Workers — Paper 2 · IGCSE Economics 0455

4 The amount that workers earn influences their living standards. Some workers receive relatively low pay. There are a number of ways a government can help the low-paid. (a) Identify two wage factors that workers take into account when deciding on their occupation. [2] (b) Explain two indicators of living standards. [4] (c) Analyse how fiscal policy can produce a more even distribution of income. [6] (d) Discuss whether a rise in the wages paid to low-paid workers would benefit an economy. [8]

20 marks

Mark scheme: 4(a) Identify two wage factors that workers take into account when deciding on their occupation. 1 mark each for each of two wage factors: • wage rate/pay/income • bonuses • overtime payments • commission 2 4(b) Explain two indicators of living standards. 1 mark each for each of two indicators identified: • GDP per head/average income • HDI • e.g. cars per household 1 mark each for each of two explanations given: • total income divided by population • includes income per head, education and life expectancy • gives an indication of the goods and services households can enjoy. 4 No credit for GDP on its own. If real GDP per head is referred to, credit can be given for explanation of ‘real’. Two of three components of HDI accepted. 4(c) Analyse how fiscal policy can produce a more even distribution of income. An increase in a progressive tax (1) taking a larger percentage of the income of the rich (1). A decrease in a regressive tax (1) reducing the percentage of the income of the poor taken in tax (1). Government spending on benefits (1) e.g. benefits given to the unemployed / pensioners (1). Government spending on education / healthcare (1) may increase the earning potential of the poor (1). Government spending/cut in taxes can increase total (aggregate) demand (1) move people from unemployment to employment (1). 6 Question Answer Marks Guidance 4(d) Discuss whether a rise in the wages paid to low-paid workers would benefit an economy. Up to 5 marks for why it might: May reduce poverty/increase living standards (1) giving access to basic necessities (1). May increase motivation of low-paid workers (1) raise productivity (1) increase output/raise GDP/cause economic growth (1) increase quality of output (1) reduce costs of production (1). May make income more evenly distributed (1). May increase total demand (1) raising employment (1). Greater tax revenue (1) may enable government to spend more on e.g. education/health care (1) greater literacy/longer life expectancy (1). May enable the poor to spend more on the education of their children (1) raise their productivity (1) Up to 5 marks for why it might not: May increase costs of production (1) may cause cost-push inflation (1). To reduce costs of production (1) firms may make workers redundant/increase unemployment (1). May increase total (aggregate) demand (1) cause demand-pull inflation (1). Low-paid workers may spend more on demerit goods (1) reduce health (1). Higher costs may make the country’s products less internationally competitive (1) worsen the current account position (1). 8

This question in 0455/22 Feb/March 2017

6 At the start of 2015, dockworkers on the west coast of the USA took industrial action in the form of a go-slow, disrupting exports and imports. This was coordinated by their trade union. Unions in the USA are declining in strength, particularly in the private sector. Most workers in the USA work in the private sector. (a) Identify two aims of a trade union. [2] (b) Explain two reasons for a decline in trade union membership. [4] (c) Analyse why someone may switch from working in the public sector to working in the private sector. [6] (d) Discuss whether a decrease in imports would increase a country’s economic growth rate. [8]

20 marks

Mark scheme: 6(a) Identify two aims of a trade union. 1 mark each for each of two aims identified: • higher wages • increased job security • better working conditions • provision of benefits • lobbying the government • reduction in discrimination 2 6(b) Explain two reasons for a decline in trade union membership. 1 mark each for each of two reasons identified: • lower employment • increase in subscriptions • government legislation • firms’ discouragement • change in pattern of employment • less efficient trade unions/decline in strength • greater reluctance to take industrial action • more satisfied with e.g. working hours and conditions. 1 mark each for each of two reasons explained: • lower employment will mean that there will be fewer workers to join trade unions/may make those still in employment be concerned that joining a trade union may increase the risk of being made redundant • workers may be reluctant to pay increased subscriptions • government legislation may reduce the power of trade unions • firms may make it clear that they will not employ trade union members • fewer workers in the private sector tend to be union members • workers would expect less advantages from joining a trade union • do not want to be asked to e.g. strike as earnings could be lost • workers may have better relations with employers. 4 Question Answer Marks Guidance 6(c) Analyse why someone may switch from working in the public sector to working in the private sector. Jobs in the public sector may be declining (1) so a public sector worker may fear being made redundant (1) so private sector may provide more job security (1). Wages in the private sector may be higher/increasing more than those in the public sector (1) higher wages will increase living standards (1) enabling workers to e.g. enjoy better healthcare (1). May want to work in a smaller organisation (1) may think labour relations will be better (1). Non-wage factors may be better in the private sector (1) examples e.g. pensions (1) greater promotion chances (1), Working hours may have been reduced/be shorter (1). 6 Note: maximum of 3 marks for a list-like approach. 6(d) Discuss whether a decrease in imports would increase a country’s economic growth rate. Up to 5 marks for why it might: Lower imports may be the result of an increase in the international competitiveness of domestic products (1). Imports may be replaced by domestic products (1) total demand would increase (1) this may increase output (1) infant industries may be able to expand (1) domestic employment may increase (1). Up to 5 marks for why it might not: Imports may decline due to consumers spending less in total (1) they may not be replaced by domestic products (1). If imports of raw materials or capital goods fall (1) there will be fewer resources available (1) to make domestic output (1). A decrease in imports will reduce incomes of other countries (1) may reduce demand for the country’s exports (1). Lower imports may push up the exchange rate (1) raise the price of exports (1) if both imports and exports fall output may be unchanged or even lower (1). If lower imports are the result of the imposition of trade restrictions (1) there may be retaliation (1) reducing the country’s exports (1). 8

This question in 0455/22 Feb/March 2017

3 Money and banking are closely linked. Money performs a number of functions, including being a standard for deferred payments, and it is used to pay workers, often directly into their bank accounts. The amount workers earn differs depending on the industry in which they work. Bank lending from both private sector and public sector (state-owned) banks has increased in some countries in recent years. (a) Define ‘a standard for deferred payments’. [2] (b) Explain two reasons why agricultural workers may be paid less than manufacturing workers. [4] (c) Analyse why private sector banks may earn higher profits than public sector banks. [6] (d) Discuss whether an increase in bank lending will benefit an economy. [8]

20 marks

Mark scheme: 3(a) Define a ‘standard for deferred payments’. A function of money that enables people to borrow (1) pay back at a later date (1) and to lend (1). The function of money that enables a price/interest rate to be set on the amount a borrower will pay (1) that a lender will earn (1). 2 3(b) Explain two reasons why agricultural workers may be paid less than manufacturing workers. 1 mark each for each of two reasons identified: • may be in less demand • may be in higher supply • may have less bargaining power • may benefit less from government policies 1 mark each for each of two explanations given: • may be in less demand as less productive/product they produce can be sold for less/replaced by capital good e.g. tractors • may be in higher supply as work may require fewer qualifications/less skill • may have less bargaining power as they may not belong to a trade union • may not be covered by minimum wage legislation 4 3(c) Analyse why private sector banks may earn higher profits than public sector banks. May have different goals (1) private sector banks may aim for profit maximisation (1) while public sector banks may seek to e.g. provide a service/keep employment high (1). Private sector banks may have lower costs of production (1) due to greater size (economies of scale) or lower size (less experience of diseconomies of scale (1) or due to more efficient production (1). Private sector banks may earn more revenue (1) may be better at attracting consumers through e.g. higher quality products (1) may respond quicker to changes in consumer demand (1). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 3(d) Discuss whether an increase in bank lending will benefit an economy. Up to 5 marks for why it might: It may enable households to borrow more (1) increasing their spending (1) to increase their living standards (1) be able to buy housing or other basic necessities (1) educate their children (1) reduce poverty (1). It may enable firms to borrow more to expand output (1) raise employment (1) increase economic growth (1). It may enable firms to buy better capital equipment (1) lower costs of production (1) lower prices (1) increase exports (1). Up to 5 marks for why it might not: It may increase consumer expenditure/total demand (1) this may cause inflation (1) total demand exceeding total supply (1) demand-pull inflation (1). Households and firms may spend more on imports (1) increasing a current account deficit (1) and may result in imported inflation (1). It may encourage households to get into debt (1) borrowing more than they can repay (1). It may encourage inefficient firms to expand (1) rising costs (1) increasing prices (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

5 Between 2009 and 2014, Delaware was the only US state to experience a fall in earnings. In the same period, however, it had an unemployment rate below the national average and a higher proportion of workers belonging to a trade union. The state is forecast to have one of the fastest ageing populations of any state in the USA in the next twenty years. (a) Define a ‘trade union’. [2] (b) Explain two possible causes of a fall in a worker’s earnings. [4] (c) Analyse the causes of unemployment. [6] (d) Discuss whether an ageing population benefits an economy. [8]

20 marks

Mark scheme: 5(a) Define a ‘trade union’. • An association/body/group/organisation (1) which represents its members/workers by protecting workers’ rights/seeks to improve workers’ pay and/or working conditions (1). 2 5(b) Explain two possible causes of a fall in a worker’s earnings. • A change to a lower paid job (1) a worker may decide that non-wage factors, e.g. working conditions, are more important than wages (1) • A reduction in the hours worked (1) a worker may decide to do less overtime or may decide to switch to part-time work (1) • A replacement of some earnings by fringe benefits (1) an employer may cut wages in return for increasing fringe benefits such as free housing (1) • A decrease in output produced (1) a worker paid by piece rates will be paid less if their productivity falls (1) • A reduction in demand for labour (1) caused by a fall in demand for the product/recession (1) • An increase in the supply of labour (1) caused by immigration (1) • Weaker trade unions (1) weaker trade unions will have less bargaining power to protect workers’ wages (1) • Inflation (1) real wages will fall if wages rise by less than the inflation rate (1) • Firms may want to cut costs of production (1) to increase or maintain profits (1) • A rise in (direct/income tax) taxation (1) reducing disposable/net earnings (1) 4 Maximum of 2 marks for a list of causes. 1 mark for each cause identified (×2) 1 mark for each associated explanation (×2) Question Answer Marks Guidance 5(c) Analyse the causes of unemployment. • A lack of total demand (1) low output (1) cyclical unemployment (1) • Lack of skills/qualifications/training (1) resulting in occupational immobility (1) • A lack of geographical mobility (1) caused by e.g. differences in house prices (1) resulting in regional unemployment (1) • Decline of domestic industries (1) resulting in structural unemployment (1) • Workers being replaced by machines (1) resulting in technological unemployment (1) • A time delay between workers changing jobs (1) lack of information about job vacancies (1) frictional unemployment (1) • High unemployment benefits discouraging people from seeking employment (1) voluntary unemployment (1) • Demand for labour may fall at certain times of the year (1) resulting in seasonal unemployment (1) example (1) 6 Maximum of 3 marks for a list- like approach. Question Answer Marks Guidance 5(d) Discuss whether an ageing population benefits an economy. Up to 5 marks for why it might: • A rise in the average age from a young age (1) may increase the size of the labour force (1) which may reduce dependency ratio (1). • Older workers may be more experienced/skilled (1) more reliable (1) leading to higher productivity/efficiency (1) resulting in higher economic growth/lower unit costs (1). • May indicate longer life expectancy/better health (1) higher living standards (1) raising the level of economic development (1). • The outcome will depend on the cause (1) may be the result of a fall in the birth rate (1) or a fall in the death rate (1). Up to 5 marks for why it might not: • May increase need for healthcare (1) tax revenue used to provide healthcare could have been used for another purpose/opportunity cost (1) example (1) • Increase cost of pensions (1) which may require higher taxation (1) which may place a burden on workers (1). • May increase dependency ratio (1) more non-workers will have to be supported by fewer workers (1). • Reduce mobility of the labour force (1) older workers may be less geographically/occupationally mobile (1). • Older workers may be less familiar with advances in technology (1) less productive (1). 8 An ageing population does not necessarily increase, it would have to be established why growth may occur. 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 0455/22 May/June 2017

3 In 2015, money sent home by Nepalese workers working abroad accounted for 29% of Nepal’s total income. These remittances also contributed positively to the country’s current account position on its balance of payments. In Kerala, a state in India, remittances accounted for 36% of total income, with people from the state going abroad to undertake a range of jobs including working as dentists and hotel cleaners. (a) Identify two factors that affect an individual’s choice of occupation. [2] (b) Explain two effects of a country having a surplus on the current account of its balance of payments. [4] (c) Analyse why dentists are paid more than hotel cleaners. [6] (d) Discuss whether an economy will benefit from recruiting workers from other countries. [8]

20 marks

Mark scheme: 3(a) Identify two factors that affect an individual’s choice of occupation. Any two from: • wages/earnings • job satisfaction • working conditions • working hours • holidays • job security • pensions • fringe benefits • chances of promotion • skills possessed • length/nature of training 2 Don’t accept money paid etc. 3(b) Explain two effects of a country having a surplus on the current account of its balance of payments. 1 mark each for each of two effects identified: • output/income may be high • employment may be high • upward pressure on the exchange rate • total (aggregate) demand will increase • demand pull inflation 1 mark each for each of two explanations given: • a surplus means that there is more export revenue being earned than import expenditure • a surplus means that international trade is adding to demand for the country’s products which may increase employment • demand for the currency will exceed supply of the currency • exports add to total demand resulting in inflation 4 Question Answer Marks Guidance 3(c) Analyse why dentists are paid more than hotel cleaners. • Dentists are in higher demand (1) have higher productivity (1) • Dentists are in lower supply (1) long period of training (1) more skilled (1) more qualified (1) • Dentists may have stronger bargaining power (1) may be more likely to belong to a trade union/professional organisation (1) 6 Accept an answer from the perspective of hotel cleaners being paid less than dentists. Maximum of 3 marks for a list-like approach. 3(d) Discuss whether an economy will benefit from recruiting workers from other countries. Up to 5 marks for why it might: • Workers from other countries can increase the size of the country’s labour force (1) fill unfilled vacancies (1) increasing output (1) productive potential (1) may be prepared to work for lower wages (1) reducing costs of production (1) lower prices for consumers (1) become more internationally competitive (1) • Workers from other countries may reduce the dependency ratio (1) e.g. reduce the burden of pensions (1) may increase the government’s tax revenue (1) • Workers from other countries may bring in new skills/ideas/have skills in short supply e.g. doctors (1) improving the production process (1) improving the quality of output (1) increasing output/GDP/economic growth (1) • Workers from other countries will earn incomes (1) increasing consumer spending (1) Up to 5 marks for why it might not: • Workers may lack the appropriate skills (1) may take time to adapt to new working practices/new language (1) • An increase in the supply of workers may put downward pressure on wages (1) foreign workers may replace domestic workers (1) leading to unemployment (1) • More workers may put pressure on domestic infrastructure (1) including housing (1) • Some workers’ remittances may be sent home (1) increasing the current account deficit (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 0455/23 May/June 2017

2 In 2015, the global equilibrium price of milk fell. As a result, the number of farms producing milk declined. Farms tried to cut costs by becoming larger and employing fewer but more specialised workers. The reduction in the number of farms has led to less competition because some large farms have gained monopoly powers in local areas. A number of farm workers switched to other jobs, but some who remained accepted a cut in pay. (a) Define ‘equilibrium price’. [2] (b) Explain two reasons why a worker may continue in a job despite a cut in pay. [4] (c) Analyse how employing specialised workers may reduce a firm’s average costs of production. [6] (d) Discuss whether consumers would benefit if a firm became a monopoly. [8]

20 marks

Mark scheme: 2(a) Define ‘equilibrium price’. 2 The price where demand and supply are equal (2). Market clearing price (1) which ensures no surplus or shortage (1). The price which will not change (1) unless market conditions change (1). Note: award 2 marks for correctly drawn diagram. 2(b) Explain two reasons why a worker may continue in a job despite a cut 4 in pay. 1 mark each for each of two reasons identified: • pay may be lower elsewhere • no alternative employment is available / high local unemployment • job satisfaction • promotion chances • working conditions may be good • working hours may be low • fringe benefits may be good • job security • location • qualifications / specific skills • pension scheme. 1 mark each for each of two explanations given: • the pay gap may be smaller but the worker may still earn more in the job • the firm the only one employing locally / it is a monopoly employer • workers find the work interesting / challenging / rewarding • higher pay in the future • the job may provide an attractive working environment • the job may allow the workers to enjoy a lot of leisure time • fringe benefits, such as subsidised meals • maybe greater risk of losing job elsewhere • the job may be close to home – convenient and low transport costs • may not have the qualifications needed to get another job • the job may provide a good pension scheme / may have paid into the pension scheme. 2(c) Analyse how employing specialised workers may reduce a firm’s 6 average costs of production. Workers can concentrate on the task they are best at (1) gain practice in performing the task (1) higher productivity / better efficiency (1). May contribute ideas (1) on, e.g. production methods (1). Fewer mistakes may be made (1) leading to less waste / greater productivity (1). It can be quicker (1) and cheaper to train workers (1) as only learning one task/function (1). Less equipment may be needed per worker (1) reduce capital costs (1). Time can be saved (1) with the worker having to move less from one production point to another (1). 2(d) Discuss whether consumers would benefit if a firm became a 8 monopoly. Up to 5 marks for why they might: A monopoly may enjoy economies of scale (1) lower average costs of production (1) example (1) lower prices (1). A monopoly may reduce wasteful duplication of resources (1) e.g. water pipes (1). A monopoly may have more funds to invest (1) innovate more / spend on R&D (1) better quality products (1). Security of supply (1) if the government runs / regulates the monopoly (1). Monopolies may compete internationally (1) keeping prices down (1). Up to 5 marks for why they might not: Lack of competition / too much market power (1) inelastic demand (1) may mean it will charge a higher price (1) price maker (1) reduce supply (1) innovate less (1) lower quality products (1) lack of choice for consumers (1). May experience diseconomies of scale (1) example/s (1) higher average costs (1) higher prices (1).

This question in 0455/21 Oct/Nov 2017

1 From inflation to deflation For some time, many central banks have tried to achieve a target inflation rate of about 2%. A small and steady rise in the price level can bring a number of benefits to an economy. For central banks and governments, the problem used to be stopping the inflation rate from going above the target rate while keeping the unemployment rate low. Now the problem has changed, and the risk is that inflation will fall below this target rate. At the end of 2014 the consumer prices index in China stood at 100.5. The inflation rate in the country in 2015 was 2%. Meanwhile, a number of countries in Europe experienced deflation. This had several consequences, including increasing the gap between the wages of skilled and unskilled workers. One major reason for the downward pressure on inflation was a fall in the global price of oil from US$120 to US$66 a barrel in 2015. This reduced the price of energy and transport. Lower transport costs had a noticeable impact on the price of food. Fig. 1 shows how the market for food was affected in 2015. S1 price of food S2 P1 P2 D O Q1 Q2 quantity of food Fig. 1 The market for food in 2015 At the same time as falling inflation, some countries experienced falling unemployment. Other countries, however, experienced both falling inflation and rising unemployment. For example, France saw unemployment rising between 2014 and 2015. This put upward pressure on French Government spending. (a) Identify, from the extract, two aims of government policies. [2] (b) Explain two problems caused by inflation. [4] (c) Calculate, using information from the extract: (i) the percentage fall in the global price of a barrel of oil in 2015 [2] (ii) the consumer prices index in China at the end of 2015. [2] (d) Analyse why an increase in unemployment might cause an increase in government spending. [5] (e) Discuss whether the supply of workers for unskilled jobs will be high in a country. [5] (f) Explain, using information from the extract and Fig. 1, what happened to the market for food in 2015. [4] (g) Discuss whether a decrease in income tax would reduce deflation. [6]

30 marks

Mark scheme: 1(a) Identify, from the extract, two aims of government policies. Price stability / low inflation / stopping inflation rate rising above target (1) full employment / low unemployment (1). 2 Question Answer Marks Guidance 1(b) Explain two problems caused by inflation. 1 mark each for each of two problems identified: • worsen current account position • redistribution of income • uncertainty • menu costs • shoe leather costs • inflationary noise • fiscal drag • higher unemployment • money may cease to carry out its functions • lower demand / lower output / lower economic growth • lower purchasing power / fall in the value of money • lower standards of living / higher cost of living. 1 mark each for each of two explanations: • export prices will rise – reduce international competitiveness • lenders / those on fixed incomes may lose and borrowers may gain • lack of certainty may discourage investment • cost of changing e.g. price labels • cost of moving money around in search of highest interest rate • confusion caused by not being able to work out change in relative prices • people’s income being dragged into higher tax brackets • costs of production may increase, causing firms to reduce the number of workers they employ • during periods of hyperinflation, money may cease to be generally acceptable • cost-push inflation will reduce total demand • purchasing power will fall if incomes rise by less than prices 4 Fall in the value of the currency on its own is too vague – must make clear reference to internal value. Question Answer Marks Guidance 1(c)(i) Calculate, using information from the extract, the percentage fall in the global price of a barrel of oil in 2015 45% (2) Correct working i.e. $54 / $120 × 100 (1) 2 1(c)(ii) Calculate, using information from the extract, the consumer prices index in China at the end of 2015. 102.51 (2) Correct working i.e. 100.5 × 2 / 100 + 100.5 or 2.01 (1) 2 Accept 102.5 Question Answer Marks Guidance 1(d) Analyse why an increase in unemployment might cause an increase in government spending. It may increase government spending on unemployment benefits (1) the unemployed may suffer worse health (1) this may increase government spending on healthcare (1) if crime rises, the government may spend more on law and order (1). To reduce unemployment, the government may adopt expansionary fiscal policy / policy to stimulate the economy / policy to increase economic growth (1) to increase total demand (1) to create more jobs (1). Government may provide subsidies to firms (1) to encourage them to increase output and employment (1). Government may spend more on education (1) to increase skills of workers (1) reduce structural unemployment (1). Unemployment may increase poverty (1) leading to more spending on other benefits (1). Government may employ more workers in the public sector (1) to reduce unemployment / will increase wage bill (1). Government may spend on infrastructure (1) to raise labour mobility (1). 5 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 1(e) Discuss whether the supply of workers for unskilled jobs will be high in a country. Up to 3 marks for why it might: Levels of education and training may be low (1) in some developing countries there is a relatively high illiteracy rate (1) workers may lack skills/qualifications (1). Unskilled jobs may provide good non-wage benefits (1) example e.g. short working hours (1). The supply may be high due to immigration of unskilled workers / high population (1) attracted by wages that are higher than the countries they come from (1). Most workers may be employed in the primary sector (1) which may offer largely unskilled jobs (1). May be high unemployment (1) so some skilled workers may have to apply for unskilled jobs (1). May be high unemployment benefit (1) discourages incentive to work (1). Up to 3 marks for why it might not: Unskilled jobs are likely to be relatively poorly paid (1) wage rate is a key influence on jobs workers select (1). Unskilled jobs may offer poor working conditions (1) example e.g. hard manual work (1). Unskilled workers may emigrate to other countries (1) if wages/working conditions are better in other countries (1). Work may be capital-intensive (1) requiring high skills (1). 5 Question Answer Marks Guidance 1(f) Explain, using information from the extract and Fig. 1, what happened to the market for food in 2015. The diagram shows supply increasing (1) price falling (1) demand extending / more food / higher quantity (1) costs of production falling due to lower transport costs (1) inelastic supply (1) inelastic demand (1). 4 1(g) Discuss whether a decrease in income tax would reduce deflation. Up to 4 marks for why it might: A reduction in income tax will increase disposable income (1) may raise consumer expenditure (1) may raise investment (1) increase total demand (1) higher demand may encourage firms to raise prices / demand-pull inflation (1). Up to 4 marks for why it might not: Consumers may not spend more / may save more (1) if concerned about the future (1) if expect prices to be lower in the future (1). A decrease in income tax may not reduce deflation caused by lower costs of production (1) e.g. advances in technology / investment may continue pushing down the price level (1). A decrease in income tax may reduce government spending (1) higher consumer spending may be offset by lower government spending (1). May act as incentive to work (1) may increase productivity / efficiency (1) lower costs of production / increase total (aggregate) supply (1). Consumers may spend on imports (1). 6

This question in 0455/22 Oct/Nov 2017

3 Rich people in some countries are now working for more hours on average than poor people. One reason for this is thought to be that well-paid jobs provide more job satisfaction. Gaining enjoyment from work can lead to high labour productivity. (a) What is a possible opportunity cost of working? [2] (b) Explain two reasons why older workers tend to earn more than younger workers. [4] (c) Analyse, using a production possibility curve diagram, how an increase in labour productivity will affect an economy. [6] (d) Discuss whether the rich in one country will save more than the rich in another country. [8]

20 marks

Mark scheme: 3(a) What is a possible opportunity cost of working? Opportunity cost is the (next) best alternative forgone (1). Opportunity cost is leisure / education / retirement / raising a family (1). 2 3(b) Explain two reasons why older workers tend to earn more than young workers. 1 mark each for each of two reasons identified: An older worker (or vice versa): • may have gained more qualifications • may have received more training • may have gained experience • may have been promoted • length of service. 1 mark each for each of two explanations given: • a more qualified worker can apply for a better paid job • a better trained worker will have more choice of occupation • more experience is likely to increase productivity/skills • over time a worker may become better at doing the job • in some jobs there are regular increases in pay. 4 Some candidates may answer from the perspective of younger workers earning less than older workers. Question Answer Marks Guidance 3(c) Analyse, using a production possibility curve diagram, how an increase in labour productivity will affect an economy. Up to 4 marks for the diagram: Axes correctly labelled (1). Original production possibility curve / straight downward sloping line drawn to the axes (1). New PPC (1). Indication of shift to the right – arrow or labelling (1). Up to 2 marks for written explanation: An increase in labour productivity increases the quality of labour (1) increases output per worker hour / efficiency (1) increases productive potential / cause economic growth (1). 6 O e.g. capital goods e.g. consumer goods B B A A Question Answer Marks Guidance 3(d) Discuss whether the rich in one country will save more than the rich in another country. Up to 5 marks for why they might: The rich in one country may save more if they have more income than the rich in another country (1) people tend to save more as income rises (1) greater ability to save (1). The interest rate may be higher in the country (1) greater financial return from saving / save more / spend less (1). There may be more tax incentives in the country to encourage saving (1) i.e. interest rates earned not taxed or taxed at a lower rate (1). There may be a greater fear of a recession (1) rich expecting their income to be lower in the future / risk of losing their jobs (1). Up to 5 marks for why they might not: The rich in the country may be more optimistic about the future / may have greater job security (1) which will encourage them to spend a higher proportion of their income (1). There may be more of a culture of saving in another country (1). There may be more / greater range of financial institutions in another country (1) encouraging more saving there (1). The total number of the rich may be higher in another country (1) so even if, on average, the rich save more in the country, total saving may be higher in another country (1). There may be higher inflation / greater expectation of higher inflation in the future (1) encouraging higher spending now (1). 8

This question in 0455/22 Oct/Nov 2017

5 In 2015, the island of Puerto Rico announced it was considering ending some of its trade embargoes. Its government was also reviewing the amount it was planning to spend. Incomes have been increasing in Puerto Rico with some workers doing better than others. There have also been changes on the micro level, with elasticities of demand and supply changing in some markets. (a) Identify two reasons why a government may place an embargo on the import of a product. [2] (b) Explain two reasons why some young workers may earn more than some old workers. [4] (c) Analyse the factors that can make the supply of a product more price-elastic. [6] (d) Discuss whether a decrease in government spending will benefit an economy. [8]

20 marks

Mark scheme: 5(a) Identify two reasons why a government may place an embargo on the import of a product. 1 mark each for each of two reasons identified: • to improve the current account position • to prevent the import of a harmful product • to retaliate against another country’s embargo • to protect domestic employment / infant industry / high unemployment. 2 Question Answer Marks Guidance 5(b) Explain two reasons why some young workers may earn more than some old workers. 1 mark each for each of two reasons identified: • may be more qualified • may be more skilled • may be more up to date with the latest technology • may be more mobile • may work longer hours / less time off for illness • firms discriminate against older workers • work primarily in tertiary industry rather than primary. 1 mark each for each of two explanations: • people with high qualifications are in short supply • people with more skills may be more productive • demand is likely to be high for people who have good technical skills • workers who can change occupations and locations will have more choice of jobs • young workers may be less likely to work part-time / more likely to work overtime. • old workers perceived to be less productive. 4 Accept an argument why some old workers may earn less than some young workers. 5(c) Analyse the factors that may make the supply of a product more price-elastic. The production period may decrease (1) e.g. due to advances in technology (1) making it easier to alter the quantity produced (1). The time period available (1) easier to adjust supply in longer time period (1). It may become easier to store the product (1) e.g. due to the building of more storage facilities (1) making it easier to bring more products onto the market or withdraw them from the market (1). More sources of a raw material may be found (1) giving greater flexibility of supply (1). Mobility of factors of production (1) able to substitute between products being produced (1). Ability to source additional resources /output (1) at similar cost retaining profit margins (1). Lack of barriers to entry (1) enables new firms to enter the market (1). 6 Question Answer Marks Guidance 5(d) Discuss whether a decrease in government spending will benefit an economy. Up to 5 marks for why it might: Lower government spending may reduce total demand (1) lower inflation / demand-pull inflation (1). Lower government spending on e.g. benefits, public sector wages (1) may reduce spending on imports (1) improve the current account position (1). Lower government spending on benefits may encourage the incentive to work (1) reduce unemployment (1). Lower government spending may enable the government to cut taxes (1) increase the incentive to invest (1) the incentive to work (1) disposable income increases (1) increase output (1). Lower government spending may allow growth of the private sector (1) by the release of resources (1). Up to 5 marks for why it might not: May cause cyclical unemployment (1) by reducing total demand (1). If spending on education is cut (1) may reduce the quality / skills / productivity of labour force (1) this may lower output (1) cause structural unemployment (1). Lower government subsidies (1) to infant industries may worsen the current account position (1) may reduce supply (1) cause cost-push inflation (1). Lower government spending on education and healthcare (1) may lower living standards (1) increase poverty (1). 8

This question in 0455/23 Oct/Nov 2017

1 Banking and unemployment in Morocco Morocco’s banking industry has been described as one of the best in Africa. It has some of Africa’s largest commercial banks, but three out of nineteen control more than two-thirds of the market. These three have grown mostly through mergers and it is expected more mergers will occur between Moroccan banks in the future. The banks make use of brand names, set their own interest rates on loans and provide some different services. The larger banks tend to lend to large firms. Small and medium sized firms find it more difficult to get loans. More than 60% of the population now make use of the services of commercial banks. The proportion of families opening savings accounts at commercial banks is increasing. Moroccan banks now have branches in 22 African countries as well as a number of European countries. They are also expanding in Morocco, creating more jobs. Morocco has a relatively high unemployment rate. Fig. 1 shows the unemployment rate in 2015 in a range of African countries including Benin, a relatively poor country. Benin has a large labour-intensive, subsistence farming sector. Fig. 1 also shows youth unemployment and population growth. Unemployment rates vary between different groups. Youth unemployment is often twice the rate of the overall unemployment rate. Fig. 1 The unemployment rate, youth unemployment rate and population growth rate in selected African countries in 2015 45 40 35 30 (%) 25 rate 20 15 10 5 0 Benin Egypt Morocco Nigeria Uganda Unemployment rate Youth unemployment rate Population growth rate In Morocco, the population is increasing at a faster rate than new jobs are being created. The rising unemployment rate is affecting wage rates in the country. As with unemployment, wage rates vary between different groups. Older workers, for example, tend to be paid more than younger workers. (a) Identify, using information from the extract, two functions of a commercial bank. [2] (b) Explain, using information from the extract, two reasons why the banking market in Morocco is not an example of perfect competition. [4] (c) Analyse why a commercial bank may prefer to sell its services in foreign countries rather than in its home country. [5] (d) Analyse whether the information in Fig. 1 supports the view that: (i) countries with high population growth rates have a high unemployment rate [2] (ii) the youth unemployment rate is usually twice that of the overall unemployment rate. [2] (e) Discuss whether or not older workers are always paid more than younger workers. [5] (f) Explain, using information from the extract, one reason why a relatively poor country may have a low unemployment rate. [4] (g) Discuss whether or not commercial banks in Morocco would benefit from further mergers. [6]

30 marks

Mark scheme: 1(a) Identify, using information from the extract, TWO functions of a commercial bank. Providing savings accounts (1) lending (1) setting interest rates on loans (1). 2 just look at the first three. 1(b) Explain, using information from the extract, TWO reasons why the banking market in Morocco is NOT an example of perfect competition. Three banks control more than two-thirds of the market (1) implies high % of market/dominance/not large number of small firms/ price maker (1). The banks use brand names (1) there is no advertising/no brand loyalty in perfect competition (1). Set own interest rates (1) in perfect competition, firms are price takers/prices determined by the market (1). Provide different services (1) the product is homogeneous in perfect competition (1). 4 1(c) Analyse why a commercial bank may prefer to sell its services in foreign countries rather than its home country. It may make more profit (1) demand for banking services may be higher (1) demand may be falling in home country but rising abroad (1) due to e.g. higher incomes/larger population (1) less competition (1). Costs of production may be lower abroad/efficiency higher (1) due to e.g. lower rents/lower wages (1). There may be a greater availability of skilled labour abroad (1) due to better education (1). Foreign governments may provide subsidies (1) have lower rates of tax (1). Unfavourable domestic policies (1) e.g. restrictions on the money supply (1) limits the bank’s ability to make profits domestically (1). Selling services abroad may help to reduce risks (1). 5 1(d)(i) Analyse whether the information in Fig.1 supports the view that: (i) countries with high population growth rates have a high unemployment rate Generally no (1) supporting evidence e.g. countries with the highest population growth rate, Uganda and Benin, had the lowest unemployment rates (1). 2 Accept any relevant country evidence. Question Answer Marks Guidance 1(d)(ii) Analyse whether the information in Fig.1 supports the view that: (ii) the youth unemployment rate is usually twice that of the overall unemployment rate. Generally yes (1) Supporting example (1) Egypt is the exception (youth unemployment rate almost four times as high) (1). Morocco is exactly twice (1) no other country is exactly twice (1). 2 1(e) Discuss whether or not older workers are always paid more than younger workers. Up to 3 marks for why older workers may be paid more: Older workers may have been with a firm for a long time (1) may have gained promotion (1) developed skills (1) gained experience (1) may have undertaken training (1) may be in managerial jobs (1) may be more productive (1). Up to 3 marks for why older workers may not be paid more: May be less productive (1) less fit for physical work (1) may be out of date with new technology (1) lack new ideas (1) may have had less education in the past (1). May be less occupationally mobile (1) less willing/able switch jobs (1). May be less geographically mobile (1) less willing/able to move in search of higher paid employment (1). 5 Accept skills or efficiency on either side. One mark if given on both sides. More marks can only be awarded if a reason for better skills is given. 1(f) Explain, using information from the extract, ONE reason why a relatively poor country may have a low unemployment rate. A large proportion of its population is employed in agriculture (1) in subsistence farming (will employ family members) (1) labour-intensive (1) would employ a high proportion of labour (1) relative to capital (1) Lack finance to invest in new (labour-saving) technology (1). No specific skills required for (subsistence) agriculture / low entry requirements for unskilled (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not commercial banks in Morocco would benefit from further mergers. Up to 4 marks for why they might: The merger would give the banks / firms more market power (1) a relatively quick way to grow (1) may be able to raise price (1) without losing too many customers (1). It could be a horizontal merger (1) which may enable greater advantage to be taken of economies of scale (1) example (1) lower (average) costs (1) lower prices / increased demand (1) higher profit (1). Up to 4 marks for why it might not: The reduction in competition may make the banks / firms complacent (1) may not try to keep costs down (1). The firms may experience diseconomies of scale (1) example (1) higher (average) costs (1) higher prices / reduced demand (1) lower profit (1). Costs of integrating firms such as redundancies/loss of morale (1). Large firms may lose customers due to lack of personal touch (1). 6 Accept profits and/or costs on either side. One mark if given on both sides. More marks can only be awarded if a reason for change in profits is given.

This question in 0455/21 May/June 2018

2 In England football stadiums are usually built and financed by the private sector, but in some countries the stadiums are built and financed by the government. Many football stadiums in the English Premier League are full on match days. In the short run the supply of seats is perfectly inelastic. The football clubs could actually raise prices, still sell their tickets and so raise their profits. Premier League footballers currently receive very high wages. (a) Define perfectly inelastic supply. [2] (b) Explain two reasons why a firm may not aim to earn maximum profit. [4] (c) Analyse why Premier League footballers receive very high wages. [6] (d) Discuss whether or not a government should spend some of its tax revenue on building sports stadiums. [8]

20 marks

Mark scheme: 2(a) Define perfectly inelastic supply. A change in price causes no change in supply (2). Correct formula (1). A PES of 0 (1). 2 2(b) Explain TWO reasons why a firm may NOT aim to earn maximum profit. A firm may be trying to grow (1) to capture a larger share of the market/to increase pay and status of managers (1). A firm may be trying to maximise sales revenue (1) to make it easier to grow/gain market share (1). A firm may be aiming for a reasonable but not maximum profit/profit satisficing (1) in order to pursue other goals (1). e.g. raising wages to keep workers happy (1). A firm may not know what output will maximise profit (1) due to lack of information about costs/demand (1). A firm may be trying to survive (1) in difficult situations (1). May be in public sector/charity (1) and thus have goals related to social welfare/reducing inequalities (1). 4 2(c) Analyse why Premier League footballers receive very high wages. High demand (1) due to high demand for the services of footballers (1) many people want to watch football matches in stadiums (1) on television (1). Football clubs receive high incomes (1) compete for players (1). Low supply (1) have to be skilled (1) not many possess the skills (1). Premier League players may have strong bargaining power (1) through strong professional organisation/trade union/agents (1). To compensate for negative aspects of the job (1) e.g. risk of personal injury (1) other relevant example (1). 6 Up to 2 marks for a relevant diagram – 1 for high demand and 1 for low supply. Max 4 marks if no specific application to footballers. Question Answer Marks Guidance 2(d) Discuss whether or not a government should spend some of its tax revenue on building sports stadiums. Up to 5 marks for why it should: Building sports stadiums may encourage people to participate in sport (1) increase health/living standards (1). It can generate jobs (1) increase incomes (1) reduce poverty (1). Sports stadiums and sporting events may attract foreign tourists (1) improve the current account of the balance of payments (1). Generate government revenue which could be spent on e.g. health (1). Up to 5 marks for why it should not: It will involve an opportunity cost (1) the tax revenue could be used on e.g. education (1). It may generate external costs (1) e.g. noise suffered by local residents (1). The private sector may be more efficient in building the stadiums (1) profit motive (1) . Wasteful use of government funds (1) since benefits may be mainly private benefits (1). Those who visit the sports stadiums may be richer (1) than some of the taxpayers (1) redistribution of income from the poor to the rich (1). Could result in a budget deficit (1) or need to raise taxes (1). 8 Accept, but do not expect, references to public and merit goods.

This question in 0455/21 May/June 2018

6 More than 80% of Qatar’s population are immigrants. Net immigration has helped to meet the country’s demand for labour. As well as a shortage of workers, the country has a shortage of drinking water. The government has run public campaigns to stop people using their free supply of drinking water to fill their swimming pools and water their gardens. In 2016, the government increased its spending to increase the country’s economic growth rate. (a) Define net immigration. [2] (b) Explain how market forces would respond to a shortage of drinking water. [4] (c) Analyse what determines the demand for labour. [6] (d) Discuss whether or not increased government spending will increase economic growth. [8]

20 marks

Mark scheme: 6(a) Define net immigration. More people coming to live in the country than leaving the country to live elsewhere (2). The number of immigrants exceeding emigrants (2). The difference between immigration and emigration (1). People coming to live in the country (1). 2 6(b) Explain how market forces would respond to a shortage of drinking water. A shortage means demand exceeds supply (1) price would rise (1) more would be supplied (1) due to the profit motive (1) price signal sent to producers (1) demand would also contract (1). Demand likely to be price inelastic (1) leading to large rise in price (1). 4 Up to 2 marks for a relevant diagram, showing demand being greater than supply (1) and price below equilibrium (1). 6(c) Analyse what determines the demand for labour. Demand for goods and services (1) demand for labour is a derived demand (1). Productivity/skills (1) higher productivity will increase demand for labour (1). Wage rates (1) higher wage rates will reduce demand for labour (1). Price of capital (1) higher price may increase demand for labour if they are substitutes (1) higher price will reduce demand for labour if they are complements (1). Non-wage costs e.g. employer’s contribution to pension scheme (1) higher costs reduce demand for labour (1). Taxes on employment of labour (1) higher taxes reduce demand for labour (1). Government employment subsidies (1) higher subsidies will increase demand for labour (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not increased government spending will increase economic growth. Up to 5 marks for why it might: Higher government spending will increase total (aggregate) demand (1) higher total demand may encourage firms to increase output (1). Higher government spending on education/training (1) health (1) may raise labour productivity (1) increase productive potential/long run economic growth (1). Higher government spending on infrastructure (1) will reduce costs of production (1) encouraging firms to expand (1). Higher government spending on R & D (1) would lower costs/raise productive potential (1). Up to 5 marks for why it might not: Higher government spending may increase inflation (1) this may make products less internationally competitive (1) reducing net exports (1) reducing output (1). Higher government spending may not increase total demand if offset by e.g. lower consumer expenditure (1). Higher government spending may not increase total demand if it is accompanied by higher taxation (1). Higher government spending on education/training may not increase labour productivity if it does not raise the quality of education/training (1). Higher benefits (1) may reduce incentives to work (1). Government spending may be spent wastefully/inefficiently (1). 8

This question in 0455/21 May/June 2018

5 In October 2015, the Chinese government switched from its one child policy to a two child policy partly because of the challenges caused by an ageing population. The birth rate was falling anyway due to rising female participation in the labour force, improvements in education, later marriages and the rapidly rising price of housing. (a) Identify two causes of an ageing population. [2] (b) Explain why the price of housing may increase. [4] (c) Analyse why more women may enter the labour force. [6] (d) Discuss whether or not a rise in the birth rate will benefit an economy. [8]

20 marks

Mark scheme: 5(a) Identify two causes of an ageing population. One mark each for each of two from: A fall in the birth rate (1) a fall in the death rate / longer life expectancy (1) net emigration of young people / net immigration of old people (1). 2 result in a fall in the birth rate or fall in the death rate. These may be two causes of a fall in the birth rate or a fall in the death rate e.g. better healthcare and better nutrition. 5(b) Explain why the price of housing may increase. Increase in demand (1) due to e.g. increase in income / rise in population (1). Decrease in supply (1) due to e.g. rise in costs of production (1). 4 5(c) Analyse why more women may enter the labour force. May be a reduction in gender discrimination (1) a change in social attitudes (1) making it easier for women to get jobs (1) be promoted (1). There may be a rise in the pay available to women (1) increasing the opportunity cost of not being in the labour force (1). There may be a fall in the birth rate (1) making it easier for women to work (1). There may be improvements in the education of women (1) increasing their skills / raising their earning potential (1). There may be a rise in part-time and/or flexible employment (1) making it easier for women to combine working and caring for families (1). Increases in the cost of living (1) may create a need for higher family income / to support their family (1). Government measures to encourage the entry of women into the labour force (1) e.g. provision of free or subsidised childcare (1). 6 5(d) Discuss whether or not a rise in the birth rate will benefit an economy. Up to 5 marks for why it might: A higher birth rate will increase the labour force in the long run (1) increase the potential output (1) total (aggregate) demand may rise (1). It will lower the average age of the population, (1) younger workers may be occupationally mobile (1) geographically mobile (1) may be able to work with the latest technology (1). There may be rise in tax revenue (1). If the country is underpopulated (1) better use might be made of resources in the long run (1). Demand for products related to children will increase (1) benefiting e.g. toy industry (1). Up to 5 marks for why it might not: A higher birth rate will increase the number of dependents (1) resources that could have been used to e.g. increase the quality of healthcare will have to be devoted to providing more healthcare services to mothers and children (1) there will be an opportunity cost (1). It will reduce the size of the labour force in the short run (1) as mothers leave it to have children (1). If the country is overpopulated (1) resources may be depleted more quickly (1). 8 Reward but do not expect reference to the idea of an optimum population size.

This question in 0455/22 May/June 2018

6 Teachers in many countries oppose their governments’ cuts in spending on education. They worry that this could reduce the standard of education and also the welfare of teachers employed in the state sector. Some teachers specialise in teaching one subject while others teach a number of subjects. (a) Identify two reasons why a person may want to work in the state sector. [2] (b) Explain two reasons why a government may want to cut spending on education. [4] (c) Analyse the contribution that education can make in an economy. [6] (d) Discuss whether or not a worker would benefit by specialising. [8]

20 marks

Mark scheme: 6(a) Identify two reasons why a person may want to work in the state sector. Higher wages (1) job security (1) better pension (1) good working conditions (1) status of public sector worker (1) job satisfaction e.g. teacher (1) patriotism / to perform a public service (1) state sector jobs may be more widely available (1). 2 6(b) Explain two reasons why a government may want to cut spending on education. Government would like to reduce its total spending (1) to reduce government borrowing (1) cut the national debt (1) avoid having to raise taxes (1) to reduce total demand (1) reducing inflation (1) Spending on education incurs an opportunity cost (1) government would prefer to spend on other areas e.g. defence, healthcare (1). Education is less valued by the public (1) than other services e.g. health, defence (1). Government would like to reduce wasteful expenditure (1) to increase the efficiency of the public sector (1). A drop in the number of students in education (1) less spending needed (1). Government wants students to bear a greater proportion of costs (1) since students ultimately benefit from better paid jobs (1). 4 Question Answer Marks Guidance 6(c) Analyse the contribution that education can make in an economy. Education enables the population to develop the knowledge (1) skills (1) for future development (1) better skills may improve productivity (1) increased output / economic growth (1) improved quality of output (1) better skills may attract foreign investors / MNCs to the country (1). Educated people have better job opportunities (1) potentially enabling them to earn higher incomes (1) leading to increased consumption (1) which reduces poverty / improves living standards (1). Increased consumption could lead to higher demand in the economy (1) increasing output (1). Education enables the economy to move to a tertiary based economy (1) tertiary based economy relies heavily upon a well-educated population (1). Education enables women to play a more active role in the economy (1) enabling them to find jobs (1) and earn a living independently (1). Education enables people to start their own business (1) increasing output (1). Education provides employment e.g. teachers, janitors (1) More highly educated people may be more concerned about the environment (1) may reduce external costs (1). More highly educated people may be healthier (1) reducing costs of healthcare / raising productivity (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not a worker would always benefit by specialising. Up to 5 marks for why they would benefit: By specialising workers focus on what they are best at (1) acquiring better skills (1) quality of goods increase (1) output/productivity increases (1) worker earns a higher income (1) easier to find job in the same sector (1) more likely to achieve promotion (1) Saves time (1) workers don’t need to think of next process / move from place to place (1). Specialised workers are limited in supply (1) causing their wage to be higher (1). Invention of new technology (1) makes the job easier (1). Up to 5 marks for why they would not benefit: Workers may experience boredom (1) if the work is repetitive (1) reducing productivity/efficiency/motivation (1) Those with a limited amount of skills (1) may find it difficult to obtain alternative jobs (1) may be replaced by machinery more easily (1) risk of unemployment (1). Workers may be over-dependent / too reliant on one skill / risk over- specialisation (1) unable to complete the task without the help of others (1) especially when production is disrupted (1). Training to specialise has an opportunity cost (1) lost income / later starting date (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

7 During a recent recession in Europe, Spain had an unemployment rate of over 25%. This led to high levels of emigration from Spain into higher-wage European economies such as Germany and the UK. This has created both opportunities and problems in countries where immigration was higher than emigration. (a) Define unemployment. [2] (b) Explain two reasons for wage differentials between different economies. [4] (c) Analyse how a recession in one country could cause unemployment in another country. [6] (d) Discuss whether the economic advantages of immigration into countries such as the UK and Germany outweigh the economic disadvantages. [8]

20 marks

Mark scheme: 7(a) Define unemployment. Unemployment is the condition where a person is able (1) and willing to work / actively looking for a job (1) but unable to find a job (1). 2 Question Answer Marks Guidance 7(b) Explain two reasons for wage differentials amongst different economies. Difference in demand for labour (1) difference in supply of labour (1). Whether or not an economy is in recession (1) economies in decline will have a low demand for labour / expanding economies will have a high demand (1). Difference in population affecting the supply of labour (1) net migration rates / birth rates / death rates (1) more supply would decrease wages / lower supply would increase wages (1). Difference in demand for goods and services (1) affecting the demand for workers as demand for workers are derived demand (1). Difference in government spending on e.g. education (1) affects wage of pubic sector (1). Difference in productivity affecting the demand (1) high productivity leads to higher output (1) leads to higher wages (1). Difference in trade union and collective bargaining power (1) countries with stronger trade unions will push wages up (1). Difference in living costs / inflation (1) e.g. food prices (1) wage demands increase (1). 4 Accept reasons linked to differences in wages between countries as well as differences in high-paid/low-paid gap within an economy. 7(c) Analyse how a recession in one country could cause unemployment in another country. Emigration to another country (1) may push that country’s workers out of a job (1). Income / GDP per head would have fallen (1) the country may buy fewer imports (1) demand for the country’s products may fall (1) firms in exporting countries may reduce output (1) lower output would reduce demand for workers (1). MNCs in the country may make less profit / make a loss (1) may reduce production in other countries (1). A recession in a large economy could create worldwide uncertainty (1) discourage investment / output of capital goods (1) reduce employment in the capital goods industries of another country (1). 6 Question Answer Marks Guidance 7(d) Discuss whether or not the economic advantages of immigration into countries such as the UK and Germany outweigh the economic disadvantages. Up to 5 marks for advantages: Immigration increases the size of the labour force of the country (1) the immigrants may be young working age people (1) this could increase the productivity of the economy (1) increasing the supply-side capacity of the economy (1) leading to economic growth. Immigrants may take jobs which locals are unwilling to take (1) where a shortage occurs (1) example (1) Immigrants may be willing to work for lower wages (1) production costs would fall (1) leading to lower prices (1) Immigration leads to increased competition for jobs (1) workers need to work harder (1) overall productivity increases (1) Immigrants may also bring in capital (1) to start their own business (1) creating even more jobs (1). Immigrants spend money in the economy / increasing domestic consumption (1) increasing total demand / causing economic growth (1) paying indirect taxes (1). Immigrants may also work and pay direct taxes / income tax (1) government revenue increases (1) enabling more government spending (1) such as health and education (1). Up to 5 marks for disadvantages: Immigrants may take jobs where locals could be employed (1) increasing unemployment in that country (1). Some immigrants have better qualifications and skills (1) taking jobs from less qualified and lower skilled local workers (1). Immigrants may be more willing to take up jobs with lower pay (1) locals will not feel that such low pay is appropriate (1) depressing wage growth (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Question Answer Marks Guidance 7(d) Large supply of foreign workers so local businesses will be less willing to take on apprentices / train new workers (1) leaving the locals who are unemployed with low skills / unable to take up a job and learn appropriate skills (1). Increased demand for healthcare and education (1) increases demand on government resources (1). Immigrants may cause increased demand for houses (1) pushing house prices up (1) making housing less affordable to local residents (1).

This question in 0455/21 Oct/Nov 2018

4 UK students often take jobs during their holidays and some save part of their income to pay their tuition fees. UK graduates earn, on average, £8500 a year more than non-graduates. Economics graduates had the second highest average earnings of all UK graduates in 2016. The top 10% of economics graduates earned £115 000 a year. (a) Define earnings. [2] (b) Explain two non-wage factors that influence an individual’s choice of occupation. [4] (c) Analyse why economics graduates are well-paid. [6] (d) Discuss whether or not people in developed countries are likely to save more than people in developing countries. [8]

20 marks

Mark scheme: 4(a) Define earnings. Income / money received by a factor of production (1) received from working / payment to workers (1) includes wages/salaries (1) overtime payments / bonuses / commission (1).income from other sources e.g. undertaking financial investment / renting / running a business (1). 2 4(b) Explain two non-wage factors that influence an individual’s choice of occupation. Accept any valid non-wage factor (1) with a valid explanation (1) e.g. Short working hours (1) would increase leisure time (1) Job security (1) reduces stress (1) Promotion chances (1) increase wages in long run (1) Fringe benefit / example (1) explanation of fringe benefit / explanation of example (1). Qualifications / skills / education (1) allow an individual to choose an appropriate occupation (1). 4 4(c) Analyse why economics graduates are well-paid. Graduates are skilled / more knowledgeable (1) have high levels of qualifications/training/education (1) productive / efficient (1) demand for their services is high (1) demand is inelastic (1) supply is low (1) long period of training required (1) supply is inelastic (1). Graduates tend to work in jobs with high pay/position/responsibility/stress (1) example (1). An economics degree is held in high esteem as a qualification (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not people in developed countries are likely to save more than people in developing countries. Up to 5 marks for why they might: On average people in developed countries have a higher income (1) so are more able to save (1) or more able to save larger amounts so may gain a higher interest rate (1). There tends to be a greater range of financial institutions in developed countries (1) more secure financial institutions (1) this gives greater confidence in saving (1). People in some developed countries may have a culture of saving (1) e.g. Japan (1). Inflation rate may be lower in developed countries (1) enabling people to save more of their income (1). Up to 5 marks for why they might not: The lack of a developed welfare system in some developing countries (1) means that some people may save more for e.g. their old age / retirement (1) future health problems (1). There may be greater confidence about economic prospects in some developed countries (1) encouraging people to spend more (1). The rate of interest may be lower in some developed countries (1) reducing the incentive to save (1). Some people in developing countries are richer than some people in developed countries (1). Some people in developing countries may save more to spend on higher education to increase the opportunity to work abroad (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. Accept responses from the opposite perspective, i.e. people in developing countries are likely to save less than those in developed countries.

This question in 0455/22 Oct/Nov 2018

6 A relatively high proportion of people from the Philippines either work in call centres or abroad. Call centres employ 1.2 million people in the Philippines and account for 8% of the country’s Gross Domestic Product. Due to the time difference with the US, the main market for call centre services, many Filipinos have to work at night. The call centres are introducing new technology including robots. (a) Define Gross Domestic Product (GDP). [2] (b) Explain two reasons why a person may be willing to work at night. [4] (c) Analyse how having some of its population working abroad may benefit an economy. [6] (d) Discuss whether or not advances in technology benefit an economy. [8]

20 marks

Mark scheme: 6(a) Define Gross Domestic Product. The (total) output/income/expenditure (1) of a country/economy (1). 2 6(b) Explain two reasons why a person may be willing to work at night. A person may lack the skills to gain another job (1) have no choice (1). There may be a high unemployment rate (1) a person will be grateful for any job (1). Night work may fit in with family circumstances (1) a person may have to look after children / older relatives during the day (1) The job may be well paid (1) compensating for the inconvenience (1). The job may offer fringe benefits (1) example e.g. longer holidays (1). A person may enjoy their job (1) example (1). A person may need to earn additional income (1) to supplement income from day job / to support their family (1). 4 6(c) Analyse how having some of its population working abroad may benefit an economy. The workers may send income home (1) helping to support dependents / raise living standards of dependents (1) saving on some government benefits having to be paid (1). They may gain skills abroad (1) if they return they will increase the productivity of the labour force (1) may raise output / cause economic growth (1) reduce firms costs of production (1). The money they sent back will be an inflow of foreign currency / remittance / primary income (1) improving the current account position on the balance of payments (1). May reduce unemployment (1) if the workers’ skills are not in demand at home (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not advances in technology benefit an economy. Up to 5 marks for why they might: Advances in technology will raise the quality / productivity of capital / labour (1) it will increase the output that can be made / cause economic growth / increase GDP (1) may raise income (1) Advances in technology can lower costs of production (1) reduce cost-push inflation (1) make domestic products more internationally competitive (1) improve the current account position of the balance of payments (1). May raise the quality of products produced (1) raise living standards (1) make domestic products more quality competitive (1) improve the position of the current account of the balance of payments (1). May attract MNCs (1). Provide employment for certain classes of worker (1) e.g. skilled (1). Up to 5 marks for why they might not: Advances in technology may result in capital equipment that can replace labour (1) result in unemployment (1). If workers do not have sufficient skills (1) they may not be able to get the most out of more advanced equipment (1). New capital equipment may worsen working conditions (1) e.g. workers may get eye strain by looking at a screen for long periods of time (1). May be an opportunity cost (in the short run) (1) as more resources may have to be devoted to capital goods / R&D (1). New capital equipment may be expensive (1) increase firm’ costs (1) may be an opportunity cost if provided by the government (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

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

1 India: a growing success In 2016, the Indian economy grew by 7.5%. This made it the world’s fastest growing large economy. In contrast, the Chinese economy grew by 6.8%. India had some other macroeconomic successes. Its price level rose by less in 2016 than it had in any year since 2004. The price of oil fell in 2016 and India is a large importer of oil. The government’s use of monetary policy helped to keep down rises in the general price level. India’s manufacturing sector grew rapidly in 2016. One industry that performed particularly well was the vehicle industry. India was the world’s sixth largest producer of vehicles, employing 26 million workers. India was the world’s largest producer of tractors. In 2015, the price of tractors was increased. This led to a short-term fall in demand but a rise in revenue. The growth of the vehicle industry has enabled firms in the industry to employ more specialised workers and made it easier for these larger firms to borrow from banks. It is expected that the industry will be able to recruit extra workers in the future because India’s labour force is growing. In 2014, India’s labour force was 500m and this grew by 4% between 2014 and 2016. The economic growth rate and the population growth rate in recent years are shown in Fig. 1.1. The rate of economic growth and its stability affect households’ decisions on how much they spend and save. 12 10 8 6 4 2 0 2010 2011 2012 2013 2014 2015 2016 Economic growth rate (%) Population growth rate (%) Fig. 1.1 India’s economic growth rate and population growth rate 2010–2016 The rising optimism about the performance of India’s economy has increased total demand in the economy. However, the Reserve Bank of India, the country’s central bank, has been relatively successful at keeping the inflation rate close to the government’s target which in 2016 was 4%. One influence on the country’s future macroeconomic performance will be changes in its population. India is set to have one of the world’s youngest populations by 2020, with an average age of only 29. (a) Identify, using information from the extract, two reasons why India’s inflation rate fell in 2016. [2] (b) Explain, using information from the extract, whether demand for Indian tractors was price-elastic or price-inelastic in 2015. [2] (c) Explain two internal economies of scale referred to in the extract. [4] (d) Calculate, using information from the extract, the percentage of India’s labour force that was employed in the vehicle industry in 2016. [2] (e) Analyse, using Fig. 1.1, what happened to India’s output and population over the period shown. [5] (f) Discuss whether or not a government should aim for a low rate of inflation. [5] (g) Explain, using information from the extract, two reasons why consumer expenditure may increase in India in the future. [4] (h) Discuss whether or not having a young population is a benefit to an economy. [6]

30 marks

Mark scheme: Question Answer Marks 1(a) Identify, using information from the extract, two reasons why India’s 2 inflation rate fell in 2016. Fall in oil prices (1). Monetary policy (1). 1(b) Explain, using information from the extract, whether demand for Indian 2 tractors was price-elastic or price-inelastic in 2015. Inelastic (1) price and revenue moved in the same direction (1). 1(c) Explain two internal economies of scale referred to in the extract. 4 • managerial/labour economies (1) employing specialised workers (1) • financial economies (1) easier to borrow from banks / lower borrowing costs (1). 1(d) Calculate, using information from the extract, the percentage of India’s 2 labour force that was employed in the vehicle industry in 2016. 5% (2). Correct working: (26m / 500m + 20m) × 100 / 520m (size of labour force) / 5.2% (percentage in 2014) (1). 1(e) Analyse, using Fig.1, the relationship between India’s economic 5 growth rate and population growth rate over the period shown. Output rose over the period / economic growth rate was positive over the period (1). Economic growth rate fell over the whole period (1). Economic growth rate fell from 2010 to 2012 (1). Economic growth rate rose from 2012 to 2016 (1). Economic growth rate is highest in 2010 (1). Population rose over the period (1). Population growth rate fell over the period / was on a downward trend (1). Population growth rate was relatively stable (1). Population growth rate is highest in 2010 (1). Economic growth rate was higher than population growth rate (1) every year (1). Economic growth fluctuated more than population growth rate (1). The data suggests that GDP per head / living standards would have risen over the period (1). 1(f) Discuss whether or not a government should aim for a low rate of 5 inflation. Up to 3 marks for why it should: A low rate of inflation may result in increased international competitiveness (1) improving the current account position (1). It may create certainty/stability (1) encouraging firms to invest (1) increasing output (1) increasing employment / lowering unemployment (1). It will not cause a random redistribution of income (1) protecting savers (1). It may raise profit (1) if demand-pull (1) encourage firms to expand (1) increasing employment (1). It stops purchasing power being eroded by too much (1). Up to 3 marks for why it should not: It may involve policy measures such as e.g. higher income tax (1) which reduce total (aggregate) demand (1) and so cause unemployment (1). Inflation can reduce debts (1) keeping firms in business (1) stopping households getting into difficulty (1). Employment may be protected (1) wages can be raised by less than inflation (1) enabling firms in difficulty to continue in production (1). A government may have other policy objectives (1). There is a risk that this could lead to deflation (1) have adverse macroeconomic effects / lose benefits of low rate of demand-pull inflation (1). 1(g) Explain, using information from the extract, two reasons why 4 consumer expenditure may increase in India in the future. The economy is growing / there is a rise in GDP per head (1) more income increases people’s ability to spend (1). There is growing optimism (1) which is likely to increase people’s willingness to spend as they may expect incomes/employment to be high in the future (1). The population is increasing (1) more people to buy goods and services (1). The labour force is increasing (1) more people with incomes to spend (1). The population is due to be relatively young (1) the young may spend a relatively high proportion of their income (1). Low/stable inflation (1) may enable interest rates to be low (1). 1(h) Discuss whether or not having a young population is a benefit to an 6 economy. Up to 4 marks for why it might: They may increase the size of the labour force (1) increase productive capacity / potential output (1). They may be more geographically mobile (1) allowing firms to fill vacancies (1). They may have up to date skills (1) may be fitter / physically stronger (1) raise productivity (1). A ready supply of young workers may attract MNCs (1) increase output (1). Up to 4 marks for why it might not: If a high proportion are aged below school leaving age (1) there will be a high dependency ratio (1) placing a burden on workers (1). There may be a need for more schools (1) resources could have been used for other purposes (1) opportunity cost (1). Young workers may be less experienced (1) less productive/skilled (1) may need more training (1) may emigrate (1). There may be a fall in parents working for a while (1) reduce output (1).

This question in 0455/22 Feb/March 2019

2 Ireland has attracted a significant number of foreign multinational companies (MNCs) to set up production in the country. These firms employ approximately 10% of the country’s labour force and make a high proportion of Ireland’s exports. The surplus on the current account of Ireland’s balance of payments fell in 2016 while government spending rose. (a) Identify two reasons why an MNC may decide to start producing in a foreign country. [2] (b) Explain two reasons why someone may want to work for an MNC. [4] (c) Analyse how an increase in exports could improve a country’s economic performance. [6] (d) Discuss whether or not an increase in government spending will reduce a surplus on the current account of that country’s balance of payments. [8]

20 marks

Mark scheme: 2(a) Identify two reasons why an MNC may decide to start producing in a 2 foreign country. • access to raw materials • cheap labour • skilled labour • large market • government support • low taxes • avoid trade restrictions 2(b) Explain two reasons why someone may want to work for an MNC. 4 • wages may be high (1) giving high living standards (1) • working conditions may be good (1) e.g. short working hours, good health and safety standards (1) • training may be good (1) raising worker’s future job prospects (1) • fringe benefits may be good (1) e.g. free accommodation (1) • more chance of promotion (1) higher earnings in the long run (1) • Good reputation (1) prestige working for the firm / increased future employment opportunities (1). 2(c) Analyse how an increase in exports could improve a country’s 6 macroeconomic performance. An increase in exports can increase export revenue (1) this may reduce a current account deficit (1). An increase in exports will increase total (aggregate) demand (1) firms will produce more products / higher output (1) more workers will be employed (1) unemployment will fall (1) economic growth will increase / incomes will rise / higher living standards (1). 2(d) Discuss whether or not an increase in government spending will 8 reduce a surplus on the current account of the country’s balance of payments. Up to 5 marks for why it might: Higher government spending may go on imports (1) e.g. imported computers for government offices (1). Higher government spending on e.g. state benefits (1) will increase disposable income (1) some of this might be spent on imports (1). Higher government spending will increase total (aggregate) demand (1) this may cause inflation (1) reduce international competitiveness (1) reduce exports (1) increase imports (1). Up to 5 marks for why it might not: Government spending on education and training / healthcare (1) may raise labour productivity (1) reduce costs of production (1) improve quality (1) increased demand for domestically produced products (1) increase exports (1) reduce imports (1). Government spending on infrastructure (1) may reduce transport costs (1) increasing price competitiveness (1) increasing exports (1) reducing imports (1). The government may subsidise domestic products (1) lowering the price of domestic products (1) increasing exports (1) reducing imports (1).

This question in 0455/22 Feb/March 2019

5 The mobile (cell) phone industry is growing in Asia with more workers being employed. In March 2017, there was a merger between two mobile phone producers, both of which had relatively high fixed costs. This merger created one of the largest mobile phone firms and moved the Asian market further from perfect competition and closer to monopoly. It was expected that profits in the industry would increase as a result of the merger. (a) Identify two fixed costs. [2] (b) Explain two ways monopoly differs from perfect competition. [4] (c) Analyse what determines a firm’s demand for labour. [6] (d) Discuss whether or not a merger will increase profits. [8]

20 marks

Mark scheme: 5(a) Identify two fixed costs. 2 • rent • interest on past loans • insurance • salaries 5(b) Explain two ways monopoly differs from perfect competition. 4 • one supplier in monopoly (1) many suppliers in perfect competition (1) • a monopoly has 100% share of the market (1) one perfectly competitive firm will have a small share of the market (1) • barriers to entry and exit in monopoly (1) free entry and exit in perfect competition (1) • a monopoly is a price maker (1) while a perfectly competitive firm is a price taker (1) • a monopolist may advertise (1) no advertising in perfect competition (1) • there may be brand loyalty in monopoly (1) but no attachment between buyers and sellers in perfect competition (1) • there are no substitutes in a monopoly (1) there are perfect substitutes in perfect competition (1). 5(c) Analyse what determines a firm’s demand for labour. 6 Demand for the product (1) demand for labour is a derived demand (1) the higher the demand for the product, the more workers employed (1). Productivity / high skills / qualifications (1) a rise in productivity will increase the return from employing labour / the higher skills the higher the demand (1). Wage rate (1) a fall in the wage rate would be likely to increase the demand for labour (1). The price (1) and productivity (1) of substitutes to labour (1) and complements to labour (1). Production method (1) demand will be higher if production is labour- intensive (1). 5(d) Discuss whether or not a merger will increase profits. 8 Up to 5 marks for why it might: A merger will reduce competition (1) the merged firm will have increased market share (1) this may make demand for its products more inelastic (1) may be able to raise price (1). The new combined firm may be able to take greater advantage of economies of scale (1) so lower average cost (1) examples (2). The new firm may be able to rationalise (1) cut out duplication (1) lower average cost (1). There may be more ideas / sharing of ideas (1) increasing innovation / raising quality (1). A vertical merger will provide greater control over the quality of raw materials / outlets (1). Up to 5 marks for why it might not: The reduction in competition may reduce competitive pressure on the new firm to keep costs low (1) and quality high (1) so demand may fall (1). It may be difficult for the two former firms to adopt common methods of production (1) there may be duplication of equipment and staff (1). The merged firm may experience diseconomies of scale (1) higher average cost (1) examples (2).

This question in 0455/22 Feb/March 2019

5 In February 2017, China’s central bank raised the rate of interest. It wanted to reduce borrowing and the growth of the money supply, but it was worried that the rise in the interest rate might reduce the country’s economic growth rate. The change in interest rate is likely to have increased the workload of skilled commercial bank workers. (a) Identify two functions of money. [2] (b) Explain two reasons why a central bank may want to reduce borrowing. [4] (c) Analyse why skilled workers are usually paid more than unskilled workers. [6] (d) Discuss whether or not a rise in the rate of interest will reduce economic growth. [8]

20 marks

Mark scheme: 5(a) Identify two functions of money. • Medium of exchange • Store of value • Unit of account (measure of value) • Standard of deferred payments 2 5(b) Explain two reasons why a central bank may want to reduce borrowing. It may want to reduce the inflation rate (1) caused by too much demand arising from borrowing (1). To reduce disposable income (1) and reduce (demand-pull) inflation (1). it may want to reduce a current account deficit (1) people may be spending too much on imports (1). Over lending by commercial banks (1) puts banking system at risk (1). 4 Allow explanation of why a high level of borrowing is bad for the economy, e.g. implication that the central bank intervenes to correct this. 5(c) Analyse why skilled workers are usually paid more than unskilled workers. The demand for skilled workers is likely to be higher (1) due to their higher productivity / education (1) expectation of a higher rate of return / sales (1) better quality goods and services (1) resulting in greater profits (1). The supply of skilled workers is likely to be lower / more inelastic (1) due to the shortage of people with skills / qualifications (1). Skilled workers may have more bargaining power (1) harder to replace / may cause more disruption by taking industrial action (1). 6 2 marks could be awarded for an accurately drawn demand and supply diagram showing higher demand and lower supply. Question Answer Marks Guidance 5(d) Discuss whether or not a rise in the rate of interest will reduce economic growth. Up to 5 marks for why it might: It may discourage spending (1) as it would be more expensive to borrow (1) more rewarding to save (1) this will lower total (aggregate) demand (1) which could reduce firms’ output (1). It may discourage investment (1) as more expensive to borrow (1) firms decide to save the money (1). Higher interest rate may cause exchange rate to rise (1) discouraging exports / encouraging imports (1). Up to 5 marks for why it might not: People / firms may still be prepared to borrow if they are optimistic about the future (1) thinking they will be able to repay (1) because they expect e.g. higher income in the future (1). The rate of interest may still be low (1) and may be below the inflation rate (1). A higher rate of interest may reduce inflation (1) this could make domestic products more price-competitive (1) and so increase exports (1). Government spending (1) increased exports (1) may offset reductions in consumption and investment resulting in higher economic growth (1). 8

This question in 0455/21 May/June 2019

6 A number of book publishers operate in Pakistan. These include multinational companies (MNCs). They employ a range of specialist workers. A number of these specialists estimate the price elasticity of demand (PED) for their firms’ books. There is a debate about whether some books should be subsidised by the government. (a) Define a multinational company. [2] (b) Explain two disadvantages a worker could experience from specialising. [4] (c) Analyse how a change in the PED for its products may benefit a firm. [6] (d) Discuss whether or not the government should subsidise the production of books. [8]

20 marks

Mark scheme: 6(a) Define a multinational company. A firm that produces / operates (1) in more than one country (1). A firm that has its headquarters in one country (1) but also produces / operates in other countries (1). 2 6(b) Explain two disadvantages a worker could experience from specialising. Monotony / boredom / lower efficiency (1) doing the same task over and over again (1). Workers may not develop a range of skills (1) this may limit their earning potential (1). Workers may become dependent on other workers (1) this may reduce their earning potential (1). There may be a greater risk of unemployment (1) which could lead to lower income / living standards / due to lack of wider skills (1). 4 6(c) Analyse how a change in the PED for its products may benefit a firm. A more elastic demand (1) would mean that the firm could raise revenue (1) by lowering price (1) profit would rise (1) if revenue rises by more than costs (1). A more inelastic demand (1) would mean the firm could raise revenue (1) by raising price (1) profit would rise (1) if a lower output increases the gap between revenue and cost (1). 6 No marks for a definition of PED. Allow one mark for explanation of elastic demand and one mark for explanation of inelastic demand. Analysis of change in elasticity of demand is required. Question Answer Marks Guidance 6(d) Discuss whether or not the government should subsidise the production of books. Up to 5 marks for why it should: A subsidy would increase the supply of books / reduce costs of production (1) lower their price (1) and cause demand to rise (1). More books being purchased may raise education standards / literacy (1) increase productivity (1) raise output / result in economic growth (1). A subsidy may reduce the price of school textbooks (1) reducing the cost of education (1). Some publishers may be making a loss (1) and may be in danger of going out of business (1) this would cause unemployment (1). Up to 5 marks for why it should not: Some book publishers may be making high profits (1) and so do not need a subsidy (1). The subsidy may encourage the book publishers to become inefficient (1) not cutting their costs (1) and improving the quality of the books they produce (1). There will be an opportunity cost involved (1) e.g. spending on education (1). Waste of resources (1) e.g. growth of internet / e-books (1) There may be an external cost (1) e.g. trees (1). Certain books should not be subsidised (1) example (1). 8 Reward but do not expect reference to books being a merit good / a positive externality.

This question in 0455/21 May/June 2019

1 Premium Friday At the start of February 2017, the Japanese government introduced its ‘Premium Friday’ scheme. This encourages employers to allow their workers to leave work at 15:00 on the last Friday of each month, without experiencing any reduction in their wages. The Japanese government wants to reduce the number of hours people work. One reason is to improve the health, and so possibly the productivity, of workers. Fig. 1.1 shows the average number of hours worked and productivity (GDP per hour worked in US $) in six selected countries. 80 70 60 50 40 30 20 10 0 France Germany Japan Mexico Russia South Korea Average hours worked per week Productivity (GDP per hour worked (US $)) Fig. 1.1 Average hours worked and productivity of selected countries in 2017 Nearly one quarter of Japanese workers work more than 50 hours a week and some work more than 25 hours overtime a week. The average Japanese worker only takes half of their paid holidays. Nearly 20 years of low economic growth and deflation have created a sense of job insecurity. Trade unions in Japan have been concentrating on trying to achieve shorter working hours. The government thinks that working fewer hours would give people more time to bring up a child and look after elderly relatives. Japan’s birth rate has fallen every year for the last 36 years, and at a faster rate than the fall in the death rate leading to a fall in the size of the population. The government hopes more leisure time will encourage an increase in consumer spending. Higher consumer spending would benefit Japanese firms and would reduce the chances of deflation returning. The initial response to Premium Friday was not promising. At the end of February 2017, only 4% of Japanese workers left early. In the longer run, however, the scheme may be more successful. This is because unemployment in the country had fallen with only 2 million out of a labour force of 66 million being unemployed at the end of February 2017. Low unemployment increases job security and usually increases wages. In Japan’s case, however, the higher demand for labour has been matched by a higher supply. Some of this higher supply has come from migrant workers, but a greater proportion has come from more Japanese people working past retirement age and more women working. (a) Identify, using information from the extract, two factors that influence an individual’s choice of occupation. [2] (b) Explain, using information from the extract, an opportunity cost of working. [2] (c) Calculate, using information from the extract, the number of Japanese workers who left work early on Premium Friday in February 2017. [2] (d) Explain, using information from the extract, why the size of Japan’s population has fallen in recent years. [4] (e) Analyse, using Fig. 1.1, the relationship between the average hours worked and productivity. [5] (f) Discuss whether or not a cut in income tax would stop deflation. [5] (g) Explain, using information from the extract, why wage rises have been low in Japan. [4] (h) Discuss whether or not Japan will benefit from employing more migrant workers. [6]

30 marks

Mark scheme: 1(a) Identify, using information from the extract, two factors that influence an individual’s choice of occupation. • working hours / leisure time • holidays • job security / job insecurity • wages 2 1(b) Explain, using information from the extract, an opportunity cost of working. Leisure time / holidays / time devoted to raising children / looking after the elderly (1) opportunity cost is the (next) best alternative forgone (1). 2 1(c) Calculate, using information from the extract, the number of Japanese workers who left work early on Premium Friday in February 2017. 2.56m / 2 560 000 (2). Correct working: 4% of 64m (66m – 2m) or 2,560 or version of 2.56 (1). 2 1(d) Explain, using information from the extract, why the size of Japan’s population has fallen in recent years. The birth rate has fallen (1) more than the fall in the death rate (1). A fall in the birth rate means fewer children are being born (1) a reason e.g. more women working / people working longer hours / job insecurity / looking after elderly relatives (1). A fall in the death rate means people are living longer (1). If the birth rate falls by more than the death rate there may be a natural decrease in population (1) actual decrease if natural decrease is more than net immigration (1) extra number of older people is more than offset by fewer babies (1). 4 Question Answer Marks Guidance 1(e) Analyse, using Fig.1, the relationship between the average hours worked and productivity. Generally, the shorter the hours worked the higher the productivity (1) inverse relationship / negative relationship (1). The expected relationship (1) workers will not be tired and so will be able to produce more per hour / more leisure time may increase efficiency / may be more motivated (1). Two countries, France and Germany, have the shortest working hours and the highest productivity (1). Country with the longest working hours, Mexico, has the lowest productivity (1). South Korea is an exception (1), long working hours but higher productivity than Mexico / Russia which have shorter working hours (1), 5 Expected relationship may be explained in reverse e.g. long hours may make workers tired. Question Answer Marks Guidance 1(f) Discuss whether or not a cut in income tax would stop deflation. Up to 3 marks for why it might: A cut in income tax will increase disposable income / purchasing power (1) this may increase spending (1) higher spending may encourage more investment (1) higher total (aggregate) demand (1) may encourage firms to raise prices/demand-pull inflation (1). Higher demand may encourage firms to expand (1) they may take on extra workers (1) reduce unemployment (1) they may pay higher wages (1) increasing costs of production (1) causing cost-push inflation (1). Up to 3 marks for why it might not: Consumers may lack confidence (1) and so not spend any more / may save (1) may still delay purchases (1) they may spend on imports rather than domestic products (1). Firms may lack confidence (1) and so not invest (1). Any extra investment which takes place may reduce costs of production (1) and so prices may fall further (1). Firms may have spare capacity (1) and so may be able to increase output without increasing average costs of production (1) and so prices may not rise (1). Government tax revenue may fall (1) reducing government spending which may mean that total demand does not rise (1). Apply this example to all questions with the command word DISCUSS (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(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 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 because incomes may be higher i.e. reverse of 1st argument 0 Tax revenue may increase« because of a different reason that is not the reverse of a previous argument e.g. «government spending on subsidies may stimulate the economy more than spending on education. 1 Demand-pull inflation and/or cost-push inflation may be shown on a diagram. Question Answer Marks Guidance 1(g) Explain, using information from the extract, why wage rises have been low in Japan. Trade unions have been concentrating on trying to achieve shorter working hours (1) this may suggest they have not been pressing for wage rises (1). Higher demand for labour has been matched by higher supply (1) the higher supply has come from immigration (1) and a higher proportion of women in the labour force / people working past retirement age (1) making it easier for firms to recruit workers without raising wages (1). Long experience of deflation / low economic growth (1) may have resulted in lower consumer spending / low profits / real wages may have increased (1). Job insecurity (1) less willing to press for wage rises (1). 4 Question Answer Marks Guidance 1(h) Discuss whether or not Japan will benefit from employing more migrant workers. Up to 4 marks for why it might: They may increase the size of the labour force (1) increase productive capacity / potential output / economic growth (1). They may increase total (aggregate) demand (1) and so generate more jobs (1). Japan’s population is falling (1) without a rise in the supply of labour, there may be a shortage of workers (1) this may cause cost-push inflation (1). Migrant workers may have higher skills (1) new ideas / up to date with technology (1) this could raise productivity (1) may work for lower wages (1) lower costs of production (1) make the country’s products more internationally competitive / lower prices (1). Tax revenue may increase (1) enabling the government to spend more on e.g. education (1). Up to 4 marks for why it might not: Migrant workers may keep wage rises low (1) and so restrict increases in living standards (1). In some cases, migrant workers may replace domestic workers causing some to be unemployed (1). Migrant workers may need training (1) increase firms costs (1). Migrant workers may bring their families with them (1) this may increase pressure on e.g. housing, school and healthcare (1) may lead to overpopulation (1). Migrant workers may send money home (1) harming the current account position (1). 6

This question in 0455/22 May/June 2019

3 There was a global surplus of steel in 2017. In mid-2017, the US government considered imposing tariffs on steel imports to protect its declining steel industry. Cheap imports from other countries were reducing employment in the US steel industry. The pattern of US employment was also being affected by improvements in education. (a) Identify two methods of trade protection other than tariffs. [2] (b) Explain how market forces will eliminate a surplus and a shortage. [4] (c) Analyse how improvements in education can affect the pattern of employment. [6] (d) Discuss whether or not the imposition of import tariffs by a country will reduce its unemployment. [8]

20 marks

Mark scheme: 3(a) Identify two methods of trade protection other than tariffs. • quotas • embargoes • voluntary export restraint • red tape / bureaucracy / artificially high standards • subsidies 2 3(b) Explain how market forces will eliminate a surplus and a shortage. A surplus will be eliminated by a fall in price (1) demand will rise / supply will fall (1). A shortage will be eliminated by a rise in price (1) demand will fall / supply will rise (1). 4 2 marks could be awarded for an accurately drawn demand and supply diagram showing changes in price. 3(c) Analyse how improvements in education can affect the pattern of employment. May be more skilled workers (1) increase qualifications (1) workers may seek better paid jobs (1) jobs with better working conditions (1). There is likely to be a reduction in primary sector employment (1) an increase in secondary / tertiary sector employment (1). May be an increase in women in employment (1) if girls benefit from improvements in education (1). May increase employment of teachers (1) if e.g. class sizes are reduced (1). May encourage an increase in migrant workers (1) attracted by better education for their children (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not the imposition of import tariffs by a country will reduce its unemployment. Up to 5 marks for why it might: Import tariffs may raise the price of imports (1) demand for imports may fall (1) consumers may switch to domestic products (1) firms may increase output (1) take on more workers (1). Tariffs can protect infant industries (1) allow them to grow (1) and employ more workers (1). Tariffs can protect declining industries (1) reduce structural unemployment (1). Tax revenue may increase (1) example of higher government spending that could reduce unemployment (1). Up to 5 marks for why it might not: Other countries may retaliate (1) imposing tariffs on this country’s exports (1) employment in the export industries may fall (1). Tariffs on imported raw materials (1) will increase costs of production (1) this may lead to higher prices of domestic products (1) causing a fall in demand (1). Imports may not have domestic substitutes (1) price of imports may still be lower (1) so consumers may continue to buy imports (1) demand for imports may be price inelastic (1). 8

This question in 0455/22 May/June 2019

5 The South Korean economy was dominated by many family-owned firms which have now become large public limited companies. The government provided subsidies and imposed trade protection to help their domestic firms to grow. Since 2010, average earnings have risen in South Korea. (a) Define public limited company. [2] (b) Explain two reasons for growth in average earnings. [4] (c) Analyse, using a demand and supply diagram, how government subsidies help firms grow. [6] (d) Discuss whether or not trade protection supports the growth of domestic firms. [8]

20 marks

Mark scheme: 5(a) Define public limited company. A company whose shares are traded on a stock exchange (1) these shares can be bought and sold by the public (1) the company has limited liability (1). 2 5(b) Explain two reasons for growth in average earnings. • increase in demand for goods and services (1) increase demand for workers / derived demand (1) an increase in demand would increase wages (1) • increase in inflation (1) workers demand higher wages (1) • trade union bargaining power (1) e.g. threat of industrial action (1) • increased productivity of workers (1) increasing demand for labour (1) • reduction in income tax (1) increasing disposable incomes (1) • the legal minimum wage increases (1) the lowest paid earn more, increasing the average (1) 4 2 marks could be awarded for an accurately drawn demand and supply diagram. 5(c) Analyse, using a demand and supply diagram, how government subsidies help firms grow. 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) Shift in supply curve to the right (1) Equilibriums – shown by lines or labels e.g. E1 and E2 (1) Up to 2 marks for written analysis: Will lead to a decrease in cost of production (1) output increases / price will fall (1). Profits / revenue of firms may increase (1) profits can be reinvested (1) increasing productivity (1) increasing competitiveness of firms (1). 6 S2 S1 Q2 Q1 P1 P2 D O quantity price Question Answer Marks Guidance 5(d) Discuss whether or not trade protection supports the growth of domestic firms. Up to 5 marks for how it might: Protectionism may increase the price of imports (1) making imports less desirable (1) quantity of imports demanded decreases (1) quantity of domestic goods demanded increases (1). Protectionism may reduce the quantity of imports e.g. quotas (1) An increase in demand for domestic goods may lead to an increase in revenue (1) and profits (1) of domestic firms, encouraging them to hire more workers (1) decreasing unemployment (1). Trade protection can allow infant industries to grow / prevent sunset industries from declining (1) which may enable then to take greater advantage of economies of scale (1) making them more internationally competitive (1). Up to 5 marks for how it might not: Protectionism might lead to retaliation (1) other countries might put a protectionist policy on domestically produced goods (1) increasing the price of the country’s exports / reducing the quantity allowed (1) decreasing the demand for exports (1). An increase in price of imported raw materials may increase some firms costs of production (1) lowering profits (1). Domestic substitute raw materials may be of a lower quality (1) which will reduce the quality of the output of domestic firms (1) may lead to lower demand (1). Trade protection may make domestic firms complacent/less efficent (1) may become reliant on protection (1) less incentive to grow (1). 8

This question in 0455/23 May/June 2019

1 New York: A Global Financial Centre New York is the best city in the world in terms of human capital according to the Global Financial Centres Index. This, along with economic freedom that encourages new business start ups, has contributed to high economic growth rates. In fact, the city’s economic growth rate is higher than the GDP growth rate for the entire USA. Overall, New York’s economy grew 3.4% in 2015, faster than the 2.4% recorded nationally. However, land area is scarce, especially in the Manhattan district of New York, where most economic activity is concentrated. The financial sector is the most important sector in the city’s economy – New York is home to the first and second largest stock exchanges in the world and 3 of the top 10 largest banks in the USA have their headquarters in New York. Improvements in education also contribute to New York’s fast economic growth rate as New York continues to attract students from all over the world and from various areas of study. Unemployment rates in the city continue to fall. In addition, average weekly wages in New York are consistently higher than the rest of the USA. Table 1.1 shows the average weekly hours worked and average weekly wages in New York between 2011 and 2017. Table 1.1 Average weekly hours worked and average weekly wages in New York, 2011–17 Average weekly hours worked Average weekly wages (US$) 2011 33.9 906.83 2012 34.1 933.66 2013 33.5 932.31 2014 33.4 935.87 2015 33.5 961.45 2016 33.4 976.95 2017 33.5 1011.03 New jobs that are created today are in middle and low-paying jobs, not in high-paying jobs. Finance industry workers are 20% of the workers in the city, but they earn more than half of all the wages paid in New York. The pay gap between workers in the finance industry and the 1.6 million other workers in the city continues to widen. This is often due to the lack of skills of the lower paid workers and also the male-dominance in the finance industry. In addition to the income inequality, continuous economic development in the city has affected the environment. The ever-expanding finance industry is also creating the risk of a repetition of the 2007–08 Global Recession with the possibility of bank failures. Rising trade protection by the US government may negatively affect American cities such as New York, especially while Asian cities such as Singapore, Hong Kong, and Shanghai continue to open up to free trade. (a) State a factor of production and identify an example of it from the extract. [2] (b) Explain, using information from the extract, two causes of economic growth in New York. [4] (c) Calculate, using information from the extract, the total number of workers in New York. [2] (d) Analyse, using Table 1.1, the relationship between average weekly hours worked and average weekly wages. [5] (e) Explain, using information from the extract, one reason for differences in earnings between different jobs in New York. [2] (f) Explain, using information from the extract, the possible negative effects of economic growth in New York. [4] (g) Discuss the advantages and disadvantages of a city having a large tertiary sector. [5] (h) Discuss whether or not opening up to free trade benefits an economy. [6]

30 marks

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

This question in 0455/21 Oct/Nov 2019

4 In 2016, Argentina’s annual inflation was 20%, down from 40% in 2015. Inflation had been high since 2003. Wages were constantly adjusted upwards. In addition, some employees demanded more non-wage benefits. Industrial action, often in the form of strikes called by trade unions, became more common in Argentina. (a) Identify two non-wage factors that could affect an individual’s choice of occupation. [2] (b) Explain two causes of inflation. [4] (c) Analyse the impact of strikes on an economy. [6] (d) Discuss whether or not an increase in wages will reduce a firm’s profit. [8]

20 marks

Mark scheme: 4(a) Identify two non-wage factors that could affect an individual’s choice of occupation. • opportunity for promotion • job security • satisfactory work • varied work • pleasant working conditions • fringe benefits • location • danger 2 4(b) Explain two causes of inflation. • demand-pull inflation (1) increase in total demand/ lower interest rate / increase business confidence / increase consumer confidence / depreciation of the currency / lower income tax / lower cost of borrowing / increase disposable income / increase exports (1) increase in money supply (1) • cost-push / increase in costs (1) increase price of commodities / increase cost of production / depreciation of the currency / increase indirect taxes (1) 4 4(c) Analyse the impact of strikes on an economy. Disrupted production (1) loss of output (1) decreased productivity (1) less economic growth (1) increased cost of firms (1) reduced profits (1) rising prices / inflation (1) unemployment (1). Better working conditions of the workers (1) higher wages (1). Exports decreasing (1) increase current account deficit / decrease current account surplus (1). Less investment by MNCs (1). There may be capital investment to replace workers (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not an increase in wages will reduce a firm’s profit. Up to 5 marks for why it might: Higher wages will mean a higher wage bill (1) if output does not increase by more than wages, labour costs per unit will increase (1) costs of production will increase (1) profit is revenue minus costs (1) with higher costs and the same revenue, profit will fall (1). Prices will rise (1) if demand is elastic, revenue will fall (1) Up to 5 marks for why it might not: Paying higher wages may prevent strikes (1) this can reduce costs of production (1). Higher wages may motivate workers (1) this can increase productivity (1) reduce costs of production (1). Higher wages may make it easier to recruit skilled workers (1) this will raise productivity (1) reduce costs of production (1) increase profits (1) Other costs may be falling (1) e.g. rent, corporation tax (1). Demand for the firm’s products may be increasing (1) this will raise revenue (1). Higher wages may be paid to a smaller labour force (1) reducing the wage bill (1). Replace workers with machines (1) may leave costs unchanged (1). 8 2 marks could be awarded for an accurately drawn Demand and Supply diagram.

This question in 0455/21 Oct/Nov 2019

3 In 2015, the Malaysian government set out its objectives to increase productivity and savings. There has been higher consumer expenditure, driven in part by higher wages received mainly by older workers. However, low levels of savings remain a concern. Savings provide funds for investment (spending on capital goods) which contributes to economic growth and can influence inflation. (a) Identify two ways a government could encourage saving. [2] (b) Explain two reasons why productivity may increase. [4] (c) Analyse how an increase in investment could influence inflation. [6] (d) Discuss whether or not older workers are paid more than young workers. [8]

20 marks

Mark scheme: 3(a) Identify two ways a government could encourage saving. • raise the rate of interest • introduce tax-free saving schemes • provide information / education about the benefits of saving • introduce compulsory saving schemes • government measure that can increase income e.g. lower taxes 2 3(b) Explain two reasons why productivity may increase. Improvements in education and training (1) would increase the skills of workers (1). More capital equipment / investment (1) which may increase the speed / accuracy at which workers work / more efficient machinery (1). Increase in wages (1) which will motivate workers (1). Lower working hours (1) workers less tired (1). Better working conditions (1) less stressed (1). Better weather / improvements in the type of crops grown / better feed for animals (1) which can increase agricultural output / which may result from research and development (1). Immigration of workers (1) with better skills (1). Better healthcare (1) workers fitter (1). Successful supply-side policy measure (1) e.g. spending on infrastructure (1). Specialisation (1) workers concentrating on particular tasks may produce products more quickly / efficiently (1). 4 Question Answer Marks Guidance 3(c) Analyse how an increase in investment could influence inflation. Higher investment will mean higher spending on capital goods (1) it could increase total (aggregate) demand (1) this could increase demand- pull inflation (1) if total (aggregate) demand exceeds total (aggregate) supply (1). May increase demand for imported capital goods / raw materials (1) causing imported / cost-push inflation (1). Higher total (aggregate) demand could increase employment / decrease unemployment (1) which could increase total (aggregate) demand further (1). In short run may raise costs of production (purchase of machines) (1) causing cost-push inflation (1). In the long run it could increase output (1) may introduce advances in technology (1) increase efficiency / productivity (1) it could reduce costs of production (1) reducing cost-push inflation (1). Investment in human capital (1) raising workers’ skills (1). 6 Question Answer Marks Guidance 3(d) Discuss whether or not older workers are paid more than young workers. Up to 5 marks for why they might be: They have more experience (1) they are likely to have received more training (1) they may have higher productivity (1) more skilled (1) more reliable / make fewer mistakes (1) in higher demand (1) lower supply (1). They may have been with the same employer for some time (1) and may have been promoted (1). Some older workers may be rewarded for staying with the same employer / young workers may be at start of career (1) be paid a loyalty bonus (1). In some countries, the minimum wage may rise with age (1). Up to 5 marks for why they might not be: Some older workers in jobs requiring physical strength (1) may be less fit / young workers may be fitter (1). Older workers may be less occupationally mobile (1) geographically immobile (1) and so may not move to gain higher wages (1). Young workers may be more up to date with advances in technology / new methods / new ideas (1) their skills may be in higher demand (1). Young workers may be in expanding industries (1). Young workers may work more hours (1) may be better educated / more qualified (1). 8

This question in 0455/22 Oct/Nov 2019

2 Between 2007 and 2017, the average wage in China tripled, while it fell in Brazil. The rise in average wage in China was particularly high in the tertiary sector. Farm workers experienced a smaller rise. In June 2017, unemployment in China was only 4% while it was 13.5% in Brazil. Despite the lower unemployment, China’s inflation rate was lower than that of Brazil. (a) Define tertiary sector and give an example of an industry operating in the tertiary sector. [2] (b) Explain two reasons why farm workers may be low-paid. [4] (c) Analyse how lower unemployment may cause inflation. [6] (d) Discuss whether or not a country with high wage rates will have a high unemployment rate. [8]

20 marks

Mark scheme: 2(a) Define tertiary sector and give an example of an industry operating in the tertiary sector. Services (1) e.g. banking (1). 2 2(b) Explain two reasons why farm workers may be low paid. • high supply / easily replaced / lower productivity / labour intensive / low value products (1) low skills/qualifications required (1). • low demand (1) can be replaced by capital equipment (1). • low bargaining strength (1) weak trade unions/low trade union membership (1) 4 2(c) Analyse how lower unemployment may cause inflation. • More people in work (1) incomes may rise (1) as more people are earning wages / higher purchasing power (1) this could increase spending (1) which may increase total (aggregate) demand (1) without a rise in output / supply (1) causing demand- pull inflation (1). • There may be a shortage of workers/increased competition for workers (1) wages may be raised (1) to attract workers (1) this increases the average cost of production (1) firms raise prices to maintain profit margins (1) causing cost-push inflation (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not a country with high wage rates will have a high unemployment rate. Up to 5 marks for why it might: • High wages may mean high cost of production (1) this may mean higher prices / inflation (1) international competitiveness may be low (1) exports may fall (1) imports may rise (1) net exports may fall (1) total (aggregate) demand may fall (1) causing cyclical unemployment / firms may lay off workers (1). • May encourage capital intensive production (1) particular industries may be driven out of business by foreign competition (1) causing structural unemployment (1). Up to 5 marks for why it might not: • High wages may motivate workers to work harder (1) making them feel appreciated (1) causing productivity to be high (1) resulting in high demand for labour (1). • Workers may be working with high value capital equipment (1) keeping cost per unit low (1). • High wages can mean high consumer spending (1) so total (aggregate) demand may be high (1) resulting in higher demand for workers (1). • Wages may rise above benefits (1) leading to less voluntary unemployment (1). • Higher tax revenue (1) allows government to increase spending on reducing unemployment e.g. training (1). 8

This question in 0455/23 Oct/Nov 2019

6 It has recently been revealed that a king works as a part-time pilot for a multinational airline. Some pilots and police officers have left their jobs to become teachers and others have left to become sole traders. The wages teachers earn vary according to their age. (a) Define wages. [2] (b) Explain why the opportunity cost of becoming a teacher for one worker may be greater than for another worker. [4] (c) Analyse how an individual’s earnings are likely to change over her or his lifetime. [6] (d) Discuss whether most people would prefer to work for a multinational company (MNC) or a sole trader. [8]

20 marks

Mark scheme: 6(a) Define wages. • A payment (1) to a worker (1). • Amount earned (1) by labour / employees (1). • Reward (1) for labour (1). 2 6(b) Explain why the opportunity cost of becoming a teacher for one worker may be greater than for another worker. • Opportunity cost is the (next) best alternative (1) forgone (1). • One worker may have earned more than another (1) and so would be giving up more earnings (1). • One worker may give up more non-wage benefits (1) example e.g. promotion chances (1). • One worker has further to travel to work / higher costs of travelling (1) loss of leisure time / time with family / lower net income (1). 4 6(c) Analyse how an individual’s earnings are likely to change over her or his lifetime. • At first an individual’s earnings are likely to be low (1) they will lack training / experience (1) low qualifications / skills (1) unlikely to have been promoted (1). • In early middle-age earnings may be higher (1) become more productive due to higher skills / experience(1) adding value for employer (1) may have been promoted (1) may work overtime (1) have higher expenses (1) e.g. purchase of a house / paying to support children (1). • In late-age before retirement (1) earnings may be high due to experience (1) but may be low due to working part-time (1) being less productive (1) as being more tired / less physically fit (1). • At retirement (1) rely on pension / family for financial support (1). • Gender discrimination may fall (1) so increasing a woman’s earnings (1). 6 Question Answer Marks Guidance 6(d) Discuss whether most people would prefer to work for a multinational company (MNC) or a sole trader. Up to 5 marks for why they might want to work for an MNC: • An MNC may earn high profits (1) benefits from economies of scale (1) lower costs enable them to pay high wages (1) may offer good fringe benefits (1) example (1) better working conditions (1) • An MNC may provide training (1) improving their skills (1) give the opportunity to work with advanced technology (1) making it easier to get a well-paid job in another firm (1) better reputation / status for employee (1). • The firm may provide the opportunity of promotion (1) and possibly the opportunity to work in another country (1) • MNC more likely to provide stable employment (1) more likely to survive in recession (1) Up to 5 marks for why they might want to work for a sole trader: • A sole trader may provide a friendlier environment (1) more contact with the employer (1) less exploitation of worker’s rights (1) may have more say in decision- making (1). • There may be a greater sense of job security (1) as an MNC may pull out of the country (1). • A worker may gain more responsibility working for a sole trader (1) undertaking a greater range of tasks (1). • The sole trader’s business may be closer to the worker’s home (1) more convenient / lower costs of travelling to work (1). 8

This question in 0455/23 Oct/Nov 2019

2 The main industries in the Seychelles, an island country in the Indian ocean, are tourism and fishing. The price elasticity of supply of fish is affected by the relatively short time that fish can be stored. Economic goods and free goods play a role in both fishing and tourism. With rises in the skills of workers and an increase in enterprise, GDP per head has increased by more than seven times over the last fifty years. (a) State the formula for calculating the price elasticity of supply (PES). [2] (b) Explain how opportunity cost is different for economic goods and free goods. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in enterprise on an economy. [6] (d) Discuss whether or not skilled workers are always paid more than unskilled workers. [8]

20 marks

Mark scheme: 2(a) State the formula for calculating the price elasticity of supply (PES). % change in quantity supplied % change in price (2). OR Percentage change in quantity supplied divided by percentage change in price (2). 2(b) Explain how opportunity cost is different for economic goods and free goods. Logical explanation which might include: Economic goods have an opportunity cost (1) resources are used to produce them / resources have alternative uses / if resources are used to produce one economic good, they cannot be used to produce another good / in limited supply (1). Free goods do not have an opportunity cost (1) resources are not used to produce them / there is no restriction on their supply (1). 4 One mark for each of two differences identified and one mark for each explanation. Question Answer Marks Guidance 2(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in enterprise on an economy. Up to 4 marks for the diagram: Axes correctly labelled (1). Initial curve drawn as a curve / downward sloping line to the axes (1). New curve drawn as a curve / downward sloping line to the axes (1). Shift to the right indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Enterprise is a factor of production / resource (1) there will be more risk takers / decision makers / firms (1) more enterprise increases productive capacity / potential / maximum output that can be produced / causes economic growth (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not skilled workers are always paid more than unskilled workers. In assessing each answer, use the table opposite. Why they might be: • skilled workers may be in shorter supply as they may require training and qualifications • skilled workers may be in inelastic supply and demand for them may be inelastic • skilled workers may be in higher demand as they will be more productive • skilled workers may have stronger bargaining power • skilled workers may be more likely to work in the tertiary sector • Skilled workers may be more mobile. Why they might not be: • skilled workers may have less experience and may be in less promoted positions • skilled workers may be in declining industries • skilled workers may place more importance on non-wage factors when deciding what jobs to do • skilled workers in poorer countries may have lower wages than some unskilled workers in richer countries. Example of a Level 3 answer: Skilled workers may be paid more than unskilled workers as they have more qualifications and/or experience, so demand may be high compared to supply. Supply could be low due to long training required to learn skills, so the labour market would be more competitive and skilled workers higher paid. Demand for the products skilled workers provide may be higher, so their pay could be higher due to higher derived demand. Also, they may belong to stronger trade unions which have more bargaining power to negotiate for higher pay. 8 Accept responses from the viewpoint of why unskilled workers may be paid more. 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 2(d) It is also possible that unskilled workers could be higher paid. This is because their work may be dangerous, e.g. miners, so the supply of workers willing to do the job may be lower and firms have to pay more to attract workers. Long working hours (less leisure time) and poor working conditions mean unskilled workers may be higher paid, and if the work is boring and very few people are willing to do the job. For example, cleaners in the US are paid much higher wages than cleaners in India as the number of people willing to accept a job as a cleaner in the US is very low. There is even a possibility that unskilled workers could be paid higher than skilled workers. Principal Examiner comment: This is a strong L3 response. It is a two-sided answer with depth and logical links. For example, the candidate links qualifications and experience to demand for and supply of workers, as well as linking demand for workers with demand for the products they produce. The candidate discusses some of the key influences on wage determination. 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 0455/22 Feb/March 2020

1 (a) Calculate Vietnam’s GDP per head in 2017. [1] (b) Identify two rewards to factors of production. [2] (c) Explain what happened to Vietnam’s foreign exchange rate between 2010 and 2017. [2] (d) Explain two benefits an economy may gain from having a young labour force. [4] (e) Analyse why Vietnam’s budget deficit may decline in the future. [4] (f) Analyse the relationship between government spending on education and the percentage of the labour force employed in the tertiary sector. [5] (g) Discuss whether or not an increase in competition is likely to benefit Vietnamese consumers. [6] (h) Discuss whether or not the increase in borrowing is likely to have caused inflation in Vietnam in 2017. [6]

30 marks

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

This question in 0455/21 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

3 A number of countries are withdrawing high value banknotes. For instance, Singapore plans to stop issuing its $10 000 note. High value notes were originally intended to act as a convenient store of value. Central banks are concerned some notes are now being used illegally. The Singapore Police Force and the Monetary Authority of Singapore (its central bank) were trying to recruit more workers in 2017. It was expected that the central bank would raise the rate of interest in 2018. (a) State two functions of money, other than a store of value. [2] (b) Explain two advantages banknotes have as a form of money. [4] (c) Analyse the influences on the mobility of workers. [6] (d) Discuss whether or not a central bank should raise the rate of interest. [8]

20 marks

Mark scheme: 3(a) State two functions of money, other than a store of value. 2 One mark each for two from: medium of exchange, measure of value (unit of account) and standard of deferred payments. 3(b) Explain two advantages banknotes have as a form of money. 4 Logical explanation which might include: Generally acceptable (1) people are prepared to accept them in exchange for products and to settle debts (1). Portable (1) banknotes are light to carry around (1). Divisible (1) notes of different denominations (1). Recognisable (1) notes have distinct features on them known to the population (1). Limited in supply (1) the central bank prints a set number of notes (1). Homogeneous (1) all banknotes of the same value are identical (1). 3(c) Analyse the influences on the mobility of workers. 6 Coherent analysis which might include: Occupational mobility is influenced by education (1) the more qualifications workers have (1) the more choice of jobs they will have (1). Occupational mobility is influenced by training (1) the more skills workers have (1) the easier they will find it to switch jobs (1). Geographical mobility is influenced by the price/availability of housing (1) The cheaper/more available housing is (1) the easier will workers find it to work in other areas (1). Geographical mobility is influenced by family ties (1) people may be reluctant to move because children are at school/partners have job in a particular area (1). Mobility between countries will be influenced by immigration controls (1). 3(d) Discuss whether or not a central bank should raise the rate of interest. 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 should: • to reduce demand-pull inflation as a higher interest rate may encourage to spend less as it may discourage borrowing and encourage saving • to reduce borrowing if people and firms are building up unsustainable debt • to raise the exchange rate if there is downward pressure on a fixed exchange rate • to reduce a current account deficit if it is thought that lower spending will reduce imports and may discourage exports. Why it should not: • it may increase cyclical unemployment by reducing total (aggregate) demand • it may reduce the economic growth rate as it may discourage investment due to the higher cost of borrowing to purchase capital goods • it may raise the exchange rate and make exports less price competitive.

This question in 0455/22 May/June 2020

4 Italy is home to the world’s oldest bank and some of the world’s oldest car producers. Internationally, both industries are facing a number of challenges. The wages of bank workers and car workers are increasing. Demand for bank loans and for cars is changing, in part, due to changes in population size. It is predicted that the price elasticity of demand (PED) for cars will also change in the future. (a) State two functions of a commercial bank. [2] (b) Explain two reasons why emigration from a country may increase. [4] (c) Analyse the possible causes of a rise in the wages of bank workers. [6] (d) Discuss whether or not demand for cars will become more price-elastic in the future. [8]

20 marks

Mark scheme: 4(a) State two functions of a commercial bank. Two from: • lending • accepting deposits • allowing customers to make payments • looking after valuables • giving financial advice • providing insurance • exchanging foreign currency 2 Internet banking alone is too vague. 4(b) Explain two reasons why emigration from a country may increase. Logical explanation which might include: Rise in unemployment (1) people move abroad in search of jobs (1). Fall in income (1) seek higher wages abroad (1). Lower living standards (1) e.g. healthcare may be better abroad / less pollution (1). Relaxation on immigration controls (1) making it easier to move abroad (1). Greater social unrest / outbreak of war (1) seek greater security (1). High inflation at home (1) seek lower cost of living (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. Reward answers that give an argument from the opposite perspective but do not double award. Accept ‘static approach’ e.g. unemployment. Question Answer Marks Guidance 4(c) Analyse the possible causes of a rise in the wages of bank workers. Coherent analysis which might include: Demand for bank workers may increase (1) due to higher demand for banking / this may result from more people opening bank accounts/using the services of banks (1) may also result from a rise in the productivity of workers (1) more banks competing for the services of bank workers / more competition for workers (1) higher wages paid to retain bank workers (1). Supply of bank workers may fall (1) qualifications may have been increased (1) skills may have increased / may need to be more skilled as working with more advanced technology (1). Bank workers may use trade union power (1) collective bargaining and/or industrial action (1). Banks may have earned large profits (1) may have rewarded workers with bonuses (1) bonuses / high pay may be used to motivate workers (1). A higher national minimum wage (1) forcing banks to pay some of their staff more (1). Bank workers may work longer hours / may work overtime (1). Bank workers may be more experienced (1) more productive / more skilled (1). Inflation / higher income tax (1) purchasing power will fall unless wages increased (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not demand for cars will become more price-elastic in the future. In assessing each answer, use the table opposite. Why it might: • may be closer substitutes. Price of public transport and /or quality of public transport may fall making them closer substitutes • may take up a larger proportion of income. Incomes may fall • price may rise. Demand becomes more price elastic as price rises • the number of firms producing certain types of cars may increase • time will give consumers more opportunity to search out lower prices. Why it might not: • may become more of a necessity. People may work further from where they live • may become easier to postpone purchase. If cars last longer, consumers may be able to delay buying replacements • people may have become used to driving – habit forming. May be reluctant not to own and drive a car • price of complements may rise, so that even if price of cars fall, people may not buy more cars. 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 4(d) Example of an L2 answer: Demand for cars may become more price-elastic. People may be more willing to switch to substitutes. If bus transportation reduced market prices, people may use buses rather than buying cars when prices of cars rise. On the other hand, cars may be price-inelastic in the future. They may become more of a necessity if people find buses and trains inconvenient. Cars also show a better standard of living and many jobs require a car which makes having a car a necessity therefore it becomes price-inelastic. Principal Examiner comment: Reasonable on both sides. Reward answers that give an argument from the opposite perspective but do not double award.

This question in 0455/22 Oct/Nov 2020

5 Wage rate growth has increased recently in Kazakhstan, but its economic growth rate has slowed. This is, in part, due to a fall in exports. To try to increase the economic growth rate, the government has increased its spending on investment. In August 2015, it adopted a floating foreign exchange rate system in an attempt to improve the country’s macroeconomic performance. (a) Define wages. [2] (b) Explain two reasons, other than methods of protection, why a country’s exports may fall. [4] (c) Analyse how a rise in investment could increase a country’s economic growth rate. [6] (d) Discuss whether or not a country should switch from a fixed foreign exchange rate system to a floating foreign exchange rate system. [8]

20 marks

Mark scheme: 5(a) Define wages. A payment/reward (1) to labour/workers (1). 2 5(b) Explain two reasons, other than methods of protection, why a country’s exports may fall. Logical explanation which might include: Lower incomes abroad (1) reduce the ability of foreigners to buy the country’s exports / lower demand (1). Rise in the foreign exchange rate (1) will make exports more expensive (1). Quality may fall (1) e.g. educational standards may have declined (1). Price may rise (1) due to inflation/higher costs of production/lower productivity/making exports less competitive (1). Domestic demand may rise (1) products may be switched from the export to the home market (1). Lower output (1) reduce the ability of firms to export as many goods and services / result of fewer resources (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. Question Answer Marks Guidance 5(c) Analyse how a rise in investment could increase a country’s economic growth rate. Coherent analysis which might include: More investment will increase total (aggregate) demand (1) there will be more capital goods (1) these may be more efficient / embody advanced technology (1) productive capacity will increase / productivity rise (1) costs of production may fall (1) prices may fall (1) quality may rise (1) more products may be demanded by domestic consumers (1) foreign buyers / more exports (1) output may increase (1). Higher investment may increase employment (1) raise income (1). Investment in human capital/education/healthcare (1) can raise productivity (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a country should switch from a fixed foreign exchange rate system to a floating foreign exchange rate system. In assessing each answer, use the table opposite. Why it should: • the government will not have to devote time and attention to maintaining the exchange rate and so may use policy measures to e.g. reduce inflation • fewer foreign exchange reserves would have to be kept to maintain the exchange rate. These could be used to stimulate economic activity • exchange rate may be lower which may increase economic growth, lower unemployment and improve the current account position. Why it should not: • a lower exchange rate may cause inflation • fluctuations in the exchange rate may create uncertainty. This may discourage investment and reduce economic growth • may discourage MNCs from setting up in the country • a higher exchange rate could reduce economic growth, employment and harm the current account position. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) Example of L3 answer: A floating exchange rate changes with changes in demand and supply. A country should switch from a fixed foreign exchange rate system to a floating exchange rate system as there will be no need to keep foreign reserves so it can spend foreign reserves on something else. A country can easily change monetary policy changing interest rate without being worried. It can concentrate on other aims and not the exchange rate. Floating exchange rate automatically adjust current account of the balance of payments as increase in demand for exports will increase exchange rate reducing demand on exports. A country should not switch from fixed foreign exchange rate system to floating exchange rate as speculation could say that the value of local currency will decrease so people will sell it causing value to decrease as it will have lower demand. The uncertainty about export and import prices may discourage MNCs. Principal Examiner comment: Strong on one side and reasonable on the other.

This question in 0455/22 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

5 It was announced in November 2016 that 500 and 1000 rupee banknotes could no longer be used in shops in India. These were replaced by the central bank, an institution that makes extensive use of division of labour. In India, cash is still an important form of money used in economic transactions. The replacement of banknotes put pressure on banking staff and other workers in the tertiary sector, and affected the general price level. (a) State two functions, other than issuing banknotes and coins, of a central bank. [2] (b) Explain two reasons why workers in the tertiary sector may be paid more than workers in the primary sector. [4] (c) Analyse the advantages for firms of using division of labour. [6] (d) Discuss whether or not deflation will benefit an economy. [8]

20 marks

Mark scheme: 5(a) State two functions, other than issuing banknotes and coins, of a central bank. Two from: • manages monetary policy / sets the rate of interest • manages the national debt • controls the banking system • banker to commercial banks • banker to the government • lender of last resort • looks after reserves of gold and foreign currency 2 Allow banker to the banks Question Answer Marks Guidance 5(b) Explain two reasons why workers in the tertiary sector may be paid more than workers in the primary sector. Logical explanation which might include: Higher demand (1) due to e.g. higher productivity / more profitable / expansion of tertiary industries (1). Lower supply (1) due to e.g. higher qualifications/skills/education needed (1). Stronger bargaining power (1) due to stronger trade unions / professional organisations (1). Primary sector workers can be replaced by capital equipment (1) so bargaining strength is weak (1). More favoured by government policy (1) e.g. increased government spending on education/healthcare (1). Tertiary sector workers are mainly found in developed countries where wages / cost of living is generally high (1) whereas primary sector workers are mainly found in undeveloped countries were wages / cost of living are generally low (1). Lower value of goods and services being provided in primary sector (1) lower pay for primary sector workers (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. 5(c) Analyse the advantages for firms of using division of labour. Coherent analysis which might include: Division of labour involves workers specialising (1) this can increase output / increase productivity (1) costs of production may be reduced (1) e.g. lower costs of training (1) e.g. less equipment needed (1). Specialisation can increase quality (1) lower costs can enable to charge lower prices (1) demand may rise (1) revenue/profits may increase (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not deflation will benefit an economy. In assessing each answer, use the table opposite. Why it might: • if due to lower costs of production, may be more internationally competitive • improve the current account position • may increase purchasing power if incomes do not fall • may raise living standards • may increase economic growth and employment Why it might not: • if due to lower total demand may result in a recession • consumers may postpone purchases • investment may fall • firms may reduce output, reducing demand for raw materials • unemployment may rise Example of Level 3 answer: When an economy undergoes deflation, the general price level in the economy falls resulting in goods and services in the country becoming cheaper. This results in a higher demand for the country’s goods and services from both those living in the country and abroad. The revenue from exports will increase due to greater international demand resulting in a current account surplus. Lower prices may improve standard of living for consumers as more can be bought than before. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information, and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) However, an economy may not benefit from deflation as a prolonged deflation may result in unemployment. Firms may lose confidence in future sales as consumers wait for prices to fall further. Lower output may result in less employment further reducing demand and causing a recession. The government may have to intervene by cutting taxes and interest rates to encourage increased consumption. Principal Examiner comment: This is a concise answer with reasonable argument for the benefits and a strong answer for why there may not be benefits. Example of Level 1 answer: Deflation makes prices of goods and services to be low which will entice consumers to buy more as prices are cheaper than before. Principal Examiner comment: A basic understanding of deflation without any discussion of whether or not it is beneficial to the economy.

This question in 0455/23 Oct/Nov 2020

1 (a) Calculate the number of Germans aged over 65 in 2017. [1] (b) Identify two measures of living standards. [2] (c) Explain one cause of globalisation. [2] (d) Explain two advantages of an increase in the occupational mobility of labour. [4] (e) Analyse why the price of German luxury cars may have increased in 2018. [4] (f) Analyse whether the strength of German trade unions increased from 2013–2016. [5] (g) Discuss whether or not an ageing labour force will reduce productivity. [6] (h) Discuss whether or not immigration will increase a country’s budget surplus. [6]

30 marks

Mark scheme: 1(a) Calculate the number of Germans aged over 65 in 2017. 17.82m / 17 820 000 (1). 1 Accept 17.8 m and 18 m. 1(b) Identify two measures of living standards. Two from: • GDP per head / average income • HDI • quality of education / education 2 If more than two are given, consider the first two. 1(c) Explain one cause of globalisation. Fall in transport costs (1) reducing costs of exporting and importing / increasing international trade (1). Improvement in communications (1) due to advances in technology / increasing growth in MNCs / encouraging consumers to buy from other countries / enabling branches in different countries to keep in touch (1). 2 One mark for the cause identified and one mark for the explanation. 1(d) Explain two advantages of an increase in the occupational mobility of labour. Logical explanation which might include: Lower unemployment / increase employment (1) workers losing one job will find another job more quickly / find another job more easily / maybe more skilled / reduce frictional unemployment / reduce structural unemployment (1). Higher output / higher GDP / economic growth (1) firms experiencing higher demand will be able to expand more quickly / more elastic supply / quicker adjustment to changes in market conditions / workers may be able to multitask / change roles / may be more skilled / fewer unfilled vacancies / greater use of resources / fewer idle resources (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Do not credit ‘more skilled’ more than once. Question Answer Marks Guidance 1(e) Analyse why the price of German luxury cars may have increased in 2018. Coherent analysis which might include: Increase in demand (1) rise in incomes (1) people buy more luxury cars as they get richer / luxury cars become more affordable (1). rise in price of US luxury cars (1) these are substitutes to German luxury cars (1). Fall in the price of petrol / gas (1) petrol / gas is a complement to cars (1) firms can raise revenue / profits by increasing price (1). Decrease in supply (1) rise in wages (1) increasing costs of production (1). 4 Question Answer Marks Guidance 1(f) Analyse whether the strength of German trade unions increased from 2013–2016. Coherent analysis which might include: Overview Trade union membership fell (1) unemployment fell and / or wages rose (1). Analysis of why trade union strength may have fallen Trade union members represented a smaller proportion of labour force / proportion fell from 42.7% to 39.3% / number of members fell by approx. 5.6% (1). Fewer members so funds of / subscriptions to trade unions may have fallen (1) reduces ability to take industrial action / reduces collective bargaining strength (1). Lower unemployment / higher wages may mean workers feel less need to join a union (1). Analysis of why trade union strength may have increased Lower unemployment / higher wages may be the result of successful collective bargaining (1) firms would have found it more difficult to replace members asking for better wages / better working conditions / firms may be reluctant to dismiss staff (1) industrial action would have more effect / collective bargaining power may be stronger (1). Output / profits / demand for products may have increased (1) Comments. Other factors may have influenced trade union power e.g. government trade union legislation (1). Other factors may have influenced wages / unemployment e.g. national minimum wage / higher output /more skilled labour force (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an ageing labour force will reduce productivity. Award up to 4 marks for why it might: • May discourage investment (1) workers will have less capital equipment to work with (1). • Older workers may find it more difficult to adapt to new technology (1) may resist change (1) there may not be the time to train them (1) may be less mobile (1). • Older workers may be less fit (1) less able to do manual work (1) may have time off sick (1) may have less energy / get tired (1) work slower (1). Award up to 4 marks for why it might not: • May encourage investment because of shortage of workers / desire to rely less on labour / help workers (1). • Older workers may have more experience (1) built up more skills / qualifications (1) may need less training / have received more training (1) may train young workers (1) make fewer mistakes / produce better quality output (1). • May be more reliable (1) e.g. better punctuality (1). • May stay with the employer longer / lower rate of labour turnover (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 immigration will increase a country’s budget surplus. Award up to 4 marks for reasons why it might: • May increase size of the labour force (1) quality of the labour force may rise (1) employment may rise (1) more people with incomes (1) higher tax revenue (1) more income tax / direct tax revenue (1) more spending / higher total demand (1) more indirect tax revenue (1) higher profits may increase corporate tax revenue (1). Award up to 4 marks for reasons why it might not: • Some immigrants may be dependents (1) some may be unemployed (1) increase government spending on state benefits / unemployment benefits (1) pensions (1). • The government may have to spend more on education (1) healthcare (1) housing / infrastructure (1). • Labour force / population may not increase if matched by emigration (1), • Larger population size may result in the government having to spend more on measures to reduce pollution (1). 6 Increase in the size of the labour force linked to why it might.

This question in 0455/22 Feb/March 2021

5 Sweden has a mixed economic system. In 2018, it was operating at a point inside its production possibility curve (PPC). In 2018, the country’s schools employed nearly 2500 extra teachers. A few of these had previously been actors. A higher number had previously been government officials involved with regulation of Swedish monopolies. (a) Define a mixed economic system. [2] (b) Explain the difference between a point inside a PPC and a point outside a PPC. [4] (c) Analyse why an actor may decide to become a teacher. [6] (d) Discuss whether all monopolies have low costs of production. [8]

20 marks

Mark scheme: 5(a) Define a mixed economic system. One with a public / government sector (1) and a private sector / use of market forces (1) One which makes use of the price mechanism (1) and government directives (1). 2 5(b) Explain the difference between a point inside a PPC and a point outside a PPC Logical explanation which might include: A point inside indicates unemployed resources (1) inefficient use of resources / wasted resources (1) output is below potential output (1) an attainable point (1). A point outside is unattainable (1) not enough resources / beyond productive potential / only achievable with more resources / only achievable with better quality resources / not achievable with current resources / will be possible with future economic growth (1). 4 Maximum of 2 marks for point inside and a maximum of 2 marks for point outside. Question Answer Marks Guidance 5(c) Analyse why an actor may decide to become a teacher. Coherent analysis which might include: Wage rate may be higher (1) enable more goods and services to be purchased (1) higher living standards (1) demand for teachers may increase (1). Greater job security (1) actors often experience frictional/casual unemployment (1). More sociable/convenient working hours (1) may fit in more with having children (1) teachers may also enjoy longer holidays (1). Working conditions may be better (1) may be a safer environment (1) may have better pensions (1). May find they are better qualified / suited to be a teacher (1) more likely to be successful in the career (1). May gain more job satisfaction (1) enjoy helping children learn (1). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 5(d) Discuss whether all monopolies have low costs of production. In assessing each answer, use the table opposite. Why some have: • may earn high profits and so may have incentive to reinvest • may be small e.g. a local monopoly / low total costs • may be large and so may experience economies of scale • state-owned monopolies may be subsidised Why some do not: • lack of competition may reduce pressure to keep costs low • may be small so do not benefit from economies of scale • may be large so experience diseconomies of scale / high average costs • may be producing in a country with a high inflation rate Example of an L3 answer Monopolies are firms that dominate the market for a particular product. They supply 100% of the market and usually there are no substitutes to the product it supplies. There is no competition for a monopoly. A monopoly may not have a low cost of production as it may allocate resources inefficiently. Monopolies do have any competition as they may simply produce low quality products and earn large profits without working hard to lower costs of production. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 5(d) A monopoly will usually require a large scale of production to operate and may soon grow too large and face diseconomies of scale. It may have supply constraints pushing up the cost of production. It may be subject to labour diseconomies as the workers feel alienated in such a large enterprise leading to extra cost of labour disputes. All this could promote increased costs of production. Furthermore, governments may implement regulations that the monopoly must rigidly follow increasing the cost of production at each step. However, monopolies may be able to maintain a low cost of production as it grows. It can benefit from economies of scale. The advertising cost will be spread over a large base, lowering costs. Banks will provide loans easily due to available collateral and suppliers will also reduce costs as they can deliver bulk orders lowering their transport costs. These internal economies of scale help monopolies keep low costs of production. Monopolies may invent new production methods, technologies and invest in R & D to keep their costs low to compete with international firms. They may also try to be efficient if there are high fines or high taxes in the economy. Example of L2 answer Monopolies might have low cost of production since the benefit from greater economies of scale such as purchasing economies which means buying in bulk and receiving discounts from the supplier. Another economies of scale could be technical economies which is investing with more capital goods, increasing the productive capacity and reducing average cost. Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) Although having higher economies of scale, there may be diseconomies of scale like managerial diseconomies, which means firms having problems in management of the company, which means firms having problems in management of the company, this will reduce productivity and hence increasing cost of production. Another diseconomy could be communication problems which might occur between the entrepreneur, the workers and the managers. Example of an L1 answer Monopolies are single firms where they don’t have any other competitors. They might lose money often because it is very tough job to run a monopoly company. They could have low cost of production because if they produce more the price might be the same but if the consumers doesn’t want the products would go to waste.

This question in 0455/22 Feb/March 2021

4 The Canadian government has introduced a number of policy measures designed to encourage more women to enter the labour force. Canada’s labour force has reduced as its population has aged. The number of workers and their output are influenced by changes in the country’s foreign exchange rate and consumer expenditure. In 2018, the Canadian dollar fell in value while Canadian consumer expenditure increased. (a) Define the labour force. [2] (b) Explain two causes of an ageing population. [4] (c) Analyse how a fall in the value of a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. [6] (d) Discuss whether or not an economy will benefit from an increase in consumer expenditure. [8]

20 marks

Mark scheme: 4(a) Define the labour force. • Those who are economically active (2). • Those willing (1) and able to (work) (1). • The employed (1) and the unemployed (1). 2 4(b) Explain two causes of an ageing population. Logical explanation which might include: • A fall in the death rate / increase in life expectancy (1) resulting from better healthcare / better nutrition / higher income / better lifestyles (1). • A fall in the birth rate (1) resulting from higher cost of raising children / fall in child benefit / increase in women working / increase in use of family planning / fall in infant mortality / reduction in need for children to support parents due to provision of state pensions or healthcare (1). • Rise in net emigration of mainly young-aged people (1) resulting from higher incomes abroad / increase in job opportunities abroad (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a fall in the value of a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: • Foreign exchange rate is the price / value of one currency in terms of another currency or currencies (1) a fall in the value of a foreign exchange rate means that the domestic currency buys less foreign currency / depreciates (1). • A fall will reduce price of exports (1) raise demand for exports (1) increase export revenue (1) money flows into country which will reduce Balance of Payments deficit (1) if demand is elastic (1). • Increase price of imports (1) reduce demand for imports (1) reduce import expenditure (1) reduces the money flows out of the country which reduces the Balance of Payments deficit (1) if demand is elastic (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not an economy will benefit from an increase in consumer expenditure. In assessing each answer, use the table opposite. Why it might: • may increase total (aggregate) demand which may encourage firms to expand • cause economic growth • reducing cyclical unemployment • raise tax revenue enabling the government to spend more on education and healthcare • eliminate / reduce deflation • raise inflation to the inflation target rate Why it might not: • may cause demand-pull inflation especially if economy is at full capacity • may increase spending on imports • may divert exports to the home market • may cause a deficit on the current account of the balance of payments • may reduce long run economic growth as resources may be diverted away from producing capital goods • may increase the consumption of demerit 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) 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

1 (a) Calculate Chile’s agricultural output in 2017. [1] (b) Identify two disadvantages of a country specialising. [2] (c) Explain one reason why demand for cherries is price-elastic. [2] (d) Explain how Chile’s population structure differs from Haiti’s population structure. [4] (e) Analyse why China buys most of its cherries from Chile. [4] (f) Analyse why Chilean astronomers are paid more than Chilean farm workers. [5] (g) Discuss whether or not Chilean consumers would benefit from more government intervention in the economy. [6] (h) Discuss whether or not the Haitian economy would benefit from fewer of its people working in Chile. [6]

30 marks

Mark scheme: 1(a) Calculate Chile’s agricultural output in 2017. $11.76bn / $11 760 000 000 / $11 760m (1). 1 Accept $11.8bn and $12bn. $ is not essential. 1(b) Identify two disadvantages of a country specialising. Two from: • demand may fall / new competitors may appear • supply/output may fall / diseases / natural disasters / bad weather may affect agricultural output / costs may rise • non-renewable resources may run out • structural unemployment may occur • reliance on imports no longer produced by home country / overdependency on other countries 2 One mark each for each of two disadvantages. Rely on a small number of industries is not sufficient. 1(c) Explain one reason why demand for cherries is price-elastic. A luxury product (1) they do not have to be purchased / not essential / not a necessity (1). Has close substitutes (1) example / rise in price will cause some people to switch to rival products (1). 2 In terms of close substitutes, also accept: fall in price will cause some people to switch towards this product and away from rival products. One mark for the reason identified and one mark for the explanation. A candidate who writes a luxury product and has close substitutes and no more has identified two reasons, so just one mark. If a candidate identifies one of the two reasons but does not explain it and then identifies the second reason and explains it, the second reason can be taken and with the explanation, 2 marks. Question Answer Marks Guidance 1(d) Explain how Chile’s population structure differs from Haiti’s population structure. Logical explanation which might include: Chile has a higher proportion of its population aged over 65 / Haiti a lower proportion aged over 65 (1). Chile has a lower proportion of the population aged under 15 / Haiti has a higher proportion aged under 15 (1). Chile is likely to have a lower birth rate / Haiti is likely to have a higher birth rate (1). Chile likely to have a lower death rate / Haiti is likely to have a higher death rate (1). Chile’s population pyramid indicates a relatively high level of development/high income country / Haiti’s population pyramid indicates a relatively low level of development/low income country (1). Chile’s population pyramid is less pyramid shaped / more stationary / constrictive / bulges out in the middle / more egg-shaped / Haiti’s is more pyramid shaped / more expansive (1). Lower dependency ratio in Chile / higher dependency ratio in Haiti (1). Higher proportion of population of working age in Chile / lower proportion of population of working age in Haiti (1). Higher population size in Chile / lower population size in Haiti (1). 4 Accept for the first and second points other relevant age ranges e.g. over 60, under 10. Accept longer life expectancy for lower death rate and shorter life expectancy for higher death rate. Note that each country overall has more females than males, so not a difference. Question Answer Marks Guidance 1(d) Chile has a higher average age / older population / Haiti has a lower average age population / younger population (1). 1(e) Analyse why China buys most of its cherries from Chile. Coherent analysis which might include: Chile has high production standards (1) cherries are likely to be of a high quality (1). China does not impose tariffs on Chilean cherries (1) may keep their price low (1). 4 Free trade agreement on its own is not sufficient. 1(f) Analyse why Chilean astronomers are paid more than Chilean farm workers. Coherent analysis which might include: Most astronomers have a university degree (1) high cost of training/ long period of training (1) well qualified / well educated / high level of knowledge (1) highly productive / highly skilled / efficient (1) in short supply (1) high demand (1) more inelastic demand (1) more inelastic supply (1). Most work in the public sector (1) government may be more willing / able to pay higher wages (1) public sector workers are more likely to belong to a trade union (1) have stronger bargaining power (1). 5 Also accept an approach based on an analysis of why Chilean farm workers are paid less than Chilean astronomers. This may include reference to immigrant farm workers who may be prepared to accept relatively low wages and Chilean farm workers being replaced by capital equipment / more replaceable than astronomers. Question Answer Marks Guidance 1(g) Discuss whether or not Chilean consumers would benefit from more government intervention in the economy. Award up to 4 marks for why they might: • evidence of market failure (1) • merit goods may be underproduced (1) as under- consumed (1) • demerit goods may be overproduced (1) as overconsumed (1) • external costs could be reduced (1) external benefits may be increased (1) external costs / external benefits are not taken into account by the private sector (1) • public goods may not be produced (1) no profit incentive to make them (1) as there can be free riders (1) • inequality (1) poor consumers may lose out / there may be poverty (1) resources may not be devoted to producing what the poor need (1) may not be able to afford prices charged (1) • government subsidies (1) can lower prices (1) • government could set maximum prices (1) lower prices of necessities (1) • government could control (private sector) monopoly power (1) prevent abuse of market power (1) • government investment in education (1) could lower prices / raise quality of output (1). Award up to 4 marks for why they might not: • government failure may occur (1) e.g. government may lack information (1). • market forces can provide wide choice of products (1) may be consumer sovereignty (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)) Not taking lower taxes, lower subsidies or reduced immigration controls as a form of government intervention. 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) • profit incentive (1) industries may respond to changes in consumer demand (1) • efficient industries (1) prices may be low (1) quality may be high (1) • government intervention in the form of nationalisation (1) may reduce competition (1). • government taxes / tariffs / regulation / minimum wages (1) may increase costs (1) raise prices (1) • maximum prices could reduce availability of products (1) • government limits on immigration (1) may reduce availability of products / raise prices (1) Question Answer Marks Guidance 1(h) Discuss whether or not the Haitian economy would benefit from fewer of its people working in Chile. Award up to 4 marks for why it might: • wages may be low in Chile (1) work involves unskilled labour (1) • employment may be rising in Haiti (1) the country could keep more of its skilled workers (1) • larger labour force / more workers (1) higher total demand (1) increase GDP / increase economic growth / increase productive potential (1) increase living standards (1) increase exports (1) • rise in the numbers employed in Haiti could increase tax revenue (1) may enable more spending on e.g. education (1) • fewer parents may leave behind dependent relatives (1) reduce burden on the government (1) • jobs could be found in other countries (1) Award up to 4 marks for why it might not: • wages may be higher in Chile (1) fewer emigrant workers may send money home (1) living standards may be lower (1) lower spending (1) • less money coming into the country (1) may increase a current account deficit (1) • job opportunities may be higher in Chile (1) unemployment may rise in Haiti (1) • if unemployment rises in Haiti, cost of unemployment benefits may rise (1) opportunity cost / higher taxation (1) • opportunities to gain new skills may be reduced (1) these skills could be brought back into the country (1) 6 For an approach which discusses whether or not the Haitian economy benefits from its people working in Chile, award a maximum of 3 marks. Question Answer Marks Guidance 1(h) • may reduce pressure to invest / spend on capital equipment (1) reduce advances in technology / reduce increases in efficiency / productivity (1) • may increase overcrowding / overpopulation (1) increase external costs / pollution (1) pressure on resources (1).

This question in 0455/22 May/June 2021

4 Turkey’s birth rate is falling which is likely to reduce its supply of labour. However, improvements in the quality of labour and the increase in foreign multinational companies (MNCs) operating in Turkey (the host country to the MNCs) may help the economy avoid a recession. One reason why economists are worried that a recession may occur is an expected rise in the interest rate. (a) Define birth rate. [2] (b) Explain two causes of an increase in the quality of labour in a country. [4] (c) Analyse how a rise in the interest rate could cause a recession. [6] (d) Discuss whether or not MNCs improve the economic performance of the host countries in which they operate. [8]

20 marks

Mark scheme: 4(a) Define birth rate. The number of births per thousand of the population (1) in a year (1) live births (1) 2 Not sufficient to have just number of births. 4(b) Explain two causes of an increase in the quality of labour in a country. Logical explanation which might include: Improvements in education (1) qualifications / knowledge (1). Improvements in training (1) increasing skills (1). Improvements in healthcare (1) making workers physically/mentally stronger (1). Increases in pay (1) raising motivation (1). Improvements in nutrition (1) enabling workers to work harder / concentrate more (1). Reduction in working hours / length of working day (1) keeping workers fresher / enabling them to concentrate more (1). Improvements in working conditions (1) raising motivation / enabling workers to work harder / concentrate more (1) Immigration (1) of skilled workers (1). Experience (1) becoming more familiar with tasks (1). Specialisation (1) become more familiar with one task / ‘practice makes perfect’ (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a rise in the interest rate could cause a recession. Coherent analysis which might include: A higher interest rate would increase the cost of borrowing (1) reduce borrowing (1) reduce the spending power of people who have borrowed in the past (1) increase saving (1) consumer expenditure / spending may fall (1) investment may fall / may discourage MNCs (1) unemployment may increase / employment may fall (1) total demand may fall (1) the output of goods and services / GDP may fall (1) if output falls over a period of two quarters / six months there will be a recession (1). A higher interest rate may encourage more people to buy the currency (1) to put money into the country’s financial institutions (1) raising the value of the foreign exchange rate (1) raising the price of exports (1) lowering demand for exports (1) reducing the price of imports (1) increasing demand for imports (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not MNCs improve the economic performance of the host countries in which they operate. In assessing each answer, use the table opposite. Why they might: • may bring in new technology and methods of production, increasing economic growth • may create new jobs, may reduce unemployment • may add to exports, reducing a current account deficit / increasing a current account surplus • may create more competition / have greater efficiency, lowering inflation • may increase tax revenue, enabling the government to spend more on e.g. education and healthcare Why they might not: • may drive out domestic producers, leaving the country’s output unchanged • may employ workers from their home country • may import capital equipment and raw materials from their home countries • may deplete non-renewable resources, reducing sustainable economic growth • may provide only low-skilled, low-paid jobs to locals • send profits back to home country • may cause external costs e.g. pollution 8 Help avoid a recession = one relevant identification. 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 0455/22 May/June 2021

3 Two of Uzbekistan’s main industries are cotton and gas. Uzbekistan is the world’s seventh largest producer, and fifth largest exporter, of cotton. The Uzbek government has tried to influence the cotton industry’s price elasticity of supply. It has also nearly ended the use of child labour in cotton production. The country’s output of gas increased by 7% in 2018 and its average cost of gas production fell. (a) Identify two determinants of price elasticity of supply. [2] (b) Explain two advantages to an economy of ending child labour. [4] (c) Analyse how average cost can change as output increases. [6] (d) Discuss whether or not an economy would benefit from allocating more of its resources to agriculture. [8]

20 marks

Mark scheme: 3(a) Identify two determinants of price elasticity of supply. Two from: • ability to store • level of stocks • perishability • production time • level of spare capacity • cost of altering supply • time period under consideration – short/long run 2 Accept weather. 3(b) Explain two advantages to an economy of ending child labour. Logical explanation which might include: Enable children to be educated (1) raise productivity / workers’ skills / literacy rates / long run economic growth (1). Improve children’s health (1) increase life expectancy / raise living standards (1). Reduce cycle of poverty (1) children will later gain higher paid jobs (1). Raise wages (1) due to reduced supply of cheap labour (1). Remove international bans / encourage more foreign tourists (1) increase exports (1). Increase job opportunities for adults (1) lower unemployment / increase employment of adults (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse how average cost can change as output increases. Average cost may fall due to economies of scale (1) example of an economy of scale e.g. financial economy (1) explanation of the example (up to 2 marks) e.g. banks may charge lower interest rates (1) reducing firms’ cost of borrowing (1). Another example e.g. buying economy (1) explanation of the example (up to 2 marks) e.g. able to buy in bulk (1) and receive a discount (1). Higher output may enable fixed costs to be spread over a larger output (1) which may reduce average fixed costs (1) whether average total cost will fall will depend on what happens to average fixed cost plus average variable cost (1). Average cost may rise due to diseconomies of scale (1) example e.g. managerial economy (1) explanation of the example (up to 2 marks) e.g. difficulty of keeping control of a large organisation (1) leading to more mistakes / poor decision making (1). Another example e.g. poor labour relations (1) explanation of the example (up to 2 marks) e.g. lack of contact between workers and managers (1) may be strikes (1). 6 Nothing for reference to causes of changes in total costs e.g. employing more workers will increase wages paid. Question Answer Marks Guidance 3(d) Discuss whether or not an economy would benefit from allocating more of its resources to agriculture. In assessing each answer, use the table opposite. Why it might: • specialisation may increase efficiency, raise output, increase exports • may improve the current account of the balance of payments • imports of food may be reduced, reduced reliance on other countries for basic necessities • health and safety standards may be maintained • the industry is labour intensive in some countries and so may reduce unemployment Why it might not: • wages in the industry tend to be relatively low • the supply of agricultural products can fluctuate significantly due to changes in weather conditions • opportunity cost of fewer resources for manufacturing goods and for services • demand for manufactured goods and for services tend to rise more as income increases • agriculture uses up considerable amounts of water. 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 u sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Marks Guidance 3(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 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

4 Norway has engaged in free trade to a greater extent in recent years. The country operates a floating foreign exchange rate. There has been a change in the pattern of employment in Norway. For example, more Norwegians now work in jobs requiring a university degree. Some of these graduates work as economists and lawyers dealing with mergers between firms. In 2017, there were 332 mergers, an increase of 23% on the previous year. (a) Identify two benefits of free trade. [2] (b) Explain two differences between a floating foreign exchange rate and a fixed foreign exchange rate. [4] (c) Analyse how a change in the pattern of employment in a country may change its average wage. [6] (d) Discuss whether or not a government should stop firms merging. [8]

20 marks

Mark scheme: 4(a) Identify two benefits of free trade. Two from: • higher output/growth • higher income/living standards • more employment/more jobs • more choice/access to other markets • lower price • greater ability to take advantage of economies of scale/greater efficiency/specialisation • drives competition • better quality goods • stronger global co-operation 2 Question Answer Marks Guidance 4(b) Explain two differences between a floating foreign exchange rate and a fixed foreign exchange rate. Logical explanation which might include: A floating exchange rate is determined by market forces (1) a fixed exchange rate is set by the government/central bank (1). A floating exchange rate can change on a day-to-day basis (1) whereas a fixed exchange does not often change in value (1). A rise in the value of floating exchange rate is an appreciation / a fall in the value of a floating exchange rate is a depreciation (1) a rise in the value of a fixed exchange rate is a revaluation/a fall in value of a fixed exchange rate is a devaluation (1). A floating exchange rate does not require a central bank to buy and sell the currency (1) a fixed exchange rate needs reserves of foreign currency to maintain it (1). 4 One mark each for each of two differences identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a change in the pattern of employment in a country may change its average wage. Coherent analysis which might include: A higher proportion of skilled workers (1) due to better education/training (1) will raise the average wage/skilled workers tend to be highly paid (1). An increase in proportion of workers in the tertiary sector/smaller proportion of workers in the primary sector (1) example of industry/as economy develops there tends to be more workers in the tertiary sector/fewer in the primary sector (1) will tend to increase the average wage (1). A greater proportion of women workers (1) change in social attitudes/anti-discrimination legislation (1) may increase the average wage (1). A higher proportion of workers in the public sector (1) may be better training / may be more fringe benefits/may be more job security (1) may increase/reduce the average wage (1). A larger proportion of workers in the formal economy (1) more likely to be represented by a trade union/will have legal rights (1) may increase the average wage. Age (1) older workers may be more experienced/in promoted posts (1) may be better paid (1). 6 Allow up to 3 marks for why wages may change due to changes in demand and supply with reference to a particular industry. Note: answers must address a change in pattern of employment Question Answer Marks Guidance 4(d) Discuss whether or not a government should stop firms merging. In assessing each answer, use the table opposite. Why it should: • will have greater market share • may abuse greater market power • may become complacent • consumers may experience higher prices and lower quality • may engage in rationalisation • may increase unemployment • may experience diseconomies of scale Why it should not: • may innovate more • may provide consumers with lower prices and higher quality • may be more international competitive • may improve current account position • may increase economic growth • may experience economies of scale 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 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) 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

4 Botswana’s net migration varies. In 2019, Botswana had net immigration. Since 2010, its unemployment rate has averaged 18%. Between 2010 and 2019, the number of women in the labour force increased from 380 000 to 490 000. Although Botswana is one of Africa’s richer countries, its households do not save much of their income. (a) Identify two reasons why immigration may increase. [2] (b) Explain two consequences of unemployment. [4] (c) Analyse why more women may join a country’s labour force. [6] (d) Discuss whether or not a government should encourage an increase in saving. [8]

20 marks

Mark scheme: 4(a) Identify two reasons why immigration may increase. Two from: • higher income / better living standards (in the country) / lower income abroad • more job opportunities (in the country) / fewer job opportunities abroad • better working conditions (in the country) / worse working conditions abroad • better education (in the country) / worse education abroad • better healthcare (in the country) / worse health care abroad • lower cost of living / higher cost of living abroad • lower taxes / higher taxes abroad • lower immigration controls • wars / famine / political unrest / natural disasters abroad. 2 Accept e.g. higher income on its own. If mention e.g. lower income must link to other countries /abroad. Question Answer Marks Guidance 4(b) Explain two consequences of unemployment. Logical explanation which might include: Lower output / lower GDP / lower economic growth / producing below full capacity (1) inefficient use of resources / unused resources / lower exports (1). Lower income / lower wages / lower GDP per head (1) causing a rise in poverty / reduction in ability to buy basic necessities / fall in living standards / lower development (1). Lower total (aggregate) demand (1) lower inflation / deflation (1). Lower tax revenue (1) from (direct and indirect taxes) due to lower income / reduction in government spending (1). Increased government spending on unemployment benefits (1) opportunity cost / spending less on e.g. healthcare (1). Reduction in household spending on education / healthcare (1) reduce living standards / life expectancy (1). Unemployed workers may lose skills / become out of date with new technology (1) make it more difficult to gain employment (1). Unemployed workers may experience depression / low self-worth (1) worsen health (1). Possibility of a rise in crime (1) government may have to spend more on reducing crime / crime lowers people’s quality of life (1). 4 One mark for each of two consequences identified and one mark for each explanation. Question Answer Marks Guidance 4(c) Analyse why more women may join a country’s labour force. Coherent analysis which might include: Rise in pay (1) better job opportunities (1) due to a fall in discrimination (1) change in social attitudes (1). Improvements in education for girls (1) more female graduates / higher literacy (1) higher productivity / skills (1) higher demand for women workers (1). Rise in tertiary sector employment (1) higher proportion of women employed in the tertiary sector (1). Fall in birth rate (1) reduction in dependents / dependency ratio (1) rise in availability of childcare (1) making it easier to combine work and parenthood (1). Increase in population size (1) more women available to seek work (1). Reduction in male workers (1) due to e.g. emigration of male workers (1). Rise in part-time employment / increase in holidays / rise in flexible hours / increase in opportunity to work from home (1) allowing women to combine work with bringing up a family (1). More women may need / want to support their families financially (1) due to e.g. rise in cost of living / male workers losing their jobs / increase in divorce 1). May be government measures to encourage women to join the labour force (1). Rise in job security (1) improvement in working conditions / fringe benefits (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not a government should encourage an increase in saving. In assessing each answer, use the table opposite. Why it should: • will reduce spending which can reduce demand-pull inflation • lower spending may reduce imports, improving the current account balance • will provide finance for investment • will provide a ‘safety net’ for households and firms • may be used to finance children’s education and/or family’s healthcare • may provide income when retired. Why it should not: • may result in a recession • will reduce total demand which can decrease economic growth • may cause (cyclical) unemployment • incomes may be too low for people to be able to save • may reduce tax revenue from indirect taxes. 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 0455/22 Feb/March 2022

1 (a) Calculate the number of births in Cyprus in 2019. [1] (b) Identify two indicators of living standards. [2] (c) State why the global market for grapes was in disequilibrium in 2019. [2] (d) Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. [4] (e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. [4] (f) Analyse the relationship between inflation rates and current account balances. [5] (g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is likely to shift to the right. [6] (h) Discuss whether or not adopting capital-intensive production will benefit consumers. [6]

30 marks

Mark scheme: 1(a) Calculate the number of births in Cyprus in 2019. 12 240 (1) 1 1(b) Identify two indicators of living standards. GDP per head / per capita (1). HDI (1). Life expectancy / healthy people (1). Proportion of people in primary sector (1). Level of education / qualifications (1). 2 Do not reward GDP 1(c) State why the global market for grapes was in disequilibrium in 2019. Bad weather / failure of the grape harvest (1) there was a shortage (1) which means demand exceeded supply (1). 2 1(d) Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. Logical explanation which might include: Well-paid / good work benefits (1) which provides an incentive to work for longer / high job satisfaction / enter workforce late (1). Healthy (1) and so more able to work for longer / remain productive (1). Work in jobs which do not require physical strength / less tiring (1) older workers tend to be less strong / allows them to continue working as long as remain fit (1). 4 One mark for each of two reasons identified and one mark for each explanation. Question Answer Marks Guidance 1(e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. Coherent analysis which might include: A rise in the retirement age / less people retired will reduce the cost of pensions (1) may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1). More people in work will increase incomes / businesses expand production (1) raise direct tax revenue (1) spending will increase (1) raise indirect tax revenue (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between inflation rates and current account balances. Coherent analysis which might include: Overview: Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1). Supporting evidencemax of 2 marks Mongolia has the highest inflation rate (1) and the largest current account deficit (1) Mongolia / Kenya / Nepal have the highest inflation rates (1) all have a current account deficit (1). Iceland / Slovenia have a low rate of inflation (1) but have a current balance of payments surplus (1) Exception: Cyprus lowest inflation rate (1) but a current account deficit / 3rd highest current account deficit (1). Comments: Most of the table shows the expected relationship. (1) Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1) 5 Do not accept current account balance is high or low. Answers need to refer to size of surplus or deficit. Simply using data without explanation is description rather than analysis. Question Answer Marks Guidance 1(g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is to shift to the right. Award up to 4 marks for logical reasons why it might, which may include: Quantity / quality of resources may have increased (1) retirement age may have increased (1) people living longer (1) so labour force is likely to have increased (1). Investment may have increased (1) due to low interest rates (1) more capital goods would increase productive capacity (1). Award up to 4 marks for logical reasons why it might not, which may include: Quantity and quality of resources may have decreased (1) land quality is decreasing (1) which will reduce the productivity of land (1). Entrepreneurs may emigrate (1) reducing the supply of enterprise / skilled workers (1). Birth rate is falling (1) size of workforce may fall in future (1) Covid19 may have reduced productivity (1). For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (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 Marks 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 adopting capital-intensive production will benefit consumers. Award up to 4 marks for logical reasons why it might, which may include: It may reduce costs of production / more efficient / may result in economies of scale (1) lower costs may reduce prices (1). It may avoid disruption to supply (1) as no industrial action / strikes (1). It may be quicker / faster (1) to respond to changes in consumer demand (1) It may raise quality (1) as absence of human error (1). Award up to 4 marks for logical reasons why it might not, which may include: Products may be standardised / lack variety (1) individual wants may not be met (1). Capital equipment may break down / costly to maintain (1) causing delays in production (1). Initial high cost of capital equipment (1) may push up prices (1). 6

This question in 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. 68 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. 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 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

5 Singapore is a high-income country with a shortage of land and labour. Singapore is often given as an example of a market economy. The Singaporean government does, however, intervene in the economy. For example, it encourages its population to eat two servings of fruit and two servings of vegetables per day. (a) Identify the reward to labour and the reward to land. [2] (b) Explain how an increase in a worker’s income can affect their mobility of labour. [4] (c) Analyse, using a demand and supply diagram, how a greater awareness of the health benefits of eating fruit will affect the market for fruit. [6] (d) Discuss whether or not a market economic system benefits an economy. [8]

20 marks

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

This question in 0455/21 May/June 2022

1 (a) Calculate Bhutan’s GDP in 2018. [1] (b) Identify two indicators that are in both the World Happiness Index and the Human Development Index. [2] (c) State why Bhutan’s 2018 government budget is likely to have increased total demand in Bhutan. [2] (d) Explain two reasons why someone may prefer to work in the tertiary sector rather than in the primary sector. [4] (e) Analyse how investment in capital goods and education can increase New Zealand’s productivity. [4] (f) Analyse the relationship between GDP per head and net migration. [5] (g) Discuss whether or not enterprise is likely to have increased in New Zealand after 2019. [6] (h) Discuss whether or not a cut in income tax rates will increase living standards. [6]

30 marks

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

This question in 0455/22 May/June 2022

1 (a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. [1] (b) Identify two conditions of demand for eSports. [2] (c) Explain how a change in social attitudes would lead to greater participation by women in the labour force. [2] (d) Explain two differences between private sector investment and public sector investment. [4] (e) Analyse how the development of eSports in Malta can help the government achieve its macroeconomic aims. [4] (f) Analyse the relationship between GDP per head and the proportion of females in the labour force. [5] (g) Discuss whether or not specialisation at a national level is harmful to an economy. [6] (h) Discuss whether or not government investment in education and training will help the Maltese economy. [6]

30 marks

Mark scheme: 1(a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. 30% 1(b) Identify two conditions of demand for eSports.  Increasing incomes  Decrease in the price of technology needed to participate in this sport 2 1(c) Explain how a change in social attitudes would lead to greater participation by women in the labour force. Logical explanation which might include: Acceptance that women are equal to men / that it is acceptable for women to work (1) and that their role is not only as a home maker (1) childcare is not just female role (1). It is more acceptable for women to be educated / there is more encouragement for women to study (1) which increases their job opportunities (1). Women feel more comfortable / accepted at work (1) more jobs will be open to women (1.) Wages paid to women may rise (1) eSports are no longer seen as a male-only sport (1). 2 Question Answer Marks Guidance 1(d) Explain two differences between private sector investment and public sector investment. Private sector investments are investments made by firms (1) while the public sector investments are investments made by the government (1). Private sector investments are made to maximise profits (1) while public sector investments are made to maximise welfare of society (e.g. provide employment) (1). Private sector investments made based on private costs and benefits (1) while public sector investments are made based on social costs and benefits (1). Profits from private sector investment go to shareholders (1) profits from public sector investment go to public spending e.g. health care (1) The aim of private sector investment is to be more competitive / gain market share (1) the aim of public sector investment is to improve macroeconomic performance (1). Private sector investment may be financed by retained profits/entrepreneurs (1) public sector investment may be financed by tax revenue (1). 4 For the 2nd mark for public sector investment, accept any of the macroeconomic objectives as the reason why public sector investment is made. Question Answer Marks Guidance 1(e) Analyse how the development of eSports in Malta can help the government achieve its macroeconomic aims. Coherent analysis which might include: Economic growth is indicated (1) as eSports is part of the service sector that contributes 90% of Malta's GDP (1) development of eSports in Malta can increase Malta’s GDP (1) Unemployment may be reduced / employment increased (1) because it will be able to attract investments (1) creating more jobs (1) from building infrastructure (1) and more professional e-sports players (1) Current account may also be improved by more inflow of money (1) from increased expenditure on exports (1) of services / tourism (1). Tax revenues may increase (1) enabling the government to increase spending on e.g. education (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and the proportion of females in the labour force. Coherent analysis which might include: Overview: Generally, GDP per head is higher when the proportion of females in the labour force is higher / positive relationship between GDP per head and proportion of females in the labour force (1). Supporting Evidence: (up to 2 marks) Yemen has the lowest female labour force participation rate and also the lowest GDP per head (1) Luxembourg has the highest female labour force participation rate and the highest GDP per head (1) Yemen, Saudi Arabia, and Bangladesh have the 3 lowest figures for both female participation rate and GDP per head (1) Luxembourg, France and Malta have the 3 highest figures for both female participation rate and GDP per head (1) Exception: However, exception is Saudi Arabia / Bangladesh (1) Saudi Arabia has a lower female labour force participation rate but higher GDP per head than Bangladesh (1). Comments: This is because higher female labour force participation rate means there are higher quantities of labour which is a factor of production / more labour is available to contribute to the growth of the economy (1) increased availability of education for women will positively affect GDP (1) 5 Give BOD if answer states GDP alone and not GDP per head. Question Answer Marks Guidance 1(g) Discuss whether or not specialisation at a national level is harmful to an economy. Award up to 4 marks for logical reasons why it might be harmful, which might include: Specialisation could lead to overdependence on a specific industry / danger of over-specialisation (1) if this industry fails (1) e.g. if there is a fall in demand / revenue from eSports, the whole Maltese economy could be adversely affected (1). Specialisation makes it difficult for the workers to retrain to other industries (1) danger of structural (1) unemployment (1). Specialisation might lead to diseconomies of scale (1) where long run average costs increase as output increases (1). Resources may become exhausted (1) making industry unsustainable (1) Award up to 4 marks for logical reasons why it might not be harmful, which might include: Specialisation leads to increase in efficiency (1) increased competitiveness (1) as the economy focuses on what they do best (1), they will be able to produce more (1) and at a better quality (1) lower cost (1). Specialisation enables workers to become highly trained / skilled (1) and increase their productivity (1) leading to higher incomes (1) and demand for their labour (1). Specialisation could help the economy achieve economies of scale (1) where long-run average cost falls as output increases (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 Reward but do not expect reference to comparative/absolute advantage. Question Answer Marks Guidance 1(g) Specialisation enables countries to trade more with other countries (1) increased export earnings can enable countries to afford more imports as well (1) leading to increased choices (1) higher standards of living (1). As output increases and trade increases, governments receive more tax revenue (1) Question Answer Marks Guidance 1(h) Discuss whether or not government investment in education and training will help the Maltese economy. Award up to 4 marks for logical reasons why it could, which might include: Government investment in education and training will enable more students to gain access to e.g. higher education / create a more educated labour force (1) which will enable them to increase their skills (1) productivity / efficiency (1) and enable them to get jobs in the future (1) reducing unemployment (1) increase incomes (1) which would increase consumption / total demand (1) and output / GDP (1) Organising work placements for Maltese students will enable students to gain work experience (1) further increasing their skills (1) and help firms develop (1) with new ideas / extra help (1) at low cost (1) increasing output (1) and economic growth (1). Tax from incomes of those employed (1) will improve public finances (1) Bringing in professionals from other countries to train Maltese students could introduce more expertise (1) helping to transfer new skills (1). May contribute to the growth of the tertiary sector (1) increase development (1). A more educated labour force may attract MNCs (1) more efficient production (1). Award up to 4 marks for why it could not, which might include: Investment in education and training is expensive (1) using public finances (1) 6 Question Answer Marks Guidance 1(h) opportunity cost for the government (1) less spending on government projects such as Healthcare (1) could decrease overall productivity of the economy (1) less economic growth (1). Education and training might not be successful (1) work placements might not teach students the right skills needed in the future / scholarship schemes misused or not given out fairly / foreign professionals might not be able to transfer knowledge effectively (1). Education and training can take a very long before it impacts the economy (1) scholarship schemes usually at least 3 years for a degree level course (1). In the short run, it could reduce the size of the labour force (1) reduce output / lower productive potential (1). There may be emigration of skilled workers (1) other countries gaining the benefits (1).

This question in 0455/23 May/June 2022

2 Medan is the third largest city in Indonesia by population. It is sometimes known as the city of a million shop-houses as many people start small firms at the street level of their homes. This has led to an increase in the market supply of industries such as cafes and clothes shops. Also, due to the growth in demand for food delivery, the unemployment rate has fallen. However, mobility of labour is limited both within Medan and within Indonesia. (a) Identify the difference between individual supply and market supply. [2] (b) Explain two influences on the mobility of labour. [4] (c) Analyse the reasons for the existence of small firms. [6] (d) Discuss whether or not a reduction in the unemployment rate benefits an economy. [8]

20 marks

Mark scheme: 2(a) Identify the difference between individual supply and market supply. 2 Individual supply is the amount that a single firm is willing and able to supply at a specific price (1) while market supply is the total of all individual supply / the amount that all the firms in the market is willing and able to supply at a specific price (1). 2(b) Explain two influences on the mobility of labour. 4 Also accept answers based on influences for low mobility of labour. Logical explanation which might include: Good transport links (1) such as public transport / highways (1) ease of workers moving from one place to another to take up a job (1). Cheap cost of living / relocation (1) such as good access to affordable homes in different places (1). Similar culture (1) such as similar languages / work culture (1). Ease of workers moving from one job to another job (1) lots of re-training opportunities (1) good quality education (1) skills/qualification needed between different jobs are similar (1). 2(c) Analyse the reasons for the existence of small firms 6 Coherent analysis which might include: Barriers to entry may be low (1) easy for firms to enter (1) e.g. low capital start-up cost / low government regulations (1). Small firms can be monopolist (1) small / niche market (1). Lots of government support for small firms (1) e.g. subsidies to SME (1) to maintain competition (1). Firms desire to remain small (1) keep it within family members (1) easy to control (1) satisfied with amount of profit (1). Difficult for firm to grow (1) as there are dominant firms in the market (1) or difficult to get enough capital to grow large (1). Economies of scale may be very small (1) low long average costs at low levels of output (1) e.g. not much bulk discount, not much expensive equipment (1). Diseconomies of scale may be achieved at low levels of output (1) due to the productive inefficiency (1). 2(d) Discuss whether or not a reduction in the unemployment rate benefits 8 Level Description Marks an economy. 3 A reasoned 6–8 In assessing each answer, use the table opposite. discussion which accurately examines Why it might be beneficial: both sides of the • increase in output, increase economic growth / GDP economic argument, • increase in tax revenue making use of • decrease cost of unemployment benefits economic • increase income for individuals information and • decrease inequality clear and logical • decrease crime rates analysis to evaluate • decrease stress level, decrease occurrence of homelessness and economic issues family breakdown and situations. One • decrease indebtedness. side of the argument may have more Why it might not be beneficial: depth than the other, • wages increasing, higher cost of production, increase cost-push but overall both inflation sides of the • increase consumption, increased total demand, increase demand-pull argument are inflation considered and • decrease competitiveness of exports developed. There is • decrease attractiveness to foreign investors. 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(d) Level Description Marks 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero 0 should be awarded for no creditable content.

This question in 0455/21 Oct/Nov 2022

5 Bulgaria is part of the European Union (EU), but it has much lower corporation tax rates than other EU members. However, regulation by the Bulgarian government has discouraged foreign investment into Bulgaria. In addition, Bulgaria’s economic growth rate has decreased in recent years, due in part to a steady fall in its quantity of labour. (a) Define regulation. [2] (b) Explain two causes of a fall in the quantity of labour in a country. [4] (c) Analyse how differences in the rates of corporation tax between countries may affect multinational companies (MNCs). [6] (d) Discuss whether or not a decrease in a country’s economic growth rate will harm its economy. [8]

20 marks

Mark scheme: 5(a) Define regulation. 2 Award 1 mark for any relevant examples e.g. a set of rules or laws (1) normally imposed by government / form of No smoking for under 16s, not allowed to government intervention (1) to affect behaviour of various economic actors leave home, no chewing gum, prohibition of in the economy (1). alcohol sales, compulsory face masks. 5(b) Explain two causes of a fall in the quantity of labour in a country. 4 Logical explanation which might include: • Negative net migration (1) emigration rates higher than immigration rates (1) as people search for better job opportunities / higher wages / higher living standards elsewhere (1). • High death rates (1) the ratio of deaths to the population (per thousand people per year) increases (1) due to poor healthcare facilities / lack of medicines / diseases (1). • Ageing population (1) average population getting older (1) lots of retirees / pensioners (1) no longer contributing to the labour force (1). 5(c) Analyse how differences in the rates of corporation tax between 6 countries may affect multinational companies (MNCs). Coherent analysis which might include: Lower corporation tax in one country will attract more MNCs into the country (1) this is because their potential after tax profits will increase (1). Lower corporation tax will attract more MNCs to reinvest in the economy (1) this is because they will be able to get more profits and thus more capital for reinvestments (1) this could to an increase in investment in capital which leads to increased productivity (1) and increased output of MNCs (1). Lower corporation tax will enable more firms to expand their operations (1) and therefore hire more workers (1). 5(d) Discuss whether or not a decrease in a country’s economic growth 8 Level Description Marks rate will harm its economy. 3 A reasoned 6–8 In assessing each answer, use the table opposite. discussion which Why a decrease in economic growth rate will harm an economy: accurately examines • Less job creation – higher unemployment both sides of the • Reduction in consumer confidence in the economy economic argument, • Reduction in investor confidence in the economy making use of • Lower tax revenues – less spending on development economic • Reduction in level of increase in living standards. information and clear and logical Why a decrease in economic growth rate will not harm an economy: analysis to evaluate • Reduce inflation economic issues • Less harm to the environment and situations. One • Might reduce level of imports – less deficit in the current account of the side of the argument balance of payments may have more • Less stress – lower working hours. 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. 5(d) Level Description Marks 2 A reasoned 3–5 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. 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero 0 should be awarded for no creditable content.

This question in 0455/21 Oct/Nov 2022

1 (a) Calculate the price elasticity of supply of Ecuador’s oil. [1] (b) Identify two key resource allocation questions. [2] (c) State why sunshine has no opportunity cost. [2] (d) Explain two reasons why Ecuador experienced a recession between 2014 and 2016. [4] (e) Analyse how building more roads can increase a country’s economic growth rate. [4] (f) Analyse the relationship between GDP per head and car ownership. [5] (g) Discuss whether or not the profits of Ecuador’s textile firms are likely to have increased between 2016 and 2019. [6] (h) Discuss whether or not Ecuador benefits from the emigration of some of its workers. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the price elasticity of supply of Ecuador’s oil. 1 Do not accept 16% 0.16 (1). 1(b) Identify two key resource allocation questions. 2 Do not accept: How much to produce or for whom to produce What to produce / produce less of one product and more of another product / less oil and more textiles (1). How to produce it / how products are made / using fewer capital goods (1). 1(c) State why sunshine has no opportunity cost. 2 It is a free good (1). In unlimited supply / not scarce / a renewable source of energy (1). Does not take resources to produce it / nothing needs to be sacrificed to use it / no alternative / substitute so no opportunity cost (1). It is there naturally (1). 1(d) Explain two reasons why Ecuador experienced a 4 One mark for each of two reasons identified and one mark recession between 2014 and 2016. for each explanation. Logical explanation which might include: Fall in demand for exports [of oil] (1) lower export revenue / increase current account deficit / lower output of oil / lower total demand / lower GDP (1). Decrease in government spending (1) lower employment / lower output / lower income from benefits / lower total demand / lower GDP (1). 1(e) Analyse how building more roads can increase a 4 country’s economic growth rate. Building more roads would increase employment )1) lower unemployment (1) increase demand for road building materials (1) increase in government spending on roads (1) increase incomes (1) leading to higher demand / expenditure on goods and services e.g. education / cars (1). Less congestion (1) easier to transport goods / better infrastructure (1) quicker to work / increases labour mobility / longer working hours / more productive / efficient workforce (1) output rises (1). Lower transport costs (1) encourage firms to increase output / attract MNCs / foreign investment (1). Lower costs may increase international competitiveness (1) increase demand for country’s exports (1). 1(f) Analyse the relationship between GDP per head and car 5 There must be a comparison between countries and/or GDP ownership. per head and car ownership. Merely describing the data gets no marks as it is not analysis. Coherent analysis which might include: A direct comparison between two countries e.g. GDP per Overview head is higher in Switzerland than Senegal and car Generally, a direct relationship / the higher the income, the ownership is higher in Switzerland than Senegal is worth the higher the car ownership / the lower the income, the lower 2 marks. the car ownership (1). Supporting evidence – two comparison examples Senegal has the lowest GDP per head and the lowest car ownership (1). Ecuador has the second lowest GDP per head and the second lowest car ownership / Spain has higher GDP per head and car ownership than Uruguay (1) Exception New Zealand / Switzerland (1) Switzerland has a higher GDP per head but lower car ownership than New Zealand (1). OR Switzerland has highest GDP per head but only second highest car ownership (1) OR New Zealand has second highest GDP per head but highest car ownership (1). Comments Higher income would increase ability to purchase cars / high income countries often have more than one car per household (1) For exception other influences on demand e.g. cost of public transport / road space / congestions (1). 1(g) Discuss whether or not the profits of Ecuador’s textile 6 Apply this example to all questions with the command firms are likely to have increased between 2016 and word DISCUSS 2019. (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why they Each point may be credited only once, on either side of an might, which may include: argument, but separate development as to how/why the Incomes / household spending increased in Ecuador (1) outcome may differ is rewarded. increasing demand for textiles (1) revenue increases (1). Generic example Mark Costs of production may have fallen (1) due to lower transport costs (1)’. Tax revenue may decrease… 1 Increase in scale of production (1) increased ability to take ...because of reason e.g. incomes may be lower. 1 advantage of economies of scale (1) average cost falls (1) profits may rise if prices unchanged but costs fall / profit is Tax revenue may increase because incomes 0 revenue – costs (1). may be higher i.e. reverse of a previous argument. Low increase in wage costs (1) revenue may have increased by more than costs (1). Tax revenue may increase because of a 1 different reason i.e. not the reverse of a previous Incomes abroad may have increased (1) increasing demand argument e.g. government spending on for Ecuadorean textiles (1) especially of luxury textiles (1). subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why they might not, which may include: The firms may have lost skilled workers abroad (1) which could have reduced productivity (1) increased costs / production falls (1). Strong competition from abroad (1) they may have lost sales to competitors (1) reducing revenue and or prices (1). Low wage increase (1) workers may leave industry / lower productivity (1) trade unions / workers may take action (1) may strike / disrupting the firms’ supply/ lead to higher costs (1). 1(h) Discuss whether or not Ecuador benefits from the 6 emigration of some of its workers. Award up to 4 marks for logical reasons why it might, which may include: Some may be unskilled (1), may have been unemployed (1) others leaving jobs create vacancies to be filled by unemployed (1) and so the government would spend less on unemployment benefit / more for other public spending (1) less poverty as a result (1). Some may be trained abroad (1) and may bring back skills and ideas into the country (1) increasing output (1). Some may send money home (1) improve the current account balance (1) will increase spending / total demand (1) leading to economic growth (1). Net emigration results in lower population / reduces overpopulation (1) less depletion of resources / pollution / shortage of resources e.g. housing (1). Award up to 4 marks for logical reasons why it might not, which may include: May lose skilled workers (1) lower productivity (1) low quality products / reduce output / economic growth (1) a relatively high proportion of people lost (1) makes it more difficult to attract MNCs (1). If some will not support families at home (1) dependency ratio will rise (1) place more burden on the government (1). Large proportion / 3 million already working abroad (1) shortage of workers / large reduction in size of labour force / increase (unit) wage costs (1) less income (1) less government tax revenue (1) less government spending e.g. education, health (1). Younger workers emigrating (1) leads to an ageing population (1).

This question in 0455/23 Oct/Nov 2022

4 Poland is the world’s top exporter of toothpaste, a product that is in inelastic demand. In 2019, some Polish firms producing toothpaste considered a horizontal merger. Also in 2019, the wages of dentists increased globally. This increase was particularly high in the UK where dentists received, on average, a 25% wage rise. (a) Identify two determinants of price elasticity of demand. [2] (b) Explain two advantages to a firm of a horizontal merger. [4] (c) Analyse, using a demand and supply diagram, how the market for toothpaste would be affected by an increase in population. [6] (d) Discuss whether or not an increase in the wages of dentists will increase the number of dentists employed. [8]

20 marks

Mark scheme: 4(a) Identify two determinants of price elasticity of demand. 2 Availability of substitutes (1) Availability of complements (1) Proportion of income (1) Whether the product is a luxury or a necessity / essential (1) Whether it is addictive (1) Whether the purchase can be postponed (1) Impact of advertising / brand loyalty (1). 4(b) Explain two advantages to a firm of a horizontal merger. 4 One mark for each of two reasons identified and one mark for each explanation. Logical explanation which might include: To gain market power or share / monopoly power / become larger (1) by eliminating a competitor / controlling more of the market (1) can increase prices as fewer competitors (1). To reduce average costs of production (1) by being able to take greater advantage of economies of scale (1) example of economy of scale (1) more competitive internationally (1) may decrease prices / profits (1). To keep up with competitors (1) to avoid being driven out of the market (1). 4(c) Analyse, using a demand and supply diagram, how the 6 Diagram does not need to refer to toothpaste but if not; the market for toothpaste would be affected by an increase analysis must refer to increase in demand toothpaste. in population. Coherent analysis which might include Up to 4 marks for the D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points E1 and E2 (1). Up to 2 marks for written analysis which might include: An increase in population will mean there are more people to buy / demand toothpaste (1). Price will rise / quantity traded will increase (1). 4(d) Discuss whether or not an increase in the wages of 8 Level Description Marks dentists will increase the number of dentists employed. 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 • increase in demand may cause supply to extend logical analysis to evaluate economic • may encourage more people to train to be dentists issues and situations. One side of the argument may have more depth than • higher pay may increase the standard of living of the other, but overall both sided of the dentists argument are considered and • may persuade current dentists not to leave the developed. There is thoughtful occupation / delay retirement. evaluation of economic concepts, • may cause increased inward migration of qualified terminology, information and/or data dentists appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative • decrease in supply may cause demand to contract long decisions and outcomes. period of training may discourage people • people may lack qualifications / skills 2 A reasoned discussion which makes 3–5 • people may not find the job enjoyable use of economic information and clear • people may think the job will be too physically analysis to evaluate economic issues demanding e.g. backache and situations. The answer may lack • wages may rise more in other occupations some depth and development may be • may increase costs for dental firms employing dentists / one-sided. There is relevant use of economic concepts, terminology, consumers reducing demand for dentists 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 0455/23 Oct/Nov 2022

4 Safiye Ali became the first female doctor in Turkey in 1923. By 2020, 40% of Turkish doctors were women. Over this period, labour productivity increased. Turkey also experienced advances in technology, a change in the current account balance on its balance of payments and a significant increase in the size of its population. (a) Identify two causes of an increase in labour productivity. [2] (b) Explain two reasons why someone may choose to become a doctor. [4] (c) Analyse how advances in technology may improve the current account balance on a country’s balance of payments. [6] (d) Discuss whether or not a country with a high population growth rate is likely to experience a high economic growth rate. [8]

20 marks

Mark scheme: 4(a) Identify two causes of an increase in labour 2 Nothing for more motivated – TV. productivity. Two from: • improved education • improved training / higher skills • improved healthcare • higher pay / bonuses / lower income tax • better quality capital equipment / advances in technology • shorter working hours / longer holidays • better working conditions / better (fringe) benefits • increased experience • higher unemployment • specialisation 4(b) Explain two reasons why someone may choose to 4 One mark each for each of two reasons identified and one mark become a doctor. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. High pay (1) resulting in high living standards / caused by low supply / high demand / high number of job vacancies / strong bargaining power / high qualifications / high skills (1). Vocation (1) wanting to help people (1). Interest / job satisfaction (1) enjoying the challenges involved (1). Status (1) doctors are highly regarded (1). Family tradition (1) parents may have been doctors (1). High pensions (1) enabling high living standards during retirement (1). May be good working conditions (1) working inside (1). Job security (1) difficult to replace / essential service (1). (Fringe / non-wage) benefits (1) e.g. pension schemes (1). 4(c) Analyse how advances in technology may 6 Reward but do not expect reference to gaining a comparative improve the current account balance on a advantage. country’s balance of payments. Coherent analysis which might include: Raise productivity / increase efficiency / increase speed of production / increase output (1) reduce costs of production (1) lower prices (1) raise quality (1) create new products (1) increase international competitiveness (1) increase exports (1) reduce imports (1) increase export revenue (1) reduce import expenditure (1) improve trade in goods (and services) balance / reduce a current account deficit / create a surplus / increase a surplus (1). Increase access to information about goods and services (1) promote sales (1). Increase foreign tourism (1) easier to book foreign holidays (1) increase speed of transport (1). Make it easier to keep in contact with branches abroad (1) encourage setting up branches in other countries (1) receive profits from other countries (1) increase primary income (1). 4(d) Discuss whether or not a country with a high 8 Level Description Marks population growth rate is likely to experience a high economic growth rate. 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: to evaluate economic issues and • may have an increasing labour force, capable of situations. One side of the argument may producing a higher output have more depth than the other, but • likely to have higher demand, encouraging higher overall, both sides of the argument are output considered and developed. There is • larger markets can enable greater advantage to thoughtful evaluation of economic be taken of economies of scale concepts, terminology, information and / • may have higher tax revenue, enabling the or data appropriate to the question. The government to spend more on e.g. education discussion may also point out the which can promote economic growth possible uncertainties of alternative decisions and outcomes. Why it might not: 2 A reasoned discussion which makes use 3–5 • may have an increase in the number of of economic information and clear dependents, reducing resources which can be analysis to evaluate economic issues devoted to increasing productive capacity and situations. The answer may lack • rise in birth rate may reduce the size of the labour some depth and development may be force as people leave the labour force to bring up one-sided. There is relevant use of children economic concepts, terminology, • resources may be depleted, reducing productive information and data appropriate to the capacity question. • external costs e.g. congestion and pollution may increase which may reduce productivity. 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

3 Germany’s death rate is higher than some other countries, including Sweden, Cuba and the Maldives. Germany’s labour force increased in size between 2011 and 2021 and has become even more productive. The country has also experienced low inflation and a growing surplus on the current account of its balance of payments. (a) Identify two reasons why death rates may vary between countries. [2] (b) Explain two causes of an increase in the size of a country’s labour force. [4] (c) Analyse how an increase in labour productivity in a country can increase a surplus on the current account of its balance of payments. [6] (d) Discuss why some countries may experience lower inflation in the future and some may not. [8]

20 marks

Mark scheme: 3(a) Identify two reasons why death rates may vary between countries. Two from differences in:  income / standard of living  healthcare  education  nutrition  lifestyles / suicide rates  average age  spread of Covid / infectious diseases  war / conflict  natural disasters  air pollution / water pollution  conditions of work  level of crime 2 Do not accept differences in population size as these affect number rather than rate. If more than two reasons are given, consider the first three. 3(b) Explain two causes of an increase in the size of a country’s labour force. Logical explanation which might include: Change in the birth rate (1) rise will mean more people of working age in the long run / fall will enable more parents to be in the labour force (1). Immigration (1) many immigrants are of working age (1). Rise in retirement age (1) people will work for longer (1). Fall in school leaving age (1) people will be in education for a shorter period (1). Fall in the death rate / rise in life expectancy (1) fewer people dying before reaching retirement age (1). Changes in social culture (1) allowing more women to work (1). Increase in size of population of working age (1) reason (1). Rise in wage levels (1) attracts people to re-enter the labour market (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse how an increase in labour productivity in a country can increase a surplus on the current account of its balance of payments. Coherent analysis which might include: Output per worker (hour) increases (1) may reduce average cost of production (1) lower prices (1) may increase the quality of exports (1). These changes may increase international competitiveness of exports / make exports cheaper (1) demand for exports may increase (1) export revenue may rise (1). Higher relative prices of imports (1) lower relative quality of imports (1) these changes may decrease international competitiveness of imports (1) demand for imports may decrease (1) import expenditure may fall (1). Output increases (1) allowing more exports (1) and less imports (1). 6 Question Answer Marks Guidance 3(d) Discuss why some countries may experience lower inflation in the future and some may not. In assessing each answer, use the table opposite. Why some might:  advances in technology may reduce costs of production  increases in education and healthcare could raise labour productivity  globalisation may increase international competition  trade union power may fall, lowering wage increases  successful government policy measures e.g. reducing demand Why some might not:  consumers may become optimistic and spend more  governments may increase their spending  the rate of interest may fall  total demand may increase  raw materials may run out  rising cost of energy and rising food prices. 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

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

1 (a) Calculate the number of people who were living in poverty in Guyana in 2020. [1] (b) Identify two causes of the decrease in the output of sugar in 2020. [2] (c) Explain how economic growth is measured. [2] (d) Explain two reasons why labour mobility may increase in Guyana in the future. [4] (e) Draw a demand and supply diagram to show the effect of a decrease in the price of rail transport on the market for car transport. [4] (f) Analyse the relationship between GDP per head and internet access. [5] (g) Discuss whether or not the discovery of oil is likely to increase living standards in Guyana. [6] (h) Discuss whether or not Guyana would benefit from an increase in the size of its population. [6]

30 marks

Mark scheme: 1(a) Calculate the number of people who were living in poverty in Guyana in 2020. 276 500 (1). 1 1(b) Identify two causes of the decrease in the output of sugar in 2020. Bad weather (1) falling (global) demand (1). 2 If more than two causes given, consider the first three. 1(c) Explain how economic growth is measured. Real (1) GDP / national / country’s output / income / expenditure (1). 2 If more than two ways given, consider the first three. Not accepting GDP per head for GDP. 1(d) Explain two reasons why labour mobility may increase in Guyana in the future. Logical explanation which might include: Increased government spending on education / improved education (1) improved skills / productivity / occupational mobility (1). Improved / cheaper rail travel / increased spending on infrastructure / improved infrastructure (1) easier to work further away / increased ability to work in other areas / increased geographical mobility (1). Increased government spending on the internet (1) people learn new skills / gain information about job opportunities / increase occupational mobility (1). May be net immigration (1) migrants may be skilled / may be more willing to move to different areas of the country (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. If more than two reasons given, consider the first three. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effect of a decrease in the price of rail transport on the market for car transport. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and internet access. Coherent analysis which might include: Expected relationship: Direct / positive (1) the higher the GDP per head, the higher the internet access (1) Supporting evidence: Up to two marks E.g. Iceland with the highest GDP per head had the highest % of the population with internet access Eritrea with the lowest GDP per head had the least internet access France with the second highest GDP per head has the second highest % of population with internet access Analysis of expected relationship: Higher GDP per head increases household’s ability to pay for internet access / higher internet access may increase productivity/efficiency / increase job opportunities (1) higher GDP per head increases tax revenue, some of which can be spent on the provision of internet access / higher productivity/efficiency could increase wages (1). Exception: Guyana / Morocco (1) Guyana had a higher GDP per head but low internet access (1). Analysis of exception: Internet access is determined by other influences e.g. education levels (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. In terms of supporting evidence: no marks for just description of the figures e.g. Brazil had a GDP per head of $8717and 72% of the population with internet access / Eritrea had a GDP per head of $643 and 2% of population with internet access. France had a GDP of $40 494 and 83% of the population with internet access etc. In terms of supporting evidence one mark maximum for an indirect comparison e.g. Iceland had a GDP per head of $66 945 and 99% population with internet access whereas in Zambia with a GDP per head of $1,305, only 29% of the population had access to the internet. Question Answer Marks Guidance 1(g) Discuss whether or not the discovery of oil is likely to increase living standards in Guyana. Award up to 4 marks for logical reasons why it might, which may include:  increase exports (1) increase economic growth / higher national output (1) and raise incomes / increase GDP per head (1) increase purchasing power / able to buy more goods and services / able to buy basic necessities (1) could reduce poverty (1)  create jobs / reduce unemployment / increase employment (1) discourage emigration / encourage immigration (1).  raise tax revenue (1) allowing the government to spend more on e.g. education and healthcare (1) MNCs may spend on e.g. improving infrastructure / training (1). Award up to 4 marks for logical reasons why it might not, which may include:  may create pollution (1) create external costs / damage the environment (1) which will harm people’s health / reduce life expectancy (1)  may be poor working conditions in the industry (1) affecting health of workers (1)  the foreign MNC may send much of the profit back to its country (1) it may drive domestic oil firms out of business (1) may deplete the country’s oil reserves (1)  the foreign MNC may employ workers from its own country (1)  global demand for oil may fall /may be overdependence on oil / other countries may impose trade restrictions on oil. (1) 6 3rd bullet point: increase in government spending should be linked to a form of spending that could increase living standards. 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 Guyana would benefit from an increase in the size of its population. Award up to 4 marks for logical reasons why it might, which may include:  population is below the optimum level / move to the optimum level (1), could make better use of resources (1)  if rise due to immigration (1) may bring in new ideas / new production methods / new skills / new technology (1)  an increase in the size of the labour force (1) if the number of people of working age increases (1) rise in tax revenue (1) allowing the government to spend more on e.g. education and healthcare (1)  consumer expenditure may increase (1) total (aggregate) demand may increase (1)  output could increase / cause economic growth / increase productive potential (1)  dependency ratio could fall (1) Award up to 4 marks for logical reasons why it might not, which may include:  larger population could result in pollution / congestion / overcrowding (1) damage the environment / increase external costs (1)  if rise due to fall in death rate or rise in the birth rate / increase in young / old population (1), the dependency ratio will increase (1) some of the extra population may be unemployed (1) 6 Question Answer Marks Guidance 1(h)  pressure may be put on e.g. housing / welfare payments (1) increasing need for government expenditure (1)  there may be inflation (1)  population may increase to the extent that there is overpopulation (1) resources may be depleted (more quickly) (1). 6

This question in 0455/22 May/June 2023

4 In 2020, Australia had a high national minimum wage (NMW). The NMW is received by some people who work on Australian dairy farms. Australia produces milk and soft drinks. Milk is purchased by some people as an alternative to soft drinks. Some dairy farms and some small firms went out of business in 2020. The year saw an increase in the value of the country’s floating foreign exchange rate. (a) Identify two reasons why a government may set an NMW. [2] (b) Explain two causes of an increase in the value of a country’s floating foreign exchange rate. [4] (c) Analyse how an increase in the price of milk may affect the revenue earned by milk producers and soft drinks producers. [6] (d) Discuss whether or not small firms are more likely to go out of business than large firms. [8]

20 marks

Mark scheme: 4(a) Identify two reasons why a government may set an NMW. Two from:  to raise wages  to reduce poverty / raise living standards  reduce income inequality  to correct market failure / ensure fair wages / prevent exploitation of workers  to encourage job seeking / reduce unemployment  reduce emigration 2 If more than two reasons given, consider the first three. 4(b) Explain two causes of an increase in the value of a country’s floating foreign exchange rate. Logical explanation which might include: Increase in demand for the currency (1) rise in exports / exports exceeding imports / current account surplus (1) due to higher incomes abroad (1) lower inflation / deflation / lower prices for exports (1) better quality (1). Increase in foreign investment in the country (1). Higher rate of interest (1) attracts hot money flows (1). Speculation (1) that the currency will rise in value (1). Decrease in supply of the currency (1) fall in imports / fall in current account deficit (1) fall in incomes at home (1) lower inflation / higher prices of imports / fall in quality of imports (1). The country’s firms reducing investment in other countries (1) Lower rate of interest in other countries (1) reduce hot money going out of the country (1). Speculation (1) that other currencies will fall in value (1). 4 Causes may be linked here in different ways. Also allow explanation of two causes of an increase in demand for the currency or two causes of a decrease in supply of the currency. Credit higher demand mark only once and lower supply mark only once. Question Answer Marks Guidance 4(c) Analyse how an increase in the price of milk may affect the revenue earned by milk producers and soft drinks producers. Coherent analysis which might include: Demand for milk is likely to fall / contraction in demand (1) The effect on the revenue of milk producers will depend on price elasticity of demand (1) if demand is elastic, revenue will fall (1) as demand will fall by a greater percentage than the rise in price (1) if demand is inelastic, or demand is constant, revenue will increase (1) as demand will fall by a smaller percentage than the rise in price (1). Demand for soft drinks is likely to increase (1) the revenue of soft drinks producers is likely to rise (1) as soft drinks are a substitute / alternative to milk (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not small firms are more likely to go out of business than large firms. In assessing each answer, use the table opposite. Why they might:  may have high average costs  less able to take advantage of economies of scale  may be less likely to get a loan from commercial banks  may have less retained profits  may be new, testing out whether there is demand, inexperienced entrepreneurs Why they might not:  less likely to experience diseconomies of scale  may receive financial assistance from the government  may have customer loyalty  may be more flexible  may be a monopoly in a niche / specialist market. 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 0455/22 May/June 2023

5 In 2019, China’s economic growth rate was 6.1% and Chinese households increased their spending. More Chinese people attended sports events and the earnings of top sportspeople increased. China exported more despite a rise in tariffs on some of its products. For example, the US imposed higher tariffs on the imports of Chinese tea and coffee. (a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. [2] (b) Explain two reasons why some top sportspeople have high earnings. [4] (c) Analyse the reasons for imposing tariffs on imports. [6] (d) Discuss whether or not a country with a high economic growth rate will have a deficit on the current account of its balance of payments. [8]

20 marks

Mark scheme: 5(a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. Saving (1) selling the products at home / consuming the products (1). 2 5(b) Explain two reasons why some top sportspeople have high earnings. Logical explanation which might include: High demand / inelastic demand for top sportspeople (1) large crowds watch top sportspeople / events (1) top sports events can be sold to TV firms for large fees (1) high merchandise sales / sponsorship deals / high gate receipts / can generate high profits for firms (1). Low supply / inelastic supply of sportspeople / lack of substitutes (1) high bargaining power (1) top sports people are skilled / talented (1) it may take years of training (1) high level of experience (1) some sports are dangerous (1). 4 Reasons may be linked in different ways. Also allow explanation of two reasons for high demand or two reasons for low supply. Reward but do not expect high mrp of labour and derived demand for labour. Question Answer Marks Guidance 5(c) Analyse the reasons for imposing tariffs on imports. Coherent analysis which might include: To improve the current account balance (1) make imports more expensive (1) reduce demand for imports / increase net exports (1) increase total demand (1). To protect domestic industries / infant industries / sunrise industries (1) protect sunset / declining industries (1) protect strategic industries (1) to increase economic growth (1) reduce unemployment / increase employment (1) encourage people to switch from buying imports to buying domestically produced products (1). To raise revenue (1) which the government can spend on e.g. education / reduce a budget deficit (1). To discourage the imports of harmful products / demerit goods (1) example (1). To prevent dumping / unfair competition (1) the selling of products at less than cost price / the selling of products produced by child labour (1). To retaliate (1) against another country’s tariffs (1). To prevent a fall in the exchange rate (1) to prevent switch from domestic to foreign currency (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a country with a high economic growth rate will have a deficit on the current account of its balance of payments. In assessing each answer, use the table opposite. Why it might:  incomes will rise and consumers may buy more imports  firms may switch products from foreign markets to the growing home market  firms may import more raw materials and capital goods  the country may experience inflation which may reduce its international price competitiveness Why it might not:  the economic growth may be export-led  economic growth may encourage more investment, this could raise the quality of domestically produced products and lower their prices  higher tax revenue may result in improvements in education and healthcare which could increase productivity  the country may impose trade restrictions / reduce exchange rate. 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 0455/22 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

4 In the US, the supply of meat from emus, a large bird, is price-elastic. Recently, US farmers have switched to keeping other livestock and growing crops that changed their demand for labour. US farmers are influenced by the subsidies the government provides for the production of selected food items. Some people are reluctant to become farm workers as they think living standards are low in rural areas. (a) Define elastic supply. [2] (b) Explain two reasons why a government may subsidise food production. [4] (c) Analyse what influences a farmer’s demand for labour. [6] (d) Discuss whether or not people living in cities have a higher living standard than those living in rural areas. [8]

20 marks

Mark scheme: 4(a) Define elastic supply. 2 The percentage change in quantity supplied is greater than the percentage change in price (2). Change in supply is greater than the change in price / PES > 1 (1). 4(b) Explain two reasons why a government may subsidise 4 One mark each for each of two reasons identified and one food production. mark each for each of two explanations. Logical explanation which might include: Increase output (1) overcome a shortage (1). Reduce price / cost (1) help consumers / reduce poverty / give access to a basic necessity / make food more affordable (1). Increase quality (1) improve nutrition / increase health of population / raise life expectancy (1). Increase incomes of farmers / farm workers (1) raise their living standards of farmers / stop farmers going out of business (1). Reduce imports of food / increase exports of food (1) improve the current account of the balance of payments / agriculture is a strategic industry / reduce dependency on other countries for an essential good (1). Increase employment / reduce unemployment (1) help in rural areas (1). 4(c) Analyse what influences a farmer’s demand for labour. 6 Coherent analysis which might include: Demand for the food they produce (1) derived demand / a higher demand for food will encourage farmers to expand their output / employ more workers (1) more profits earned (1). Wage rates (1) the lower the wage rate, the less it will cost to employ workers (1). Skills of workers (1) the more skilled workers are, the more productive they will be (1). Price of other factors of production / costs of production (1) if the price of e.g. agricultural drones falls, demand for labour may fall (1). Productivity of other factors of production (1) advances in technology may result in farm workers being replaced by machinery (1). Type of farming (1) some farming is more labour-intensive / capital-intensive (1). Size of farm (1) large farms likely to employ more (1). Subsidies (1) subsides may encourage a farmer to expand output and employ more workers (1). Seasons (1) demand for labour is likely to be higher during harvesting (1). 4(d) Discuss whether or not people living in cities have a 8 The answer may be from the view of why people living in higher living standard than those living in rural areas. rural areas may have a higher living standard. In assessing each answer, use the table opposite. Level Description Marks Why they might: 3 A reasoned discussion which 6–8 • may be more job opportunities accurately examines both sides of the • may be higher incomes economic argument, making use of • may be more forms of entertainment economic information and clear and • may be shorter distance to schools and shops logical analysis to evaluate economic • may be more access to healthcare facilities issues and situations. One side of the • may be better quality education/ healthcare. argument may have more depth than the other, but overall, both sides of the Why they might not: argument are considered and • may be more traffic congestion developed. There is thoughtful • may be overcrowding evaluation of economic concepts, • air and noise pollution levels may be higher terminology, information and/or data • stress may be high appropriate to the question. The • higher cost of living in cities. 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. 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 2023

4 People in Ecuador buy products using a variety of forms of money. The Ecuadorian government pays public sector workers’ wages directly into their bank accounts. In 2019, some Ecuadorian firms’ profits were affected by advances in technology. That year, the Ecuadorian government cut public sector workers’ hours and, in 2020, it reduced its spending. Economists were uncertain what effect the decrease in government spending would have on unemployment. (a) Identify two characteristics of money. [2] (b) Explain two reasons why a reduction in their working hours may not cause public sector workers to move to working in the private sector. [4] (c) Analyse how advances in technology could affect firms’ profits. [6] (d) Discuss whether or not a decrease in government spending will increase unemployment. [8]

20 marks

Mark scheme: 4(a) Identify two characteristics of money. 2 If more than two characteristics of money are given, consider the first three. Two from: • generally acceptable Accept an explanation of a characteristic e.g. money is easy • portable to carry rather than using the word portable. • recognisible • divisible • durable • limited in supply / scarce • uniformity 4(b) Explain two reasons why a reduction in their working 4 Also accept approach from the point of view of why workers hours may not cause public sector workers to move to would not want to work in the private sector. working in the private sector. Logical explanation which might include: One mark each for each of two reasons identified and one Wages may still be higher in the public sector (1) enabling mark each for each of two explanations. workers to buy more goods and services (1). If more than two reasons are given, consider the first three. Fringe benefits may be better in the public sector (1) e.g. more generous state pensions (1). Reduction in working hours results in more leisure time (1) improving work life balance (1). Job security may be better in the public sector (1) less worry about losing jobs / few job opportunities in the private sector (1). Skills are not transferable to the private sector (1) e.g. occupational immobility (1). Working conditions may be better in the public sector (1) e.g. better health and safety standards (1). Reduction in working hours may not result in less pay (1) making working in the public sector more attractive / may benefit from more leisure time / reduction in stress at work (1). 4(c) Analyse how advances in technology could affect firms’ 6 Note: Only reward lower cost of production once. profits. Coherent analysis which might include: Advances in technology: will improve the quality of capital goods (1) this could raise productivity / efficiency (1) higher output / lower costs of production (1) increase profits (1). could raise the quality of products (1) create new products (1) increase demand / revenue (1). could lead to new products / innovation (1) which may lead to lower demand for related products leading to loss of profits (1) example e.g. development of electric cars has led to fall in demand for diesel cars (1). can enable online training of new skills (1) improving productivity / speeding up training / increases number that can be trained (1). can improve internet and social media links (1) able to contact more potential customers in other countries (1) thereby increasing revenue / profit (1). due to the initial high cost of buying / developing advanced technological equipment (1) can reduce profits in the short run (1). could lead to small firms being forced out of business (1) due to the cost of new technology / and its maintenance (1) reducing profits / making a loss (1). 4(d) Discuss whether or not a decrease in government 8 Level Description Marks spending will increase unemployment. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic Why it might: argument, making use of economic • a cut in government spending could on education / information and clear and logical analysis to training could reduce skills / qualifications and labour evaluate economic issues and situations. productivity One side of the argument may have more • reduction in skills /qualifications could increase depth than the other, but overall, both sides structural unemployment of the argument are considered and • cut in government spending on public sector workers’ developed. There is thoughtful evaluation of wages could reduce, their motivation, may resign economic concepts, terminology, • lower government spending on providing information information and/or data appropriate to the about job vacancies could increase frictional question. The discussion may also point out unemployment the possible uncertainties of alternative • lower government spending could reduce total demand decisions and outcomes. which could cause cyclical unemployment. 2 A reasoned discussion which makes use of 3–5 Why it might not: economic information and clear analysis to • may reduce inflation, making products more evaluate economic issues and situations. internationally competitive, raising net exports The answer may lack some depth and • cut in government spending on unemployment benefits development may be one-sided. There is may reduce frictional unemployment relevant use of economic concepts, • may enable taxes to be cut which could increase terminology, information and data consumer spending and investment, leaving total appropriate to the question. demand and unemployment unchanged • amount of government spending may fall but it may be 1 There is a simple attempt at using economic 1–2 definitions and terminology. Some reference spent more effectively e.g. training may be more directed at skills required to fill vacancies. may be made to economic theory, with occasional understanding. Note: Level 1 would be knowledge and understanding of 0 A mark of zero should be awarded for no 0 unemployment and government spending or just creditable content. identification of points.

This question in 0455/23 Oct/Nov 2023

1 (a) Calculate the average wage paid in Denmark in 2020. [1] (b) Identify two possible opportunity costs of a Danish person using their leisure time to cycle. [2] (c) Explain one way that living standards are measured in Denmark. [2] (d) Explain two reasons why the supply of ships is price-inelastic. [4] (e) Analyse the relationship between government spending and GDP in Denmark. [4] (f) Analyse, using a demand and supply diagram, how an increase in the birth rate would affect the market for toys. [5] (g) Discuss whether or not a surplus on the current account of its balance of payments would benefit the Danish economy. [6] (h) Discuss whether or not more people working from home will benefit an economy. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the average wage paid in Denmark. 1 Accept 84 000. $84 000 (1). 1(b) Identify two opportunity costs of a Danish person using 2 their leisure time to cycle. Playing golf (1) jogging (1). 1(c) Explain one way that living standards are measured in 2 One mark for a way identified and one mark for an Denmark. explanation. Identification Do not accept GDP. HDI / average wages / income / GDP per head leisure hours (1). Explanation HDI includes GDP per head / income / education / health/life expectancy / average wages / income / GDP per head influences the goods and services which can be purchased / leisure hours may affect physical / mental health (1). 1(d) Explain two reasons why the supply of ships is price- 4 One mark each for each of two reasons identified and one inelastic. mark for each of two explanations. Logical explanation which might include: Ignore comments on PED. They take a long time to produce (1) so supply cannot be adjusted quickly (1). They are expensive to store (1) take up a large space / likely to be few or no spare ships to sell / low inventories / difficult to keep for future sales / if prices fall will have to sell ships as nowhere to store them (1). 1(e) Analyse the relationship between government spending 4 Responses do not have to be in the format suggested but and GDP in Denmark. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Higher government spending would be expected to be associated with a higher GDP / move in the same direction / Government spending will always be lower than GDP (1) positive relationship / direct relationship (1). Supporting evidence up to 2 marks: 2015 – 2018 government spending and GDP rose / (1) 2019 – 2021 government spending and GDP rose (1). Government spending and GDP rose over the period / government spending and GDP was lowest at the start of the period / 2015 and was highest at the end of the period 2021 (1). Analysis of expected relationship up to 2 marks: Higher government spending will increase total (aggregate) demand which will add to GDP (1) may be higher government spending on education/training/healthcare/subsidies which can raise productivity and output (1) higher GDP may increase tax revenue which can be used to increase government spending (1). Exception: 2018 – 2019 / 2018 / 2019 (1) government spending rose but GDP fell (1). Analysis of exception: A government may spend more when GDP falls in a bid to stimulate an increase in GDP (1). 1(f) Analyse, using a demand and supply diagram, how an 5 increase in the birth rate would affect the market for toys. Coherent analysis which might include: D&S diagram up to 4 marks: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis up to 1 mark: An increase in the birth rate would increase the number of children who parents may buy toys for / more consumers / higher demand (1) the higher demand will raise price / increase quantity (traded) (1). 1(g) Discuss whether or not a surplus on the current 6 Apply this example to all questions with the command account of its balance of payments would benefit the word DISCUSS Danish economy. (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 • exports exceed imports / credit items have a higher outcome may differ is rewarded. value than debit items (1) and so adds to total (aggregate) demand (1) which may increase GDP (1) Generic example Mark • it can increase employment (1) which may increase incomes (1) Tax revenue may decrease… 1 • may attract foreign investment (1) as may be taken to be a sign of a strong economy (1) ...because of reason e.g. incomes may be lower. 1 • may raise the exchange rate (1) which can enable exports to exchange for more imports (1). Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous Award up to 4 marks for logical reasons why it might not, argument. which may include: • it means more products are produced than consumed / Tax revenue may increase because of a 1 reduces availability of products / reduces consumer different reason i.e. not the reverse of a previous choice (1) reduce potential living standards (1) may argument e.g. government spending on contribute to resource depletion (1) subsidies may stimulate the economy more than • it may add to inflationary pressure (1) especially if the spending on education. economy is close to full employment (1). • demand for the currency will exceed the supply of the currency (1) this may raise the exchange rate (1) make exports less internationally competitive (1) which can reduce the surplus / cause a deficit in the long run (1). 1(h) Discuss whether or not more people working from home 6 Note 1 mark for recognising productivity may change. So, if will benefit an economy. a candidate writes productivity may increase and may decrease, award 1 mark. Two further marks could be gained Award up to 4 marks for logical reasons why it might, which if a candidate explains why productivity may increase and may include: why it may decrease. • may raise productivity / efficiency / quality of output (1) as workers may be less tired / less stressed / saves Note: 1 mark for productivity increase or decrease and 1 transport costs as a result of not having to travel to work mark for GDP increase or decrease. (1) may work longer hours (1) increase GDP (1) • may increase the quantity of labour (1) more people e.g. those with dependents may be able to work / more flexible hours (1) as save time travelling (1) • workers may be happier (1) and so may stay with firms longer (1) which would reduce the cost of recruiting workers (1) • pollution may be reduced (1) traffic congestion may be reduced (1) less need for transport infrastructure (1) reduce external costs (1) improve health (1) • firms’ costs may fall (1) as less need for office space (1) • may reduce conflict between workers (1) may reduce chances of industrial action (1). Award up to 4 marks for logical reasons why it might not, which may include: • transport firms may experience a fall in demand / revenue / less people travelling (1) which may create unemployment of e.g. bus drivers (1) • restaurants/cafes may have to close down in city centres (1) which may create unemployment of e.g. waiters (1) reduce tax revenue (1) 1(h) • may reduce productivity / efficiency/ quality of output (1) reduce GDP (1) as workers may be distracted by e.g. small children / become lazy / may work fewer hours / may have poor internet connection (1) may not be supervised (1) may not co-ordinate with other workers / communication problems (1).

This question in 0455/22 Feb/March 2024

2 Since 2016, South Korea’s population has declined, due to a falling birth rate, and a high proportion of its population is now aged over 64. The South Korean government has used tax revenue to give cash incentives to couples to have more children. However, many parents have chosen to have fewer children and spend more on each child to ensure they get a good education. South Korea now has fewer but larger schools. (a) Identify two benefits people may gain from a good education. [2] (b) Explain two reasons for a change in the amount of tax revenue a government receives. [4] (c) Analyse the economies of scale a school may gain from an increase in its size. [6] (d) Discuss whether or not having a high proportion of a country’s population over the age of 64 is a benefit to its economy. [8]

20 marks

Mark scheme: 2(a) Identify two benefits people may gain from a good 2 education. Two from: • high income / high living standards / less risk of poverty • skills / high productivity / high efficiency • qualifications • good job / good job opportunities / increased occupational mobility • wide range of interests • better health/better nutrition/avoidance of demerit goods • may gain entrepreneurial skills 2(b) Explain two reasons for a change in the amount of tax 4 One mark each for each of two reasons identified and one revenue a government receives. mark for each of two explanations. Logical explanation which might include: Change in GDP / economic growth (1) will affect revenue from direct taxes / move into different tax brackets (1). Change in employment / wages / incomes (1) will affect (personal) income tax (1). Change in profits (1) will affect corporate (income) tax (1). Change in spending (1) will affect revenue from indirect taxes / VAT / GST (1). Change in demand for imports (1) affect revenue from import tariffs / import duty (1). Change in tax rates (1) e.g. higher sales tax rates on products with inelastic demand may increase tax revenue (1). Change in tax avoidance / tax evasion (1) as a result of e.g. campaigns / greater penalties (1) Change in population size (1) will affect number of people paying taxes (1) Inflation (1) fiscal drag (1). Change in what is taxed (1) the more products taxed, the more revenue might be raised (1). 2(c) Analyse the economies of scale a school may gain from 6 Up to 3 marks for one type of economy of scale that is well- an increase in its size. developed. Coherent analysis which might include: Allow one mark for internal economies of scale. Economies of scale reduce average cost of production / lower long run costs (1). Purchasing / buying economies (1) buying e.g. desks / computers in bulk (1) at a discount (1). Management economies (1) employing e.g. school accountant (1). Labour economies (1) teachers specialising e.g. in teaching biology (1). Technical economies (1) e.g. a film studio for media studies (1). Financial economies (1) a school may be able to borrow at a lower rate of interest (1) find it easier to get a loan (1). Marketing / selling economies (1) a private sector school may be able to advertise more cheaply (1). 2(d) Discuss whether or not having a high proportion of a 8 Level Description Marks country’s population over the age of 64 is a benefit to its economy. 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 • may still be in work and may be efficient due to issues and situations. One side of the experience argument may have more depth than • may provide family support and care the other, but overall both sides of the • may be the result of a rise in life expectancy which may argument are considered and mean living standards have risen developed. There is thoughtful • may be a smaller proportion of young dependents evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the Why it might not: • may be a high proportion of older dependents possible uncertainties of alternative decisions and outcomes. • may be high healthcare costs • may be a high cost of state pensions 2 A reasoned discussion which makes 3–5 • older workers may be out of date with new technology / use of economic information and clear may be less innovative. 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 for 0 no creditable content.

This question in 0455/22 Feb/March 2024

3 Some firms in Monaco have experienced external growth. Firms in Monaco pay high wages. Workers in Monaco benefit from fiscal policy which contributes to high employment. Their government does impose VAT on food, including fruit. Some economists have suggested that instead of taxing fruit, governments should provide free fruit to consumers. (a) Define external growth of firms. [2] (b) Explain two reasons why low-skilled workers may be highly paid. [4] (c) Analyse how fiscal policy can increase employment. [6] (d) Discuss whether or not a government should provide free fruit to consumers. [8]

20 marks

Mark scheme: 3(a) Define external growth of firms. 2 Accept but do not expect reference to acquisition as merger. Increase in size / output of a firm / expansion of a firm (1) due to a merger / takeover (1). 3(b) Explain two reasons why low-skilled workers may be 4 One mark each for each of two reasons identified and one highly paid. mark for each of two explanations. Logical explanation which might include: Award 2 marks for high national minimum wage. High demand / inelastic demand (1) due to e.g. expansion of the industry / economy (1). High cost of capital / relative cost of factors of production (1) may encourage use of labour-intensive production (1). Low supply (1) due to e.g. emigration / high employment / unsociable hours (1). Minimum wage (1) set at a high level / government policy may be to raise wages of low-skilled workers (1). The job may be dangerous/ unpleasant / poor working conditions (1) so a high wage is needed to attract workers / retain workers / example (1). The workers may be in a trade union (1) with strong/collective bargaining power / may take industrial action (1). May work long hours (1) so total pay is high (1). May work in a very profitable/high value-added industry (1) example (1). 3(c) Analyse how fiscal policy can increase employment. 6 Coherent analysis which might include: Rise in government spending / reduction in taxation (1) expansionary fiscal policy (1) may increase total (aggregate) demand (1) which can encourage firms to expand (1) reduce cyclical unemployment (1). Increase in government spending on education / training / health care (1) may increase skills / productivity of workers (1) which may increase their mobility / attractiveness to employers (1). Increase in government spending on infrastructure (1) can attract MNCs / attract FDI (1). Increase government spending on housing (1) which can increase (geographical) mobility of labour (1). Increase subsidies (1) which can encourage firms to expand and take on more workers (1). Cut in (personal) income tax (1) cut in unemployment benefit (1) increase disposable income (1) may increase the incentive to work (1). Cut in indirect taxes (1) which can encourage an increase in consumer spending (1) which can encourage firms to expand and take on more workers / reduce costs of production (1). Cut in corporate (income) tax (1) may give firms the funds / incentive to expand (1). Higher import tariffs (1) may encourage domestic firms to expand (1). 3(d) Discuss whether or not a government should provide 8 Level Description Marks free fruit to consumers. 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 should: economic information and clear and • fruit is a merit good logical analysis to evaluate economic • people may not appreciate its private benefits issues and situations. One side of the • social benefit of consuming it exceeds the private argument may have more depth than benefit the other, but overall both sides of the • without government intervention, it may be under- argument are considered and developed. There is thoughtful consumed • may increase the health of the population and so may evaluation of economic concepts, terminology, information and/or data increase workers’ productivity appropriate to the question. The • may benefit fruit farmers discussion may also point out the • would enable the poor to consume it. possible uncertainties of alternative decisions and outcomes. Why it should not: • rich can afford to buy it 2 A reasoned discussion which makes 3–5 • may result in it being overconsumed use of economic information and clear • some may be wasted analysis to evaluate economic issues • may lose tax revenue if indirect tax imposed on food and situations. The answer may lack • opportunity cost – government spending on e.g. some depth and development may be education may have to be reduced. 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 for 0 no creditable content.

This question in 0455/22 Feb/March 2024

2 In recent years, the mobility of labour, the number of women in the labour force and GDP have increased in Bangladesh. In 2019, the central bank of Bangladesh approved three new commercial banks. In that year, women on average earned 77% of the pay of men in Bangladesh. The country’s economy experienced the world’s seventh highest economic growth rate, with an increase in GDP of 7.4%. (a) Identify two influences on the mobility of labour. [2] (b) Explain two benefits that consumers may gain from having more commercial banks. [4] (c) Analyse why women may be paid less than men. [6] (d) Discuss whether or not people living in countries with a high GDP enjoy higher living standards than people in countries with a low GDP. [8]

20 marks

Mark scheme: 2(a) Identify two influences on the mobility of labour. Two from:  age  skills / training  qualifications / level of education  price / availability of housing  cost of living /level of income  family ties  information on vacancies  disabilities / access  quality / cost of transport  distance to place of work  discrimination 2 Only accept these answers if within the first three influences mentioned. 2(b) Explain two benefits that consumers may gain from having more commercial banks. Logical explanation which might include: More choice / competition (1) greater range of services / better quality of services / lower bank charges (1). Lower interest rate charged on loans / higher interest paid on savings (1) due to higher competition (1). May be easier to obtain a loan (1) which may increase the products consumes can buy (1). May be more convenient (1) closer to home / less time travelling / more likely to be able to speak to a person (1). 4 One mark each for each of two benefits identified and one mark for each of two explanations. Question Answer Mark Guidance 2(c) Analyse why women may be paid less than men. Coherent analysis which might include: Women may be less skilled (1) have fewer qualifications (1) and so be less productive (1) if they have received less education / training (1) may have less bargaining strength than men (1). Fewer women may be in promoted posts (1) if they have taken time off to raise children / maternity leave / may have less experience (1). Women may be concentrated in low paying occupations / industries (1) example e.g. clothes manufacture (1) may only want part-time jobs (1) because of family commitments (1). Discrimination (1) some employers may underestimate / undervalue the productivity of women (1) there may be no law or an ineffective law against discrimination (1) example e.g. tv presenters / football (1). Lower demand / higher supply in some occupations (1) due to lower revenue / value of product (1). 6 Allow the counter argument on why men may be paid more than women. Question Answer Mark Guidance 2(d) Discuss whether or not people living in countries with a high GDP enjoy higher living standards than people in countries with a low GDP. In assessing each answer, use the table opposite. Why they might:  may be able to afford better standard of housing  may be able to afford better nutrition and healthcare which can increase life expectancy  higher incomes enable more and greater quality of products to be purchased  may be able to afford better education which may enable them to gain more interesting jobs with better working conditions. Why they might not:  high GDP does not necessarily mean that GDP per head is high and so incomes could be low  income may be unevenly distributed, and some people may be living in poverty  may have a large informal sector so GDP under-records income  countries with higher GDP may also have higher price levels  people may work long hours and so enjoy little leisure and may be stressed  there may be pollution and traffic congestion  people’s wants for goods and services may grow at a faster rate than their income – the more people have, the more they may want. 8 See Guidance table at the end of the mark scheme.

This question in 0455/21 May/June 2024

3 South America is a large geographical area with millions of microeconomic decision-makers. During a recent pandemic, schools stayed closed for longer than anywhere else in the world. As a result, students received less education. The World Bank estimated that the average student would earn $24,000 less over their lifetime. Some students may earn only the minimum wage. In 2020, South America had an inflation rate of 6.3% and an economic growth rate of only 1.8%. (a) Identify the difference between microeconomics and macroeconomics. [2] (b) Explain how less education can reduce a person’s lifetime earnings. [4] (c) Analyse how the introduction of a minimum wage could affect unemployment. [6] (d) Discuss whether or not an economy with a high inflation rate will have a low economic growth rate. [8]

20 marks

Mark scheme: 3(a) Identify the difference between microeconomics and macroeconomics. Microeconomics is concerned with individual markets / individual decisions / individual firms / households (1). Macroeconomics is concerned with the whole economy (1). 2 3(b) Explain how less education can reduce a person’s lifetime earnings. Logical explanation which might include: May reduce qualifications (1) lower mobility (1) reduce chance of gaining employment / increase chance of experiencing unemployment (1) may lack information on job vacancies (1) may be more likely to work in the primary sector / do manual work (1). May reduce skills / adult literacy (1) lower productivity (1) reduce chance of gaining promotion (1). May have less bargaining power / less aware or less able to enforce labour market rights e.g. to a minimum wage (1) as easier to replace (1) lower demand for them / higher supply (1). May reduce understanding about the benefits of good nutrition / good healthcare (1) experience more time off work / shorter life expectancy (1). May have large families (1) be out of the labour force for some time (1). May lack financial awareness / lower savings (1) reduce ability to buy equipment e.g. a computer that could increase earnings (1). 4 Question Answer Marks Guidance 3(c) Analyse how the introduction of a minimum wage could affect unemployment. Coherent analysis which might include: A minimum wage is the lowest amount that an employer can pay a worker / price (wage) floor (1). Its introduction may result in the supply of labour exceeding demand for labour / surplus of labour (1) resulting in higher unemployment (1). Firms may have to pay higher wages / wages may increase (1) may want to cut costs of production / higher wages may increase their costs of production (1) this may reduce their profits (1) reduce output (1) they may fire some of their workers / increase unemployment (1) replace workers with machines / capital goods (1). Higher pay may increase productivity (1) increase total demand (1) which may encourage firms to increase output (1) take on more workers / increase employment (1) reduce cyclical unemployment (1). May increase the incentive to work (1) reduce frictional unemployment (1). If the minimum wage is set below the equilibrium level it will have no effect (1). 6 One mark in total for increase unemployment and / or increase employment. One mark for reduce output and / or increase output. Supply exceeding demand for labour / surplus supply of labour may be shown on a diagram. Award but do not expect a reference to lower real wage unemployment. Question Answer Marks Guidance 3(d) Discuss whether or not an economy with a high inflation rate will have a low economic growth rate. In assessing each answer, use the table opposite. Why it might:  may make the country’s products less internationally competitive  lower exports and increase imports  reduce total demand  may discourage investment  if caused by increases in costs of production (cost-push inflation may reduce output)  hyperinflation may result in a collapse in the economic system. Why it might not:  may be caused by increases in total demand / demand- pull inflation which may encourage higher output / GDP  may increase tax revenue which could be spent on e.g. education which could increase the economic growth rate in the long run  may reduce the real cost of borrowing which may increase consumer spending and investment  may be lower than rival countries’ inflation rates. 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 Marks Guidance 3(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 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

1 (a) Calculate the percentage of the population who were foreign nationals living in the UAE. [1] (b) Identify two features of globalisation. [2] (c) Explain one factor that can influence labour mobility between countries. [2] (d) Explain one advantage and one disadvantage of producing a product which is price-inelastic in demand such as oil. [4] (e) Explain the relationship between the oil price and the UAE’s current account balance. [4] (f) Analyse, using a production possibility curve (PPC) diagram, the effect of technological progress on an economy such as the UAE. [5] (g) Discuss whether or not luxury tourism and financial services have helped Dubai achieve economic development. [6] (h) Discuss whether or not having a fixed exchange rate is beneficial for a country such as the UAE. [6]

30 marks

Mark scheme: Question Answer Mark Guidance 1(a) Calculate the percentage of the population who were 1 Accept answer without % foreign nationals living in the UAE. 89% 1(b) Identify two features of globalisation. 2 The increased connection of people from all over the world through migration (1) the trade of goods and services (1) the sharing of ideas (1) technological development (1). 1(c) Explain one factor that can influence labour mobility 2 One mark for a factor identified and one mark for an between countries. explanation. • Good transport helping workers to move (1) availability of flights / development of air travel (1) • Technological progress / development (1) increasing quality / quantity of factors production (1) 1(d) Explain one advantage and one disadvantage of 4 One mark for each effect identified and one mark for each producing a product which is price-inelastic in demand explanation. such as oil. Accept responses that consider perfect price inelasticity Logical explanation which might include: (PED = 0) Advantage: when price increases, there is a less than proportionate fall in quantity demanded (1) revenue generated from the product increases (1) because it’s a necessity / has no substitutes (1) Disadvantage: when price decreases, there is a less than proportionate rise in quantity demanded (1) revenue generated from this product decreases (1) 1(e) Explain the relationship between the oil price and the 4 Responses do not have to be in the format suggested but UAE’s current account balance. they should address the expected / normal relationship, offer supporting evidence of that, and analyse the overall data. Coherent analysis which might include: Expected relationship: Positive / direct relationship (1) the oil price and the current account balance would be expected to move in the same direction (1). Supporting Evidence: As the % change in the price of oil increases, the % change in the current account balance increases (1) (and vice versa). When oil price goes up, the current account balance goes up, e.g. 2016 – 2018, 2020 – 2022 (1) When oil price goes down, the current account balance goes down, e.g. 2019 – 2020 (1). When the % change in the price of oil is highest, the % change in the current account balance is also the highest e.g. 2021 (1). When the % change in the price of oil is lowest, the % change in the current account is also the lowest e.g. 2020 (1) Analysis: Higher oil prices increase export revenue as demand for oil is inelastic (1) increases inflows into current account (1). Exception: There is no exception evident in the figure (1) 1(f) Analyse, using a production possibility curve (PPC) 5 diagram, the effect of technological progress on an economy such as the UAE. PPC diagram: Axes correctly labelled with different outputs (1). Initial curve drawn as a curve / line sloping downward to the axes (1). New curve drawn to the right of the initial curve as a curve / line sloping downward to the axes (1). Shift to the right indicated by arrow or PPC1 to PPC2 (1). Written analysis: Technological progress can increase productive capacity / the economy is able to produce more (1). 1(g) Discuss whether or not luxury tourism and financial 6 Apply this example to all questions with the command services have helped Dubai achieve economic word DISCUSS development. (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 • they attract foreign tourists (1) who spend on goods and outcome may differ is rewarded. services in Dubai (1) increasing total demand / economic growth (1) Generic example mark • employment is generated (1) increasing incomes (1) and improving living standards (1) Tax revenue may decrease… 1 • increased government’s tax revenues (1) may be spent on public services / infrastructure / education / healthcare because of reason e.g. incomes may be 1 (1) lower. • increased export revenues (1) improve the current account of the balance of payments (1) increase profits Tax revenue may increase because 0 of firms in tourism and financial services (1). incomes may be higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may increase because of a 1 • increased pollution (1) environmental damage / external different reason i.e. not the reverse of a costs e.g. health problems (1) high use of water previous argument e.g. government resources (1) spending on subsidies may stimulate the • inequality in the distribution of income (1) some workers economy more than spending on education. may be paid much lower than others (1) • spending on luxury tourism and financial services may change with income (1) depending on them could be risky (1) • workers may lack the skills for these occupations (1) be unable to gain employment to improve living standards (1) 1(h) Discuss whether or not having a fixed exchange rate is 6 Maximum 3 marks for only identifying benefits / disbenefits. beneficial for a country such as the UAE. Award up to 4 marks for logical reasons why it might, that may include: • currency has more stability (1) it will not increase / decrease in value (1) avoiding reduced / increased competitiveness (1) • maintains investor confidence in the economy (1) increasing investments (1) increasing total demand / employment (1) • may maintain consumer confidence (1) by controlling inflation (1) • it can be set at a low rate to gain a competitive advantage (1). Award up to 4 marks for logical reasons why might it not, that may include: • limits the government’s flexibility (1) with monetary policy (1) as interest rate changes (1) may be used to maintain the fixed exchange rate (1) • other macroeconomic objectives cannot be met (1) e.g. if a low exchange rate is fixed, inflation might occur (1) • reserves of foreign currency have to be kept (1) to maintain the exchange rate (1) • the fixed exchange rate might not reflect market conditions (supply and demand) for the currency (1)

This question in 0455/21 Oct/Nov 2024

5 Hawaii’s economy has grown due to tourism but the growth in this sector has also increased inflation in this US island state. It is estimated that 9% of Hawaii’s population were living in poverty in 2022. Many families struggled to save. Young workers were able to leave due to high levels of labour mobility between US states. However, Hawaii is now facing an ageing population including many more retired people. (a) Define labour mobility. [2] (b) Explain the effects of an ageing population on spending and saving levels. [4] (c) Analyse how a rise in tourism can increase inflation in an economy. [6] (d) Discuss whether or not fiscal policy is effective in reducing poverty. [8]

20 marks

Mark scheme: 5(a) Define labour mobility. 2 The ability of workers to move (1) occupationally (1) or geographically (1) to take up another job (1). 5(b) Explain the effects of an ageing population on spending 4 Maximum of 3 marks for a relevant explanation of either and saving levels. spending or saving. Logical explanation which might include: An ageing population may mean fewer people are working and not earning an income (1) therefore savings need to be withdrawn to fund living (1) and therefore savings will decrease (1). An ageing population may mean people have reached an age where they do not need to save for the future (1) have accumulated savings (1) therefore spending increases (1). An ageing population may mean more people are approaching retirement / have reached retirement (1) there may be an increase in saving to support living standards in retirement (1) and decrease current spending (1). 5(c) Analyse how a rise in tourism can increase inflation an 6 economy. Coherent analysis which might include: Tourism leads to an increase in demand for resources (1) e.g. food or accommodation (1) therefore these prices will increase (1) causing demand-pull inflation (1). Tourists may have higher incomes (1) and higher purchasing power (1) therefore, producers are able to charge higher prices (1) and those living the country will have to pay higher prices as well (1). Depletion of resources due to tourism (1) decreases supply of these resources (1) increases the price of these resources for everyone (1). Increased demand for factors of production in tourism e.g. labour (1) increases costs of production (1) may cause cost- push inflation (1). 5(d) Discuss whether or not fiscal policy is effective in 8 Level Description Marks reducing poverty. 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 • policy measures to promote economic growth may clear and logical analysis to increase investment and create jobs evaluate economic issues and • increased spending on education providing more situations. One side of the qualifications / skills, making it easier to find jobs, higher argument may have more depth wages than the other, but overall both • more generous state benefits increasing income sided of the argument are • progressive taxation may increase government revenue considered and developed. There and allow more spending to reduce poverty. is thoughtful evaluation of • cuts in indirect taxation e.g. VAT, may lower prices of economic concepts, terminology, goods and services, enabling the poor to buy more and information and / or data reduce poverty. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of • contractionary fiscal policy / increased taxes could lead alternative decisions and to more people losing jobs / income. outcomes. • expansionary fiscal policy / tax cuts may be inflationary, causing higher prices for essential items and increasing poverty • education may only be accessible to those not in poverty • state benefits may lead to a cycle of poverty • progressive taxation may lead to brain drain and therefore less government revenue. • cuts in higher income tax rates may not reduce absolute poverty but may increase relative poverty. 5(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

1 (a) Calculate the percentage of the Jordanian labour force employed in the secondary sector. [1] (b) Identify two components of the current account of Jordan’s balance of payments. [2] (c) Explain the main type of unemployment experienced by Jordan in 2020. [2] (d) Explain two advantages the Jordanian economy may gain from the mergers between its tourism firms. [4] (e) Analyse the relationship between birth rate and average age. [4] (f) Analyse, using a demand and supply diagram, how an increase in population size will affect the market for clothing. [5] (g) Discuss whether or not the Jordanian government should spend more on renewable energy. [6] (h) Discuss whether or not the Jordanian central bank should have raised the rate of interest in 2021. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the percentage of the Jordanian labour force 1 Accept 19. employed in the secondary sector. 19% (1). 1(b) Identify two components of the current account of 2 If more than two suggested components are given, consider Jordan’s balance of payments. the first three. Trade in services (1) primary income (1). Accept invisibles for trade in services. 1(c) Explain the main type of unemployment experienced by 2 Faill in demand is not sufficient here for fall in total demand Jordan in 2020. as total demand is given in the source material – must be macro. Cyclical unemployment (1) lower total demand / fall in employment in most industries / number of workers greater Accept ‘demand deficient unemployment for cyclical than the number of jobs available (1). unemployment. 1(d) Explain two advantages the Jordanian economy may 4 One mark each for each of two advantages identified and gain from the mergers between its tourism firms. one mark for each of two explanations. Logical explanation which might include: Lower prices may be linked to either ‘raise output’ etc. or Lower prices (1) may raise output/GDP/employment/living ‘raise exports’ etc. standards / may be the result of taking advantage of Similarly higher quality may be linked to ‘raise exports etc.’ economies of scale (1). or ‘raise output etc.’. Higher quality (1) may raise exports / reduce current account deficit / increase international competitiveness / increase tourism revenue / more foreign currency / may be the result of sharing ideas (1). 1(e) Analyse the relationship between birth rate and average 4 Responses do not have to be in the format suggested but age. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship (up to 2 marks): Accept analysis based on how differences in the average of Countries with a low birth rate are likely to have a high population may affect the birth rate. average age (1) an inverse relationship / negative relationship / move in opposite directions (1). For supporting evidence and the second ‘exception’ mark, comparisons must be made. No marks for just stating the Supporting evidence (up to 2 marks): birth rate and average age figures. Four countries with the lowest birth rates had the highest average age (1) Monaco had the lowest birth rate and the highest average age (1) Niger with the highest birth rate has the lowest average age (1) e.g. Germany has a lower birth rate and a higher average age than Jordan (1). Analysis of expected relationship (up to 2 marks): A low birth rate would mean that children would form a small proportion of the population / a high birth rate may mean children would form a high proportion of the population / it would increase the proportion of people aged over 65 (1). A high birth rate may indicate low living standards / lower income which may be associated with low life expectancy (1). A high average age may mean that there are fewer people of child-bearing age (1). Exception (up to 2 marks): Venezuela or Maldives (1) Maldives had a lower birth rate than Venezuela but the same average age (1). Analysis of exception (up to 1 mark): The average age of a country’s population is also influenced by the death rate and net migration (1). 1(f) Analyse, using a demand and supply diagram, how an 5 increase in population size will affect the market for clothing. 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 demand 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). Written analysis: An increase in population size will increase the number of consumers / increase demand for clothes / price increases (1). 1(g) Discuss whether or not the Jordanian government 6 Apply this example to all questions with the command should spend more on renewable energy. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it should, which may include: Each point may be credited only once, on either side of an • need for more energy due to an increase in population argument, but separate development as to how/why the (1) non-renewable sources of energy will run out / outcome may differ is rewarded. reduced dependency on fossil fuels (1) may reduce import bills (1) Generic example mark • would reduce environmental damage (1) reduce external costs (1) lower pollution (1) reduce extent of Tax revenue may decrease… 1 climate change / global warming / promote sustainable development (1) improve health (1). ...because of reason e.g. incomes may be 1 • cheaper in the longer run (1) solar and wind power are lower. free goods (1) lower costs of production (1) reduce household bills (1). Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous Award up to 4 marks for logical reasons why it should not, argument. which may include: • expensive to build (1) opportunity cost (1) example (1) Tax revenue may increase because of a 1 • relies on weather (1) supplies may be disrupted / different reason i.e. not the reverse of a insufficient / unreliable (1) previous argument e.g. government spending • cost of renewable energy projects may increase with on subsidies may stimulate the economy more high interest than spending on education. • rates (1) may be funded by borrowing (1) may increase taxes (1) • may cause visual pollution (1) e.g. wind turbines (1). 1(h) Discuss whether or not the Jordanian central bank 6 Some points e.g. discouraged spending may be considered should have raised the rate of interest in 2021. from either side but see guidance table on 1f. Award up to 4 marks for logical reasons why it should have, which may include: • total demand predicted to increase / may have reduced total demand (1) encouraged saving (1) discouraged spending / borrowing (1) lowered demand-pull (1) inflation (1) reduced imports (1) • may have attracted more funds for the Jordanian government to borrow / use (1) for e.g. renewable energy projects (1). Award up to 4 marks for logical reasons why it should not have, which may include: • cost of government borrowing would have increased / may have difficulty paying off government debt (1) • investment may have been discouraged (1) lowered economic growth (1) reduced growth in employment / caused unemployment (1) • may have increased the exchange rate (1) foreigners depositing money in the country’s banks / attracted hot money flow (1) raised export prices / lowered import prices / decreased exports / increased imports (1) reduced tourism (1) increased the current account deficit (1).

This question in 0455/22 Oct/Nov 2024

2 In 2021, the production point on the UK’s production possibility curve (PPC) changed. Average wages increased. The average annual wage of a waiter was $23,580 while that of a chief executive of a large commercial bank was $1,617,000. A rise in wages enables people to eat in restaurants more often. Some of the food sold in UK restaurants is imported. In 2021, the UK government signed free trade agreements, removing import restrictions, with a number of countries. (a) Identify two places where a production point could be located on a PPC diagram. [2] (b) Explain two reasons why someone may switch from eating in one restaurant to eating in another restaurant. [4] (c) Analyse why the wage of a chief executive of a large commercial bank is higher than that of a waiter. [6] (d) Discuss whether or not free trade will increase economic growth. [8]

20 marks

Mark scheme: 2(a) Identify two places where a production point could be 2 The points may be identified on a diagram. located on a PPC diagram. Accept below the curve and above the curve. Two from: • point inside the curve / left of the curve • point on the curve / along the curve • point outside the curve / right of the curve 2(b) Explain two reasons why someone may switch from 4 One mark each for each of two reasons identified and one eating in one restaurant to eating in another restaurant. mark for each of two explanations. Logical explanation which might include: (Change in) prices (1) lower price making it more affordable / substitutes / save money (1). (Change in) quality (1) better ingredients / better cleanliness / quicker service / new menu / more satisfaction / better taste / change in staff (1). (Change in) convenience (1) e.g. longer opening hours / / better location (1) (Change in) facilities (1) e.g. better restrooms (1). (Change in) income (1) enabling some to eat in more expensive restaurants (1). (Change in) consumer tastes (1) switch to e.g. vegan restaurant (1) Advertising (1) may attract/persuade customers / increase attractiveness (1). (Change in) quantity provided (1) lower quantity may represent lower value for money (1). 2(c) Analyse why the wage of a chief executive of a large 6 Note: may also be answered from the point of view why the commercial bank is higher than that of a waiter. wage of a waiter may be lower than that of a chief executive. Coherent analysis which might include: No marks here for banks may be more profitable than restaurants as e.g. a cleaner in a bank may have a lower Chief executive may be more qualified / more educated (1) wage than a waiter. received more training (1) more skilled / talented (1) more productive (1) more experienced (1) higher level of responsibility / higher level of stress / more demanding job (1) in shorter supply / harder to replace (1) more inelastic supply (1). Chief executive may be in higher demand (1) more inelastic demand (1). Chief executive may have stronger bargaining power (1) may be more likely to be in a trade union / professional body (1). May be less likely to be in a group that is discriminated against (1) e.g. migrant workers (1). Chief executive may work longer hours (1). 2(d) Discuss whether or not free trade will increase 8 Level Description Marks economic growth. 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 enable countries to specialise on what they are logical analysis to evaluate economic best at producing issues and situations. One side of the • higher competition may increase productivity and lower argument may have more depth than the other, but overall both sides of the costs of production, increasing demand for their argument are considered and products developed. There is thoughtful • may enable firms to buy raw materials and capital evaluation of economic concepts, goods at a lower price terminology, information and/or data • may give firms access to larger markets, enabling them appropriate to the question. The to expand output. discussion may also point out the possible uncertainties of alternative decisions and outcomes. Why it might not: • may prevent infant industry from growing 2 A reasoned discussion which makes 3–5 • may speed up the closure of declining industries use of economic information and clear • may replace domestic output with imports analysis to evaluate economic issues • may reduce tax revenue and situations. The answer may lack • firms may gain monopoly power and may restrict output some depth and development may be • firms may engage in unfair competition e.g. dumping. 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 for 0 no creditable content.

This question in 0455/22 Oct/Nov 2024

3 Some people in Indonesia play tennis. However, badminton is Indonesia’s favourite sport. The equipment needed to play it, including badminton racquets, is relatively cheap. Players from the country win a high proportion of international tournaments. Top Indonesian players earn ten times the average wage and more than thirty times the wage of a cleaner. (a) Identify two decision-makers involved in economics. [2] (b) Explain the relationship between: • demand for tennis racquets and demand for badminton racquets • demand for tennis racquets and demand for tennis balls. [4] (c) Analyse why most cleaners earn a low wage. [6] (d) Discuss whether or not a government should tax sports equipment. [8]

20 marks

Mark scheme: 3(a) Identify two decision-makers involved in economics. 2 Accept any two from first three responses made. Two from: Accept buyers and sellers. • households / consumers • workers / trade unions • firms / producers / entrepreneurs / suppliers • the government • banks 3(b) Explain the relationship between: 4 One mark each for each of two relationships identified and one mark for each of two explanations. (i) demand for tennis racquets and demand for badminton racquets • Substitutes (1) an inverse / indirect/ negative relationship / competitive goods (1) rise in the price of one would cause the demand for the other to increase / people switch between the two (1). (ii) demand for tennis racquets and demand for tennis balls. • Complements (1) a direct / positive relationship (1) bought to be used together / rise in the price of one would cause the demand for the other to decrease (1). 3(c) Analyse why most cleaners earn a low wage. 6 Note: low demand is not acceptable as an answer unless it is in the context of comparison to higher Coherent analysis which might include: supply. • high supply / most people can do it / easily replaced (1) elastic supply (1) have low occupational mobility (1) firms do not have to pay high wages to attract sufficient number of cleaners (1) • low qualifications / education (1) low skills / training required (1) may have low productivity / add little value to the business (1) low risk for workers (1) • may not belong to a trade union (1) low bargaining power (1) hard to move to another job (1) so willing to accept low pay (1) rather than not have a job (1) • may be from groups that are discriminated against (1) e.g. women / older persons / immigrants (1) • some work part-time (1) so take-home pay may be low (1) • might be replaced by cleaning machines / robots (1) if wages rise too high (1). 3(d) Discuss whether or not a government should tax sports 8 Level Description Marks equipment. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it should tax sports equipment: information and clear and logical analysis to evaluate economic issues and • an additional source of tax revenue situations. One side of the argument may • other goods and services/ forms of leisure equipment have more depth than the other, but are taxed overall both sides of the argument are • not a necessity considered and developed. There is • the rich may spend more on sports equipment. thoughtful evaluation of economic • elite / professional sports persons are well paid / receive concepts, terminology, information and/or sponsorship so can afford increased prices. data appropriate to the question. The discussion may also point out the possible Why it should not tax sports equipment: uncertainties of alternative decisions and outcomes. • increase in prices may discourage people from playing sport especially those on low incomes 2 A reasoned discussion which makes use 3–5 • sport may be considered to be a merit good of economic information and clear • may reduce health and fitness of people analysis to evaluate economic issues and • may reduce output of sports equipment and increase situations. The answer may lack some unemployment depth and development may be one- • many people employed in sport and leisure industries. 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 for no 0 creditable content.

This question in 0455/23 Oct/Nov 2024

4 Davos is a ski resort in Switzerland famous for hosting a world economic conference for leaders from both private and public sectors. Topics discussed usually relate to global economic development. Hospitality firms in Davos depend on seasonal migrant labour, especially when they want to increase the supply of goods and services quickly. (a) Define supply. [2] (b) Explain the difference between the private sector and the public sector. [4] (c) Analyse the causes of differences in economic development between countries. [6] (d) Discuss whether or not the employment of migrant workers can benefit an economy. [8]

20 marks

Mark scheme: 4(a) Define supply 2 Accept an incomplete answer for one mark e.g. amount of a good/service produced by a firm / available in the market (1). The willingness (1) and ability to sell/provide a good/service (1). 4(b) Explain the difference between the private sector and 4 Alternatively candidates may present as the public sector. Motive: profit v social welfare Logical explanation which might include: Ownership: individuals / firms v government • private sector is operated and owned by individuals / firms (1) and decisions are made based on self-interest / profits / own utility / efficiency (1) • public sector is operated and owned by the government (1) and decisions are made based on the overall welfare of society / people / externalities (1). 4(c) Analyse the causes of differences in economic development 6 Do not reward economic growth as being the same as between countries. economic development Coherent analysis which might include differences in: • level of income (1) affecting levels of affordability (1) and consumption of various goods and services (1) • education (1) affecting skills / productivity (1) job opportunities (1) purchasing power (1) • healthcare (1) affecting life expectancy (1) level of labour absences from work (1) output (1) • levels of population growth (1) affecting size of workforce (1) affecting dependency ratios (1) which could also affect cost of labour (1) • size of primary, secondary and tertiary sectors (1) large size primary sector usually leads to lower levels of development than the other two sectors (1) lower value added in primary / higher value added in secondary and tertiary (1) • government expenditure / overseas investment (FDI) (1) e.g. in infrastructure projects / education/healthcare (1) raising job opportunities / reducing poverty (1) • availability / development of resources / factors of production (1) e.g. beautiful landscape / labour (1) impact on economic development (1). 4(d) Discuss whether or not the employment of migrant Level Description Marks workers can benefit an economy 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might benefit: migrant labour information and clear and logical analysis to evaluate economic issues and • increases supply of labour –reduce wage cost situations. One side of the argument may • increases the quantity of factors of production in the have more depth than the other, but economy overall both sides of the argument are • increase productive capacity of the economy and considered and developed. There is economic growth thoughtful evaluation of economic • more skilled concepts, terminology, information and/or • more productive data appropriate to the question. The • takes up jobs that locals don’t want to take up discussion may also point out the • income received may create new jobs. possible uncertainties of alternative decisions and outcomes. Why it might not benefit: migrant labour 2 A reasoned discussion which makes use 3–5 • Increases unemployment – takes jobs from local of economic information and clear workers analysis to evaluate economic issues and • usually willing to take jobs at lower pay than local labour situations. The answer may lack some lowering wage rates for all workers depth and development may be one- • means economy may not have capacity to sided. There is relevant use of economic accommodate them leading to lack of housing and other concepts, terminology, information and infrastructure. 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

1 (a) Calculate Romania’s current account deficit on its balance of payments in $s. [1] (b) Identify two reasons why Romania’s population fell between 1990 and 2022. [2] (c) Explain why immigration into Romania may increase in the future. [2] (d) Explain two reasons why household spending has increased in Romania. [4] (e) Draw a demand and supply diagram to show the effect of setting a maximum price on electricity. [4] (f) Analyse the relationship between GDP per head and average spending on food as a percentage of total household spending. [5] (g) Discuss whether or not foreign MNCs reduce poverty in their host countries. [6] (h) Discuss whether or not a higher proportion of women is likely to enter Romania’s labour force in the future. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate Romania’s current account deficit on its balance of 1 Accept 27bn without $. payments in $s. $27 000 000 000. $27  10⁹ $27bn (1). $2.7  10 to the power 10. 1(b) Identify two reasons why Romania’s population fell between 1990 2 and 2022. Fall in birth rate (1) emigration / net emigration / people leaving the country (1). 1(c) Explain why immigration into Romania may increase in the future. 2 1 mark for identification of high economic growth rate, and 1 mark for explanation. High economic growth rate / economic growth (1) higher wages / higher income / more chance of employment / more job opportunities / higher living standards (1). 1(d) Explain two reasons why household spending has increased in 4 Romania. Logical explanation which might include: • Romanians have become wealthier (1) more money to spend / greater purchasing power / higher income / higher GDP per head / can sell assets to get money to spend / more able to borrow / greater confidence (1). • More confident about the future / increased optimism (1) about future job prospects / higher earning / job security / may encourage more borrowing / less saving (1). • Low interest rates (1) encourage borrowing / reduce cost of borrowing / discourage saving (1). • High rate of inflation (1) spending more to maintain living standards (1). 1(e) Draw a demand and supply diagram to show the effect of setting a 4 maximum price on electricity. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Maximum price set below the equilibrium price – labelled as max price, P1, PX or any other P. (1). Quantity demanded and quantity supplied at the maximum price identified (1). 1(f) Analyse the relationship between GDP per head and average 5 Responses do not have to be in the format spending on food as a percentage of total household spending. suggested but they should address the expected/normal relationship, offer supporting Relationship (up to 2 marks): evidence of that, highlight any exceptions to Generally, an inverse relationship / negative relationship (1) the higher that, and analyse the overall data. the GDP per head, the lower the average household spending on food as a % of household spending (1). Supporting evidence (up to 2 marks): E.g. the five countries with the lowest GDP per head had the highest % Supporting evidence should involve average household spending on food (1). Ethiopia had the lowest GDP interpretation, not just description but note: per head and the highest average household spending on food as a % of A mark can be given for an implied comparison total spending (1) Cambodia had the second lowest GDP per head and e.g. the second highest spending on food as a % of total spending (1) Egypt after stating that there is a negative relationship had the third lowest GDP per head and the third highest spending on (1): food as a % of total spending (1). e.g. Belgium had a GDP per head of $52 100 and only spent 13% of their total spending on food whereas Romania had a GDP per head of Analysis of relationship (up to 2 marks): $15 000 and spent 26% of their spending on As households get richer, they can afford to spend more in total on food / food (1), higher quality food (1) but can afford to buy more of other items / buy more luxury items / spend less on necessities (1). Rewarding GDP per head (income) but not just GDP. Exception (up to 2 marks): Norway / USA (1) Norway had a higher GDP per head but also a higher % of household spending on food (1). Analysis of exception (up to 1 mark): Food may be more expensive in Norway / Norwegians may have a different diet / buy a higher proportion of high quality food (1). 1(g) Discuss whether or not foreign MNCs reduce poverty in their host 6 Apply this example to all questions with the countries. command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why they might, which may include: Each point may be credited only once, on either • they may increase employment / reduce unemployment (1) which side of an argument, but separate development may increase incomes / increase wages (1) cause economic growth / as to how/why the outcome may differ is raise GDP (1) enabling people to buy more basic necessities / raise rewarded. purchasing power (1). • may train workers (1) increase skills (1). Generic example Mark • they may have lower costs of production / more efficient (1) use more advanced technology (1) may take advantage of economies of Tax revenue may decrease… 1 scale (1) able to charge lower prices (1). • they may pay tax / less may be spent on unemployment benefit (1) ...because of reason e.g. incomes 1 some of this could be spent on e.g. education / healthcare / training may be lower. unemployed (1) income could be redistributed (1). Tax revenue may increase because 0 Award up to 4 marks for logical reasons why it might not, which may incomes may be higher i.e. reverse include: of a previous argument. • they may replace domestic firms / drive domestic firms out of business (1) may employ workers from their own countries (1) Tax revenue may increase because 1 leaving employment / unemployment unchanged (1). of a different reason i.e. not the • they may use capital-intensive methods (1) reducing demand for reverse of a previous argument e.g. unskilled workers (1). government spending on subsidies • they may use up non-renewable resources (1) reducing incomes in may stimulate the economy more the future / raising prices (1). than spending on education. • they may send profits back home (1) making them unavailable for re- investment in the host country (1). Extract from the source material: • may increase relative poverty / not reduce relative poverty (1) may More MNCs may affect poverty because of the widen gap in pay between e.g. skilled and unskilled workers (1). possible effects on unemployment and prices. • may become a monopoly (1) charge high prices (1). 1(h) Discuss whether or not a higher proportion of women is likely to 6 Extract from the source material: enter Romania’s labour force in the future. There is a range of influences on whether women enter the labour force. These include Award up to 4 marks for logical reasons why it might, which may include: social attitudes, female education and whether • there may be an increase in childcare facilities (1) making it easier childcare facilities and part-time work are for women who are parents to work (1) available. • more part-time work / more job opportunities for women / shortage of No marks for just reproducing these words. labour / higher demand for labour (1) lower birth rate (1) which may Interpretation needed e.g. more part-time work. enable women to combine work and child rearing (1) • increase in female education / qualifications / training (1) which may Many of the influences can be given either way increase skills / productivity (1) which may increase wages (1). but only reward identification of the influence • increase in healthcare / family planning (1) reduce size of families (1) once e.g., one mark for there may be increase • may seek to reduce poverty / improve living standards (1) by earning in childcare facilities or a decrease in childcare facilities. an income (1). Award up to 4 marks for logical reasons why it might not, which may include: • discrimination may occur (1) in terms of jobs available / wages (1). • negative social attitudes may continue (1) e.g. other workers may make the working environment uncomfortable for women (1). • women may emigrate (1) leaving the labour force (1) • working hours may increase (1) making it more difficult for women to combine work and home life (1). • An increase in income / higher household income (1) may enable women to work fewer hours / reduce need to work (1).

This question in 0455/22 Feb/March 2025

3 Estonia’s factors of production are employed in a range of industries including education. In 2022, the country experienced a shortage of teachers. The government increased teachers’ wages to attract workers from other industries. Two of Estonia’s other industries are building and clothing. Estonia’s clothing industry has firms of different sizes. Estonia’s firms were affected in 2022 by the government increasing the money supply. (a) Define factor of production. [2] (b) Explain two reasons why building workers may not become teachers. [4] (c) Analyse how a small firm can compete successfully with a large firm in the same industry. [6] (d) Discuss whether or not an increase in the money supply will benefit an economy. [8]

20 marks

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

This question in 0455/22 Feb/March 2025

2 The world’s four largest accountancy firms experienced a decline in demand for their services at the start of 2023. One cause of this lower demand was a decline in mergers in other industries, including the chocolate industry. Three of the accountancy firms reduced the number of new workers they hired and the other accountancy firm announced job losses. The ability of workers to gain new jobs is influenced by their mobility. (a) Identify two advantages a firm may gain from merging with another firm. [2] (b) Explain two disadvantages workers may experience as a result of losing their jobs. [4] (c) Analyse the advantages of an increase in labour mobility. [6] (d) Discuss whether or not the demand for chocolate is likely to be price elastic. [8]

20 marks

Mark scheme: 2(a) Identify two advantages a firm may gain from merging 2 If more than two advantages given, consider the first three. with another firm. Two from: • reduce competition / increase market power / increase market share / may become a monopoly / become a price maker / higher barriers to entry • gain economies of scale / reduce (average) cost / increased efficiency / higher productivity • gain control over outlets • gain control over raw materials • rationalisation • greater profit / revenue • new ideas / access to improved technology • spread risks • more resources / more labour / more capital / more enterprise / more land • higher demand / more sales / larger size of firm • gain consumer data 2(b) Explain two disadvantages workers may experience as 4 One mark each for each of two reasons identified and one a result of losing their jobs. mark each for each of two explanations. Logical explanation which might include: Loss of income (1) resulting in lower living standards / lower If more than two reasons given, consider the first three. quality of life / poverty / inability to buy necessities / lower purchasing power / lower spending / lower consumption / Reward ‘making it more difficult to get another job’ only lower spending on a particular good or services e.g. once. education/healthcare/housing/holidays (1). Loss of skills (1) may need to gain new skills / as miss out on training / make it more difficult to get another job / lower paid job / reduced mobility of labour (1). May be more likely to get into debt (1) harder to repay any past loans (1). Harder to get a loan (1) banks may not expect them to be able to repay loan (1). Loss of fringe benefits (1) example e.g. health insurance / home (1). Less attractive to future employers / bad reputation (1) make it more difficult to get another job (1). Mental health problems / stress / illness / divorce (1) loss of self-esteem / loss of self-confidence / making it more difficult to get another job / reduced life expectancy / due to difficulty/time to find another job (1). May have to sell possessions (1) to gain money / to meet bills (1). Demotivation (1) give up looking for work / become a discouraged worker / become voluntarily unemployed (1). Reduced ability to save (1) reduced ability to cope with unexpected events / to finance e.g. education / healthcare / retirement (1). 2(c) Analyse the advantages of an increase in labour 6 Reward but do not expect reference to reduce labour market mobility. failure. Coherent analysis which might include: • An increase in the ability of workers to change jobs / provide more choice of jobs (1) occupational mobility of labour (1) improve skills / productivity / experience by changing jobs (1). • An increase in the ability of workers to move from one area to another (1) geographical mobility of labour (1) move to a more pleasant area (1). • Can reduce structural / regional / frictional (1) unemployment (1) enable workers to get new jobs more quickly / reduce long term unemployment (1) may enable some workers to find higher paid jobs / gain higher wages / reduce poverty / higher standard of living / better working conditions (1) raise tax revenue / reduce government spending on benefits (1). • It can reduce labour shortages (1) reduce costs / cost- push inflation (1) increase output / increase GDP / cause economic growth (1). • It can enable firms to respond more quickly/more fully to changes in consumer demand / increase flexibility / change in size (1) reduce surpluses and shortages of products (1). 2(d) Discuss whether or not the demand for chocolate is 8 Level Description Marks likely to be price elastic. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical • may have substitutes analysis to evaluate economic issues • may be seen as a luxury and situations. One side of the argument • PED of particular brands will be more elastic than may have more depth than the other, but demand for chocolate as a whole overall both sides of the argument are • the longer the time period, the easier it will be for considered and developed. There is consumers to change their spending patterns. thoughtful evaluation of economic concepts, terminology, information Why it might not: and/or data appropriate to the question. • may be addictive The discussion may also point out the • may be seen as a necessity possible uncertainties of alternative • may take up a small % of income. decisions and outcomes. 2 A reasoned discussion which makes use 3–5 of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(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

4 In 2022, more than a quarter of a million workers, including doctors, left Sri Lanka to work in other countries. This was largely due to economic problems, including an inflation rate of 50% and a concern that unemployment might rise. The Sri Lankan Government increased direct taxation. It also encouraged some public sector workers to work abroad temporarily. People who work abroad often send money home to relatives. (a) Identify two types of unemployment. [2] (b) Explain two ways that money received from relatives working abroad could raise their families’ living standards. [4] (c) Analyse how an increase in direct taxation could increase unemployment. [6] (d) Discuss whether or not a doctor would benefit from working in another country. [8]

20 marks

Mark scheme: 4(a) Identify two types of unemployment. 2 If more than two types given, consider the first three. Two from: Also accept voluntary unemployment, involuntary Frictional (1) structural (1) cyclical / demand deficient (1) unemployment, seasonal, classical, casual, regional, technological. Accept demand-deficient as an alternative to cyclical. 4(b) Explain two ways that money received from relatives 4 One mark each for each of two ways identified and one working abroad could raise their families’ living mark each for each of two explanations. standards. If more than two ways given, consider the first three. Logical explanation which might include: No marks for why the money received may be large due to Could spend more on food / buy more products / buy more e.g. lower tax rates abroad, high exchange rate. basic necessities have higher purchasing power / more income / could increase overall spending (1) reduce poverty (1). Could spend more on better quality food (1) improve nutrition / improve health (1). Could spend money on education / training (1) increase earning potential / wages (1). Could spend on healthcare (1) raise life expectancy (1). Could spend on housing (1) reduce illness (1). May be able to afford luxuries (1) e.g. may be able to afford a holiday / car (1). Could set up a small business (1) which could earn them an income (1) Could pay off debts / reduce need to borrow / reduce cost of borrowing (1) reduce stress (1). Could save more (1) earn interest / pay for e.g. healthcare/education of children in the future (1) Could work fewer hours / fewer jobs (1) less stress (1). 4(c) Analyse how an increase in direct taxation could 6 increase unemployment. Coherent analysis which might include: • (Increase in) (personal) income tax (1) (increase in) tax on wealth (1) would reduce disposable income / purchasing power / money available / the amount of their wages they can keep (1) reduce consumer spending (1) lower total demand (1) lower demand for workers (1) as demand for workers depends on demand for goods and services / derived demand (1) increase cyclical unemployment (1). • Reduce incentive to work / encourage workers to leave their jobs (1) may now rely on unemployment benefit / as may receive more from unemployment benefit than from a now lower paid job (1) increase frictional/voluntary unemployment (1). • (Increase in) corporation (corporate income) tax (1) will reduce the amount of profit that can be kept / reduce profit (1) firms may reduce output / reduce economic growth / may cause a recession / reduce supply / less incentive to expand (1) reduce investment (1) result in cyclical unemployment (1) may reduce employment to cut costs (to maintain profit) (1). 4(d) Discuss whether or not a doctor would benefit from 8 Maximum of 4 marks if discussing working in another city working in another country. rather than country. In assessing each answer, use the table opposite. Level Description Marks Why they might: 3 A reasoned discussion which accurately 6–8 • may be higher paid, higher living standards examines both sides of the economic • may benefit from lower inflation argument, making use of economic • may benefit from lower taxes information and clear and logical • may be more chances of gaining a job or gaining a analysis to evaluate economic issues promoted post and situations. One side of the argument • may have better working conditions may have more depth than the other, but • may have more fringe benefits overall both sides of the argument are • may gain new skills and experience considered and developed. There is • may be safer environment thoughtful evaluation of economic • may be able to send money home to family concepts, terminology, information • may provide better opportunities for their children. and/or data appropriate to the question. The discussion may also point out the Why they might not: possible uncertainties of alternative • may have longer working hours decisions and outcomes. • may have less holidays 2 A reasoned discussion which makes use 3–5 • may have less job security of economic information and clear • may miss friends / relatives analysis to evaluate economic issues • may face discrimination and situations. The answer may lack • may face language problems/ cultural differences. some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/22 May/June 2025

5 In 2023, the Chinese Government said that it would aim for an economic growth rate of 5% and a steady increase in both exports and imports. It was expected that higher output would be caused mainly by an increase in household spending, although this could also result in inflation. Another aim of the Chinese Government was to keep the unemployment rate at around 5.5%. China has an ageing population and an ageing labour force. (a) Identify two influences on household spending. [2] (b) Explain two advantages of employing older workers. [4] (c) Analyse how an increase in household spending could cause inflation. [6] (d) Discuss whether or not a government should aim for an increase in imports. [8]

20 marks

Mark scheme: 5(a) Identify two influences on household spending. 2 If more than two influences given, consider the first three. Two from: • income • interest rate • taxation • confidence • inflation rate / cost of living / prices / price • wealth • age • size of household • culture • advertising • quality • tastes 5(b) Explain two advantages of employing older workers. 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Logical explanation which might include: If more than two advantages given, consider the first three. • May be more experienced (1) may have high productivity / high efficiency / high skills (1). There is an element of mix and match here with some • May make few mistakes (1) produce high quality explanations being linked with different identifications but do products (1). not reward the same point twice. • May be reliable / easy to manage (1) punctual / carry out duties carefully (1). Award increase in incomes rather than increase in wages. • May need little training / may have received more training (1) keep firms’ costs low (1). • May be less likely to take maternity / paternity leave (1) less disruption to output / lower costs (1). • May train young workers (1) pass on experience (1). • May be less likely to leave job (1) in search of a better paid job (1). • May keep older people healthy (1) lowering healthcare costs / increasing life expectancy (1). • May increase the incomes of older people (1) reducing poverty (1). • May increase the size of the labour force (1) encourage more older workers to seek employment / increase productive potential (1). • Make older people more financially independent (1)reduce financial burden on family / government (1). • May be prepared to work fewer hours (1) make firms more flexible (1). • May be prepared to work for relatively low wages (1) in order to e.g. stay active (1). • May relate better to older customers (1) a growing market in most countries (1). 5(c Analyse how an increase in household spending could 6 Formula AD = C + I + G + (X – M) can be taken as cause inflation. recognition that C is a component on total demand. Coherent analysis which might include: Higher total (aggregate) demand and prices being pushed up can be shown on a diagram – one mark each. Household spending / consumer expenditure / consumption is a component of total demand (1) An increase in Reward but do not expect reference to the multiplier effect. household spending would increase total demand (1). Total demand could exceed total supply (1) higher demand may encourage firms to raise prices (1) resulting in demand- pull inflation (1). An increase in household spending could encourage firms to invest / increase investment (1) increase their output (1) they may hire more workers (1) this may drive up wages (1) increase demand for raw materials / capital goods (1) raise price of raw materials / capital goods (1) increase costs of production (1) cause cost-push inflation (1) cause a wage price spiral (1). 5(d) Discuss whether or not a government should aim for an 8 Level Description Marks increase in imports. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic Why it should: argument, making use of economic • may save scarce resources information and clear and logical • may reduce shortages in the home market analysis to evaluate economic issues • may lower the exchange rate and situations. One side of the argument • may increase choice and quality of products in the may have more depth than the other, but home market overall both sided of the argument are • may import technology considered and developed. There is • may reduce firms’ costs by importing low price raw thoughtful evaluation of economic materials and capital goods concepts, terminology, information • may increase competition, making domestic firms more and/or data appropriate to the question. efficient The discussion may also point out the • may increase revenue from import tariffs possible uncertainties of alternative • may enable a country to consume more than it decisions and outcomes. produces in the short term • may increase incomes abroad raising demand for this 2 A reasoned discussion which makes use 3–5 of economic information and clear country’s exports. analysis to evaluate economic issues Why it should not: and situations. The answer may lack • may worsen the current account balance some depth and development may be one-sided. There is relevant use of • may cause some domestic firms to go out of business economic concepts, terminology, • may reduce exchange rate information and data appropriate to the • may reduce employment question. • may lower incomes / GDP per head • may lower living standards in the long term • will not want to import demerit goods. 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 no 0 creditable content.

This question in 0455/22 May/June 2025

4 Lanzarote, a Spanish island, was once an area with very high rates of poverty. However, the rise of tourism has greatly reduced unemployment. The government is trying to attract more workers to the island by using non‑wage factors. Lanzarote’s low taxes also attract workers to the island. Mobility of labour in the island’s economy has also increased. (a) Identify two non‑wage factors that may influence a worker’s job choice. [2] (b) Explain how unemployment can lead to poverty. [4] (c) Analyse the influences on the mobility of labour. [6] (d) Discuss whether or not low taxes are beneficial for an economy. [8]

20 marks

Mark scheme: 4(a) Identify two non-wage factors that may influence a 2 Accept any relevant non-wage factors. worker’s job choice. If more than two non-wage factors are given, consider the Two from: first three. • job security • fringe benefits • recognition at work • company car • holidays • working hours • flexibility / ability to work from home • location of workplace • available transport • nearness to family 4(b) Explain how unemployment can lead to poverty. 4 Logical explanation which might include: • unemployment may lead to a loss of a source of income (1) unable to afford basic necessities (1) leading to absolute poverty (1) may reduce ability to provide a good standard of living for family (1) poor education (1) health problems (1) child poverty (1) • long term unemployment (1) loss of skills (1) cannot re- enter the job market (1) unable to earn a living (1) • the unemployed may claim unemployment benefits (1) with lower income than those working (1) leading to relative poverty (1). • unemployment will lead reduced (income) tax revenue (1) less available to spend on public services that reduce poverty (1). 4(c) Analyse the influences on the mobility of labour. 6 Coherent analysis which might include: • labour could be occupationally mobile (1) influenced by skills / qualification / knowledge (1) if they are transferable (1) then labour is more occupationally mobile (1) • labour could be geographically mobile (1) influenced by government regulations (1) e.g. visa requirements (1) cost of living in another area / country (1) access to transport (1) access to public transport / proximity to railway / ports (1) family ties may make workers immobile (1) access to working online / ability to work from home (1) • house prices in different areas / access to housing in different areas (1) low house prices make it easier to move for work (1) • incomes / tax systems in other countries (1) proficiency in another language (1) influencing workers to move abroad (1). 4(d) Discuss whether or not low taxes are beneficial for an 8 Level Description Marks 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 Why they might be: use of economic information and clear and logical analysis to • low income taxes increase disposable income, evaluate economic issues and increasing total (aggregate) demand situations. One side of the • low corporate income (corporation) taxes increase argument may have more depth profits after tax than the other, but overall, both • low indirect taxes, e.g. VAT, reduce prices of goods and sides of the argument are services considered and developed. There • low taxes on imports reduce prices of imports is thoughtful evaluation of • low taxes on firms encourage competition economic concepts, terminology, • low taxes on demerit goods increase external costs information and/or data appropriate • low income taxes prevent a ‘brain drain’ / attract foreign to the question. The discussion workers may also point out the possible • low corporate taxes attract overseas companies e.g. uncertainties of alternative MNCs. decisions and outcomes. 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. 4(d) Why they might not be: Level Description Marks • government revenue will be low – budget deficit / debt 1 There is a simple attempt at using 1–2 • not enough revenue to provide for public / merit goods economic definitions and e.g. education / healthcare terminology. Some reference may • higher inequality if progressive taxes are low be made to economic theory, with • higher inflation if direct taxes are low occasional understanding. • low taxes on merit goods improve external benefits. 0 A mark of zero should be awarded 0 for no creditable content.

This question in 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

1 (a) Calculate foreign workers as a percentage of Japan’s labour force in 2022. [1] (b) Identify two reasons why Japan has a high average age of population. [2] (c) Explain why some young Japanese people emigrate. [2] (d) Explain two ways Japan could attract more foreign workers. [4] (e) Draw a demand and supply diagram to show the effect of a decrease in population on the market for furniture. [4] (f) Analyse the relationship between global GDP per head and global air passenger numbers. [5] (g) Discuss whether or not a high savings rate is likely to benefit Japan. [6] (h) Discuss whether or not labour mobility in Japan is likely to increase in the future. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate foreign workers as a percentage of Japan’s 1 Accept 2.5 without %. labour force in 2022. 2.5% (1). 1(b) Identify two reasons why Japan has a high average age 2 If more than two reasons are given, consider the first three. of population. Low birth rate (1) high life expectancy (1) good healthcare (1) young adults moving abroad (1). 1(c) Explain why some young Japanese people emigrate. 2 One mark for identification and one mark for explanation. To gain high wages (1) enjoy a better living standard / able to purchase more goods and services (1). 1(d) Explain two ways Japan could attract more foreign 4 One mark each for two ways identified and one mark each workers. for two explanations. Logical explanation which might include: If more than two ways are given, consider the first three. Only the 3 listed identifications can be credited, and • remove the Japanese language test (1) more foreigners explanation marks can only be awarded if applied to a valid would be able to work in the country (1) identification. • allow foreign workers to bring their families with them (1) foreign workers are more likely to settle in the country if they are not separated from their families (1) • allow unskilled workers to stay for more than five years (1) if gain high wages / enjoy living in the country would not want to leave / attract workers who want to live permanently in the country / give workers the opportunity to stay permanently / increase international mobility of labour (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a decrease in population on the market for furniture. Coherent analysis which might include the following. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). OR New supply curve shifted to the left (1). OR New demand curve shifted to the left AND new supply curve shifted to the left. 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 global GDP per head 5 Responses do not have to be in the format suggested but and global air passenger numbers. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include the following. and analyse the overall data. Expected relationship: Supporting evidence should involve interpretation, not just Generally, a positive relationship (1) the higher the global description. GDP head, the higher the air passenger numbers (1). Supporting evidence: 2016–2019 GDP per head rose and air passenger numbers increased (1). Analysis of expected relationship: Higher GDP per head increases purchasing power / ability to pay for air travel (1) as people get richer, they travel more for leisure and business (1). Exception: 2021 (1) GDP per head rose but air passenger numbers decreased (1). Analysis of exception: May have been a time delay in people gaining confidence in flying after COVID-19 pandemic / other influences on demand e.g. air fares (1). 1(g) Discuss whether or not a high savings rate is likely to 6 Reference to AD / total demand falling can be credited on benefit Japan. either side of the argument, but only once. Award up to 4 marks for logical reasons why it might, which Apply this example to all questions with the command may include: word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) • may keep inflation low (1) as spending will not be high (1) reduce (total) demand (1) reduce demand-pull Each point may be credited only once, on either side of an inflation (1) argument, but separate development as to how / why the • may reduce imports (1) improve the current account of outcome may differ is rewarded. the balance of payments (1) • provide finance for investment (1) firms able to borrow Generic example mark from banks (1) • may enable households to finance future expenditure Tax revenue may decrease… 1 (1) on e.g. healthcare / education / provide for retirement / provide support for individuals in difficult ...because of reason e.g. incomes may be lower. 1 times (1) • may enable government to cut benefits, e.g. pensions Tax revenue may increase because incomes 0 (1) spend money saved on other priorities, e.g. may be higher i.e. reverse of a previous healthcare (1). argument. Award up to 4 marks for logical reasons why it might not, Tax revenue may increase because of a different 1 which may include: reason i.e. not the reverse of a previous argument e.g. government spending on subsidies • may lower total demand (1) reduce GDP (1) increase may stimulate the economy more than spending unemployment (1) cyclical unemployment (1) could on education. cause a recession (1) • may reduce investment as demand is low (1) reduce improvements in technology (1) • Less indirect tax raised (1) may lead to reduced government spending (1). 1(h) Discuss whether or not labour mobility in Japan is likely 6 Reference to occupational and geographical mobility can be to increase in the future. credited on either side of the argument, but only once. Award up to 4 marks for logical reasons why it might, which Reference to falling house prices or improved transport must may include: be linked to improved mobility for credit and vice versa. • Improvements in education and training (1) could increase skills / qualifications (1) increase occupational mobility (1) • Improvements in transport / subsidised travel (1) could enable people to move to different areas (1) raise geographical mobility (1). Award up to 4 marks for logical reasons why it might not, which may include: • Ageing population (1) may have out-of-date skills (1) more difficult to change jobs (1) reduce occupational mobility (1) may be more reluctant to move to a different area (1) reason (1) reduce geographical mobility (1) • House prices may rise (1) making it difficult to move from areas with low house prices to areas with high prices (1).

This question in 0455/22 Oct/Nov 2025

3 Central banks influence their countries’ money supply. Central banks also regulate commercial banks. Households benefit from these commercial banks in several ways. In recent years, commercial banks have introduced new technology. Global online banking increased by 14% between 2019 and 2022. These advances in technology were combined with a greater use of division of labour. (a) Identify two ways central banks differ from commercial banks. [2] (b) Explain two characteristics that coins possess which mean they can perform the functions of money. [4] (c) Analyse the services provided to households by commercial banks. [6] (d) Discuss whether or not division of labour will benefit workers. [8]

20 marks

Mark scheme: 3(a) Identify two ways central banks differ from commercial 2 If more than two ways are given, consider the first three. banks. The second mark must be a linked difference and not a Award one mark for a characteristic of the central bank such negative comment e.g. central bank controls money supply, as: but commercial banks do not, only gets one mark. • in the public sector / owned by the government • operate monetary policy • main objective is usually price stability • hold the accounts of the government • lend to governments and sometimes commercial banks • manage foreign exchange rate. Award one mark for a characteristic of a commercial bank such as: • usually in the private sector / owned by individuals • provide services for consumers • main objective is profiting maximization or growth • hold the accounts of firms and households • lend to households and firms • buy and sell foreign currency to firms and households. 3(b) Explain two characteristics that coins possess which 4 One mark each for two characteristics identified and one mean they can perform the functions of money. mark each for two developments. Logical explanation which might include: If more than two characteristics are given, consider the first three. • generally acceptable (1) can be used to buy and sell products / acts as medium of exchange (1) Only accept functions of money when used as a • limited in supply (1) minted by the government (1) development of an identified characteristic of money. • durable (1) last some time / does not perish / hard to break / made of metal / acts as store of wealth / store of value (1) • portable (1) coins can be carried in pockets / bags (1) • homogeneous (1) all coins of the same value are the same (1) • divisible (1) coins have different values / acts as medium of exchange (1). 3(c) Analyse the services provided to households by 6 Do not reward more than three services as the main commercial banks. assessment objective is analysis, not knowledge and understanding. Coherent analysis which might include: • enable households to save their money (1) provide deposit / time accounts / deposit boxes (1) earn interest (1) • enable households to make and receive payments (1) provide current / sight accounts (1) credit cards (1) • lend to households (1) by providing a loan / overdraft / mortgage (1) to e.g. buy a house / a car (1) pay interest (1) • give financial advice (1) e.g. on how to manage debt / retirement plans / buy stocks and shares (1) • arrange insurance (1) e.g. for house / car (1) • Convert foreign currency (1) buying / selling goods and service abroad / travelling abroad (1) charge commission (1). 3(d) Discuss whether or not division of labour will benefit 8 Level Description Marks workers. 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 analysis • can be trained quickly to evaluate economic issues and • rise in productivity might be linked to a rise in income situations. One side of the argument may • can become skilled at a particular task – practice makes have more depth than the other, but perfect overall, both sides of the argument are • can concentrate on what they are most interested in considered and developed. • can gain confidence in the task they undertake – less stressful. There is thoughtful evaluation of economic concepts, terminology, Why they might not: information and/or data appropriate to • can be boring the question. The discussion may also • occupational mobility is limited point out the possible uncertainties of • may not make full use of their skills alternative decisions and outcomes. • may be replaced by machinery • work may be disrupted by absence of other staff. 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. Note: do not reward answers that state benefits to the firm. L1 and up to 2 marks for an understanding of what division of labour means.

This question in 0455/23 Oct/Nov 2025

5 In 2023, the Canadian Prime Minister said that his country’s aim was to increase immigration to half a million a year. This was because the country was experiencing labour shortages and an increase in life expectancy. More workers in Canada would increase the tax revenue available to spend on pensions, and more workers would also increase consumer spending. An increase in the immigration of both skilled and unskilled workers might affect the country’s car industry. (a) Identify two causes of an increase in life expectancy. [2] (b) Explain two ways a firm could attract skilled workers from another country. [4] (c) Analyse how an increase in consumer spending could increase economic growth. [6] (d) Discuss whether or not the wages of workers employed by car firms will increase in the future. [8]

20 marks

Mark scheme: 5(a) Identify two causes of an increase in life expectancy. 2 If more than two causes are given, consider the first three. Two causes from: There may be other relevant causes. These are the most common ones. • falling death rate / more / better healthcare / healthier lifestyles • better education • higher (disposable) income • improvement in nutrition • more / better housing / living standards • better environment / less pollution • better working conditions • less child poverty • ending of a war / famine / natural disaster. 5(b) Explain two ways a firm could attract skilled workers 4 One mark each for two ways identified and one mark each from another country. for two explanations. Logical explanation which might include: If more than two ways are given, consider the first three. • offer higher wages / prospects of promotion (1) enabling the workers to enjoy high living standards (1) • offer better working conditions (1) e.g. regular breaks (1) • offer fringe benefits (1) e.g. good pension scheme (1) • offer training (1) increase chance of a good job in home country later (1) • strong / targeted marketing overseas (1) highlighting benefits of job (1) • meet relocation costs (1) removes geographical barrier (1) • reputation (1) e.g. good employer / outstanding product/service (1). 5(c) Analyse how an increase in consumer spending could 6 Only reward increasing productive capacity and raising GDP increase economic growth. once. Coherent analysis which might include an increase in Reward but do not expect reference to the multiplier effect. consumer spending may: • increase total demand (1) this may increase confidence (1) may encourage firms to increase their output (1) firms’ revenue / profits increase (1) leads to more investment / innovation (1) new firms may start up (1) raise GDP (1) • increase output, firms may buy capital goods / invest (1) this will increase productive capacity (1) • increase output, more workers may be employed (1) this will reduce unemployment (1) increase incomes (1) increase consumer spending further (1) • increase (indirect) tax revenue (1) which can be spent on e.g. infrastructure / education / healthcare (1) leading to further increase in productive capacity / GDP (1). 5(d) Discuss whether or not the wages of workers employed 8 Level Description Marks by car firms will increase in the future. 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 analysis • demand for cars might rise to evaluate economic issues and • revenue / profit may increase, enabling firms to pay situations. One side of the argument may more have more depth than the other, but • car workers may become more skilled / more productive overall, both sides of the argument are • bargaining strength to car workers may increase / their considered and developed. trade unions may become more powerful / inflation rate may increase causing higher wage demands There is thoughtful evaluation of • governments may subsidise car production. economic concepts, terminology, information and/or data appropriate to Why they might not: the question. The discussion may also • advances in technology may reduce the need for car point out the possible uncertainties of workers alternative decisions and outcomes. • rise in unemployment will increase competition among workers for jobs 2 A reasoned discussion which makes use 3–5 • increased immigration may increase the supply of car of economic information and clear workers analysis to evaluate economic issues • demand for cars may fall if public (mass) transport and situations. The answer may lack improves some depth and development may be • inflation may reduce real wages. one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 5(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content. L1 and up to 2 marks for understanding of wages, firms and employment.

This question in 0455/23 Oct/Nov 2025