond to changes in demand (1). Prices may be low (1) quality may be high (1) high efficiency (1) due to competition (1) and the profit motive (1) A variety of products may be produced / there may be choice (1). Up to 5 marks for why it might not: Poor consumers will have little influence on what is produced (1) as they have little purchasing power (1). Monopolies may develop (1) which may charge high prices (1) and produce low quality (1). Products that provide external benefits will be under-produced (1) so under- consumed (1) example of such a product (1). Products that cause external costs will be overproduced (1) and so overconsumed (1) example of such a product (1).
This question in 0455/22 Feb/March 2019
Q18 · In a mixed economic system, such as Portugal’s, the government intervenes in the economy 0455/22 May/June 2019
6 In a mixed economic system, such as Portugal’s, the government intervenes in the economy. Reasons for government intervention include to correct market failure and to achieve its aims for the economy, such as control of inflation. In 2017, one-fifth of Portugal’s population was living in poverty and the government increased its spending. (a) Identify two reasons why market failure may occur. [2] (b) Explain how resources are allocated in a mixed economic system. [4] (c) Analyse how a high rate of inflation may harm the poor. [6] (d) Discuss whether or not increasing government spending will enable a government to achieve its aims for the economy. [8]
20 marks
Mark scheme: 6(a) Identify two reasons why market failure may occur. The existence of external costs (1) and external benefits (1). Abuse of monopoly power (1) advertising distorting choice (1). Inefficient allocation of resources / not producing the right quantity / not producing at the lowest possible cost (1). 2 goods, public goods and information failure. 6(b) Explain how resources are allocated in a mixed economic system. Resources in the public sector (1) are allocated by government decisions/directives (1) products are produced by state-owned enterprises resources are allocated to overcome market failure (1). Resources in the private sector (1) are allocated by the price mechanism / market forces / demand and supply / firms / consumer sovereignty (1) profit provides an incentive for firms to produce what consumers demand (1). 4 Maximum of 3 marks for explaining how only one sector allocated resources. 6(c) Analyse how a high rate of inflation may harm the poor. Inflation may raise the price of basic necessities (1) reducing purchasing power of the poor (1) increasing absolute poverty (1). Inflation may reduce the value of any savings the poor have (1) reducing their ability to access e.g. healthcare, education and housing (1) reducing job opportunities (1). Inflation may reduce the country’s international competitiveness (1) lower output (1) increase unemployment (1) making it more difficult for the poor to gain jobs (1). Inflation may reduce the purchasing power of state benefits (1) e.g. pensions or unemployment (1). The poor may be less likely to belong to trade unions (1) less ability to raise wages (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not increasing government spending will enable a government to achieve its aims for the economy. Up to 5 marks for why it might: Government spending will increase total (aggregate) demand (1) this may encourage firms to produce more (1) economic growth may increase (1) deflation may be avoided (1) and unemployment may fall (1) the poor may gain jobs (1) making income more evenly distributed (1). Government spending on healthcare (1) may raise living standards / life expectancy (1). Government spending on education (1) may improve environmental standards (1). Government subsidies (1) may increase labour productivity (1) costs of production may fall (1) lowering cost-push inflation (1) increasing international competitiveness (1) improving the current account position (1). Government spending on state benefits (1) may reduce income inequality (1) may raise living standards (1). Up to 5 marks for why it might not: Higher government spending may cause inflation (1) if total supply does not rise in line with total demand (1). Some of the higher income created may be spent on imports (1) this may increase a current account deficit (1). An increase in government spending on unemployment benefits (1) may increase voluntary unemployment (1). 8
This question in 0455/22 May/June 2019
Question 19 0455/23 May/June 2019
6 Non-renewable energy (e.g. coal) is thought to cause a higher social cost than renewable energy (e.g. solar or wind power). Excessive demand for non-renewable energy causes a failure of the market economic system. However, producers of renewable energy, some of which specialise in one form of energy, are beginning to produce on a larger scale. (a) Define social cost. [2] (b) Explain two reasons why a firm would want to specialise in producing only one product. [4] (c) Analyse how the ability of firms to produce on a larger scale is beneficial to consumers. [6] (d) Discuss whether or not the operation of a market economic system is harmful to an economy. [8]
20 marks
Mark scheme: 6(a) Define social cost. Social cost is equal to the sum of private costs (1) and external costs (1). Cost to the entire society (1). 2 6(b) Explain two reasons why a firm would want to specialise in producing only one product. • a firm can specialise in what it is best at producing (1) increasing efficiency / productivity (1) achieve economies of scale (1) decrease cost of production (1) leading to higher output / higher profits (1) • increasing global demand (1) which would raise revenue (1) • resources are well suited to the product (1) e.g. good climate (1) • a firm can gain a good reputation in producing the product (1) specialisation may improve the quality of the product (1) increasing demand for the product (1) 4 6(c) Analyse how the ability of firms to produce on a larger scale is beneficial to consumers. Producing on a larger scale may enable economies of scale (1) example (1) when average costs decrease (1). Price of the product may fall (1) enabling consumers to buy more of the product (1) improving living standards (1). Producing on a larger scale reduces shortages (1) increases the quantity of products available to consumers (1). Producing on a larger scale may enable more to be spent on R&D (1) increasing the quality of products available to consumers (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not the operation of a market economic system is harmful to an economy. Up to 5 marks for why it is: Poor consumers will have little influence on what is produced (1) because they have limited purchasing power / inability to afford products (1). Monopolies may occur (1) charging high prices (1) producing low quality (1). Products causing external costs will be overproduced (1) overconsumed (1) example (1). Products providing external benefits will be underproduced (1) and underconsumed (1) example (1). Income and wealth may be unequally distributed (1) e.g. those on fixed incomes disadvantaged (1). Up to 5 marks for why it is not: In theory there is consumer sovereignty (1) consumers determine what is produced (1) firms respond to changes in consumer demand (1). Competition between firms (1) and the profit motive (1) increases efficiency (1) leading to low prices (1) and high quality products (1). A variety of products may be produced / there may be choice (1). 8 Accept but do not expect reference to merit goods, demerit goods and public goods.
This question in 0455/23 May/June 2019
Q20 · Driverless cars and advances in technology It is predicted that driverless cars, powered… 0455/22 Oct/Nov 2019
1 Driverless cars and advances in technology It is predicted that driverless cars, powered by electricity, will be on the roads by 2030. Driverless cars have already been tried out on the roads in some cities, including Pittsburgh in the USA. It is thought that driverless cars will reduce accidents, will have lower repair costs and will create less pollution. At first, the supply of driverless cars may exceed the demand, but it is expected that they will soon grow in popularity. As more driverless cars come into use, the demand for bus travel and petrol stations may decline, and some taxi drivers may be made redundant. In contrast, the increased access to transport that driverless cars will give to people, including the elderly, is likely to increase demand for out of town restaurants and places of entertainment. It has been forecast that the technology being developed in connection with driverless cars will make the supply of them elastic. It is predicted that an 8% rise in the price of driverless cars would cause a 20% rise in the quantity supplied. Advances in technology and the replacement of workers by machines are forecast to destroy 80 million jobs in the USA. Job losses are also forecast in other countries and trade unions are likely to be less able to resist these due to a fall in membership and governments reducing the power of trade unions. Among the jobs thought to be at risk are accountants, train drivers and financial advisers. Demand for workers in other occupations, including doctors and dentists, may increase but there is a risk that unemployment may rise. The more educated workers are, the more easily they can move from one occupation to another. Table 1.1 shows education spending as a percentage (%) of GDP and the unemployment rate in selected countries. Table 1.1 Education spending and the unemployment rate in selected countries Education spending Unemployment rate Country as a % of GDP (%) Argentina 5.3 8.0 Brazil 5.8 13.5 Ghana 6.5 12.0 New Zealand 7.3 4.8 South Africa 6.0 26.0 USA 8.2 4.7 Jobs selling houses and flats may decline but it is expected that the demand for building workers may increase. Some people welcome house building in their area but others oppose it. (a) Identify, from the extract, two pairs of substitutes. [2] (b) Explain, using information from the extract, whether the market for driverless cars is expected to be in equilibrium in 2030. [2] (c) Calculate, using information from the extract, the price elasticity of supply (PES) of driverless cars. [2] (d) Explain, using information from the extract, two external costs that driverless cars could reduce. [4] (e) Analyse, using Table 1.1, the relationship between educational spending and the unemployment rate. [5] (f) Discuss whether or not an increase in house building will benefit the people who live in the area. [5] (g) Explain, using information from the extract, two reasons why the power of trade unions may decline in the future. [4] (h) Discuss whether or not a rise in unemployment is harmful. [6]
30 marks
Mark scheme: 1(a) Identify, from the extract, two pairs of substitutes. • Driverless cars and bus travel • Driverless cars and taxi travel • Bus travel and taxi travel • Machines / advanced technology and workers 2 1(b) Explain, using information form the extract, whether the market for driverless cars is expected to be in equilibrium in 2030. No (1) supply is expected to exceed demand (1). 2 1(c) Calculate, using information from the extract, the price elasticity of supply (PES) of driverless cars. 2.5 (2). Correct working: 20% / 8% OR 20 / 8 (1). 2 1(d) Explain, using information from the extract, two external costs that driverless cars could reduce. • accidents (1) people are injured and killed as a result of other people’s driving / accidents impose costs on hospitals and healthcare / less human error / driverless cars reduce the death rate / accidents can cause traffic congestion / fewer accidents may reduce cost of repairs (1) • pollution (1) cars emit carbon dioxide / pollution causes health problems / driverless cars are more environmentally friendly / use electricity which causes less pollution (1) • lower cost of insurance to (other) drivers (1) as a result of less accidents / lower cost of repairs (1) 4 Question Answer Marks Guidance 1(e) Analyse, using Table 1.1, the relationship between educational spending and the unemployment rate. Expected relationship – a country that spends more (a high proportion) of their GDP on education would have a low unemployment rate / a country with a higher unemployment rate is likely to spend less on education / it is an inverse relationship (1). Reasons for expected relationship – workers would be likely to be more skilled and productive / higher unemployment may result in less tax revenue to spend on education (1). Evidence in support of expected relationship – e.g. New Zealand or US (1) highest spenders and lowest unemployment rates (1). Evidence against expected relationship – e.g. Argentina or South Africa (1) Argentina spends a lower proportion than Ghana and Brazil but has a lower unemployment rate / South Africa spends more a higher proportion than Argentina and Brazil but has a higher unemployment rate (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.: • it is not a consistent relationship (1) • there are other influences on the unemployment rate (1) However, do not reward simple statements (repetition) of the figures given in the table. For example, USA spends 8.2% on education and has an unemployment rate of 4.7%, is not to be rewarded. Question Answer Marks Guidance 1(f) Discuss whether or not an increase in house building will benefit the people who live in the area. Up to 3 marks for why it might: House building may create jobs (1) lower unemployment (1) generate income / raise wages / raise living standards (1). House building will increase the supply of housing (1) the lower price of housing (1) makes houses more affordable (1) fewer homeless (1). May attract more firms to set up in the area (1) more services may be provided (1) due to more people living in the area / larger labour force (1). May save travel time for those working nearby (1) reduce pollution / congestion (1). Up to 3 marks for why it might not: House building may cause external costs (1) examples (2). More houses may reduce the value of people’s homes (1) reduce their wealth (1). There is an opportunity cost (1) the area used could have been used for e.g. school buildings (1). Demand for extra services may not be met (1). Jobs may only be temporary / seasonal unemployment (1). More housing may create overcrowding in the area. (1). 5 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) Explain, using information from the extract, two reasons why the power of trade unions may decline in the future. Fall in membership (1) lower funds / less bargaining power (1). Rise in unemployment / workers being replaced by machines (1) trade unions may be reluctant to take industrial action for fear that members will be replaced by unemployed / non-member workers (1). Government may reduce the power of trade unions (1) making it harder for trade unions to protect workers’ rights (1). Movement from primary to tertiary sector (1) which may be less unionised / better working conditions (1). 4 Some points may be interchangeable e.g. rise in unemployment (1) resulting in fall in membership (1). Question Answer Marks Guidance 1(h) Discuss whether or not a rise in unemployment is harmful. Up to 4 marks for why it is: Output is likely to fall (1) incomes will decline / poverty increase (1) living standards will fall (1) lower total (aggregate) demand (1). Tax revenue will fall (1) government may have to cut spending on e.g. education and healthcare (1). Government may increase tax rates (1) which may create disincentive effect (1). The government will have to spend more on unemployment benefit (1) this will involve an opportunity cost (1) may result in a budget deficit (1). Unemployed workers may lose skills / become out of date (1) may need retraining (1). May increase emigration (1) lose skilled workers (1). May cause social problems e.g. crime / mental health problems (1). Up to 4 marks for why it is not: Inflation may fall (1) due to lower total (aggregate) demand (1). Firms may find it easier to recruit new workers (1) this will make it easier to expand (1) at lower wage costs (1). Productivity may be higher (1) more skilled workers kept (1). Unemployment may give the unemployed time to search for a better job (1) eventually raises their incomes (1). Rise may only be temporary (1). May reduce demand for imports (1) improve current account of the balance of payments (1). May be less pollution with lower output (1). 6 Reward but do not expect reference to a downward multiplier effect and/or not reaching productive capacity.
This question in 0455/22 Oct/Nov 2019
Q21 · Calculate India’s economic growth rate in 2017 0455/22 Feb/March 2020
1 (a) Calculate India’s economic growth rate in 2017. [1] (b) Identify two methods of protection. [2] (c) State why India is a mixed economy. [2] (d) Explain why external costs cause market failure. [4] (e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. [4] (f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. [5] (g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. [6] (h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. [6]
30 marks
Mark scheme: 1(a) Calculate India’s economic growth rate in 2017. 7% (1). 1 1(b) Identify two methods of protection. One mark each for any two from: • tariff • quota 2 1(c) State why India is a mixed economy. It has a private sector / private sector firms (1) and a public sector / public sector firms /government intervention (1). 2 1(d) Explain why external costs cause market failure. Logical explanation which might include: External costs are not considered (1) base decisions just on private costs and benefits (1). They cause harmful effects to third parties / negative side effects (1) they result in overconsumption (1) and overproduction (1). Their existence may mean that social costs exceed social benefits (1). Examples of causes or costs: e.g. driving, pollution / environmental damage, burning fields and mining (up to 2). They result in a misallocation of resources / inefficient use of resources (1). 4 Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Supply curve shifted to the right (1). Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the equilibrium points E1 and E2 (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. Coherent analysis which might include: Generally, the countries with the relatively smallest primary sectors have the highest GDP per head / inverse relationship (1). Evidence e.g. US has only 1% of output accounted for by the primary sector and the highest GDP per head (1) another piece of supporting evidence e.g. the two countries with the largest primary sectors have the lowest GDP per head (1). Exception is India/Philippines (1) India has a smaller relative sized primary sector but a lower GDP per head (1). This is the expected relationship as primary sector tends to decline as an economy develops / often larger in developing economies / resources move into secondary and then tertiary sectors (1) tertiary sector tends to generate higher incomes / primary sector tends to generate lower incomes (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. Award up to 4 marks for logical reasons why it might, which may include: • subsidies reduce costs (1) increase supply (1) lower prices (1) raise quality of bus travel (1) and cause demand to extend / higher demand (1) • people using buses will reduce the volume of traffic/reduce congestion (1) • buses use cleaner fuel (1). Award up to 4 marks for logical reasons why it might not, which may include: • people may not switch from car to bus travel (1) price of cars may fall (1) cost of producing cars is declining (1) other reason why e.g. more comfortable / door to door (1). • providers of bus transport may not pass on much of the subsidies in the form of lower prices (1) • opportunity cost of using subsidies (1) could spend money on other ways to reduce pollution e.g. education (1) • economy is growing so incomes rising (1) both bus and car travel may increase (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 previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Reward application of subsidies to producers and/or consumers. Increase in supply, lower prices, extension in demand may be shown on a demand and supply diagram. Question Answer Marks Guidance 1(h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. Award up to 4 marks for logical reasons why it might, which may include: • there was a deficit in 2016 and 2017 (1) and it was on an upward trend (1) • incomes are rising / economic growth is occurring (1) and so more imports may be purchased both by consumers and by firms (1) • it is expected that the exchange rate will rise (1) this may increase the price of exports (1) and demand for exports may fall (1) price of imports may fall (1) so demand for imports may rise (1) • Indian trade restrictions may be reduced / Indian government promoting free trade (1) which may increase imports (1). • tax rates may be cut (1) with more disposable income (1) people may buy more imports (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be more foreign tourists (1) if pollution declines (1) • lower tariff on imported raw materials / imported capital goods (1) may reduce costs of production (1). • other countries may remove their trade restrictions (1) allowing India’s exports to rise (1) • if the government does spend more on education (1) productivity may rise (1) and India’s products may become more price and quality competitive (1). • MNCs may be attracted for a number of the reasons given (1) MNCs may produce exports / import substitutes (1). • Higher investment (1) may raise quality of exports / domestic products (1) lower price of exports (1). • Car production is rising (1) more cars may be exported / fewer cars may be imported (1). 6
This question in 0455/22 Feb/March 2020
Q22 · Australian firms have been praised for introducing new technology 0455/21 May/June 2020
5 Australian firms have been praised for introducing new technology. The actions of some of these firms, however, cause market failure. The Australian government uses subsidies, among other policies, to reduce market failure. Government spending is used both to improve the performance of individual markets and the macroeconomy. The Australian government increased its spending in 2017, in part to reduce unemployment. (a) State two objectives of firms. [2] (b) Explain how a subsidy can correct market failure. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of advances in technology on an economy. [6] (d) Discuss whether or not an increase in government spending will reduce unemployment. [8]
20 marks
Mark scheme: 5(a) State two objectives of firms. 2 One mark each for two from: survival, social welfare, profit maximisation and growth. 5(b) Explain how a subsidy can correct market failure. 4 Logical explanation which might include: A payment to increase production (1) and lower price (1) can increase consumption of merit goods (1) products with positive externalities (1) which are under-consumed if left to market forces (1) can be paid to private sector firms to produce public goods (1) would not be produced if left to market forces (1). 5(c) Analyse, using a production possibility curve (PPC) diagram, the effect 6 of advances in technology on an economy. Up to 4 marks for the diagram: Axes correctly drawn (1). Initial curve drawn as a curve or a downward sloping line to the axes (1). New curve drawn as a curve or a downward sloping line to the axes (1). Shift to the right indicated by arrow or lettering (1). Up to 2 marks for logical analysis: Advances in technology raise the quality of capital (1) increase productive capacity (1). 5(d) Discuss whether or not an increase in government spending will 8 reduce unemployment. 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 it might: • may raise total (aggregate) demand, encouraging firms to hire more workers • may be spent on education which may increase people’s skills • may be spent on healthcare which may make people fitter and more employable • may be spent on subsidies to firms which will encourage them to increase output and take on more workers. Why it might not: • if spent on unemployment benefits, it may encourage some people to leave their jobs • if there is full employment, it will just cause inflation • spending on education may be ineffective e.g. develop the wrong skills • higher total (aggregate) demand may encourage firms to use more capital goods rather than labour.
This question in 0455/21 May/June 2020
Q23 · Calculate Pakistan’s trade in goods balance in 2017 0455/22 May/June 2020
1 (a) Calculate Pakistan’s trade in goods balance in 2017. [1] (b) Identify two possible causes of demand-pull inflation in Pakistan in 2017. [2] (c) Explain the opportunity cost to Pakistan of producing consumer goods. [2] (d) Explain two reasons why education is a merit good. [4] (e) Analyse why the children of poor families tend to receive less education than the children of rich families. [4] (f) Analyse the relationship between GDP per head and imports per head. [5] (g) Discuss whether or not the supply of teachers in Pakistan is likely to increase in the future. [6] (h) Discuss whether or not an increase in its import tariffs would be likely to benefit the Pakistani economy. [6]
30 marks
Mark scheme: Question Answer Marks 1(a) Calculate Pakistan’s trade in goods balance in 2017. 1 –$36.5bn (1). 1(b) Identify two possible causes of demand-pull inflation in Pakistan in 2 2017. Any two from: Higher government spending (1) higher consumer spending / rising population (1) increased investment (1). 1(c) Explain the opportunity cost to Pakistan of producing consumer 2 goods. Logical explanation which might include: Capital goods (1) resources that could have been used to produce capital goods are being used to produce consumer goods / (next) best alternative forgone (1). 1(d) Explain two reasons why education is a merit good. 4 Logical explanation which might include: People underestimate full benefit / private benefit (1) not appreciating health and job opportunity benefits (1). People not taking into account external benefits (1) e.g. better quality products/larger quantity of products or economic growth (1). 1(e) Analyse why the children of poor families tend to receive less 4 education than the children of rich families. Coherent analysis which might include: The children of the poor may not attend school (1) they may have to work (1) to help support their families (1). Poor families are likely to have difficulty paying to have their children educated (1) some schools in Pakistan are in the private sector (1) there seems to be a lack of low-cost schools (1). The children of the poor may leave school at a younger age (1) may miss more school days due to ill health (1). 1(f) Analyse the relationship between GDP per head and imports per head. 5 Coherent analysis which might include: Generally the countries with the highest GDP per head spend the most per head on imports (1) examples e.g. Norway has the highest income per head and the highest spending on imports per head and Haiti has the lowest income and the lowest spending on imports (up to 2) exception: Russia has a higher income per head than Mexico but a lower spending per head on imports (1). Expected relationship as income rises (1) people can afford more imports (1). The four countries with above average GDP per head spend above the global average on imports (1). The two countries with below average GDP per head spend more on imports (1). 1(g) Discuss whether or not the supply of teachers in Pakistan is likely to 6 increase in the future. 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: • education standards may rise (1) which may increase those qualified to be teachers (1) • working conditions may improve (1) with better buildings (1) • population is increasing (1) which may increase the size of the labour force (1). Award up to 4 marks for logical reasons why it might not, which may include: • wages may not rise (1) teachers may switch to other jobs (1) • teachers may emigrate to other countries (1) • the qualifications required to be a teacher may increase (1) by more than educational standards rise (1). 1(h) Discuss whether or not an increase in its import tariffs would be likely 6 to benefit the Pakistani economy. Award up to 4 marks for logical reasons why it might, which may include: • may reduce the trade deficit (1) by reducing demand for imports (1) • tax revenue may increase (1) enabling the government to increase its spending (1) • may help protect infant industries (1) until they can take advantage of economies of scale (1). Award up to 4 marks for logical reasons why it might not, which may include: • demand for some finished imports may be price inelastic (1) • demand for capital goods / raw materials may be inelastic (1) • incomes may rise (1), leading to higher spending on imports (1) • other countries may impose trade restrictions (1) reducing Pakistan’s ability to export (1).
This question in 0455/22 May/June 2020
Q24 · The Indian government has declared that the country, now a major car producer, will sell… 0455/22 May/June 2020
2 The Indian government has declared that the country, now a major car producer, will sell only electric cars by 2030. The government wants to reduce external costs, some of which are caused by petrol and diesel cars. Demand for electric cars is currently relatively low and price-elastic. The government, however, thinks that it will not need to subsidise the production of electric cars to achieve its target. (a) Define external costs. [2] (b) Explain two influences on whether demand for a product is price-elastic or price-inelastic. [4] (c) Analyse, using a demand and supply diagram, how a subsidy given to producers could affect the market for electric cars. [6] (d) Discuss whether cars should be produced by the private sector or the public sector. [8]
20 marks
Mark scheme: 2(a) Define external costs. 2 Harmful effects (1) on third parties (1). Social costs – private costs (1). 2(b) Explain two influences on whether demand for a product is price- 4 elastic or price-inelastic. Logical explanation which might include: Availability of substitutes (1) close substitutes will be likely to result in demand being price-elastic (1). Whether the product is a luxury or necessity (1) luxuries tend to have elastic demand/necessities tend to have inelastic demand (1). Proportion of income spent on the production (1) demand tends to be inelastic if a small proportion is spent on it/ elastic if a high proportion is spent on it (1) Whether the purchase can be postponed (1) if so, demand is likely to be elastic, if not inelastic. Addictiveness of the product (1) addictive products are likely to have inelastic demand (1). Time period (1) demand tends to become elastic over time (1). 2(c) Analyse, using a demand and supply diagram, how a subsidy given to 6 producers could affect the market for electric cars. price of S1 electric S2 cars P1 P2 D1 O Q1 Q2 quantity of electric cars 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). Supply curve shifted to the right (1). Equilibriums – shown by lines P1 and P2 / Q1 and Q2 or equilibrium points E1 and E2 (1). Up to 2 marks for coherent analysis which might include: A subsidy encourages firms to produce more/equivalent to a reduction in costs (1). Price will fall/quantity traded will rise (1). 2(d) Discuss whether cars should be produced by the private sector or the 8 public sector. 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 cars should be produced by the private sector: • may be a more competitive market and so prices may be lower • profit incentive may raise efficiency and encourage firms to produce what consumers want and keep costs low • may be higher investment which could improve quality and lower costs • may be easier to raise finance as can sell shares • may be forced to be efficient as may not be supported by the government Why cars should be produced by the public sector: • a private sector monopoly may abuse market power and may restrict supply and raise price • public sector firm to charge low prices/prices below cost for cheap cars to help the poor • public sector firms may take into account external costs and benefits/welfare • the state may have more financial resources and be able to invest on a larger scale.
This question in 0455/22 May/June 2020
Q25 · Business-friendly fiscal policy in the United States (US) has encouraged firms to produce… 0455/23 May/June 2020
4 Business-friendly fiscal policy in the United States (US) has encouraged firms to produce more. The US government has also encouraged mergers, including firms in the gas and electricity industries. Even though there are significant regulations, entrepreneurs have found that mergers enable them to maximise their profits. However, this may make markets less competitive and some states have imposed a maximum price for gas and electricity. (a) Define profit maximisation. [2] (b) Explain two types of mergers. [4] (c) Analyse how fiscal policy can encourage firms to produce more. [6] (d) Discuss whether or not maximum prices are beneficial. [8]
20 marks
Mark scheme: 4(a) Define profit maximisation. 2 When a firm produces at the level of output (1) which makes the highest profits for the firm (1). When a firm produces where the gap between TR and TC (1) is largest (1). Reward, but do not expect, produce at a point where MC = MR 4(b) Explain two types of mergers 4 Logical explanation which might include: Horizontal (1) when two or more firms from the same industry and the same stage of production merge (1). Vertical (1) when two or more firms from the same industry but different stage of production merge (1). Conglomerate (1) when two or more firms from different industries merge (1). Allow vertical forward and vertical backward as two separate points. 4(c) Analyse how fiscal policy can encourage firms to produce more. 6 Coherent analysis which might include: Reduce corporation tax (1) could lead to more profits after tax (1) enabling firms to invest more and expand (1). Reduce income tax (1) could increase spending (1) raise total demand (1) encouraging firms to produce more (1). Increase government spending (1) such as increasing subsidies (1) could lead to firms being able to expand production (1) decreasing cost of production (1) decreasing prices (1) increasing demand for the firms’ products (1). 4(d) Discuss whether or not maximum prices are beneficial. 8 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 maximum prices will be beneficial: • More affordable products • More choices for consumers • Less poverty • To prevent exploitation of consumers by producers – especially monopolies • Firms forced to become more efficient to be able to make profit. Why maximum prices will not be beneficial: • Producers will not want to supply that much • Firms leave the market • Could lead to shortage • Black market creation • Less choices for consumers
This question in 0455/23 May/June 2020
Q26 · There is a high level of division of labour in the United Kingdom (UK) energy industry 0455/23 May/June 2020
5 There is a high level of division of labour in the United Kingdom (UK) energy industry. Cold weather in early 2018 caused very high demand for energy and a change in its price. This led to a temporary shortage of energy for firms and households in the UK. Part of the change in price may have been the result of UK energy firms abusing their monopoly power. This would be an example of market failure. (a) Define market failure. [2] (b) Explain two influences, other than weather, that could affect the demand for a product. [4] (c) Analyse the possible effects of a shortage of a product such as energy on an economy. [6] (d) Discuss whether or not workers benefit from division of labour. [8]
20 marks
Mark scheme: 5(a) Define market failure. 2 Market failure is when the market mechanism / price mechanism / demand and supply (1) does not lead to an efficient allocation of resources (1). 5(b) Explain two influences, other than weather, that could affect the 4 demand for a product. Logical explanation which might include: Price of substitutes (1) If the price of substitutes increase, demand for the product will increase or vice versa (1). Price of complements (1) If the price of complements increase, demand for the product will decrease or vice versa (1). Expected future prices (1) if the price is expected to increase in the future, demand for the product will increase now or vice versa (1). Advertising (1) if there is a successful advertising campaign, demand will increase (1). Income (1) if income increases, demand will increase for a normal good or vice versa (1). Change in price (1) if price increases, demand will contract, vice versa (1). 5(c) Analyse the possible effects of a shortage of a product such as energy 6 on an economy. Coherent analysis which might include: Low supply (1) high prices (1) increase cost of production for firms (1). Cost- push inflation (1) firms might try to cut cost (1) by firing workers (1) increase unemployment (1). Increase price of goods and services (1) decrease affordability (1) decrease demand for goods and services (1) decrease standards of living (1). More imports to address shortage (1) less production (1) leading to lower growth rate (1). 5(d) Discuss whether or not workers benefit from division of labour. 8 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 it is a benefit: • saves time • increased skills • increased productivity • increased wages Why it is not a benefit: • increased boredom • limited skills • lack of motivation • lack of occupational mobility • overdependence on others
This question in 0455/23 May/June 2020
Q27 · Calculate the percentage of total world output of palm oil produced by Indonesia in 2017 0455/22 Oct/Nov 2020
1 (a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. [1] (b) Identify two variable costs of producing palm oil. [2] (c) Explain one opportunity cost of conserving forests in Indonesia. [2] (d) Explain two external costs of the destruction of forests in Indonesia. [4] (e) Draw a demand and supply diagram to show the effect of a ban on burning stubble on the market for rice. [4] (f) Analyse the relationship between countries’ GDP per head ranking and HDI ranking. [5] (g) Discuss whether or not the immigration of workers would be likely to benefit the Indonesian economy. [6] (h) Discuss whether or not the Indonesian tourism industry will increase in the future. [6]
30 marks
Mark scheme: 1(a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. 60% (1). 1 Accept 60. 1(b) Identify two variable costs of producing palm oil. • fertilisers • palm oil seeds • casual labour 2 If more than two are given, consider the first two only. Accept ‘labour’, ‘workers’ or ‘wages’ for ‘casual labour’. 1(c) Explain one opportunity cost of conserving forests in Indonesia. Logical explanation which might include: Palm oil not produced / rice not produced / tourism lost as a result of building fewer hotels / lost opportunity to Norwegian government to spend on e.g. education (1) (next) best alternative forgone (1). 2 1(d) Explain two external costs of the destruction of forests in Indonesia. Logical explanation which might include: Loss of wildlife habitats (1) extinction of species / harmful effect on animals not involved in the economic decision (1). Harmful gases/air pollution/pollution (1) unpleasant atmosphere for local residents / illnesses / global warming (1). 4 One mark for each of two costs identified and one mark for each of two explanations. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effect of a ban on burning stubble on the market for rice. Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Supply 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 For quantity label accept Q, quantity demanded, quantity supplied. Do not reward a completely macro diagram. O S2 P2 Q2 Q1 P1 S1 D1 price of rice quantity of rice Question Answer Marks Guidance 1(f) Analyse the relationship between countries’ GDP per head ranking and HDI ranking. Coherent analysis which might include: Expected relationship: Generally, the higher the GDP per head ranking, the higher the HDI ranking / positive relationship / direct relationship (1). Supporting evidence: The top country, the top two or top three countries with the highest GDP per head ranking have the highest HDI ranking (1) the country, two countries with the lowest GDP per head ranking have the lowest HDI ranking (1). Exception: Cuba or Indonesia (1) supportive data – Cuba has a lower GDP per head ranking than Indonesia but a higher HDI ranking than Indonesia (1). Analysis: It is the expected relationship (1). GDP is a component of HDI / HDI ranking influenced by additional factors – education and/or life expectancy / higher GDP per head enables more to be spent on education and healthcare (1). 5 HDI now includes years of schooling but accept an idea that it includes education - adult literacy rate was included in the old measure. 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 immigration of workers would be likely to benefit the Indonesian economy. Up to 4 marks why it might: • may be skilled workers (1) who may be more productive (1) • may be motivated to work harder (1) to improve quality of life (1) • bring in new ideas (1) improving production methods / use advanced technology (1) • may pay taxes (1) enabling the government to spend more (1) • fill vacancies left by Indonesians going to work abroad (1) • increase size of labour force (1) increase productive capacity (1) reduce dependency ratio (1) • may increase exports / total (aggregate) demand (1) may result in economic growth / increase output (1). Up to 4 marks why it might not: • population is already increasing (1) immigration may take it above the optimum level / lead to overpopulation / put pressure on resources (1) • pressure may be put on housing / education / food (1) • may put downward pressure on wages (1) may replace Indonesian workers / cause unemployment (1) lowering living standards (1) • may need training (1) increasing firms’ costs (1) • may increase pollution (1) • may send money home to relatives (1) may have to import more e.g. rice (1) negative impact on the current account of the balance of payments (1). 6 For an answer that examines the effects of migration of workers from Indonesia, a maximum of 2 marks. 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 the Indonesian tourism industry will increase in the future. Up to 4 marks for why it might: • it is currently price competitive (1) • if the exchange rate continues to fall (1), price of tourism for foreign visitors will fall (1) • it has natural tourist attractions (1) may preserve forests (1) • global economy is growing (1), incomes are rising (1) enabling foreigners to afford more holidays (1) • people coming from abroad to work in high paid jobs may be skilled / highly motivated (1) raise quality of tourism (1). • Indonesian government may subsidise the tourism industry (1) lowering costs of production (1). • the industry may be promoted /advertised (1) • air travel is falling in price (1) air travel is a complement to holidays (1) • foreign investment may be attracted into the industry (1) Up to 4 marks for why it might not: • pollution may discourage visitors (1) worried about health (1) • there are substitutes (1) Indonesia has competition from neighbouring countries (1) • natural areas of beauty may be destroyed (1) by e.g. new palm oil plantations / natural disasters (1) • net emigration (1) may mean there are not enough workers (1). • Covid-19 may continue to reduce tourism (1). 6
This question in 0455/22 Oct/Nov 2020
Q28 · The population of Hungary is the most obese in Europe 0455/22 Oct/Nov 2020
3 The population of Hungary is the most obese in Europe. Hungarians eat fewer vegetables than most Europeans and more food types that may be considered to be demerit goods. In 2017, the Hungarian government introduced a tax on unhealthy food, known as the chips tax. The tax has had some success in moving demand to healthier foods. Some economists suggest that governments should use price controls as well as taxes to influence the food market. (a) Define demerit good. [2] (b) Explain the difference between an extension in demand and an increase in demand. [4] (c) Analyse the effects on income distribution and tax revenue of an increase in indirect taxes. [6] (d) Discuss whether or not a government should impose a maximum price on food. [8]
20 marks
Mark scheme: 3(a) Define demerit good. A product which is more harmful to consumers than they realise / the government considers is more harmful (2). It is over-consumed / overproduced (1) it creates external costs (1). A product that is harmful (1). 3(b) Explain the difference between an extension in demand and an increase in demand. Logical explanation which might include: An extension in demand is caused by a change in the price of the product (1) rise in quantity demanded (1) it is shown by a movement along the demand curve (1). An increase in demand is caused by a change in an influence on demand other than a change in the price of the product / means more is demanded at each and every price (1) example of a cause of an increase in demand e.g. rise in incomes (1) it is shown by a shift in the demand curve (1). 4 Up to 2 marks for diagram(s) showing the difference. Maximum of 2 marks for extension in demand and a maximum of 2 marks for an increase in demand. Question Answer Marks Guidance 3(c) Analyse the effects on income distribution and tax revenue of an increase in indirect taxes. Coherent analysis which might include: Income is likely to become less evenly distributed (1) indirect taxes are usually regressive (1) taking a larger percentage of income of the poor (1). Tax revenue likely to rise (1) will rise more on goods with inelastic demand (1) e.g. food (1) may fall if demand falls significantly (1). If any extra tax revenue is spent on lower income groups (1) e.g. welfare benefits (1) the effect on income distribution is less certain / income may be more evenly distributed (1). Tax evasion and avoidance is less common in the case of indirect taxes (1) though there may be informal markets (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not a government should impose a maximum price on food. In assessing each answer, use the table opposite. Why it should: • may influence price and quantity purchased • if set below the equilibrium level, will reduce price • some people will be able to purchase food at a lower price • may reduce poverty – food is a basic necessity • may stop monopoly food producers setting high prices. Why it should not: • if set above the equilibrium, it will have no effect • it set below the equilibrium, will result in shortages • some additional measure will have to be introduced to ration out food • some foods may be harmful to health and their consumption should be discouraged • may result in firms making losses and so reducing quality of food or employment of workers • free market forces may result in a more efficient allocation of resources. 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 L2 answer: Government should impose a maximum price on foods. Price is likely to fall and this will aid those in poverty. They will be able to buy basic necessities easier and allow them to spend on other things. Governments should not impose a maximum price on food as it can cause businesses to make a loss and need government subsidisation. Principal Examiner comment: Reasonable on one side and limited on the other side. The effect on price, quantity demanded and quantity supplied may be shown on a diagram.
This question in 0455/22 Oct/Nov 2020
Q29 · Calculate the external cost per kilometre of driving a car in Manila in 2017 0455/23 Oct/Nov 2020
1 (a) Calculate the external cost per kilometre of driving a car in Manila in 2017. [1] (b) Identify two macroeconomic aims of the Philippine government. [2] (c) Explain one reason why traffic congestion can reduce labour productivity. [2] (d) Explain how an increase in the mobility of Philippine workers would be likely to affect unemployment in the Philippines. [4] (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. [4] (f) Analyse the relationship between the countries’ consumer expenditure and imports. [5] (g) Discuss whether or not the supply of enterprise is likely to increase in the Philippines. [6] (h) Discuss whether or not building more roads in Manila will benefit the Philippine economy. [6]
30 marks
Mark scheme: 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
This question in 0455/23 Oct/Nov 2020
Q30 · Changes in tobacco production and consumption can have both microeconomic and… 0455/23 Oct/Nov 2020
2 Changes in tobacco production and consumption can have both microeconomic and macroeconomic effects. Tobacco plants are grown in at least 124 countries with different levels of development. A higher proportion of the poor than of the rich consume tobacco products. The market for cigarettes, produced using tobacco, is changing. Demand for cigarettes and some other demerit goods is declining in a number of countries. (a) Define microeconomics. [2] (b) Explain two causes of differences in economic development between countries. [4] (c) Analyse how a cut in the interest rate could reduce poverty. [6] (d) Discuss whether or not government intervention will correct the market failure caused by a demerit good. [8]
20 marks
Mark scheme: 2(a) Define microeconomics. Study/analysis of or focus on individual markets / economic agents e.g. individuals, households, and firms (2). Study of economics on a small scale, e.g. demand for cars (1). Demand and supply for individual products/markets (1). 2(b) Explain two causes of differences in economic development between countries. Logical explanation which might include: Resources – land/labour/capital/enterprise (1) affect productive capacity of a country (1). Income (1) enabling people to consume more goods and services (1). Productivity (1) making better use of resources (1). Higher international trade / exports (1) results in higher output (1) Size of primary sector (1) larger primary sectors may mean lower incomes / hard working conditions (1). Saving (1) which can influence the proportion of capital goods produced/the extent to which people have a safety net (1). Investment (1) which may influence economic growth / make work less physically demanding (1). Education / literacy rates (1) which influence choices/income/health (1). Healthcare (1) which affects life expectancy / quality of life (1). 4 One mark for each of two causes identified and one mark for each of two explanations. Allow reference to political instability and social unrest if linked to economic development. Question Answer Marks Guidance 2(c) Analyse how a cut in the interest rate could reduce poverty. Coherent analysis which might include: Cost of borrowing will fall / reward from saving will decline (1) increase borrowing / demand for loans (1) consumer spending will increase (1) firms may invest more (1) output may rise (1) unemployed gain jobs / employment may increase (1) incomes may rise / reduction in absolute poverty (1). The poor who have borrowed in the past (1) will have more money to spend on basic necessities (1) spend on education (1) improve skills (1) get better paid jobs (1) reducing relative poverty (1). Housing may be cheaper (1) making shelter more accessible (1). May enable some of the poor to borrow to start up small businesses (1) and earn a higher income (1). Cheaper for government to borrow (1) enabling it to spend more on education/healthcare (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not government intervention will correct the market failure caused by a demerit good. In assessing each answer, use the table opposite. Why it might: • tax can be imposed/increased • this will raise price • consumers better informed about negative impact • demand would be expected to contract • a minimum price could be imposed • this again would be expected to reduce demand • restrictions could be imposed on the imports of demerit goods Why it might not: • demand may be price inelastic, some demerit goods are addictive • the government may set a tax too high or too low • the rich may not be dissuaded by the tax • producers may not pass on the tax to consumers • a minimum price set below the equilibrium level would have no effect • a minimum price could result in a surplus which may put downward pressure on price, encourage producers to charge less than the minimum price Example of Level 2 answer: Government’s job is to keep the economy going in a healthy way. Therefore, they try eliminating demerit goods to increase the benefits for society as a whole. If there is market failure caused by a demerit good it will be because too many people are consuming them and causing total benefit for society to fall. 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 Reward but do not expect provision of information. Question Answer Marks Guidance 2(d) Government intervention such as increasing taxes for merit goods will lower consumption and also with the money collected from taxes they can make merit goods instead of demerit goods. For example, if too many people consume cigarettes and tobacco, the government can raise taxes for tobacco and prices will rise. They can use the taxes collected to make additional videos and tell people the bad things that comes from smoking. Therefore, people will consume less of these demerit goods. However, demerit goods especially addictive things like cigarettes will have a lot of people producing them since its easy to make money. An increase in tax may cause unemployment if they cannot sell as much as before so the fixing of one market failure may cause another one to appear. Principal Examiner comment: This is reasonable on one side but limited on the second side. Example of a Level 1 answer: Government intervention can cause a huge change in the market of a demerit good. Increase in taxes for a demerit good will reduce demand. Principal Examiner comment: One method of government intervention identified.
This question in 0455/23 Oct/Nov 2020
Q31 · It is estimated that half of Egyptian men smoke 0455/22 Feb/March 2021
4 It is estimated that half of Egyptian men smoke. This is one of the highest rates in the world. In recent years the Egyptian government has increased the tax on cigarettes. The government and central bank have also tried to reduce inflation and improve Egypt’s international trade performance. The Egyptian government could use subsidies to reduce its deficit on the current account of its balance of payments. (a) Identify two qualities of a good tax. [2] (b) Explain two reasons why governments tax cigarettes. [4] (c) Analyse how a central bank could reduce inflation. [6] (d) Discuss whether or not an increase in government subsidies will reduce a deficit on the current account of the balance of payments. [8]
20 marks
Mark scheme: 4(a) Identify two qualities of a good tax. Two from: • certainty / easy to understand / people know how much to pay • convenience / easy to pay • economy / cheap to collect • efficiency / not harm performance of markets • equity / fair / based on ability to pay • flexibility / easy to change 2 4(b) Explain two reasons why governments tax cigarettes. Logical explanation which might include: To raise revenue (1) demand for cigarettes is price-inelastic / smoking is addictive / to spend on e.g. education (1). To discourage consumption / to discourage production (1) they are a demerit good / cigarettes are more harmful than smokers realise / they cause health problems (1). To reduce external costs / they create external costs (1) impose a cost on third parties / cause pollution / health problems for non-smokers (1). To improve the current account position (1) cigarettes may be imported (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a central bank could reduce inflation. Coherent analysis which might include: A central bank could use contractionary monetary policy (1). A central bank could increase the rate of interest (1) increase saving (1) reduce borrowing (1) reduce consumer expenditure (1) reduce total (aggregate) demand (1) reduce demand-pull inflation (1). A central bank could reduce the money supply (1) print less money / sell government bonds (1) restrict bank lending (1) fewer loans may reduce investment (1) reduce consumer expenditure (1). Raising the exchange rate (1) may reduce the price of imports (1) lowering cost-push inflation (1). One effect of a lower interest rate might be to lower costs of production (1) reduce cost-push inflation (1). 6 Accept but do not expect reference to increasing reserve / liquidity ratio (1). Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 4(d) Discuss whether or not an increase in government subsidies will reduce a deficit on the current account of the balance of payments. In assessing each answer, use the table opposite. Why it might: • reduce costs of production • lower prices, making products more internationally competitive • export revenue may rise • import expenditure may fall Why it might not: • firms may not lower prices • firms may be encouraged to be inefficient • demand for exports may not rise if quality is poor • demand for exports and imports may be price- inelastic • other countries may retaliate by imposing trade restrictions / giving subsidies • subsidies to consumers can increase demand for imports and divert exports to the home market • subsidies to producers may increase demand for imports of raw materials and capital goods Example of an L3 answer An increase in government subsidies would reduce a deficit in the current account of the balance of payments as domestic firms could use the subsidy to lower the price of its goods, improve quality and hence make its products more internationally competitive. This would increase exports of the country’s products. It would also reduce imports as citizens would substitute the imported products with the more competitive domestically made goods. 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 4(d) The increased government subsidies may also allow firms to make more profits and households to save more. The profits and extra savings may be invested abroad. This would increase the primary income on return on investments would come from abroad back to the home country. This would also reduce a current account deficit. On the other hand, government subsidies may not reduce the current account deficit if domestic industries become dependent on them and don’t actually improve their methods of production and lower costs. This would not make their products more internationally competitive and demand for exports would not increase. It may not also improve the deficit in the short run if firms use the subsidies to import raw materials and capital goods from abroad. However, on the long run it would lead to better products and lower pricing, making the products of domestic firms more internationally competitive. Example of an L2 answer Current account deficit means import expenditure is more than export revenue. This happens when export prices are higher than import prices. Providing subsidies to producers can cause them to lower prices and export more. It can also increase firms’ confidence and they may invest more. However, sometimes subsidy may increase imports. A subsidy may make firms more inefficient and produce lower quality products. The subsidy may also be given to firms making products not in demand and so the firms will not have the potential to grow. Example of an L1 answer Government subsidy refers to an incentive provided by the government to producers. Governments can reduce deficit on the current account of the balance of payments by increasing the total supply, it will also result in an increase in GDP and promote economic growth. 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
This question in 0455/22 Feb/March 2021
Q32 · There is an area of rubbish, three times the size of France, floating in the Pacific… 0455/21 May/June 2021
2 There is an area of rubbish, three times the size of France, floating in the Pacific Ocean called the Great Pacific Garbage Patch. It is made up of rubbish including old fishing nets but most is plastic waste. It is forecast that, by 2050, there will be more plastic in the Pacific Ocean than fish. A number of islands in the Pacific Ocean specialise in fishing. Greater pollution will increase the social cost of the fishing industry. (a) Identify the two types of costs that make up social cost. [2] (b) Explain two causes of a shift to the right in the demand curve for fish. [4] (c) Analyse how cleaning up pollution could benefit an economy. [6] (d) Discuss whether or not countries specialising benefits consumers. [8]
20 marks
Mark scheme: 2(a) Identify the two types of costs that make up social cost. Private costs (1) External costs (1). 2 2(b) Explain two causes of a shift to the right in the demand curve for fish. Logical explanation which might include: • Rise in the price of a substitute for fish (1) people will switch away from buying e.g. chicken to buying fish (1). • Fall in the price of a complement for fish (1) people will buy more of the complement (1). • A rise in income (1) people will be able to afford to buy more fish (1). • A report stating eating fish is good for health / changes in tastes (1) people may buy more fish to try to increase their life expectancy (1). • Increase in population size (1) more people to buy fish (1). • A successful advertising campaign (1) may persuade more people to buy fish (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 2(c) Analyse how cleaning up pollution could benefit an economy. Coherent analysis which might include: • Will reduce external costs (1) improve health / less sickness (1) raise quality of life / standard of living (1). • Less (government) spending on healthcare (1) more can be spent on other priorities e.g., education (1). • Cleaning up pollution may create jobs / employment (1) reduce unemployment (1) may attract MNCs (1) increase in incomes (1) reduction in poverty (1). • Recycling of some of the material collected (1) could increase the country’s output (1) less use of non- renewable resources (1). • Better working conditions (1) productivity of labour could increase (1) reduce costs of production (1) increase output (1) reduce unemployment (1) reduce inflation (1). • Improve the environment (1) Increase tourism (1) increase exports of services (1) improve the current account position (1). • Reduction in ocean pollution (1) will improve fish stock (1) improve quality of fish (1) greater catches of fish (1) leading to rise in incomes / revenue / GDP (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not countries specialising benefits consumers. In assessing each answer, use the table opposite. Why it might: • countries may specialise in what they are best at producing • output may rise • greater availability • costs of production may fall • prices may fall • quality may rise • better paid jobs increasing purchasing power of consumers Why it might not: • a country may gain a monopoly of production, raising price and lowering quality • choice may be reduced / greater reliance on imports • other countries’ producers may have lower health and safety standards • supply problems may affect a particular country, cutting off supplies • trade disputes may cut off supplies 8 Reward but do not expect reference to absolute and comparative advantage. 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 2(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
This question in 0455/21 May/June 2021
Q33 · The island of Borneo is famous internationally for its rainforests which can bring many… 0455/21 Oct/Nov 2021
3 The island of Borneo is famous internationally for its rainforests which can bring many benefits, both private and external. However, the economy is heavily dependent on a finite resource, oil. The discovery of oil reserves in other parts of the world led to a significant fall in the world price of oil. This affected producers of oil in Borneo. (a) Define finite resource. [2] (b) Explain the difference between private and external benefits. [4] (c) Analyse, using a demand and supply diagram, the effects on the world price of oil of the discovery of new reserves of oil. [6] (d) Discuss whether or not the fall in the price of a product is a disadvantage to an economy. [8]
20 marks
Mark scheme: 3(a) Define finite resource. A resource is an aid to production (1) which is limited in supply (1) it cannot be replaced over time / fast enough / will run out (1) to keep pace with consumption (1). 2 No mark for an example 3(b) Explain the difference between private and external benefits. Logical explanation which might include: Private benefits are enjoyed by the producer (1) and consumer (1) first and second parties (1) of a product, example e.g. revenue for the producer / satisfaction for the consumer (1). External benefits are enjoyed by a third party (1) not directly involved in the production (1) or consumption process (1) example (1) 4 Maximum 3 marks for only explaining 1 type of benefit. 3(c) Analyse, using a demand and supply diagram, the effects on the world price of oil of the discovery of new reserves of oil. (6) Up to 4 marks for the 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, P2 / Q1, Q2: or marking the equilibrium points E1 and E2 (1). Up to 2 marks for written comments: Discovery of new oil will enable an increase in supply (1) price will be lower (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not the fall in the price of a product is a disadvantage to an economy. In assessing each answer, use the table opposite. Why it might be a disadvantage: • It depends on size of fall in price and elasticity of demand for the product • It depends upon the importance of the product to the economy / how dependent on it • If demand is price inelastic, decrease in total revenue e.g. basic items / necessity, cannot cover the costs, firms may go out of business, less employment opportunities • Less profits, discourages investment, reduces economic growth • Less export revenue, may increase current account deficit • Fall in price may be due to cheaper imports, domestic firms lose out. • The product may be a demerit good which previously was overconsumed. • If the product is part of a deflationary situation, there could be recession / unemployment 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 Question Answer Marks Guidance 3(d) Why it might not be a disadvantage: • Depends on size of fall and whether it is short or long term • If demand is elastic, increase in total revenue e.g. luxury goods / many substitutes • Increase choices and affordability of product – better living standards • Fall in the price of a raw material may lower cost of production, reducing inflation and increasing economic growth • The product may be a merit good which previously was under- consumed • It may make a basic necessity more affordable – low income groups may be better off • It may be the result of an increase in productivity / a government subsidy • It may make the product more internationally competitive, improving the current account position. 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 u sing 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
This question in 0455/21 Oct/Nov 2021
Q34 · Calculate the number of obese people in the UK in 2016 0455/23 Oct/Nov 2021
1 (a) Calculate the number of obese people in the UK in 2016. [1] (b) Identify two reasons why the demand for vegan food has increased in the UK. [2] (c) Explain one external benefit that may arise from eating less meat. [2] (d) Explain how food consumption in Senegal differed from the US in 2015. [4] (e) Analyse how an increase in labour mobility could improve the performance of a country’s trade in goods. [4] (f) Analyse how an increase in meat consumption could benefit African economies. [5] (g) Discuss whether or not an increase in Senegalese government spending will stop the country experiencing a recession. [6] (h) Discuss whether or not emigration would reduce poverty in Senegal. [6]
30 marks
Mark scheme: 1(a) Calculate the number of obese people in the UK in 2016. 18.2 million/18 200 000/18.2 × 106 1 Accept 18 million. 1(b) Identify two reasons why the demand for vegan food has increased in the UK. Two from: • (concerns about) health • (concerns about) obesity • (compassion for) animal welfare • rise in income/getting richer/higher standard of living • advertising of vegan products • less consumption of meat 2 One mark each for each of two reasons. 1(c) Explain one external benefit that may arise from eating less meat. Healthy/less obese people (1) are more productive/higher output/live longer/government can spend more on education and raise skills (1). Improved environment/air/water quality (1) less greenhouse gases/pollution/people sick (1). 2 One mark for the external benefit identified and one mark for the explanation. Question Answer Marks Guidance 1(d) Explain how food consumption in Senegal differed from the US in 2015. Senegalese citizens consumed fewer calories (1) consumed less than the recommended amount/US consumed more than the recommended amount (1). Senegalese may have suffered malnourishment (1) US may have suffered from obesity (1). Senegalese had a healthier diet (1) e.g. more fruit and vegetables (1). A higher proportion of the Senegalese diet consisted of cereals/grains (1) because it was cheap (1). Senegalese citizens consumed less meat (1) because it was expensive/low incomes (1). Senegalese citizens consumed less sugar and/or sweeteners (1). Senegalese consumed a higher proportion of fruit and/or vegetables (1). Senegalese consumed less added fats and/or oils (1). 4 Accept a response from the viewpoint of the US e.g. US citizens ate more meat. Question Answer Marks Guidance 1(e) Analyse how an increase in labour mobility could improve the performance of a country’s trade in goods. Coherent analysis which might include: Labour markets will become more efficient (1) workers become more skilled (1) workers will move more easily between industries/become more occupationally mobile/respond quickly to changes in demand (1). Workers can move more easily from one place to another/become more geographically mobile (1). If demand for a product rises (1) it will be easier to recruit new workers/fill vacancies (1) more can be produced/supplied (1) less need for imports (1) import expenditure could fall (1) more can be exported (1) export revenue could rise (1). 4 Question Answer Marks Guidance 1(f) Analyse how an increase in meat consumption could benefit African economies. Coherent analysis which might include: May reduce malnutrition/make people healthier (1) make workers more productive/efficient (1) improve quantity/quality of output (1) lower costs of production (1) more competitive internationally (1) exports increase/imports reduce (1) economic growth (1). Increase demand for vets and transport firms (1) increase number of meat processing firms (1) greater investment by firms (1) will increase output (1) raise employment (1) raise incomes/standard of living (1). Reduces government spending on health care (1) can spend more on education/unemployment benefits/infrastructure increasing skill levels/productivity (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Senegalese government spending will stop the country experiencing a recession. Award 1 mark for explanation of recession. Award up to 4 marks for logical reasons for why it might, which might include: • Government spending part of total (aggregate) demand (1) may increase total (aggregate) demand (1) may offset fall in consumer expenditure (1) this may encourage firms to produce more/attract new firms to set up (1) employ more staff/lower (cyclical) unemployment (1) earn more income (1) purchase more goods and services (1). • Government spending on education/training/healthcare infrastructure (1) improves productivity (1) make products more internationally competitive (1) increasing total (aggregate) demand (1) raising output (1). • Government subsidies (1) will lower costs of production (1) encouraging firms to produce more (1). Award up to 4 marks for logical reasons for why it might not, which might include: • May not be great enough to offset fall in investment (1) business confidence may be low (1). firms may not increase output after being given government subsidies (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 Mar k 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) • Consumer expenditure may fall (1) investment may not rise (1) exports may fall (1) • if consumer confidence is low (1). • May be global recession (1) exports may fall (1). • If taxes are raised to pay for the increase in government spending (1) government borrows (1) effect on total (aggregate) demand may be small (1). Higher spending on education/health/infrastructure may not result in increased workforce/greater productivity (1). Question Answer Marks Guidance 1(h) Discuss whether or not emigration would reduce poverty in Senegal. Award up to 4 marks for logical reasons for why it might, which might include: • Workers’ remittances may increase/emigrants may send money home to Senegal (1) working abroad may enable them to provide more financial support for their families (1) than working at home (1) if wages are higher abroad (1) • Unemployment may fall (1) if potential emigrants could not gain work at home (1) • Increase ability of people to gain skills/work experience (1) increasing their ability to earn more (1) can share those skills with workers when they return to Senegal (1) • Emigration may move the country towards the optimum population (1) if the country lacks resources (1) this could increase income per head (1) increasing ability to purchase basic necessities (1) Award up to 4 marks for logical reasons for why it might not, which might include: • Skilled workers may leave the country (1) reducing output (1) discouraging MNCs (1) reducing jobs (1) reducing income (1) • There will be fewer people to pay taxes (1) lower tax revenue available to spend to reduce poverty (1) e.g. on education (1) • May be more dependents on the government (1) if parents leave children and elderly relatives behind (1) • Fewer workers in the population (1) will make it harder to finance state pensions (1) may reduce income of pensioners (1) 6
This question in 0455/23 Oct/Nov 2021
Q35 · In 2018, 54% of Russia’s population was female and the government announced plans to… 0455/23 Oct/Nov 2021
2 In 2018, 54% of Russia’s population was female and the government announced plans to raise the state retirement age. In Russia, the role of the price mechanism to answer key resource allocation questions is increasing. However, the Russian government raised indirect taxes, partly to reduce market failure. (a) Identify two reasons why a country may have more women than men in its population. [2] (b) Explain two advantages of raising the retirement age. [4] (c) Analyse how the price mechanism answers the three key resource allocation questions. [6] (d) Discuss whether or not indirect taxation can reduce market failure. [8]
20 marks
Mark scheme: 2(a) Identify two reasons why a country may have more women than men in its population. Two from: • women living longer • more girls being born • fewer female emigrants or male immigrants • more female immigrants or male emigrants • more men killed in wars 2 2(b) Explain two advantages of raising the retirement age. Logical explanation which might include: Reduction in pensions paid (1) money could be spent for other purposes e.g. infrastructure (1). Increase in size of the labour force/(1) increase in output/productive potential/GDP/reduction in firms’ wage costs (1). Reduction in size of dependency ratio (1) less burden on working population (1). Rise in tax revenue/improve budget position (1) government can spend more on e.g. public sector wages (1). May increase health of the old (1) work may be mentally challenging (1). People can work longer (1) and earn more income/enjoy higher living standards (1). Older people have greater skills/more years of training (1) can raise productivity/pass on skills to younger workers (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Question Answer Marks Guidance 2(c) Analyse how the price mechanism answers the three key resource allocation questions. Coherent analysis which might include: Definition of price mechanism e.g. where forces of demand and supply determine the prices of goods and services (1) in a market economy (1). What to produce (1) the price mechanism acts a signal/the price mechanism acts as an incentive on what to produce (1) rations goods and services (1) price will rise for products in higher demand (1) encouraging more to be made (1). How to produce (1) e.g. more labour-intensive/more capital- intensive methods of production will be used (1) if wages fall/if cost of capital goods fall (1). Who to produce for (1) those whose services are most in demand will have the highest income (1) will be able to buy the most (1) 6 Question Answer Marks Guidance 2(d) Discuss whether or not indirect taxation can reduce market failure. In assessing each answer, use the table opposite. Why it might: • demerit goods are overconsumed and cause external costs • demerit goods and other products causing external costs can be taxed • indirect taxation on demerit goods can discourage their consumption • merit goods are under-consumed and create external benefits • indirect tax revenue can be used to subsidise or produce merit goods • public goods would not be produced by the private sector as they have the characteristics of non-rival and non- excludable • indirect tax revenue can be used to finance the production of public goods Why it might not: • difficult to measure external costs • demerit goods may be overtaxed, changing from being overconsumed to being under-consumed • demand for some demerit goods is price inelastic • indirect taxes may fall more heavily on the poor • demand may just shift to imports if other countries do not impose indirect tax or have lower tax rates • tax revenue may not be used to promote the consumption of merit and public goods 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 2(d) Level Description Marks 1 There is a simple attempt at u sing 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
This question in 0455/23 Oct/Nov 2021
Q36 · Calculate the number of Bermudian workers who were unemployed in 2018 0455/22 Feb/March 2022
1 (a) Calculate the number of Bermudian workers who were unemployed in 2018. [1] (b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. [2] (c) State two reasons why a foreign MNC may want to operate in Bermuda. [2] (d) Explain two reasons why Bermuda has a higher level of economic development than many other countries. [4] (e) Analyse the role of the Bermudian Monetary Authority (BMA). [4] (f) Analyse the relationship between GDP per head and life expectancy. [5] (g) Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate. [6] (h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit goods. [6]
30 marks
Mark scheme: 1(a) Calculate the number of Bermudian workers who were unemployed in 2018. 2345 (1). 1 1(b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. Luxury (not a necessity) (1) expensive / high price (1). 2 If more than two reasons are given, consider the first three, 1(c) State two reasons why a foreign MNC may want to operate in Bermuda. Any two from: Tax haven / no corporation tax (1) High GDP per head (1) High import tariffs (1) High literacy rate / skilled workers / educated workers (1) Low inflation (1). 2 If more than two reasons are given, consider the first three, Question Answer Marks Guidance 1(d) Explain two reasons why Bermuda has higher level of economic development than many other countries. Logical explanation which might include: Large tertiary sector (1) jobs in the tertiary sector tend to be better paid / have better working conditions (1). High literacy rate (1) a higher literacy rate will tend to increase employability / provide more choices / increase quality of jobs obtained / increase pay / increase skills / produce better quality products / may suggest a good level of education / raise productivity / increase output (1). Low population growth (1) a lower population growth may mean that dependency ratio may be low / less stress on resources / more resources can be devoted to e.g. investment (1). High GDP per head (1) a higher GDP per head can increase living standards / result in high consumer expenditure (1). High life expectancy (1) which can reflect good health care / may mean high quality labour (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. If more than two relevant reasons are identified, consider the first three and take the two which gain the highest marks. Note: no mark for high GDP, low unemployment or just e.g. population growth. 1(e) Analyse the role of the Bermudian Monetary Authority (BMA). Coherent analysis which might include: Carries out (most) of the functions of a central bank (1). Acts as banker to the government (1) receives tax payments / enables government to make payments / manages national debt / allows government to borrow and lend (1). Holds the country’s reserves of foreign currency (1) may use reserves to influence the value of Bermuda’s currency / buy / sell currency (1). Carries out the government’s monetary policy / keeps inflation low (1) by changing interest rate / money supply (1). 4 Maximum of 2 marks for recognising functions (including carrying out the functions of a central bank) from the source material. Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and life expectancy. Coherent analysis which might include: Overview Generally, a positive relationship / the higher the GDP per head, the longer the life expectancy (1). Supporting evidence Evidence in terms of an individual country or group of countries e.g. Monaco has the highest GDP per head and the longest life expectancy or e.g. the three countries with the highest GDP per head have the longest life expectancy (1) evidence in terms of another country or group of countries e.g. Eswatini has the lowest GDP per head and the lowest life expectancy or e.g. Argentina, Bahamas and Eswatini have the lowest GDP per head and the lowest life expectancy (1). Exception Argentina or Bahamas (1) not in same order / reason for why difference may exist (1). Comments Higher income allows more to be spent on healthcare (1) better healthcare reduces illness / reduces death rate (1). 5 No marks for just stating the figures e.g. Monaco has a GDP per head of approximately $185 000 and a life expectancy of 90 years and Eswatini has a GDP per head of approximately $4000 and a life expectancy of 58. Question Answer Marks Guidance 1(g) Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate. Award up to 4 marks for logical reasons why they might, which may include: Expansionary fiscal and/or monetary policy measures (1) example of a measure (1) could increase total demand / increase spending (1) higher total demand could cause demand-pull inflation (1) if total (aggregate) demand exceeds total (aggregate) supply / there is limited or no spare capacity (1). Shortage of unemployed workers / lower unemployment could push up wage rates / incomes (1) higher output could push up costs of raw materials (1) and cost of capital goods (1) higher costs of production (1) could cause cost-push inflation (1). Award up to 4 marks for logical reasons why they might not, which may include: Supply-side policy measures (1) could raise productivity (1) example of a measure (1) higher productivity could reduce costs of production (1) total supply could increase to match higher total demand / productive potential/capacity could increase (1) avoid / reduce cost-push inflation (1). Expectations of future inflation could be low (1) resulting in e.g. lower wage claims (1). Unemployment rate is at 7% (1) not at full employment (1) unemployed workers may be willing to work at existing wage rates (1) there is some spare capacity (1). Inflation rate is low (1) and so expectations of inflation may be low (1). Expansionary demand-side policy measures may just result in higher savings (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(h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit goods. Award up to 4 marks for logical reasons why they might, which may include: Demerit goods are more harmful than consumers realise / are harmful / consuming less would make people healthier (1) they usually have negative external costs (1) examples include fast food, alcohol and tobacco (1). Demerit goods are overconsumed (1) and overproduced (1) higher indirect taxes will impose an extra cost / raise cost of production (1) which may lower output / supply (1) be likely to raise price (1) which is likely to reduce consumption (1) lower consumption/lower output/lower supply may move output to a point where social costs equal social benefits (1). May raise tax revenue (1) which can be spent on campaigns to reduce e.g. smoking (1). Award up to 4 marks for logical reasons why it might not, which may include: It may be difficult to change consumers’ behaviour / spending patterns (1) some demerit goods are addictive (1) those with high incomes may not be affected by a rise in price (1) demand for demerit goods may be inelastic (1). Producers may not pass on price rise to consumers / products may be sold on an illegal market (1) to avoid fall in demand (1). It can be difficult to determine the output of demerit goods which will avoid market failure. (1) the output where social cost will equal social benefit (1). 6 Examples of demerit goods may be rewarded in why might or why might not.
This question in 0455/22 Feb/March 2022
Q37 · Trade union membership is much higher in Sweden than in most countries 0455/21 May/June 2022
3 Trade union membership is much higher in Sweden than in most countries. In 2019, 70% of Swedish workers were members of a trade union. More than 85% of Swedish workers are employed in the tertiary sector, compared with only 2% in the primary sector. Swedish workers spend their incomes on a variety of products some of which, e.g. sweets, are demerit goods. Sweden has the 7th highest per head consumption of sweets in the world. (a) Identify two influences on what products a person buys. [2] (b) Explain two ways a government could decrease the consumption of demerit goods. [4] (c) Analyse why workers may join a trade union. [6] (d) Discuss whether or not tertiary sector workers are paid more than primary sector workers. [8]
20 marks
Mark scheme: 3(a) Identify two influences on what products a person buys. Two from e.g.: Price (1) income (1) tastes / habit / culture (1) advertising (1) availability (1) social media / influencers (1) quality (1) government regulations/ laws (1) age (1). 3(b) Explain two ways a government could decrease the consumption of demerit goods. Logical explanation which might include: Impose an (indirect) tax / tariff on goods (1) raise the price (1). Provide information (1) about harmful effects (1). Ban / regulate (1) to stop or reduce the availability of the product (1). Set minimum price above market price (1) raise prices (1). Import quota (1) restricts availability for purchase (1). 4 One mark for each of two ways identified and one mark for each explanation. Question Answer Marks Guidance 3(c) Analyse why workers may join a trade union. Coherent analysis which might include: Understanding of role of trade union (1) to gain greater bargaining power (1) through industrial action (1) to negotiate with employers (1) for higher wages (1) better working conditions / health & safety (1) fringe benefits (1). To represent them (1) in disputes with employers (1) e.g., to protect their rights (1) against unfair dismissal / discrimination (1) increase job security (1) compensation for work injuries (1). To gain greater influence on the government (1) to e.g., increase a national minimum wage (1) increase job opportunities (1). Unions may provide services to members (1) training courses (1) improving health and safety (1) benefits e.g. discounts at gyms (1) financial and legal advice (1). 6 Award no marks for examples of industrial action Question Answer Marks Guidance 3(d) Discuss whether or not tertiary sector workers are paid more than primary sector workers. In assessing each answer, use the table opposite. Why they might be: may be more skilled / qualified may be more productive tertiary products may have higher value added tertiary products may have higher demand, so industries may have greater ability to pay higher wages. Why they might not be: may be less likely to belong to a trade union some workers may be in lower paid jobs e.g., cleaners some tertiary sector firms / occupations may be declining some may be less experienced some may not be in promoted posts primary sector products may have higher value added e.g., oil primary sector workers in a developed country may be paid more than tertiary workers in an undeveloped country. primary jobs may be more dangerous e.g., mining 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. 68 Question Answer Marks Guidance 3(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. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0 Note: accept approach that discusses why primary sector workers may be better paid. Define privatisation. Privatisation is the sale of state-owned / public sector firms / public sector assets (1) to the private sector / investors / individuals (1). 2 Award 1 mark for an understanding of the private sector Accept change / movement / turned from public to private sector
This question in 0455/21 May/June 2022
Q38 · In 2019, France produced inside its production possibility curve (PPC) 0455/22 May/June 2022
3 In 2019, France produced inside its production possibility curve (PPC). France exports a wide range of its products. It is the world’s top exporter of luxury perfume and the 7th largest exporter of soap. Changes in technology affect the products people produce and buy. The French government plans to upgrade its infrastructure for all households to have internet access. (a) Define a production possibility curve. [2] (b) Explain why demand for soap is more price-inelastic than demand for a luxury brand of perfume. [4] (c) Analyse, using a demand and supply diagram, how an increase in income will affect the market for a luxury brand of perfume. [6] (d) Discuss whether or not the public sector should be responsible for the supply of all internet services. [8]
20 marks
Mark scheme: 3(a) Define a production possibility curve. A diagram showing maximum output / possible combinations (1) of two types of products / of capital and consumer goods (1) with given resources / given technology / in a given time period (1) shows opportunity cost (1). 2 Nothing for a diagram, 3(b) Explain why demand for soap is more price-inelastic than demand for a luxury brand of perfume. Logical explanation which might include: Soap is more essential / necessary than a luxury brand of perfume (2) OR soap is a necessity (1) luxury brand of perfume does not have to be purchased / not essential / a want (1). Soap has fewer substitutes than a luxury brand of perfume (2) OR soap does not have close substitutes (1) whereas a luxury brand of perfume may have close substitutes (1). Soap is likely to take up a smaller proportion of income than a luxury brand of soap (2) OR soap is likely to take only a small proportion of income (1) whereas a luxury brand of perfume is likely to take up a large proportion (1). It is harder to delay the purchase of soap than the purchase of a luxury brand of perfume OR the purchase of soap cannot be delayed (1) while the purchase of a luxury brand of perfume can be (1). 4 Question Answer Marks Guidance 3(c) Analyse, using a demand and supply diagram, how an increase in income will affect the market for a luxury brand of perfume. Coherent analysis which might include: Up to 4 marks for the diagram: D and 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 or equilibrium points (1). Up to 2 marks for written analysis which might include: Luxury perfume will be more affordable / greater purchasing power / luxury perfume will take a smaller proportion of income / more will be demanded at the same price (1) price will rise / quantity traded will increase (1). 6 Written analysis An increase in income will cause an increase in demand for luxury perfume is not sufficient for a mark. Reward but do not expect reference to a luxury brand of perfume being a normal good. Question Answer Marks Guidance 3(d) Discuss whether or not the public sector should be responsible for the supply of all internet services. In assessing each answer, use the table opposite. Why it might: government may charge a low price enable poor to gain access to the internet, help children with education government may base decisions on social costs and benefits government can control what is on the internet may be more able to take advantage of economies of scale avoidance of wasteful duplication government may take a longer-term view on investing. Why it might not: opportunity cost – could have spent the money on e.g. healthcare private sector may invest more private sector may be more efficient / have lower costs of production profit incentive may encourage private sector to raise quality private sector may make decisions quicker. 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. 68 Question Answer Marks Guidance 3(d) 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. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0
This question in 0455/22 May/June 2022
Q39 · Nicaragua experienced a 4% decrease in GDP in 2019, although household spending rose 0455/22 May/June 2022
5 Nicaragua experienced a 4% decrease in GDP in 2019, although household spending rose. One Nicaraguan product that increased in supply was bananas, which are a merit good. The Nicaraguan government encouraged its banana farmers and its other producers to increase their output. Increases in output can affect a firm’s average costs of production. (a) Define supply. [2] (b) Explain two ways a government could increase the consumption of merit goods. [4] (c) Analyse how the level and pattern of household spending may change when GDP decreases. [6] (d) Discuss whether or not a firm will benefit from an increase in its output. [8]
20 marks
Mark scheme: 5(a) Define supply. Willingness to sell a product (1) and ability to sell a product (1). Supply at a given price / in a given time period (1). 2 Allow one mark in total for amount produced or amount sold. Need idea of selling / making available to consumers for full two marks. 5(b) Explain two ways a government could increase the consumption of merit goods. Logical explanation which might include: Provide information/education (1) about the benefits of merit goods / consumers may be unaware of full benefits (1). Provide merit goods free / direct provision (1) e.g. education and healthcare / nationalise industries producing merit goods (1). Subsidise the production of merit goods (1) to lower prices (1). Subsidise the consumption of merit goods (1) by e.g. providing vouchers (1). Set a maximum price / price ceiling (1) to make merit goods more affordable / to lower price (1), Pass laws / introduce regulation (1) to make consumption of merit goods compulsory (1). Remove / cut indirect taxes on merit goods (1) to make them more affordable / to lower price (1). 4 One mark for each of two ways identified and one mark for each explanation. Can accept lower price as a development of a subsidy for a mark and lower price as another mark if given as a development of indirect taxes or maximum price. Question Answer Marks Guidance 5(c) Analyse how the level and pattern of household spending may change when GDP decreases. Coherent analysis which might include: Spending may decrease (1) as households may have less income (1) less able to buy goods and services / lower purchasing power (1). Lower GDP may reduce confidence / create greater uncertainty (1) encouraging people to save more (1). May borrow less (1) may be concerned cannot repay (1). May expect prices to fall further (1) delay purchases (1). Spending may not decrease if households think the decrease is temporary (1) may borrow (1) as interest rates may be lower (1) may use past saving to finance spending (1). May spend a higher proportion on basic necessities (1) less on luxuries/wants (1). May spend a higher proportion of income (1) as saving may fall by more than spending (1). Households may spend less on imports (1) imports may be higher in price / lower in quality (1). GDP may decrease but GDP per head may rise (1) if population falls by more than GDP (1). 6 Reward but do not expect: reference to inferior and normal goods. dissaving. Nominal GDP may fall but real GDP may rise if there is deflation Question Answer Marks Guidance 5(d) Discuss whether or not a firm will benefit from an increase in its output. In assessing each answer, use the table opposite. Why it might: may increase average revenue, if higher output is result of higher demand profits may rise if average revenue raises more than average cost may be able to make greater use of spare capacity higher output may increase a firm’s market power greater advantage may be taken of technical, marketing managerial, labour and risk bearing economies of scale. Why it might not: average revenue may fall, higher output may reduce price not all of the higher output may be sold / may be a lack of demand diseconomies of scale may be experienced managerial / communication problems may occur / labour relations may decline growth achieved by vertical merger may lead to problems of co-ordination. 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. 68 Question Answer Marks Guidance 5(d) 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. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0
This question in 0455/22 May/June 2022
Q40 · In 1982, Nauru had the world’s highest GDP per head 0455/23 May/June 2022
4 In 1982, Nauru had the world’s highest GDP per head. It had a large primary sector and exported phosphate, a natural fertiliser. However, this natural resource did not last long. Nauru is now facing market failure due to pollution and unhealthy food imports. Despite having more imports of goods than exports of goods, it still records a surplus on the current account of its balance of payments. (a) Define GDP per head. [2] (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. [4] (c) Analyse the causes of market failure. [6] (d) Discuss whether or not having a large primary sector is a disadvantage to an economy. [8]
20 marks
Mark scheme: 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
This question in 0455/23 May/June 2022
Q41 · Calculate how many dollars 6400 Nigerian naira would have bought in 2019 0455/22 Oct/Nov 2022
1 (a) Calculate how many dollars 6400 Nigerian naira would have bought in 2019. [1] (b) Identify two ways a bank could increase demand for its services. [2] (c) State why a merger between two commercial banks is a horizontal merger. [2] (d) Explain two reasons why a large US commercial bank may charge a high price for its services. [4] (e) Analyse how an increase in unemployment may affect the Nigerian government’s budget. [4] (f) Analyse the relationship between countries’ average years of schooling and birth rates. [5] (g) Discuss whether or not a subsidy, given to farmers by the Nigerian government, would reduce the deficit on the current account of its balance of payments. [6] (h) Discuss whether or not the US government should impose a minimum price on chocolate. [6]
30 marks
Mark scheme: Question Answer Marks Guidance 1(a) Calculate how many dollars 6400 Nigerian naira would 1 have bought in 2019. 16 (1). 1(b) Identify two ways a bank could increase demand for its 2 services. Open more branches (1) carry out an advertising campaign (1) improve online / mobile banking (1). 1(c) State why a merger between two commercial banks is a 2 horizontal merger. Same stage of production / both in the tertiary (service) sector / same sector (1) same industry / same product / same service (1) can increase market share (1). 1(d) Explain two reasons why a large US commercial bank 4 One mark for each of two reasons identified and one mark may charge a high price for its services. for each explanation. Logical explanation which might include: High spending on opening new branches / advertising campaigns / developing online banking (1) need to get back costs / make a profit / may experience diseconomies of scale (1). May offer high quality services (1) have high demand / customers willing to pay a high price (1). High degree of monopoly / market power / control 32% of market (1) customers may have brand loyalty / reluctant to switch banks / lack of substitutes / inelastic demand / can charge high prices to earn high profits/raise total revenue / be a price maker (1). High incomes in the US (1) many customers have the ability to pay a high price (1). Employ skilled / well educated workers (1) so may pay high wages / may have high costs of production (1). 1(e) Analyse how an increase in unemployment may affect 4 the Nigerian government’s budget. Coherent analysis which might include: Likely to increase a deficit / reduce a surplus / may result in a budget deficit (1). Tax revenue likely to fall / budget likely to fall (1) due to lower incomes (1) less income tax revenue (1) lower profits (1) less corporation tax revenue (1) lower spending (1) less indirect tax revenue (1) government may cut taxes to reduce unemployment (1). Government spending likely to rise (1) more spending on e.g. benefits / subsidies to the poor / law and order/ healthcare (1) may be more spending on measures to reduce unemployment / expansionary fiscal policy (1) may spend less on other areas e.g. education (1). 1(f) Analyse the relationship between countries’ average 5 No marks for just stating what the figures are e.g. Germany years of schooling and birth rates. has 15 years of schooling and a birth rate of approximately 8. US has 14 years of schooling and a birth rate of Coherent analysis which might include: approximately 12. Argentina has 11 years of schooling and Overview a birth rate of approximately 16 etc. Generally, an inverse relationship / the more years of schooling, the lower the birth rate / the fewer years of schooling, the higher the birth rate (1). Supporting evidence Up to 2 marks maximum for two pieces of relevant supporting evidence e.g.: • Germany has the highest years of schooling and lowest birth rate (1) • Chad has lowest years of schooling and highest birth rate (1) • US has more years of schooling than Argentina and so a lower birth rate (1) • the three countries with three highest years of schooling have the three lowest birth rates (1). Exception Nigeria / Eritrea (1) Nigeria has more years of schooling than Eritrea but a higher birth rate (1). Comments More years of schooling is likely to cause people to form partnerships / have children later / focus on careers / increase awareness of contraception/family planning / increase health / reduce size of families (1) increase cost of raising children / having more children may reduce the ability of families to keep their children in education for many years / exception may be result of other influences e.g. differences in fertility rates / differences in social attitudes (1). 1(g) Discuss whether or not a subsidy, given to farmers by 6 Apply this example to all questions with the command the Nigerian government, would reduce the deficit on word DISCUSS the current account of its balance of payments. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which Each point may be credited only once, on either side of an may include: argument, but separate development as to how/why the It should raise supply / increase output (1) equivalent to outcome may differ is rewarded. lower cost (1) lower price (1) increasing international competitiveness (1). Generic example mark There may be more funds available to invest (1) raise quality (1) increase exports / reduce imports (1). Tax revenue may decrease… 1 Award up to 4 marks for logical reasons why it might not, ...because of reason e.g. incomes may be 1 which may include: lower. It may increase inefficiency (1) as firms rely on the subsidy (1) may not pass on the benefit of the subsidy to consumers Tax revenue may increase because incomes 0 (1). may be higher i.e. reverse of a previous Nigeria may have a high inflation rate (1) which may offset argument. the cost advantage of the subsidy (1). There may an increase in incomes at home (1) which may Tax revenue may increase because of a 1 increase imports / divert exports to the home market (1). different reason i.e. not the reverse of a There may be a recession abroad / decrease in incomes of previous argument e.g. government spending trading partners (1) which reduces exports (1). on subsidies may stimulate the economy more Lower export prices will not raise export revenue if demand than spending on education. is inelastic (1). The exchange rate may rise (1) increasing export prices / lowering import prices (1). Farmers may import e.g. more machinery (1). There may be adverse weather conditions / disease (1) which reduces quality / quality may remain poor (1). There may be import restrictions / increase in import restrictions imposed by other countries (1). 1(h) Discuss whether or not the US government should 6 A minimum price diagram without explanation can get a impose a minimum price on chocolate. maximum of 2 marks. These marks may be the equivalent of a combination of two of higher price, demand extending, Award up to 4 marks for logical reasons why it should, supply extending or a surplus being created. which may include: It will raise price (1) reduce demand / demand contracts / quantity demand falls / consumption falls. (1) reduce obesity (1). Social cost of eating chocolate may exceed social benefit (1) due to external costs (1) example e.g. cost on health service / may reduce need for government spending on healthcare (1) overconsumption of chocolate (1) move market closer to where social benefit equals social cost (1) increase welfare (1). May raise health of the population / eating chocolate may be unhealthy (1) raise labour productivity (1). There may be information failure (1) some chocolate is a demerit good (1). Award up to 4 marks for logical reasons why it should not, which may include: Poor may not be able to afford chocolate (1) regressive measure (1). Not everyone overweight / some may consume chocolate in quantities that are not harmful (1) may cause demand to switch to other high sugar products / discriminate against other high sugar products (1). It will encourage supply to extend (1) a surplus may develop (1). There may be an illegal market in chocolate (1). There may be a cost to the government (1) it may have to pay to monitor that the price is being charged (1) lower tax revenue from chocolate (1) may be an increase in unemployment (1). 1(h) Demand may be inelastic (1) resulting in a relatively small fall in demand / chocolate may be addictive (1). It depends on how high the minimum price is (1) may have no effect if set below the market equilibrium (1).
This question in 0455/22 Oct/Nov 2022
Q42 · Advances in technology have changed how trees (wood) are cut down, transported and used… 0455/22 Oct/Nov 2022
4 Advances in technology have changed how trees (wood) are cut down, transported and used in the manufacture of furniture, such as tables. Wood is in inelastic supply. Wood can be supplied in all economic systems. However, public goods are not supplied in a market economic system. (a) Define inelastic supply. [2] (b) Explain why public goods would not be supplied in a market economic system. [4] (c) Analyse, using a demand and supply diagram, the effect on the market for furniture of an increase in the price of wood. [6] (d) Discuss whether or not advances in technology will benefit a country’s population. [8]
20 marks
Mark scheme: 4(a) Define inelastic supply. 2 Allow one mark for PES = 0. Quantity supplied / supply changes by a smaller percentage change than price (2). Supply changing by less than price / PES less than 1 / PES < 1 / supply unresponsive to change in price (1). 4(b) Explain why public goods would not be supplied in a 4 No marks for examples. market economic system. Logical explanation which might include: Public goods are non-excludable (1) it is not possible to stop people who are not prepared to pay for them, from consuming them (1) free rider problem (1). Public goods are non-rival (1) if supplied for one, supplied for everyone and so cannot charge additional consumers (1). Private sector firms are profit motivated (1) they will not produce products if they cannot get revenue from them (1) would make a loss (1). 4(c) Analyse, using a demand and supply diagram, the 6 effect on the market for furniture of an increase in the price of wood. Coherent analysis which might include: Up to 4 marks for the diagram: 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 E1 and E2 (1). Up to 2 marks for coherent analysis which might include: Would increase costs of production (1) raise price / reduce Accept increase in price or fall in quantity on their own but quantity (traded) (1). not an increase in price of wood or fall in quantity of wood. 4(d) Discuss whether or not advances in technology will 8 Level Description Marks benefit a country’s population. 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 • may reduce costs of production logical analysis to evaluate economic • may increase significance of technical economies of issues and situations. One side of the argument may have more depth than scale the other, but overall both sided of the • may lower prices argument are considered and • may make the country’s firms more internationally developed. There is thoughtful competitive evaluation of economic concepts, • may promote globalisation terminology, information and/or data • may encourage firms to expand and take on more appropriate to the question. The workers discussion may also point out the • economic growth may increase incomes possible uncertainties of alternative • may increase quality – less subject to human error decisions and outcomes. • may create new products • may improve working conditions 2 A reasoned discussion which makes 3–5 • may extend education through online learning. use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack Why it might not: some depth and development may be • may increase unemployment one-sided. There is relevant use of • may make products more standardised / not produced economic concepts, terminology, to individual needs information and data appropriate to • may increase stress the question. • may be over dependence on technology which can fail • may increase fraud 1 There is a simple attempt at using 1–2 • may cause negative externalities e.g. fracking. 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.
This question in 0455/22 Oct/Nov 2022
Q43 · Vietnam has a high number of female entrepreneurs 0455/22 Feb/March 2023
2 Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now compete with foreign multinational companies (MNCs) and public sector firms. The Vietnamese government encourages MNCs to locate in Vietnam as a host country. It also intervenes in the economy to encourage the consumption of merit goods. (a) Identify two reasons why people become entrepreneurs. [2] (b) Explain two benefits that an MNC can bring to its host country. [4] (c) Analyse how a government could encourage the consumption of merit goods. [6] (d) Discuss whether or not private sector firms are likely to charge lower prices than public sector firms. [8]
20 marks
Mark scheme: 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.
This question in 0455/22 Feb/March 2023
Q44 · Many people from the Philippines work in another country, often in industries that… 0455/21 May/June 2023
4 Many people from the Philippines work in another country, often in industries that provide merit goods and public goods. In 2020, the Philippine government raised more tax revenue. Some was spent on policy measures to increase life expectancy and some on policy measures to reduce unemployment. The country’s unemployment rate was also affected by a rise in the country’s foreign exchange rate. (a) Identify two influences on which country a person decides to work in. [2] (b) Explain, with examples, the difference between a merit good and a public good. [4] (c) Analyse how an increase in government spending could increase life expectancy. [6] (d) Discuss whether or not a rise in a country’s foreign exchange rate would benefit its economy. [8]
20 marks
Mark scheme: 4(a) Identify two influences on which country a person decides to work in. Two from: wages / GDP per head working conditions job opportunities / job security qualifications required family ties language spoken immigration restrictions personal safety/ freedom from persecution living standards / cost of living better welfare / healthcare / education provision 2 If more than two influences are given, consider the first three. 4(b) Explain, with examples, the difference between a merit good and a public good. Logical explanation which might include: A merit good e.g. education / fruit (1) is beneficial / is under- consumed / people unaware of benefits / so underproduced without government intervention / government encourage consumption (1). A public good e.g. defence / streetlighting / police / sea defences / roads (1) would not be produced by the private sector / needs to be financed by the government/ non-rival/ non-excludable (1). 4 One mark each for each of two differences identified and one mark each for each of two examples Question Answer Marks Guidance 4(c) Analyse how an increase in government spending could increase life expectancy. Coherent analysis which might include increased government spending on: Healthcare (1) could raise quality / accessibility of healthcare (1). Education (1) may result in people leading healthier lives (1) more exercise (1) better nutrition (1). Benefits (1) may increase access to basic necessities / reduce poverty (1). Green energy (1) may reduce pollution (1). Infrastructure (1) could reduce traffic accidents (1) reduce traffic congestion (1) reduce stress (1). Police (1) reduces deaths through crime (1). Increased government spending (in total) (1) may increase employment / raise income / raise standards of living (1). 6 MAX of three marks for just identifying areas of government spending MAX of three marks for analysis of any single area of spending. One item analysed well MAX 4 marks. Question Answer Marks Guidance 4(d) Discuss whether or not a rise in a country’s foreign exchange rate would benefit its economy. In assessing each answer, use the table opposite. Why it might: reduce price of imports this could lower inflation as raw material costs may fall and more competitive pressure for firms to keep price rises low enables a country to buy more imports for any given quantity of exports could reduce a current account surplus which may enable more products to be consumed. Why it might not: increase the price of exports this could reduce exports and export revenue economic growth could fall unemployment could rise could increase a current account deficit. 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
This question in 0455/21 May/June 2023
Q45 · Calculate New Zealand’s GDP per head in 2020 0455/23 May/June 2023
1 (a) Calculate New Zealand’s GDP per head in 2020. [1] (b) Identify two external costs arising from the milk and car industries. [2] (c) Explain the impact on a cow farmer’s profits if they are unable to find a different source of revenue. [2] (d) Explain the two plans that the New Zealand government has to reduce external costs to the environment. [4] (e) Draw a demand and supply diagram to show the effect of a cheaper substitute on the market for petrol‑powered cars. [4] (f) Analyse the relationship between a country’s share of world GDP (%) and its share of world carbon dioxide emissions (%). [5] (g) Discuss whether or not an increase in exports of clean and green products will help the New Zealand government achieve its macroeconomic aims. [6] (h) Discuss whether or not job losses caused by a change to a carbon‑neutral economy will be harmful. [6]
30 marks
Mark scheme: 1(a) Calculate New Zealand’s GDP per head in 2020. $39 000 (1) 1 Accept the correct figure without the $ sign. 1(b) Identify two external costs arising from the milk and car industries. Air pollution (1). Damages the environment (where wild animals live) (1). 2 If more than two costs given, consider the first three. 1(c) Explain the impact on a cow farmer’s profits if they are unable to find a different source of revenue. Profit is revenue minus costs (1) Profits will fall (1) due to reduction in quantity sold / decrease in supply (1). Less revenue (1) less income for farmers (1) farmers may become unemployed (1). 2 1(d) Explain the two plans that the New Zealand government has to reduce external costs to the environment. Logical explanation which might include: End imports of petrol-powered cars by 2032 (1) decreasing the number of petrol−powered cars in New Zealand / reduce use of fossil fuels / by imposing an embargo/increasing the price of petrol-power cars / increasing usage of greener / electric cars (1). Limit the number of cows that each farmer can have (1) decreasing the amount of air pollution emitted by cows / less habitat damaged by cows / government fines to those who have more cows than permitted/ imposing regulations (1). 4 One mark each for each of two plans identified and one mark each for each of two explanations. Accept milk production for keeping cows. Question Answer Mark Guidance 1(e) Draw a demand and supply diagram, to show the effect of a cheaper substitute on the market for petrol- powered cars. Demand and supply diagram: Axes correctly labelled – price and quantity or P and Q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 4 Question Answer Mark Guidance 1(f) Analyse the relationship between a country’s share of world GDP (%) and its share of world carbon dioxide emissions (%). Coherent analysis which might include: Expected relationship: Positive relationship (1) – the lower / higher total GDP as a % of world GDP, the lower / higher the carbon dioxide emission as a % of world GDP (1). Supporting evidence: up to 2 marks for relevant evidence e.g. New Zealand has the lowest total GDP as a % of world GDP and lowest level of carbon dioxide emission as a % of world carbon dioxide emissions Thailand has the second lowest total GDP as a % of world GDP and second lowest level of carbon emissions as % of world carbon dioxide emissions China and USA have the two highest total GDP as a % of world GDP and highest level of carbon emissions as a % of world carbon dioxide emissions. Analysis of expected relationship: As countries produce more goods and services which increases their GDP (1), their carbon emissions also increase as more factories / energy / transport needed for production (1). Exception: China/United States (1) China has 2nd highest GDP as a % of world GDP after the US but China has the highest carbon dioxide emission as a % of world GDP (1). Analysis of exception: e.g. China has a larger secondary sector / higher percentage of heavy industries / larger population (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 Mark Guidance 1(g) Discuss whether or not an increase in exports of clean and green products will help the New Zealand government achieve its macroeconomic aims. Award up to 4 marks for logical reasons why it might, which may include: Increase economic growth / GDP (1) as increased exports lead to increased total demand (1) clean and green products may have higher demand (1) and higher prices (1) Reduce its current account of the balance of payment deficit (1) as value of exports will increase (1) increasing net exports (1) more inflow into the current account / increase in trade in goods inflow (1) Decrease unemployment (1) as more goods produced (1) requires more workers (1) reduce poverty (1) Improved HDI (1). Award up to 4 marks for logical reasons why it might not, which may include: Not all firms benefit (1) as some firms which are less clean / green will lose revenues / profits (1) cut costs (1) hire less workers (1) increase unemployment (1) Increased total demand (1) will lead to inflation (1) firms increase the price of their products since demand is higher (1) lower purchasing power of consumers / lower real income (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 Mark Guidance 1(h) Discuss whether or not job losses caused by a change to a carbon−neutral economy will be harmful. Award up to 4 marks for logical reasons why there might be negative economic consequences, which may include: increased poverty (1) as fewer jobs means less income (1) can’t afford basic necessities (1) such as shelter / clothes / food (1) possibility of increased crime (1) huge losses in the other firms that serve these communities (1) less spending in local shops (1) less revenue / profit (1) may have to shut down (1) lost output (1) economy not producing at its full capacity (1) unused resources (1) actual output lower than maximum output (1) inefficient allocation of resources due to the existence of labour who wants to work but can’t find work (1) lost skills / lost motivation (1) occupational immobility /can't find new jobs (1) cost of retraining workers (1) double effect on government finances (1) unemployed don’t pay taxes (1) but get benefits (1) reduce government revenue (1) may decrease government expenditure on other areas (1) Unequal burden (1) structural unemployment (1) increases inequality (1) youth and older individuals more likely to be unemployed (1). Award up to 4 marks for logical reasons why negative economic consequences above may not occur: temporary (1) frictional unemployment (1) as other jobs in carbon−neutral economy are available (1) 6 Question Answer Mark Guidance 1(h) an economy with a high mobility of factors of production could avoid such problems (1) workers can move to other industries (1) develop skills for jobs in the carbon−neutral economy (1) if education / training is provided (1). new jobs may be higher paid (1) boosting total demand (1) better air quality leads to better health (1) improving productivity (1) government spends less on health care (1) allowing more to be spent elsewhere e.g. on education and training (1).
This question in 0455/23 May/June 2023
Q46 · The food processing, tourism, and education industries all contribute significantly to… 0455/23 May/June 2023
5 The food processing, tourism, and education industries all contribute significantly to the government budget for the US state of Wisconsin. The contribution of the education industry is higher than that of other industries due to the higher wages earned in education. This industry also contributes to the population growth of the state. This not only creates private benefits but also external benefits. (a) Define government budget. [2] (b) Explain, with examples, the difference between private benefits and external benefits. [4] (c) Analyse the reasons why workers employed in education may earn more than workers employed in other industries. [6] (d) Discuss whether or not having a large population is beneficial for the economy. [8]
20 marks
Mark scheme: 5(a) Define government budget. Government budget is a plan / forecast (1) for government expenditure (1) and government revenue (1) 2 5(b) Explain, with examples, the difference between private benefits and external benefits. Logical explanation which might include: Private benefits are benefits incurred by the consumers or producers of a product (1) for example, getting a better job in the future for those consuming education / profits that a firm earns (1) External benefits are benefits incurred by the third party (1) for example, increased productivity due to better education and better healthcare as a result of better qualified doctors (1) 4 Question Answer Mark Guidance 5(c) Analyse the reasons why workers employed in education may earn more than workers employed in other industries. Coherent analysis which might include: Higher demand for education workers (1) due to higher demand for education than other industries (1) demand for education workers is derived demand (1). Lower supply (1) less people available to work in education (1) e.g. not many qualified people want to become teachers / lecturers (1). Higher bargaining strengths (1) stronger trade unions (1) e.g. teachers’ union is very strong. Less discrimination (1) everyone is paid according to their level of productivity (1) for example, female teachers less discriminated than in other industries (1). More favourable government policy for workers in education / government spends more on education (1) higher wages set by the government for workers in education (1) as education is essential for the economy / society (1). More skilled (1) long-term training required (1) higher productivity (1). tertiary workers earn more (1) more value added (1). 6 Question Answer Mark Guidance 5(d) Discuss whether or not having a large population is beneficial for the economy. In assessing each answer, use the table opposite. Why it might: high labour supply – higher levels of factors of production – high productive capacity – PPC shifts outwards workers can be taxed − enabling spending on public services high spending leads to high total demand –high economic growth high investment as firms can gain more profit high investment as firms can easily find more workers high competition amongst workers – high quality / productivity of workers many entrepreneurs – increased competition – increased innovation high demand for goods and services – increased output of firms – economies of scale. Why it might not: strain on resources – e.g. lack of proper housing, schools, hospitals external costs – e.g. pollution high total demand could lead to increase demand−pull inflationary pressures shortage of jobs – increased unemployment it depends upon the composition of the population e.g. large proportion of under 5's will not increase output in the short run. 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
This question in 0455/23 May/June 2023
Q47 · Digital money, such as cryptocurrencies, is increasingly being used 0455/21 Oct/Nov 2023
3 Digital money, such as cryptocurrencies, is increasingly being used. Digital money transactions take place on electronic devices such as computers and smartphones. However, there can be market failure due to external costs arising from high energy usage of non‑renewable sources. One way of reducing external costs is to tax the product. (a) Identify two types of tax. [2] (b) Explain two functions of money. [4] (c) Analyse the consequences of market failure. [6] (d) Discuss whether or not a tax on a product can reduce external costs. [8]
20 marks
Mark scheme: 3(a) Identify two types of tax. 2 Accept any relevant examples of taxes e.g. income tax, tariffs. Accept, but do not expect, specific and ad Direct (1) Indirect (1) valorem taxes. Progressive (1) Proportional (1) Regressive (1) 3(b) Explain two functions of money. 4 One mark each for each of two functions identified and one mark each for each of two explanations. Logical explanation which might include: • a medium of exchange (1) to buy goods and services / to trade (1) • a measure of value / unit of account (1) to measure how much a product is worth (1) • a store of value (1) to allow people to save (1) • a method of deferred payment (1) for borrowing and lending (1). 3(c) Analyse the consequences of market failure. 6 i.e. labour market failure. Coherent analysis which might include: • market failure exists when the production or consumption of goods and services in a market is not efficient (1) • overconsumption of demerit goods (1) and goods with external costs (1) leading to an overall misallocation of resources (1) e.g. overconsumption of cigarettes, fossil fuels (1) • underconsumption of merit goods (1) and goods with external benefits (1) e.g. education, healthcare (1) • non-supply (1) of public goods (1) e.g. defence (1) • abuse of monopoly power (1) resulting in higher prices (1) reducing affordability / choice (1) • factor immobility (1) resulting in shortages and surpluses (1) causing unemployment (1) resulting in lower income / poverty (1). 3(d) Discuss whether or not a tax on a product can reduce 8 Level Description Marks external costs. 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 • tax will increase price, reducing the quantity demanded issues and situations. One side of the • if demand for the product is elastic, quantity demanded will argument may have more depth than be responsive to the price increase, quantity demanded will the other, but overall both sides of the change significantly argument are considered and • tax will increase the cost of production, therefore decreasing developed. There is thoughtful supply evaluation of economic concepts, • tax will decrease the profits of firms terminology, information and / or data • tax will provide governments additional revenue to help with appropriate to the question. The subsidising less-polluting products. discussion may also point out the possible uncertainties of alternative Why it might not: decisions and outcomes. • tax is insignificant compared to the final price of the product 2 A reasoned discussion which makes 3–5 • tax avoidance / evasion / unofficial or illegal markets use of economic information and clear • if demand for the product is inelastic, quantity demanded analysis to evaluate economic issues will be unresponsive to the price increase, quantity and situations. The answer may lack demanded will not change significantly, e.g. addictive some depth and development may be products. one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3(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.
This question in 0455/21 Oct/Nov 2023
Q48 · In 2020, Paraguay’s Consumer Prices Index rose by 3% and its foreign exchange rate… 0455/23 Oct/Nov 2023
5 In 2020, Paraguay’s Consumer Prices Index rose by 3% and its foreign exchange rate fluctuated. Each year Paraguay experiences net emigration. People leave a country for a number of reasons. These include a low rate of economic growth and high level of market failure. The Paraguayan government does intervene in the economy in an attempt to reduce market failure. (a) Define Consumer Prices Index. [2] (b) Explain two ways a government could intervene to reduce market failure. [4] (c) Analyse how an increase in a country’s foreign exchange rate could reduce inflation. [6] (d) Discuss whether or not an increase in a country’s economic growth rate will reduce emigration from the country. [8]
20 marks
Mark scheme: 5(a) Define a Consumer Prices Index. 2 A measure of inflation / cost of living (1) using weights / basket of goods and services (1). 5(b) Explain two ways a government could intervene to 4 One mark each for each of two ways identified and one reduce market failure. mark each for each of two explanations. Logical explanation which might include: If more than two ways of government intervention are given, Subsidise merit goods (goods with positive externalities) (1) consider the first three. to encourage consumption / production (1). Tax on demerit goods (goods with negative externalities) (1) to discourage consumption / production (1). Apply maximum price on merit goods (1) to increase consumption (1) OR apply minimum price on demerit goods (1) to reduce consumption (1) Finance / produce public goods (1) as private sector firms will have no incentive to produce them (1). Regulate monopolies (1) to restrict exploitation of market power (1). Provide education / training / public information campaign (1) to raise awareness of benefits of a merit good / drawbacks of a demerit good (1) Provide education / training (1) to increase labour mobility (1). 5(c) Analyse how an increase in a country’s foreign 6 exchange rate could reduce inflation. Coherent analysis which might include: A rise in the exchange rate / appreciation of a currency (1) can increase export prices (1) lower import prices (1). Net exports may fall (1) exports form part of total demand (1) reducing demand-pull inflation (1). Lower import prices will increase pressure for firms to keep price rises low (1) lower imported raw material prices (1) reduce costs of production (1) reduce cost-push inflation (1). 5(d) Discuss whether or not an increase in a country’s 8 Level Description Marks economic growth rate will reduce emigration from the country. 3 A reasoned discussion which 6–8 accurately examines both sides of the In assessing each answer, use the table opposite. economic argument, making use of economic information and clear and Why it might: logical analysis to evaluate economic • employment may increase issues and situations. One side of the • people will not have to seek jobs abroad argument may have more depth than • incomes may rise / poverty may decrease the other, but overall, both sided of the • tax revenue may be higher, allowing the government to argument are considered and spend more on e.g. education and healthcare. developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • incomes may still be low appropriate to the question. The • income can be unevenly distributed discussion may also point out the • may not expect rise in growth rate to last possible uncertainties of alternative • there may be higher economic growth and job decisions and outcomes. opportunities in other countries • pollution levels may increase 2 A reasoned discussion which makes 3–5 • may lead to higher external costs e.g. pollution use of economic information and clear • economic growth comes at cost of worse working analysis to evaluate economic issues and situations. The answer may lack conditions some depth and development may be • there are other reasons for emigrating. one-sided. There is relevant use of economic concepts, terminology, Note: level 1 would be knowledge and understanding of information and data appropriate to the economic growth and emigration or just identification of question. points. 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.
This question in 0455/23 Oct/Nov 2023
Q49 · New Zealand is a high-income country with a low unemployment rate and a surplus of… 0455/22 Feb/March 2024
5 New Zealand is a high-income country with a low unemployment rate and a surplus of imports over exports. Recently, its government has made some important economic decisions. In 2022, it banned everyone born after 2008 from buying cigarettes. A year before, it gave permission for firms to explore for oil in the country. (a) Define unemployment rate. [2] (b) Explain two reasons why a government may discourage cigarette smoking. [4] (c) Analyse why a country’s exports may decrease. [6] (d) Discuss whether or not the discovery of oil in a country will benefit its economy. [8]
20 marks
Mark scheme: 5(a) Define unemployment rate. 2 The number of unemployed divided by the labour/work force (multiplied by 100) / the percentage of the labour force without a job (2). Those willing and able to work who cannot find employment (1). 5(b) Explain two reasons why a government may discourage 4 There is a degree of mix and match on this question. Most of smoking. the points may be interpreted as either identification or explanation. Essentially a question on why a government Logical explanation which might include: may discourage smoking. Improve health of those who give up smoking / smoking harms the health of smokers (1) reduce consumption of a demerit good / cigarettes are a demerit good (1) cigarettes are overconsumed / overproduced (1). Increase health of the population / reduce the health damage caused to non-smokers (1) reduce passive smoking / reduce air pollution (1). Reduce market failure (1) reduce external cost / reduce the gap between social costs and social benefits (1). Reduce health care costs (1) more could be spent on e.g. education (1). Increase productivity / stop fall in productivity (1) raise income/GDP / stop fall in income / GDP (1). 5(c) Analyse why a country’s exports may decrease. 6 Coherent analysis which might include: Price of exports may rise / inflation / become less price competitive (1) due to a rise in costs of production (1) a rise in the exchange rate (1) demand may fall (1). Quality of exports may fall (1) workers may be less skilled (1) investment may have decreased (1). Incomes abroad may have declined (1) reducing the purchasing power of foreign buyers (1) reducing foreign countries’ need for capital goods and raw materials (1). Demand in the home country may increase (1) encouraging firms to sell more of their output at home (1). Trade restrictions may be imposed (1) e.g. tariffs / quotas / subsidies / embargoes may be imposed by other countries (1) the government of the country itself may restrict, tax or ban exports (1) to stop depletion of resources / prevent shortage / rise in price on domestic market (1). May be disruptions to production (1) e.g. bad weather/war/pandemic (1) decrease in resources (1). Government subsidies to exporting may be stopped (1) government may switch to subsidising products sold on the home market (1). 5(d) Discuss whether or not the discovery of oil in a country 8 Level Description Marks will benefit its 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 • may increase GDP logical analysis to evaluate economic • may increase employment issues and situations. One side of the • may increase incomes argument may have more depth than the other, but overall both sided of the • may increase tax revenue argument are considered and • may increase exports developed. There is thoughtful • reduce imports of oil evaluation of economic concepts, terminology, information and/or data appropriate to the question. The Why it might not: discussion may also point out the • may create pollution possible uncertainties of alternative • may damage wildlife habitats/ areas of natural beauty decisions and outcomes. • may raise the exchange rate • oil may not be in demand – replaced by renewable 2 A reasoned discussion which makes 3–5 use of economic information and clear energy • working conditions may be poor analysis to evaluate economic issues and situations. The answer may lack • extraction may last for a short time – may be deplete some depth and development may be quickly one-sided. There is relevant use of • MNC may extract the oil and not many of the benefits economic concepts, terminology, may go to the domestic economy. 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 0 no creditable content.
This question in 0455/22 Feb/March 2024
Q50 · Healthcare is in the tertiary sector 0455/21 May/June 2024
4 Healthcare is in the tertiary sector. Healthcare provides both private and external benefits. In 2019, there were five mergers between large US healthcare firms. As well as operating in the US, US healthcare firms operate in a number of host countries, including Singapore. (a) Define tertiary sector using an example apart from healthcare. [2] (b) Explain the difference between a private benefit and an external benefit of healthcare. [4] (c) Analyse why a government may prevent a horizontal merger. [6] (d) Discuss whether or not a foreign multinational company (MNC) will continue to produce in a host country for many years. [8]
20 marks
Mark scheme: 4(a) Define tertiary sector using an example apart from healthcare. The sector covering the provision of services (1). Example e.g. banking / car showroom / coffee shop / education (1). 4(b) Explain the difference between a private benefit and an external benefit of healthcare. Logical explanation which might include: A private benefit is enjoyed by the person consuming the product (1) e.g. a person may enjoy better health / longer life expectancy (1). OR A provider of healthcare e.g. hospital (1) and revenue / profits made (1). An external benefit is a benefit enjoyed by a third party / someone not directly involved in the consumption or production of the product (1) e.g. less risk of catching a virus when other people are vaccinated / higher output (1). 4 Question Answer Mark Guidance 4(c) Analyse why a government may prevent a horizontal merger. Coherent analysis which might include: A horizontal merger is a merger between two firms in the same industry and same stage of production (1). A government may prevent a merger if it thinks it will give the new firm monopoly power (1) and result in market failure (1). Less competition may result in higher prices (1) lower quality (1) there may be a substantial loss of jobs (1) through rationalisation (1). A government may be concerned that the new firm may be too large (1) may experience diseconomies of scale (1) example (1) may become less internationally competitive (1) lower exports (1). A government may want to avoid a reduction the number of suppliers (1) resulting in less choice for consumers / less innovation (1). 6 Note: need both same industry and same stage of production to get the mark for horizontal merger. Question Answer Mark Guidance 4(d) Discuss whether or not a foreign multinational company (MNC) will continue to produce in a host country for many years. In assessing each answer, use the table opposite. Why it might: may earn a high revenue / profit due to high demand may experience low costs due to low wages / low raw material costs in the country may have access to high quality labour due to good education and training in the country may be subsidised by the host country’s government. Why it might not: natural resources it was extracting may run out tax in the host country may increase a rise in the host country’s foreign exchange rate may increase the price of its exports there may be industrial action undertaken by trade unions in the host country more profitable opportunities may occur in other countries may be changes in regulations. 8 See Guidance table at the end of the mark scheme.
This question in 0455/21 May/June 2024
Q51 · Calculate Tunisia’s balance on the current account of its balance of payments 0455/22 May/June 2024
1 (a) Calculate Tunisia’s balance on the current account of its balance of payments. [1] (b) Identify two qualities of a good tax that the Tunisian government aimed to achieve. [2] (c) Explain one reason why the Tunisian government regulates the price of flour and milk. [2] (d) Explain two ways the Tunisian government tried to reduce frictional unemployment. [4] (e) Analyse the relationship between the change in Tunisia’s average wage and inflation rate. [4] (f) Analyse, using a demand and supply diagram, how an increase in wage costs would affect the market for shoes. [5] (g) Discuss whether or not the Tunisian government should continue to subsidise electricity production. [6] (h) Discuss whether or not a rise in the value of the Tunisian dinar would benefit the Tunisian economy. [6]
30 marks
Mark scheme: 1(a) Calculate Tunisia’s balance on the current account of its balance of payments. –$2.4bn 1 Accept –2.4bn. Also accept –6.8 or –6.9 billion TND. 1(b) Identify two qualities of a good tax that the Tunisian government aimed to achieve. Efficiency / efficient / the tax should improve market performance / reduce market failure (1). Economical / economy / the tax should raise more in revenue than it costs to collect it (1). 2 If more than 2 qualities are given, consider the first 3. 1(c) Explain one reason why the Tunisian government regulates the price of flour and milk. Reduce poverty (1) flour and milk are basic necessities /essential products / people may be able to buy enough basic necessities / make them affordable / keep price relatively low (1). Or Prevent monopoly firms exploiting their market power (1) stop the firms raising price to a high level (1). 2 One mark for a reason identified and one mark for an explanation. Question Answer Marks Guidance 1(d) Explain two ways the Tunisian government tried to reduce frictional unemployment. Logical explanation which might include: Increased the labour market information available to workers and employers (1) so workers would be more aware of job vacancies / skills and qualifications required / employers more aware of those seeking jobs / may enable workers to move more quickly/easily between jobs / reduce search time / increase mobility of workers (1). Did not raise unemployment benefit (in line with inflation) (1) so, the purchasing power of unemployment benefit would fall / increase the incentive to work (1). 4 One mark for each of two ways identified and one mark for each of two explanations. If more than 2 ways are given, consider the first 3. Question Answer Marks Guidance 1(e) Analyse the relationship between the change in Tunisia’s average wage and the inflation rate. Relationship (up to 2 marks) Direct relationship / positive relationship (1) as change in the average wage increases so does the inflation rate / if change in average wage / rise in average wage falls so does the inflation rate / both fall and rose together / same trend (1). Evidence (up to 3 marks) 2016 – 2017 / 2018 both the average wage / change in average wage and inflation rate rose (1). Between 2014 – 2018, the average wage rose more rapidly than the inflation rate (1) real wages would have increased between 2014 – 2018 (1). Between 2018 – 2020 / in 2019 – 2020, the inflation rate was higher than the rise in the average wage (1) real wages would have fallen (1). Between 2014 – 2015/2016 / 2018 – 2019/2020 both the change in average wage and inflation rate fell (1). 2018 had the highest rise in the average wage and the highest inflation (1). 2016 had the lowest increase in the inflation rate but not the lowest increase in the average wage / 2020 had the lowest increase in the average wage but not the lowest inflation rate (1). Over the whole period the inflation rate rose while the increase in the average wage fell (1). Explanation (up to 2 marks) A rise in the average wage may increase costs of production / cause cost push inflation / a higher inflation rate will encourage workers to press for a wage rise (1). A rise in the average wage may increase disposable income / consumer expenditure / total demand / cause demand-pull inflation (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: average wage did not fall. Question Answer Marks Guidance 1(f) Analyse, using a demand and supply diagram, how an increase in wage costs would affect the market for shoes. 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: An increase in wage costs would increase costs of production which may raise price (1). 5 Note: higher price needs to be linked to higher costs of production/higher costs/higher wage costs. Question Answer Marks Guidance 1(g) Discuss whether or not the Tunisian government should continue to subsidise electricity production. Award up to 4 marks for logical reasons why it might, which may include: reduce costs of producing electricity (1) increase supply of electricity (1) lower price of electricity (1) make electricity more affordable / reduce poverty (1) lower costs of firms that use electricity (1) which may encourage them to expand / attract MNCs / increase output / increase GDP / cause economic growth (1) increase employment / lower unemployment (1) reduce inflation / firms lower prices (1) make Tunisia’s products more internationally competitive / increase exports / lower imports / improve the current account balance (1) may reduce pollution / external costs (1) if subsidising green sources of energy (1). Award up to 4 marks for logical reasons why it might not, which may include: electricity firms may rely on the subsidy (1) may not keep costs low / become inefficient (1) may not pass on the subsidy in the form of lower price (1) opportunity cost (1) government could spend money on e.g. healthcare (1) may result in a budget deficit / increase in taxes (1) may cause pollution / external costs (1) if e.g. coal powered / deplete non-renewable resources (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(h) Discuss whether or not a rise in the value of the Tunisian dinar would benefit the Tunisian economy. Award up to 4 marks for logical reasons why it might, which may include: may reduce inflation (1) imports would be cheaper (1) enable households to buy more imports / higher purchasing power (1) more choice (1) may lower price of some raw materials and/or capital goods (1) increase competitive pressure on domestic firms (1) lower costs of production (1) lower total (aggregate) demand (1) which may reduce demand-pull inflation (1) may be taken as an indicator of a strong economy / increase confidence (1) encourage investment / attract MNCs (1) if demand for exports is price inelastic, export revenue may rise (1). Award up to 4 marks for logical reasons why it might not, which may include: higher export prices / may reduce exports / export revenue (1) lower price of imports (1) may increase imports / import expenditure (1) reduce international competitiveness (1) increase the deficit / reduce surplus on the current account of Tunisia’s balance of payments (1) lower net exports may reduce GDP / economic growth (1) which may increase unemployment / reduce employment (1) may discourage MNCs / investment (1) because of higher cost of setting up in the country (1). 6 Note: lower total demand may be credited on either side but only once. Note: the generic advice above in terms of MNCs. One mark for attract or discourage MNCs. Another mark could be gained by explaining why they may be attracted and another mark for explaining why they may be discouraged.
This question in 0455/22 May/June 2024
Q52 · Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021 0455/23 May/June 2024
1 (a) Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021. [1] (b) Identify two examples of external costs ignored by the free market. [2] (c) Explain how real GDP per head can be an indicator of living standards. [2] (d) Explain two ways climate change can lead to a fall in the Human Development Index (HDI) of Indonesia. [4] (e) Draw a production possibility curve (PPC) diagram to show the impact of climate change on an economy such as Indonesia. [4] (f) Analyse the relationship between GDP and government spending on the environment. [5] (g) Discuss whether or not internal migration benefits an economy such as Indonesia. [6] (h) Discuss whether or not relocating the capital city from Jakarta will benefit the Indonesian economy. [6]
30 marks
Mark scheme: 1(a) Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021. 27.3%, 27.27%, 27.2%, 27% 1 Accept without the percentage sign. 1(b) Identify two examples of external costs ignored by the free market. air pollution (1) rising sea levels/floods (1) disease / mosquitoes (1) climate change (1) 2 1(c) Explain how real GDP per head can be an indicator of living standards. Real GDP per head has been adjusted for population / inflation / takes account of the cost of living (1). Low real GDP per head leads to a fall in living standards (1) because lower GDP per head would mean lower income / real GDP per head is average income (1) reducing consumption / material wellbeing / influencing how much people can spend / whether they can buy basic necessities (1). 2 Accept answers based on either higher or lower GDP per head. Question Answer Mark Guidance 1(d) Explain two ways climate change can lead to a fall in the Human Development Index (HDI) of Indonesia. Logical explanation which might include: Schools have been flooded (1) reducing education levels / mean years of schooling / expected years of schooling (1). Floods have led to an increase in diseases (transmitted through water and mosquitoes which breed in water) (1) reducing health level / life expectancy / increasing death rate (1). Farmland has been submerged, (cutting off a vital source of income of many farmers) / roads have been destroyed (1) reducing income levels / GNI per capita / GDP per capita / living standards (1). 4 One mark each for each of two ways identified and one mark for each of two explanations. Accept an explanation combining two different ways, e.g. increase in diseases reducing education levels. 1(e) Draw a production possibility curve (PPC) diagram to show the impact of climate change on an economy such as Indonesia. PPC diagram: Axes correctly with different outputs (1). Initial curve drawn as a curve/line sloping downward to the axes (1). New curve drawn as a curve/line sloping downward to the axes (1). Shift to the left indicated by arrow(s) or letters or numbers e.g. PPC1 to PPC2 (1). 4 Question Answer Mark Guidance 1(f) Analyse the relationship between GDP and government spending on the environment. Coherent analysis which might include: Expected relationship: direct relationship / move in the same direction (1) higher GDP may lead to higher government spending on the environment / higher government spending on the environment may increase GDP (1). Supporting evidence: Japan has highest GDP and highest spending on environment (1) France has second highest GDP and second highest spending on environment (1) Thailand has lowest GDP and lowest spending on environment (1). Analysis: Higher GDP may create more pollution, therefore countries have more to spend on environment / high government spending on the environment can reduce pollution/climate change (1). Higher tax revenue / more education and so more concern for the environment / a cleaner environment can raise productivity (1). Higher GDP therefore more developed and can spend more on other objectives such as protection of the environment (1). Exception: Switzerland/Indonesia (1) Switzerland has lower GDP than Indonesia but higher expenditure on environment/ Indonesia has higher GDP and lower expenditure on environment than Switzerland (1). Analysis of the exception: These countries may be facing different pressures on government spending e.g. higher level of poverty (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 Mark Guidance 1(g) Discuss whether or not internal migration benefits an economy such as Indonesia. Award up to 4 marks for logical reasons why it might, which may include: higher production of different crops (1) more income / higher living standards (for farmers) (1) less pressure on government resources / natural resources (1) e.g., less overcrowding (1) less spending on healthcare if people move away from areas of flooding/ mosquitoes (1) labour force may increase in some areas (1) moving from low productivity areas to high productivity areas(1) increasing output (1) housing may be cheaper / more available in some areas (1) reducing cost of living for workers (1) migration may be to high wage areas (1) boosting total demand (1) fewer resources may be wasted (1) if migration is to an area where they are under-used e.g. schools, hospitals (1). Award up to 4 marks for logical reasons why it might not, which may include: as workers migrate, it could also lead to the collapse of entire communities (1) without workers (1) less demand for goods and services in the area (1) increased inequality between more mobile labour and less mobile labour (1) as some workers who cannot move will not be able to find jobs (1) and gain higher income (1) more pressure on government resources in areas they move to (1) more overcrowding in those areas / housing shortages (1) external costs (1) more pollution / congestion (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Accept the reverse argument, (e.g. for Q1g internal migration may be to a less polluted area) but recognise that 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 Mark Guidance 1(h) Discuss whether or not relocating the capital city from Jakarta will benefit the Indonesian economy. Award up to 4 marks for logical reasons why it might, which may include: the new city will provide new job opportunities (1) decreasing unemployment in Indonesia (1) increasing incomes / economic growth (1) reduce inequality between the different regions of Indonesia (1) reducing social dissatisfaction / increase standards of living of everyone in Indonesia (1) better environment as new city is carbon-neutral / less pollution (1) reduced external costs (1) better health for population of Indonesia (1) higher productivity (1) fewer floods that require expenditure to repair the damage (1) foreign investors may be more willing to relocate to Indonesia (1). Award up to 4 marks for logical reasons why it might not, which may include: cost of the move may be too high (1) opportunity cost in terms of other areas of government spending (1) e.g. education / healthcare in other regions (1) could result in higher taxes / government budget deficit (1) the relocation is expected to benefit only a small number of people who already have the financial capital / connection to the government (1) inequality could rise (1) people may be reluctant to leave Jakarta (1) causing the resources invested in the new city to be wasted (1). 6
This question in 0455/23 May/June 2024
Q53 · Shenzhen, once a fishing village, is now one of China’s richest cities with a large… 0455/23 May/June 2024
2 Shenzhen, once a fishing village, is now one of China’s richest cities with a large secondary sector. This transformation was possible as local villages shared resources to develop their area. For example, they constructed new housing to rent to migrants working in the factories in the city. However, the supply of housing has not been able to keep up with demand and the government is now setting a maximum price on housing. (a) Define secondary sector using an example apart from construction. [2] (b) Explain two key resource allocation decisions. [4] (c) Analyse why workers may want to migrate to another area. [6] (d) Discuss whether or not a government should introduce a maximum price on housing. [8]
20 marks
Mark scheme: 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
This question in 0455/23 May/June 2024
Q54 · In 2020, investment in vaccine production was very high 0455/23 May/June 2024
5 In 2020, investment in vaccine production was very high. There was a plan for a major vaccine producer to horizontally merge with another firm but the plan was cancelled. This was not surprising as a similar merger of two firms in the same industry had failed the previous year. However, most firms in this industry are still meeting their objectives and also creating many external benefits for the wider economy. (a) Identify two benefits of a horizontal merger. [2] (b) Explain two possible external benefits of vaccines. [4] (c) Analyse potential reasons why a merged firm may fail. [6] (d) Discuss whether or not investment is beneficial to an economy. [8]
20 marks
Mark scheme: 5(a) Identify two benefits of a horizontal merger. economies of scale / lower costs lower prices (for consumers) sharing of each firm's strengths more capital available market power / higher prices higher quality more efficient use of resources higher profit international competitiveness 2 Higher revenue not accepted. 5(b) Explain two possible external benefits of vaccines. Logical explanation which might include: healthier overall population (1) reduced risk for others to become infected / for those who have been vaccinated to spread the disease to the rest of the population (1) improved HDI (1) life expectancy is part of a country's HDI (1) reduced long term spending on healthcare (1) freeing funds for other areas (1) healthier labour force (1) higher productivity / higher output / lower prices (1) more jobs to the community near the vaccine production site (1) higher incomes / lower unemployment (1) increased medical research and development/ innovation (1) helps other fields in medicine and science (1). 4 Question Answer Mark Guidance 5(c) Analyse potential reasons why a merged firm may fail. Coherent analysis which might include: diseconomies of scale (1) higher long run (average) cost as output increases (1) decreasing profits (1) lack of coordination (1) difficult to coordinate between the different departments in a larger company (1) may require additional managers / processes (1) lack of control (1) difficult to ensure everyone in a large company is working towards the same goal (1) increased absences / slacking-off (1) lack of cooperation / disagreements (1) no sense of belonging and personal connections (1) and therefore workers may not want to work with each other (1) lack of synergy (1) different parts of the merged companies can’t work well with each other (1) don’t have the same philosophy / management styles (1) reduced competition may increase complacency / reduce efficiency / innovation (1) lower quality (1) reduce demand (1) other possible reasons for failure, not directly related to merger, e.g. fall in demand (1) supply chain difficulties (1). 6 Question Answer Mark Guidance 5(d) Discuss whether or not investment is beneficial to an economy. In assessing each answer, use the table opposite. Why it might: improves productivity / technological innovation creates jobs – decreasing unemployment consumers may benefit if investment reduces prices, improves quality of products increases total demand and output of the economy – economic growth improves quality of education improves quality of health if FDI, it provides funds not available in home country. Why it might not: if financed by borrowing, affected by interest rate changes creates inflation in short run increases pollution – external cost if foreign investment – overdependence on foreign parties increased inequality increased unemployment if capital goods act as a substitute for labour opportunity cost in the form of fewer consumer goods in the short run. 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 Mark Guidance 5(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0
This question in 0455/23 May/June 2024
Q55 · The World Trade Organization (WTO) estimates that India has the largest levels of trade… 0455/21 Oct/Nov 2024
4 The World Trade Organization (WTO) estimates that India has the largest levels of trade protection of any major economy. The highest tariffs are imposed on products from the primary sector. For example, in 2018 India imposed a tariff of approximately 90% on imports of coffee to protect its coffee farmers. However, the markets for coffee substitutes and complements do not have such levels of government intervention. (a) Identify two methods of trade protection apart from a tariff. [2] (b) Explain how the price of coffee substitutes and complements can affect the demand for coffee. [4] (c) Analyse possible reasons why a government may want to intervene in a market. [6] (d) Discuss whether or not high tariffs can reduce unemployment. [8]
20 marks
Mark scheme: 4(a) Identify two methods of trade protection apart from a 2 Accept any relevant methods. tariff. Two from non-tariff barriers: • import quotas • subsidies • embargoes / bans • licences • product standards / regulations 4(b) Explain how the price of coffee substitutes and 4 Maximum of 3 marks if only substitutes or complements are complements can affect the demand for coffee. explained. Logical explanation which might include: Relationship between price and demand of substitutes is positive (1) when price of coffee substitutes increases, demand for coffee increases, or vice versa (1) because as price of coffee substitutes increases, coffee is relatively cheaper (1) demand for the substitute will decrease, and the demand for coffee will increase (1) e.g. coffee and tea (1). Relationship between price and demand of complements is negative (1) when price of coffee complements increases, demand for coffee falls or vice versa (1) because as price for coffee complements increases, the demand for the complement will fall, and therefore the demand for coffee will decrease (1) e.g. coffee and sugar (1). 4(c) Analyse the possible reasons why a government may 6 Maximum of three marks for identification of reasons want to intervene in a market. Coherent analysis which might include: Government may want to intervene in a market due to market failure / when the market mechanism leads to inefficient allocation of resources (1) Reasons for intervention: • to provide public goods (1) not provided by the market (1) due to non-rivalry / non-excludability (1) creating the free rider problem / no profit-incentive for private producers (1) • to provide merit goods (1) under-consumed and under- produced by the market (1) external benefits which are ignored by the market (1) e.g. vaccinations (1) • to reduce provision of demerit goods (1) over-consumed and over-produced by the market (1) external costs are ignored by the market (1) e.g. pollution (1) • to reduce monopoly power (1) that creates high prices (1) while reducing consumer choices (1) and reducing quality (1) • to reduce factor immobility (1) factors of production unable to move around to its best possible use (1) e.g. labour immobility where workers cannot move around (1) and therefore are unemployed (1) • to protect consumers of essential items (1) by setting a maximum price (1) keeping the price below the market price (1) • to protect low paid workers (1) by setting a minimum wage (1) keeping the wage above the market wage (1) • to give subsidies / impose tariffs (1) e.g. protect infant industries (1) so that they can grow in the long- term / protect employment (1). 4(d) Discuss whether or not high tariffs can reduce 8 Level Description Marks unemployment. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • high tariffs lead to increase price of imports reducing the clear and logical analysis to demand for imports evaluate economic issues and • high tariffs make consumers choose domestic products situations. One side of the instead which increases demand for domestic workers argument may have more depth • high tariffs provide government with extra revenue than the other, but overall both which could be used to subsidise domestic sides of the argument are firms / domestic employment considered and developed. There • high tariffs can be a major source of tax revenue. Some is thoughtful evaluation of of this could be spent on e.g. education and training economic concepts, terminology, which will increase workers’ skills and mobility, and so information and / or data reduce unemployment. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of • high tariffs lead to retaliation which leads to decrease in alternative decisions and demand for exports and therefore decrease demand for outcomes. domestic workers • high tariffs still not enough to offset lower cost of imports • domestic production may not be able to increase due to full employment / lack of natural resources • higher prices of imported raw materials could increase costs of production, so reducing profits and lowering output • domestic prices may rise as domestic firms become complacent as they are protected. 4(d) 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. 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.
This question in 0455/21 Oct/Nov 2024
Q56 · In 2021, there were extensions and contractions in demand for a number of South African… 0455/22 Oct/Nov 2024
4 In 2021, there were extensions and contractions in demand for a number of South African products. In that year, a South African court stopped a multinational company (MNC) exploring for oil along South Africa’s coastline. South Africa experienced an increase in output, driven largely by the growth in its tertiary sector. However, its unemployment rate was 35%, a long way from full employment. (a) Define an extension in demand. [2] (b) Explain two external costs that may be caused by exploring for oil. [4] (c) Analyse how growth in a country’s tertiary sector can increase its living standards. [6] (d) Discuss whether or not workers who lose their jobs are likely to stay unemployed for a long time. [8]
20 marks
Mark scheme: 4(a) Define an extension in demand. 2 May be shown by a movement down a demand curve caused by a fall in price. A movement along a demand curve (1) higher demand (1) caused by a fall (1) in price (1). Not accepting: an increase in demand but accepting: an increase in quantity demanded. 4(b) Explain two external costs that may be caused by 4 One mark each for each of two costs identified and one exploring for oil. mark for each of two explanations. Logical explanation which might include: Reduce tourism may be given as an identification or as an explanation of e.g. ‘Damage to the natural environment’ Air pollution / pollution (1) those living nearby may experience a reduction in air quality / contribute to climate change/global warming / reduced health (1). Noise pollution (1) disturbing sleep (1). Water pollution / oil spillage (1) damage health (1). Damage to the natural environment / land / deforestation (1) destroy wildlife habitats / cause global warming / climate change (1). Reduce tourism (1) lower employment (1). Congestion (1) increasing transport costs (1). 4(c) Analyse how growth in a country’s tertiary sector can 6 increase its living standards. Coherent analysis which might include: May have high productivity (1) increase output (1) increase employment / reduce unemployment (1). May pay higher wages (1) allowing workers to consume more goods and services / afford education / afford healthcare / reduce poverty / buy more necessities / buy some luxuries/wants (1). May provide good working conditions (1) less tiring / less physically demanding (1) resulting in good health of workers (1) few accidents (1). May involve expansion of education (1) increasing future employment / workers’ skills (1) earning prospects (1) increase quality of output (1) increase HDI value (1). More transport services (1) could reduce prices / lower congestion / reduce stress (1). Growth of entertainment industry (1) improve leisure time (1). May involve expansion of healthcare (1) increase life expectancy / better health (1). May increase tax revenue (1) enabling the government to spend more on e.g. education (1). Less pollution (1) less environmental damage / less climate change / less global warming (1). 4(d) Discuss whether or not workers who lose their jobs are 8 Reward but do not expect reference to hysteresis. likely to stay unemployed for a long time. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 Why they might: accurately examines both sides of the • may lose skills / unskilled workers may have greater economic argument, making use of difficulty than skilled workers in finding another job economic information and clear and • may become out of date with advances in technology / logical analysis to evaluate economic working practices issues and situations. One side of the • may be expensive for firms to employ as may need argument may have more depth than extra training the other, but overall both sides of the • may lose confidence argument are considered and • may become less attractive to employers developed. There is thoughtful • more likely to stay unemployed if a result of evaluation of economic concepts, cyclical/structural rather than frictional unemployment terminology, information and/or data • may be high unemployment benefits. appropriate to the question. The discussion may also point out the Why they might not: possible uncertainties of alternative • may receive government training decisions and outcomes. • may be geographically/occupationally mobile • gap between wages and state benefits may encourage 2 A reasoned discussion which makes 3–5 the unemployed to seek work use of economic information and clear • economy may grow, expanding employment analysis to evaluate economic issues and situations. The answer may lack opportunities some depth and development may be • may leave the labour force, e.g. retire / emigrate one-sided. There is relevant use of • may be seasonally unemployed. 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.
This question in 0455/22 Oct/Nov 2024
Q57 · Luxembourg is a country with a high level of economic development 0455/23 Oct/Nov 2024
2 Luxembourg is a country with a high level of economic development. Its government intervenes in an attempt to overcome some of the disadvantages which might exist in a market economic system. Some of the country’s firms operate in competitive markets but some are monopolies. Households in the country save a high proportion of their income. Immigration is the main cause of the country’s growth in population. (a) Identify two influences on the proportion of income saved by households. [2] (b) Explain two characteristics of monopoly. [4] (c) Analyse the causes of migration between countries. [6] (d) Discuss whether or not government intervention can overcome the disadvantages of a market economic system. [8]
20 marks
Mark scheme: 2(a) Identify two influences on the proportion of income 2 These are the most common influences. Give credit for other saved by households. relevant influences. Two from: Accept any two from the first three responses. • rate of interest • level of (disposable) income / earnings / wealth / taxation • confidence / economic outlook • advertising / availability of saving schemes • strength of financial institutions • age of / number of dependents in household • social convention / culture • cost of living / spend on basic necessities / inflation. 2(b) Explain two characteristics of monopoly. 4 One mark each for each of two characteristics identified and one mark for each of two explanations. Logical explanation which might include: • only firm (1) dominant market share / no effective competition / substitutes / controls the market (1) • high barriers to entry (1) difficult for new firms to enter industry (1) • price maker (1) able to set the price / demand is inelastic / only choice for consumers (1) • can control supply (1) causing higher prices / makes high profits (1) • unique product (1) result of profits reinvested in R&D (1) • large size (1) benefits from economies of scale / low average costs (1). 2(c) Analyse the causes of migration between countries. 6 Note: apply a limit of three marks for simply identifying causes with no analysis given. Coherent analysis which might include: Pull factors: • people may move to gain higher income / move to high- income countries / countries with higher wages (1) move to countries with more job opportunities / lower unemployment (1) people move to increase goods and services they can consume / higher standard of living (1) • people may move to gain better healthcare (1) to increase life expectancy / quality of life (1) • people may move to gain better education / attend university (1) to increase their children’s chance of gaining employment (1) and high pay (1) • may have family members in another country (1) example of why move to be with family members (1). Push factors: • people may move to countries to escape conflict / high crime / high corruption (1) racial and religious intolerance (1) famine (1) pollution (1) climate change / better environment (1) escape poverty (1) high taxes (1) to increase safety (1). 2(d) Discuss whether or not government intervention can 8 Level Description Marks overcome the disadvantages of a market economic system. 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 it might: governments to evaluate economic issues and situations. One side of the argument may • provide merit goods which may be under-consumed have more depth than the other, but • restrict demerit goods which may be over-consumed overall both sides of the argument are • provide public goods which would not be supplied by considered and developed. There is the private sector thoughtful evaluation of economic • may provide products or benefits for those with low concepts, terminology, information and/or purchasing power data appropriate to the question. The • may regulate monopolies / prevent mergers discussion may also point out the • may address external costs such as pollution possible uncertainties of alternative • set price ceiling to keep prices low decisions and outcomes. • set minimum wages to reduce exploitation of workers. 2 A reasoned discussion which makes use 3–5 Why it might not of economic information and clear analysis to evaluate economic issues and • may be government failure situations. The answer may lack some • government may lack accurate information depth and development may be one- • may take time to make decisions / bureaucratic sided. There is relevant use of economic • may reduce incentives concepts, terminology, information and • may be corruption. 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.
This question in 0455/23 Oct/Nov 2024
Q58 · South Korea makes use of both economic goods and free goods 0455/22 Feb/March 2025
2 South Korea makes use of both economic goods and free goods. Its output includes products with both elastic and inelastic supply. The country is building the world’s first floating city, estimated to cost $180m. This is to cope with rising sea levels caused by climate change. Governments take a number of measures to reduce greenhouse gases which contribute to climate change, including banning the burning of wood to heat homes. (a) Identify a difference between economic goods and free goods. [2] (b) Explain how opportunity cost will influence a government’s decision on whether to spend tax revenue on a large infrastructure project. [4] (c) Analyse the influences on whether supply of a product is elastic or inelastic. [6] (d) Discuss whether or not a government should ban the burning of wood to heat homes. [8]
20 marks
Mark scheme: 2(a) Identify a difference between economic goods and free goods. 2 No marks for examples. Economic goods use up resources / need factors of production to One mark for economic goods and one mark produce them (1) free goods do not (1) for free goods. Economic goods are scarce / in limited supply (1) free goods are in unlimited supply (1). Economic goods have an opportunity cost (1) free goods do not (1). 2(b) Explain how opportunity cost will influence a government’s 4 decision on whether to spend tax revenue on a large infrastructure project. Logical explanation which might include: Opportunity cost is the (next) best alternative (1) forgone / given up (1). Tax revenue is limited (1) if a government spends some of it on an infrastructure project, it will not be able to spend on something else / could use the money to spend on something else (1) an example (1). Governments have to decide on their priorities / consider which form of spending will provide the greatest benefit (1) reason why spending on infrastructure may be the best option / may not be the best option (1). 2(c) Analyse the influences on whether supply of a product is elastic or 6 inelastic. Coherent analysis which might include: Elasticity of supply is a measure of the responsiveness of supply to a change in price / formula / elastic supply is when pes is > 1/ inelastic supply is when pes <1 (1). Elastic supply occurs when supply changes by a greater percentage than the change in price / inelastic supply is when supply changes by a smaller percentage than the change in price (1). Whether the product can be stored / non-perishable (1) if it can be, it will be elastic (1) able to adjust supply quickly to changes in price (1) as if price rises, goods can be taken out of storage (1). Whether the production time is short (1) if so, output can be increased quickly to take advantage of higher prices (1). Cost of altering supply (1) if it is costly to alter the supply, supply is likely to be inelastic (1). Whether there are unemployed resources / level of capacity (1) if there are, supply can be adjusted by taking on more resources (1). Whether resources / factors of production are mobile (1) if they can change use / location (1). Time (1) supply usually becomes more elastic, the longer the time period (1). Level of competition (1) supply is likely to be more elastic in a competitive than in a monopoly market (1). 2(d) Discuss whether or not a government should ban the burning of 8 Level Description Marks wood to heat homes. 3 A reasoned discussion 6–8 In assessing each answer, use the table opposite. which accurately examines both sides of the Why it should: economic argument, • reduce external costs / pollution making use of economic • correct market failure / information failure information and clear and • improve people’s health logical analysis to evaluate • protect forests economic issues and • replace wood with a more environmentally-friendly fuel situations. One side of the • wood could be used for other purposes argument may have more depth than the other, but Why it should not: overall both sides of the • wood may be bought mainly by the poor, increase poverty argument are considered • other sources of fuel may be more expensive and developed. There is • may be difficult to enforce thoughtful evaluation of • may cause unemployment economic concepts, • may be better to tax wood as a fuel, could use revenue to subsidise terminology, information more environmentally-friendly sources of fuel and/or data appropriate to • some alternative fuels may be more polluting. the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2(b) 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.
This question in 0455/22 Feb/March 2025
Q59 · Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP 0455/21 May/June 2025
1 (a) Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP. [1] (b) Identify two external benefits of rainforests. [2] (c) Explain what effect an increase in tourism may have on Gabon’s current account of the balance of payments. [2] (d) Explain two reasons why the Gabonese Government wants to reduce reliance on oil. [4] (e) Draw a demand and supply diagram to show the effect of the discovery of new gold deposits on the market for gold. [4] (f) Analyse the relationship between the literacy rate and the percentage of the labour force employed in agriculture. [5] (g) Discuss whether or not a government should pay private sector firms to give work experience to unemployed young people. [6] (h) Discuss whether or not a growth in the size of firms in Gabon’s textile industry will reduce their average cost of production. [6]
30 marks
Mark scheme: Question Answer Marks Guidance 1(a) Calculate the value of Gabon’s oil production as a 1 Accept 30 without %. percentage of Gabon’s GDP. 30%. 1(b) Identify two external benefits of rainforests. 2 If more than two benefits given, consider the first three. Two from: • reduce air pollution / pollution / improves air quality (1) • protect against floods (1) • prevent soil erosion (1). 1(c) Explain what effect an increase in tourism may have on 2 No marks for simply saying current account of the balance of Gabon’s current account of the balance of payments. payments increases. • Increase in exports (1) • increase trade in services (invisible) surplus / reduces deficit (1) • Improves the current account balance surplus / reduces deficit (1). 1(d) Explain two reasons why the Gabonese Government 4 One mark each for each of two reasons identified and one wants to reduce reliance on oil. mark each for each of two explanations. Logical explanation which might include: Only these two reasons are acceptable. • Running out of oil / create a shortage (1) revenue from the industry will decline / employment in the industry will decline / GDP will decline /cause recession / conserve for future generations / may need to import oil / price for oil may rise (1). • Oil industry creates water pollution / pollution (1) an external cost / harms health / reduces standard of living / protect the environment / attract tourists (1). 1(e) Draw a demand and supply diagram to show the effect 4 of the discovery of new gold deposits on the market for gold. 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 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 literacy rate and 5 Responses do not have to be in the format suggested but the percentage of the labour force employed in they should address the expected/normal relationship, offer agriculture. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include: Supporting evidence should involve interpretation, not just Expected relationship: description. Simply stating percentages without analysis of • Generally, an inverse / negative relationship (1) the being high or low gets no marks. higher the literacy rate, the smaller the % of the labour force employed in agriculture (1). Accept as analysis where two countries with different levels of adult literacy and percentage employed in agriculture are Supporting evidence: directly compared. • South Africa had the highest literacy rate and the lowest % of the labour force employed in agriculture (1). • Zambia / Sierra Leone / Mali had the lowest literacy rates and the highest %s of labour force employed in agriculture (1). Analysis of expected relationship: • A high literacy rate may increase the chance of workers gaining jobs in high paid tertiary jobs (1) a low literacy rate may mean workers have to undertake unskilled jobs in agriculture / a high proportion of workers employed in agriculture may mean that high literacy rate is not required (1). Exception: • Gabon (1) Gabon has a high literacy rate but also a high % of the labour force employed in agriculture (1). Analysis of exception: • Some jobs in agriculture are skilled / secondary and tertiary sectors may be small (1). 1(g) Discuss whether or not a government should pay 6 Apply this example to all questions with the command private sector firms to give work experience to word DISCUSS unemployed young people. (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Award up to 4 marks for logical reasons why it should, 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. • can enable young workers to develop their skills / raise their productivity (1) increase their confidence / Generic example mark motivation to get a job / get higher paid jobs (1) young people may make mistakes and cost firm money while Tax revenue may decrease 1 being trained (1) • can increase the chances of young people gaining a job because of reason e.g. incomes may be lower. 1 (1) reduce unemployment (1) reduce the cost of unemployment benefits (1) reduce future training costs Tax revenue may increase because incomes 0 (1) increase tax revenue (1) leads to economic growth may be higher i.e. reverse of a previous (1). argument. Award up to 4 marks for logical reasons why it should Tax revenue may increase because of a 1 not, which may include: different reason i.e. not the reverse of a previous argument e.g. government spending • the quality of the work experience may not be good (1) on subsidies may stimulate the economy more the young may be given unskilled jobs (1) poor working than spending on education. conditions / not regulated (1) • opportunity cost [implied] (1) government spending could be used to e.g. improve state education (1) government incurs additional expenditure / raises taxes to pay for it (1) the young may have been employed by the private sector without payment by the government (1) • it may reduce the efficiency of private firms (1) reduce their output (1) firms may be corrupt (1). 1(h) Discuss whether or not a growth in the size of firms in 6 Maximum of 2 marks for just listing different types of Gabon’s textile industry will reduce their average cost economies and diseconomies of scale or just stating of production. economies of scale and diseconomies of scale may be experienced without references to examples. Award up to 4 marks for logical reasons why it might, which may include: Essentially full marks can be gained for identification and explanation of two economies of scale and one diseconomy • labour economies (1) workers can specialise / increase of scale OR one economy of scale and two diseconomies of labour productivity (1) scale. • managerial economies (1) employ specialists (1) • technical economies (1) using advanced capital Note there is no marks awarded for simply stating that equipment (1) average costs may or rise or for drawing a diagram showing • buying / purchasing economies (1) receiving a discount average costs changing as a firm grows in size. as buying in bulk (1) • selling economies (1) reducing transport costs (1) • marketing economies (1) spreads fixed costs over more output (1) • financial economies (1) easier / cheaper to borrow (1) • research and development economies (1) introduce new products / new production methods (1) • risk bearing economies (1) able to suffer fall in demand for one product or supply problems connected to one product (1) • may experience external economies of scale (1) example (1). Award up to 4 marks for logical reasons why it might not, which may include: • difficulty of controlling a large firm (1) may be slower to make decisions (1) 1(h) • communication problems (1) may be more difficult to 6 keep everyone informed (1) • poor industrial relations (1) may be less contact between managers and workers / decreasing productivity (1).
This question in 0455/21 May/June 2025
Question 60 0455/22 May/June 2025
1 (a) Calculate St. Kitts and Nevis’s government budget deficit in 2022. [1] (b) Identify two examples of the factor of production ‘land’ in St. Kitts and Nevis. [2] (c) Explain how tourism causes external costs in St. Kitts and Nevis. [2] (d) Explain two reasons why a foreign bank may open a branch in St. Kitts and Nevis. [4] (e) Draw a demand and supply diagram to show the effect of an increase in the productivity of onion farmers on the market for onions. [4] (f) Analyse the relationship between healthcare spending as a percentage of GDP and life expectancy. [5] (g) Discuss whether or not an increase in the size of its fishing industry would benefit St. Kitts and Nevis. [6] (h) Discuss whether or not deflation is likely to have harmed St. Kitts and Nevis. [6]
30 marks
Mark scheme: 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).
This question in 0455/22 May/June 2025
Q61 · In 2022, Paraguay’s production possibility curve (PPC) shifted to the right 0455/22 May/June 2025
3 In 2022, Paraguay’s production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides merit goods and public goods. The country’s private sector is a major producer of shampoo. The firms in the shampoo industry make use of division of labour. There are several firms in the industry, but the number is declining. There is a possibility that soon there may be just one firm in the industry. (a) Identify what is measured on the axes of a production possibility curve. [2] (b) Explain, with an example of each, the difference between a merit good and a public good. [4] (c) Analyse how division of labour can benefit firms. [6] (d) Discuss whether or not consumers would benefit from only one firm producing shampoo. [8]
20 marks
Mark scheme: 3(a) Identify what is measured on the axes of a production 2 Two types of products may be shown on the axes on a PPC possibility curve. diagram for two marks. (Output of) two types of product (2). If more than two items are given, consider the first three. Output (1) one type of product (1) another type of product (1). 3(b) Explain, with an example of each, the difference 4 One mark for an explanation of a merit good and one mark between a merit good and a public good. for an example of a merit good. One mark for an explanation of a public good and one mark Logical explanation which might include: for an example of a public good. A merit good is under-consumed / underproduced / Accept but do not expect reference to non-rejectable / zero consumers do not appreciate its full value / has external cost of producing an extra unit for a public good. benefits / can be produced by the private sector / can be produced by the private sector and the public sector / is a Allow public park. private good / is rival and excludable (1) e.g. education / healthcare / fruit (1). No mark for roads unless qualified by e.g. uncrowded roads A public good would not be produced by the private sector / with many entry and exit points. is (usually) supplied / produced by the government / funded by the government (1) non-excludable / non-rival (1) e.g. street lighting / defence / flood control (1). 3(c) Analyse how division of labour can benefit firms. 6 Coherent analysis which might include: • Workers can specialise (1) in what they are best at producing (1) save time / speed up production (1) reduce waste (1) reduce mistakes (1) increase productivity /skill / efficiency (1) increase output / supply (1) lower (average) cost (1). • Increase quality (1) lower prices (1) raise demand / increase sales (1) increase revenue (1) increase profits (1). • Make it easier to mechanise production (1) reduce labour required (1). • Reduce training / training costs (1) as reduce tasks undertaken / division of labour involves breaking production down into different tasks (1). 3(d) Discuss whether or not consumers would benefit from 8 Level Description Marks only one firm producing shampoo. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why they might: information and clear and logical • one firm may be able to benefit from economies of scale analysis to evaluate economic issues • lower average cost may lead to lower prices and situations. One side of the argument • firm may spend a large amount on research and may have more depth than the other, but development due to high profits and security overall both sides of the argument are • quality of product may be high considered and developed. There is • less time / less effort choosing shampoo. thoughtful evaluation of economic concepts, terminology, information Why they might not: and/or data appropriate to the question. • lack of competition may drive up prices The discussion may also point out the • lack of choice possible uncertainties of alternative • if quality is poor, cannot switch to substitutes decisions and outcomes. • firm may experience diseconomies of scale. 2 A reasoned discussion which makes use 3–5 of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3(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 no 0 creditable content.
This question in 0455/22 May/June 2025
Q62 · Street vendors mostly operate outside of the formal economy to avoid government regulation 0455/21 Oct/Nov 2025
5 Street vendors mostly operate outside of the formal economy to avoid government regulation. However, many are now entering the formal economy. This has led to more government revenue, increased productivity and higher economic growth. Some governments plan to take measures to increase the number of firms in the economy. (a) Identify two reasons why workers may choose to work in the formal economy. [2] (b) Explain two effects of economic growth on a country’s population. [4] (c) Analyse how government regulation can reduce market failure. [6] (d) Discuss whether or not an increase in the number of firms will benefit an economy. [8]
20 marks
Mark scheme: 5(a) Identify two reasons why workers may choose to work 2 Accept any relevant reason. in the formal economy. If more than two suggested measures are given, consider Two from: the first three. • higher incomes in the formal economy • may have access to employment protection • may be covered by a national minimum wage • may be able to join a trade union • may be entitled to receive unemployment benefit • may be entitled to retirement benefits / pensions • will have a formal income record needed for e.g. bank loans • formal economy may be regulated by government. 5(b) Explain two effects of economic growth on a country’s 4 One mark each for effects identified and one mark each for population. explanations. Logical explanation which might include: If more than two effects are given, consider the first three. • more goods and services available / greater ability to purchase health care (1) higher living standards / life expectancy (1) less poverty (1) • higher employment / more job opportunities (1) more income (1) • more choice (1) due to more firms starting up / expanding (1) • lower inflation (1) if due to higher productivity / lower costs / more competition (1) • higher tax revenue (1) allows more government spending on e.g. education / health (1) • higher prices (1) due to increasing total demand (1) • more pollution / external costs (1) due to higher output of manufactured goods (1) • depletion of non-renewable resources (1) reducing future economic growth (1) • attracts immigrants / deters emigrants (1) due to benefits from high living standards e.g. job opportunities (1). 5(c) Analyse how government regulation can reduce market 6 Only reward answers that refer to laws and regulations, failure. not taxes and subsidies. Coherent analysis which might include: market failure occurs when there is an inefficient allocation of resources in a free market (1). laws / rules can be used (1): • to promote the use of merit goods (1) that are under- consumed (1) e.g. making it compulsory to wear seat belts in a car (1) • to reduce the consumption of demerit goods (1) that are over-consumed (1) e.g. banning smoking in public places (1) • to ensure minimum standards for goods and services (1) e.g. making it compulsory for restaurants to reach certain standards of cleanliness (1) can overcome the problem of sellers having more information than buyers (1). • to prevent abuse of monopoly power (1) by imposing maximum prices (1) e.g. a limit can be imposed on the price that can be charged by a monopoly water company (1) • to reduce exploitation of labour (1) by imposing minimum wages (1). 5(d) Discuss whether or not an increase in the number of 8 Level Description Marks firms will benefit 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 Why it might: of economic information and clear • may increase competition and logical analysis to evaluate • higher competition may lower costs and prices and economic issues and situations. One increase quality side of the argument may have more • may increase choice depth than the other, but overall, • may reduce monopoly power both sided of the argument are • more firms may increase output considered and developed. There is • higher output may increase employment and living thoughtful evaluation of economic standards. 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. 5(d) Why it might not: Level Description Marks • firms may be smaller • may not be able to take advantage of economies of 1 There is a simple attempt at using 1-2 scale economic definitions and • may be wasteful duplication terminology. Some reference may be • may have lower profits and so invest less, lower made to economic theory, with innovation. occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.
This question in 0455/21 Oct/Nov 2025
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