Firms and production — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

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

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

Question 2

In 2015, the global equilibrium price of milk fell. As a result, the number of farms producing milk declined. Farms tried to cut costs by b…

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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).

Question 3

Qatar is a growing economy and has benefited from the expansion of the insurance industry. This industry is currently dominated by one firm…

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3(a) Define ‘perfect competition’. 2 Very high level of competition (1) firms are price takers (1) many buyers and sellers (1) free entry and exit (1) homogeneous / same product (1) perfect information (1) 3(b) Explain two influences on the size of firms. 4 1 mark each for each of two influences identified: • size of market • availability of finance/capital • type of business organisation • influence of government policies • age of firms • skills of entrepreneurs • goals of entrepreneurs. 1 mark each for each of two explanations given: • the higher the demand for the product/greater the value of sales, the larger the firm is likely to be • firms that can borrow, sell shares or have high profits are able to expand • a MNC will be larger than e.g. a sole trader • a government may run large state-owned enterprises/operate restrictions on mergers • older firms tend to be larger than younger firms • firms run by skilful entrepreneurs are likely to be larger than those run by less skilful entrepreneurs • entrepreneurs may want the firm to remain small to keep control / may want it to be large to e.g. gain economies of scale. 3(c) Analyse the causes of an increase in labour productivity. 6 Improved education/training (1) workers will be skilled/specialised (1) capable of producing a higher output per hour (1). Advances in technology (1) better quality of capital goods (1) with more and better capital goods workers can produce more (1). Better working conditions (1) contented workers may be more productive (1). Better health (1) healthier workers can produce more (1) Higher wages (1) may motivate workers more (1). Fall in employment (1) the less productive workers tend to lose their jobs first (1) the more productive workers will remain (1). 3(d) Discuss whether a country which engages in free trade is likely to 8 have a higher economic growth rate than one which uses trade protection. Up to 5 marks for why it might: It may enable countries to concentrate on what they are best at (1) making best use of their resources/specialisation (1). Greater exports bring in foreign revenue (1) contributing to economic growth (1). Unrestricted competition may improve efficiency of firms (1) increase sales (1) increase output (1). Firms will have more sources of raw materials (1) may lower production costs (1) lower prices (1) increase international competitiveness (1) make firms more price competitive (1). Capital equipment / new technology can be imported (1) gaining new ideas (1) improving production (1). Firms may be able to grow (1) take advantage of economies of scale (1) lower average costs (1). May attract MNCs (1) that contribute to economic growth (1). Note: reward but do not expect reference to comparative or absolute advantage. Up to 5 marks for why it might not: May make it difficult for infant industries to grow (1) unable to compete (1) because too small to take advantage of economies of scale (1). May result in declining industries going out of business (1) no longer contributing to output/GDP (1). Foreign firms may dump products in the country (1) selling at less than cost price (1) may drive domestic firms out of business (1).

Question 4

Nauru is one of the smallest countries in the world with a population of only 10 000. Fifty years ago the population was one of the richest…

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5(a) What is meant by a labour-intensive industry? An industry which has a high proportion of labour compared with the proportion of other factors of production used (2). An industry which uses a large amount of labour (1). 2 5(b) Explain two reasons why a country may stop exporting a product. 1 mark each for each of two reasons identified: • may be a shortage of the product in own country • may want to conserve resources • may be a fall in demand from other countries • may want to switch resources to another product • may lose international competitiveness • trade restrictions may be imposed on the product by trading partners • may be an appreciation of the currency. 1 mark each for each of two explanations: • may want to sell the product on the home market to prevent a shortage pushing up price • there may be concerns that e.g. deposits of gold are running out • exports can only be sold if there is a market for them / exports may have risen in price / may have fallen in quality • other products may have become more profitable and so resources may be switched away from the product • other countries may have discovered resources / improved the training of their workers giving them a cost advantage • there may be a tariff imposed which may make the product uncompetitive / an embargo may be imposed on the product stopping other countries importing it • a higher exchange rate will raise the price of exports which may make this product uncompetitive. 4 Question Answer Marks Guidance 5(c) Analyse the effects of an increase in unemployment on inflation. A rise in unemployment may reduce incomes (1) lower spending (1) lower total demand (1) lower demand-pull inflation (1). A rise in unemployment may reduce rises in wages / lead to a fall in wages (1) reduce costs of production (1) reduce cost-push inflation (1). A rise in unemployment will reduce tax revenue (1) this could cause the government to reduce subsidies (1) this could increase costs of production (1) causing cost-push inflation (1). 6 Question Answer Marks Guidance 5(d) Discuss whether having a relatively small population is an advantage or a disadvantage for an economy. Up to 5 marks for why it might be an advantage: A small population may mean that resources will last over a longer time period (1) enabling economic growth to continue (1). There may be less environmental damage (1) less risk of overcrowding (1). There may be fewer dependents (1) smaller proportion of children and elderly people (1) which can increase income per head (1) and may reduce the need for some forms of government spending (1). May be less imports (1). Up to 5 marks for why it may be a disadvantage: There may not be enough workers / low labour force (1) to take advantage of resources (1) low output (1) low tax revenue (1) reduces government ability to spend (1). The size of the market for the country’s products may not be large enough / low total (aggregate) demand (1) less ability to take advantage of economies of scale (1) may be less attractive to MNCs (1). May be less exports (1). 8 Reward but do not expect reference to the optimum population size.

Question 5

In 2015, the Tripartite Free Trade Area (TFTA) was established. It covers 26 countries and is the biggest free trade area in Africa. Removi…

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4(a) Define economies of scale. A fall in average costs (1) resulting from an increase in output/scale of production (1). 2 labelled diagram. 4(b) Explain TWO benefits consumers may gain from free trade. Lower prices (1) increases purchasing power (1) due to greater competition or economies of scale (1). Better quality (1) improve living standards (1) due to greater competition (1). Greater availability/variety of products (1) products can be purchased that are not made in the domestic economy (1). Higher exports can lead to economies of scale (1) and therefore lower prices (1). 4 Maximum of 2 marks for each benefit identified and explained. 4(c) Analyse how reducing transport costs could increase a country’s exports and imports. Lower transport costs may reduce costs of production (1) lower costs may reduce export prices (1) making the country’s products more internationally competitive (1) increase demand for exports (1). Could attract more MNCs to set up (1) which tend to export high proportion of output (1). Higher export revenue would enable a country to buy more imports (1). Lower transport costs may enable a country to specialise to a greater extent (1) this would encourage it to export the products it is good at producing (1) and import the products it is not so good at producing (1). Lower transport costs will reduce the cost of getting imports to market (1) lower price of imports (1) increase demand for imports (1). Lower transport costs for consumers can increase purchasing power and increase import spending (1). Could encourage tourism (1) increasing exports and imports of services (1). 6 It is possible to gain full marks with reference to either just exports or just imports. Question Answer Marks Guidance 4(d) Discuss whether or not raising living standards is the most important economic objective for developing countries. Up to 5 marks for why it might be: Giving people access to basic necessities (1) may take them out of poverty (1). Suggests higher incomes per head (1) allowing people to consume more goods and services (1). Improving healthcare (1) reduce death rates/people more fit for work (1) raise productivity (1) raise output/generate economic growth (1). Improving education (1) may increase skills (1) raise productivity (1) raise output/generate economic growth (1). Better quality housing (1) can reduce illness (1) raise productivity (1) raise output/generate economic growth (1). Up to 5 marks for why it might not be: Raising livings standards may cause higher inflation (1) a rising current account deficit (1). Inflation may be more of a problem (1) costs of inflation (max 2). Unemployment might be more of a problem (1) costs of unemployment (max 2). Current account deficit might be more of a problem (1) costs of current account deficit (max 2). Living standards is an average concept (1) and may be associated with rising inequality (1). Some measures that could improve living standards such as taxing polluting firms (1) may reduce economic growth (1) and so may result in lowering living standards (at least in the short run) (1). It may be more important to maintain living standards (1) (because) a rising population (1) may be putting pressure on resources (1). 8 The chain of response raise productivity (1) raise output/generate economic growth (1) can only be credited once. A maximum of 3 marks for a list-like approach.

Question 6

The production process in the oil industry is capital-intensive. The pollution it generates means it is one cause of environmental market f…

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6(a) Identify two features of a capital-intensive production process. Process which relies heavily on capital goods e.g. machines (1) does not use much labour (1) relies less on other factors of production e.g. land (1). 2 6(b) Explain how market failure might occur in the oil industry. Market failure is when there is an inefficient allocation of resources (1). There is over-consumption / over-production of oil (1) because the external costs (1) are ignored by the market mechanism (1), such as pollution / global warming / harm to the environment (1). There are cases of monopoly power (1) restricting output (1) pushing up price (1). 4 Question Answer Mark Guidance 6(c) Analyse, using a production possibility curve (PPC) diagram, the effect of reallocating resources from kerosene to LPG. Award up to 4 marks for a correct diagram: • Axes labels LPG and kerosene (1) • Curve / downward sloping line drawn to axes (1) • Two production points illustrating increased production of LPG (1) • New production point indicated (1) Award up to 2 marks for associated explanation: Reallocating resources will involve a movement along the PPC (1) this will involve an opportunity cost (1). 6 Accept points on the curve with arrow from A to B. kerosene LPG K1 L1 L2 K2 A B Question Answer Mark Guidance 6(d) Discuss whether or not removing a firm’s monopoly power will benefit consumers. Up to 5 marks for why it might: More choice for consumers (1) improved competition (1) will causes prices to fall (1) which will increase consumers’ real disposable income (1). The monopoly may be experiencing diseconomies of scale (1) with high (average) costs of production (1) Quality is likely to improve (1) as firms will innovate in order to win customers (1). Competition will force firms to be more efficient in order to survive (1). They will look to reduce costs in order to remain competitive (1) and will invest in research and development to maintain market share (1). Up to 5 marks for why it might not: A monopoly firm can take advantage of economies of scale (1) reducing (average) costs of production (1) example (1) the removal of monopoly power may increase prices for consumers, reducing their welfare (1) Consumers may rely upon the reputation of a monopoly (1) for quality / customer service (1) too much choice can lead to confusion / inconvenience for consumers (1). The firm may be state owned (1) may take into account the full social costs and benefits (1) may have charged low prices (1) to make products affordable (1). 8

Question 7

The largest airline in Pakistan was originally formed as a result of a merger between a state- owned airline and a private airline. In Apri…

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5(a) Define public limited company. A company whose securities/shares/stocks are traded on a stock exchange (1) can be bought and sold by anyone (1) has limited liability (1) makes its accounts public (1) legal entity separate to owners (1). 2 5(b) Explain the difference between productivity and production. Productivity is the output produced per factor / input, e.g. per worker (1) per period of time, e.g. per hour (1) measure of efficiency / how quickly products are produced (1). Production is the total output (1) the process of producing goods and services (1) in a period of time, e.g. per year (1) 4 5(c) Analyse how increased productivity could reduce inflation. An increase in productivity means that more could be produced / output increased (1) from a given set of factors/inputs (1) could also lower (average) costs of production (1) reducing prices (1). Increased productivity could reduce wage costs (1) reduce waste (1) increased profits of firms (1) increasing investments / expansion of business (1) new capital equipment could further lower costs of production (1) lowering cost-push inflation (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a merger would make it easier for a firm to achieve its goals. Up to 5 marks for why it would be easier: It could be a horizontal merger (1) enabling easier exploitation of economies of scale (1) leading to lower average costs (1) examples of economies of scale (max 2) lower prices (1) leading to more demand (1) and higher profits (1). It could be a vertical merger (1) reducing the costs of obtaining materials / making it easier to distribute the firm’s products (1) Reduced competition / monopoly (1) a quick way to grow (1) the firm can set higher prices (1) without losing too many customers (1). Reduced risk (1) the loss of one part of the business could be offset by the other (1) it is easier for the firm to survive (1). Up to 5 marks for why it would not be easier: Reduced competition may cause complacency (1) may fail to control of costs (1). The merged firm may experience diseconomies of scale (1) average cost may increase as output increases (1) example (max 2) leading to higher prices (1) reduced demand (1) and lower profit (1). Large firms may lose customers due to lack of personal touch (1). Cost of integrating firms such as redundancies / fall in morale (1). Government may no longer support large firms (government support small firms) (1) removing tax advantages (1) and subsidies (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 8

Productivity has fallen recently in Finland particularly in the public sector. The country has a relatively high number of small firms. In …

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5(a) What is the difference between the private sector and the public sector? The private sector is the part of the economy where market forces / price mechanism / producers and consumers’ decisions allocate resources (1) firms are owned by private individuals (1). The public sector is the part of the economy where the government makes the decisions / government controlled / government-owned firms (1). 2 5(b) Explain two reasons why productivity may fall. Productivity may fall as the result of a decline in the quantity or quality of education/training (1) workers will be less skilled (1). A decline in investment (1) workers will work with less equipment (1). A decline in wage rates (1) will reduce workers’ motivation (1). Worse working conditions (1) reduce job satisfaction (1). A rise in working hours (1) making workers more tired (1). Work may become more repetitive / less interesting (1) which may result in workers becoming bored (1). Change in average age of workers (1) e.g. older workers may be less up to date with new technology / younger workers may have received less training / be less experienced (1). Higher tax rates in a country (1) may reduce workers’ motivation (1). Poorer healthcare in a country (1) reducing workers’ physical strength / mental alertness (1). 4 5(c) Analyse how an increase in the price elasticity of demand and the price elasticity of supply of its products could benefit a firm. A more elastic demand would mean that the firm could reduce price (1) to raise revenue (1) as demand would rise by more than the fall in price (1) if revenue rises by more than costs, profit will increase (1). A more elastic supply will mean that the firm can adjust more quickly the amount it sells when price changes (1) the firm will be able to take greater advantage of an increase in demand / rise in price (1) the firm will be able to take more of its products off the market should price fall (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not small firms are likely to survive in the long run. Up to 5 marks for why they might: Small firms may provide a personal service (1) may have greater contact with their customers (1) more responsive to changes in consumer demand (1). May be more flexible (1) fewer people to consult (1). May be producing products in low demand (1) not facing competition from large firms (1). May be a local monopoly / in a good location (1) may not face competition in the area (1). May cooperate with other small firms (1) enable advantage to be taken of e.g. buying in bulk (1). May supply specialised products / in a niche market (1) including to large firms (1). May receive government subsidies (1) lowering their costs of production (1). Up to 5 marks for why they might not: May be driven out of business (1) by larger firms with lower costs of production (1) better known (1) larger firms can take advantage of economies of scale (1).examples of economies of scale (Up to 2). Large firms may take over / merge with smaller firms (1) to gain market power (1) take advantage of economies of scale (1). Government subsidies may only be short term (1). Some small firms may cease to exist when their owners retire/die (1) e.g. sole traders (1). Less capital available / difficulties in raising capital (1) make it difficult to purchase new / high quality equipment (1) make it difficult to invest in R&D (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

Question 9

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…

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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).

Question 10

Non-renewable energy (e.g. coal) is thought to cause a higher social cost than renewable energy (e.g. solar or wind power). Excessive deman…

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6(a) Define social cost. Social cost is equal to the sum of private costs (1) and external costs (1). Cost to the entire society (1). 2 6(b) Explain two reasons why a firm would want to specialise in producing only one product. • a firm can specialise in what it is best at producing (1) increasing efficiency / productivity (1) achieve economies of scale (1) decrease cost of production (1) leading to higher output / higher profits (1) • increasing global demand (1) which would raise revenue (1) • resources are well suited to the product (1) e.g. good climate (1) • a firm can gain a good reputation in producing the product (1) specialisation may improve the quality of the product (1) increasing demand for the product (1) 4 6(c) Analyse how the ability of firms to produce on a larger scale is beneficial to consumers. Producing on a larger scale may enable economies of scale (1) example (1) when average costs decrease (1). Price of the product may fall (1) enabling consumers to buy more of the product (1) improving living standards (1). Producing on a larger scale reduces shortages (1) increases the quantity of products available to consumers (1). Producing on a larger scale may enable more to be spent on R&D (1) increasing the quality of products available to consumers (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not the operation of a market economic system is harmful to an economy. Up to 5 marks for why it is: Poor consumers will have little influence on what is produced (1) because they have limited purchasing power / inability to afford products (1). Monopolies may occur (1) charging high prices (1) producing low quality (1). Products causing external costs will be overproduced (1) overconsumed (1) example (1). Products providing external benefits will be underproduced (1) and underconsumed (1) example (1). Income and wealth may be unequally distributed (1) e.g. those on fixed incomes disadvantaged (1). Up to 5 marks for why it is not: In theory there is consumer sovereignty (1) consumers determine what is produced (1) firms respond to changes in consumer demand (1). Competition between firms (1) and the profit motive (1) increases efficiency (1) leading to low prices (1) and high quality products (1). A variety of products may be produced / there may be choice (1). 8 Accept but do not expect reference to merit goods, demerit goods and public goods.

Question 11

In 2017, two firms in the chemical industry in China merged. This created the world’s largest chemical group with approximately US$100 bill…

Accepted Answer

2(a) Define industry. Firms (1) that produce the same product (1) example (1) 2 2(b) Explain two types of integration (merger). • horizontal integration (1) firms from same industry and same level of production integrate (1) • vertical integration (1) firms from same industry but different levels of production integrate (1) • conglomerate integration (1) firms from different industries integrate (1) 4 Allow full marks if forward and backward vertical integration is explained accurately. 2(c) Analyse the advantages that an MNC has over a firm which only produces domestically. Set up in economies where labour costs are less (1) and raw material costs are cheaper (1) which can give them cost advantage in the international markets (1). Greater market (1) easier access to foreign markets (1) greater profits (1) fewer trade barriers (1) production set up in countries which have lots of favourable trade agreements (1) bigger output (1) economies of scale (1). Reduction in risk (1) diversified markets (1). Locate operations near the potential market (1) which results in lower transportation cost (1). Wider access to more skilled workers (1) more productive (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not an economy benefits from firms which are monopolies. Up to 5 marks for how it might: Monopolies can gain more profits (1) they will be able to reinvest more (1) more choices from the company (1) total demand increases (1) economic growth (1) expand production (1) employ more workers (1) unemployment decreases (1) more R&D (1) more innovation (1) higher quality (1) more productivity (1) more exports (1) improved current account position (1). Up to 5 marks for how it might not: Lack of competition (1) complacency (1) less productivity (1) less innovation (1) price is higher (1) inflation (1) exploitation of consumers (1) less choice (1) lower quality (1). 8

Question 12

Estonia has one of the fastest internet speeds in the world. The government allows both direct and indirect taxes to be paid online. Accord…

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3(a) Identify one example of a direct tax and one example of an indirect tax. Income Tax / Corporation Tax / National Insurance / Profit Tax (1). Value Added Tax (VAT) / Goods and Services Tax (GST) / Sales Tax / tax on product e.g. bar of chocolate (1). 2 3(b) Explain two reasons why a firm may become more capital intensive as it grows. • to increase output (1) capital more efficient/productive (1) • to reduce costs (1) labour costs becoming relatively higher than machines (1) increasing profits (1) • may be able to take advantage of technical economies of scale (1) specialist capital may become viable for a large firm (1) 4 Accept making more profit may allow a firm to afford more investment in capital. 3(c) Analyse, using a production possibility curve (PPC) diagram, the possible effects of faster internet speeds for economic growth. Up to 4 marks for the diagram: • axes correctly labelled in terms of two different products or types of products (1) • the curve or downward sloping line is drawn to the axes (1) • second curve or downward sloping line is drawn to the axes (1) • an indication either by labelling or an arrow that the curve has shifted outwards / right (1) Up to 2 marks for written analysis: Faster internet speed increases productive capacity / the maximum quantity of products that can be produced within a certain time period (1) better communication infrastructure (1) e.g. labour can work faster, capital is better (1) lower costs of production (1) encourage more investments therefore increase financial capital (1) increased productive capacity results in (potential) economic growth / cause economic growth (1). 6 Do not reward analysis marks for description of diagram e.g. PPC shifts to the right. Question Answer Marks Guidance 3(d) Discuss whether or not an economy would benefit from less government regulation. Up to 5 marks why it might: More freedom (1) less red tape / bureaucracy (1) easier to set up new firms (1) more competition (1) decrease cost of production (1) decrease price (1) including exports (1) increase quantity demanded (1) increase total revenue (1) increase profits (1) more investments (1) increase demand for labour (1) less unemployment (1) decrease current account deficit (1) increase aggregate demand (1) increase economic growth (1). More control over prices (1) resulting from removal of e.g. a maximum price (1). Up to 5 marks why it might not: Less labour regulations would reduce job security (1) more exploitation of workers (1) e.g lower wages / longer working hours (1) more inequality (1). Less environmental regulations would increase pollution (1) e.g. air pollution / water pollution (1) health standards of society reduces (1) Less antitrust/anticompetitive regulations will create monopolies (1) small firms can’t compete (1) higher prices (1). Less protection of domestic firms from e.g. embargo (1) domestic firms may go out of business (1). Discourage consumption of harmful products (1) e.g. smoking ban (1). External costs may be ignored (1) e.g. air pollution, noise (1). It may mean that there is less consumption of beneficial (merit) goods (1) e.g compulsory state education (1) 8

Question 13

A local manufacturer of medicines (pharmaceuticals) in Nigeria wants to expand which will increase the contribution of this industry to the…

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6(a) Define Gross Domestic Product. GDP measures the (total) output/income/expenditure (1) of a country/economy (1). 2 6(b) Explain two ways in which more affordable medicines can improve standards of living. • more people can have medicines (1) improve health (1) raise productivity / enable people to work / not off work sick (1) • different choice of medicines (1) consumers can find what suits them best (1) • hospitals will have more medicines (1) easier to treat those who are ill/reduce death rate (1) • less spent on healthcare (1) can spend more on other things that can improve standard of living such as education, holidays (1) • higher productivity (1) higher incomes (1) 4 Accept higher HDI if linked to improved life expectancy (1). Do not accept birth control or birth rate explanation. 6(c) Analyse how investment in research and development can help a firm to grow in size. More innovation (1) e.g. Faster machines (1) increase productivity (1) decrease cost of production (1) decrease price of products (1) increase demand (1) increase market share (1) increase profits (1) more reinvestments (1). New products produced (1) larger exports (1) enter new markets (1) at start no direct competition (1) may be high demand (1). More skilled workers needed (1) creating a bigger workforce (1) Provide information (1) influence what is produced (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not a reduction in imports is beneficial to an economy. Up to 5 marks for why it might be: Reduction in imports may improve the trade in goods / trade in goods and services balance (1) this will improve the current account position / reduce a current account deficit (1) this may reduce a country’s debts (1) avoid downward pressure on the exchange rate (1). Spending on imports may be replaced by spending on domestically produced products (1) this would increase the country’s output / cause economic growth (1) this would increase demand for labour (1) raise employment / reduce unemployment (1) increase incomes and living standards (1). Fewer imports may enable infant industries to grow (1) may protect declining strategic industries (1). May prevent dumping (1) explanation of what is meant by dumping (1) Imports may be harmful products (1) might affect people’s health (1). Up to 5 marks for why it might not be: Imports of capital goods / raw materials may decline (1) these might be cheaper / lower quality than domestically produced capital goods and/or raw materials (1) this will raise costs of production (1) make the country’s products less internationally competitive (1) lower output/reduce economic growth (1) worsen the current account position (1) raise unemployment (1). Fewer imports may reduce choice (1) reduce competition (1) may raise prices (1) lower quality of people’s lives (1). Exports may be falling by more than imports (1) so current account position may be worsening (1). Quantity of imports may be falling but value of imports may be rising (1). 8 Question Answer Marks Guidance 6(d) If the reduction is caused by protectionist measures (1) this would reduce benefits of free trade (1). Loss of tariff revenue (1) may be a major source of tax revenue/reduce amount that can be spent on e.g. education (1). Imports may be of beneficial products (1) not produced in the country (1).

Question 14

In 2015, the Malaysian government set out its objectives to increase productivity and savings. There has been higher consumer expenditure, …

Accepted Answer

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

Question 15

More agricultural markets come close to perfect competition than markets for manufactured goods and for services. The goals of business org…

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7(a) Identify two characteristics of perfect competition. • many buyers • many sellers • no barriers to entry (and exit) • (firms are) price takers • Identical / homogeneous product • no attachment between buyers and sellers • perfect knowledge 2 7(b) Explain two goals a business organisation may have. Profit maximisation (1) making as much profit as possible / increasing the gap between revenue and cost / rewarding entrepreneurs (1). Growth / expansion (1) increasing the size of the firm by e.g. merging / seeking to gain market power (1) to take advantage of economies of scale (1). Survival (1) during difficult times such as recession / when a firm is first established the aim may just be to stay in the market (1). Profit satisficing (1) achieving enough profit to keep shareholders’ happy while following other objectives (1). Social welfare (1) business organisations operating in the public sector may e.g. be concerned about the environment / charging a low price to help the poor (1). 4 Question Answer Marks Guidance 7(c) Analyse the main reasons for the differences in the size of firms. Type of business organisation (1) state-owned enterprises and multinational companies operate on a larger scale than sole traders (1). Size of market (1) the market for some products is large / expanding (1) example (1) while others are declining (1) example (1). Some firms have more access to finance (1) public limited companies can sell shares (1) sole traders cannot (1). Some firms grow through merging (1) type of merger e.g. horizontal merger (1). Motives of owners (1) e.g. some prefer the firm to remain small so that they can retain control / ownership (1). Some firms may be subsidised (1) which may encourage them to produce a higher output (1). Some firms may be more profitable (1) can reinvest profits / internal growth (1). Length of time in the market (1) longer there, more time to grow (1). Some firms may be able to take advantage of economies of scale (1) example of an economy (1). Some firms may experience diseconomies of scale (1) example (1). Type of product / capital v. labour-intensive (1) e.g. aircraft have to be produced on a large scale (1). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 7(d) Discuss whether or not the use of supply-side policy measures by a government will reduce firms’ average costs of production. Up to 5 marks for why they might: Education and training (1) should increase labour productivity (1) this could reduce labour costs (1). A cut in income tax (1) may reduce upward pressure on wages (1). A cut in indirect taxes (1). Privatisation (1) may make firms more efficient (1) especially if there is competition in the market (1). Deregulation (1) may reduce the cost of complying with rules and regulations (1). Subsidies (1) may enable firms to buy more efficient machinery (1) train workers (1) may be able to take advantage of economies of scale (1). Remove tariffs (1) enable firms to get raw materials at lower prices (1). Spending on infrastructure (1) reducing transport costs (1). Up to 5 marks for why they might not: Education and training may not be in the areas in demand (1) may not increase workers’ skills (1) some workers who are educated / trained may emigrate (1). Wages of workers may rise by more than productivity (1) increasing labour costs (1). Privatised firms may become private sector monopolies (1) this will reduce pressure on them to keep costs down (1). Subsidies may be given to reduce unemployment / maintain employment (1) additional workers may be less productive (1) may experience diseconomies (1). There may be corruption (1). 8 Maximum of 5 marks if only one policy measure discussed.

Question 16

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

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

Question 17

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 …

Accepted Answer

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

Question 18

The food items people buy can be influenced by taxes, subsidies and health reports. A report published in 2017 outlined the health benefits…

Accepted Answer

3(a) Identify the difference between a tax and a subsidy. • A tax is a payment to the government (1) whereas a subsidy is a grant from the government (1). • A tax increases costs/prices (1) a subsidy reduces costs/prices (1). • A tax reduces consumption / production (1) a subsidy increases consumption / production (1). • A tax is a cost for people / firms (1) a subsidy is a cost to the government (1). • A tax is placed on demerit goods (1) a subsidy is given to merit goods (1). 2 3(b) Explain two reasons why demand for a product may be price-inelastic. • The product may not have a substitute (1) consumers will not be able to switch to rival products / example (1). • The product may be a necessity (1) people will need to buy it even if price rises / example (1). • The product may take up a small proportion of income (1) people may not notice a price rise / example (1). • The product may be addictive (1) people cannot do without the product / example (1). • The purchase of the product cannot be postponed/there is only a short time period (1) so people do not have time to find alternatives (1). • Advertising changes tastes of consumer (1) making the product a “must have” (1). 4 Question Answer Marks Guidance 3(c) Analyse, using a demand and supply diagram, the effect a report stating that eating tomatoes is good for health will have on the market for tomatoes. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Demand curve shifted to the right (1). Equilibriums – shown by lines or e.g. E1 and E2 (1). Up to 2 marks for written analysis: The report will encourage people to eat more tomatoes (1) rise in demand leads to shortages (1) a rise in price (1) and an increase in output of tomatoes (1). The supply of tomatoes is likely to be relatively inelastic (1) and so an increase in demand will be likely to have more impact on price than quantity (1). Do not reward analysis marks for description of diagram e.g. price changes from P2 to P1 or quantity changes from Q1 to Q2. 6 S Q2 Q1 P1 P2 D1 D2 O quantity of tomatoes price of tomatoes Question Answer Marks Guidance 3(d) Discuss whether or not introducing more capital-intensive production methods will increase a firm’s profits. Up to 5 marks for why it might: • Machines may introduce more advanced technology (1) increases productivity (1) higher output means firm benefits from economies of scale (1) less workers means lower labour costs (1) may reduce average costs / (1) may enable price to be lower (1) revenue will rise (1) if demand is elastic (1). • Better quality products could be produced (1) increasing demand (1). • May increase international competitiveness (1) sell more exports (1). Up to 5 marks for why it might not: • Machines may be expensive (1) workers may not be trained in their use (1) average costs could rise (1) reducing gaps between revenue and cost (1). • Machines may break down (1) consequences of breakdown e.g. interruptions in supply (1). • Initial set-up costs may be high (1) profits are reduced in short-run (1). • A fall in price may cause revenue to fall (1) if demand is inelastic (1). • Consumers may prefer handmade/personalised products (1) demand may fall (1). • Labour may be in large supply (1) resulting in low wages (1). • Government may subsidise firms to employ workers (1) to reduce unemployment (1). 8

Question 19

Angola is an African country without a stock exchange. In contrast, South Africa has the most active stock exchange in Africa. Firms in Sou…

Accepted Answer

5(a) Define saving. • Income (1) not spent / minus spending (1). • Putting money in the bank (1) for future use (1). 2 5(b) Explain two benefits a country can gain from having a stock exchange. • Provides a market for the sale of shares and bonds (1) encourages saving and investment (1). • Makes it easier for firms to grow / source of finance for firms (1) makes people more willing to buy shares / facilitates mergers (1). • Government able to raise funding through bonds (1) to support expenditure in economy (1). • May encourage MNCs to set up in the country (1) which can increase economic growth / exports / employment (1). • May encourage the setting up of other financial institutions (1) creating high- skilled/well-paid jobs (1). 4 5(c) Analyse how firms may be affected by a rise in the rate of interest. • It will increase the cost of borrowing (1) this may discourage firms from investing (1) reducing their growth (1) may put up their prices (1). • Firms may decide to save more (1) as the return will increase (1) the opportunity cost of investment will rise (1). • It may increase the cost of past loans (1) reducing firms’ profits (1). • Demand for consumer goods may fall (1) as consumers will be discouraged from borrowing (1) be encouraged to save (1) so lower demand will reduce firms’ revenue (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not an economy will benefit from its firms getting larger. Up to 5 marks for why it might: • To produce more (1) more workers may be employed (1) which may reduce unemployment (1). • Larger firms may be more price competitive/produce at lower average cost (1) due to economies of scale (1) example (1) this may increase output (1) causing economic growth (1) lower prices (1) it may also increase exports (1) improving the current account position (1). Up to 5 marks for why it might not: • More imported raw materials/capital goods may be purchased (1) worsening the current account position (1). • Larger firms may have more market power (1) may be less efficient (1) may experience diseconomies of scale (1) example (1) average costs may rise (1) cause cost-push inflation (1) reducing exports (1) worsening the current account position (1). 8

Question 20

Mali is a low income and low productivity country in Africa. Its government is using fiscal policy to reduce poverty. The country’s main in…

Accepted Answer

5(a) State two key questions about how resources are allocated. 2 One mark each for two from: What to produce, how to produce it, for whom / who gets what is produced. 5(b) Explain two fiscal policy measures that can be used to reduce poverty. 4 Logical explanation which might include: Rise in government spending on education (1) make it easier for people to gain jobs / better paid jobs (1). Rise in government spending on healthcare (1) providing a basic necessity / increase productivity of workers (1). Subsidise / free provision of food (1) providing a basic necessity / reduce absolute poverty (1). Subsidise / free provision of housing (1) helping those unable to afford housing (1). Increase in state benefits (1) e.g. paying more in unemployment benefit will raise the income of some of the poor (1). Use of progressive taxes / reduction of regressive taxes (1) reduce relative poverty (1). 5(c) Analyse why a country may have low productivity. 6 Coherent analysis which might include: Education may be low (1) and training may be low (1) workers may lack skills (1). Wages may be low (1) working conditions may be poor (1) reducing the motivation of workers (1). There may a lack of investment (1) workers working with out of date/low quality capital goods (1). Healthcare may be low (1) causing workers to be tired (1). 5(d) Discuss whether or not mergers benefit an economy. 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 they might: • may enable the new firm to take greater advantage of economies of scale, lower average cost and lower prices, resulting in lower inflation • may enable the new firm to earn higher profits and spend more on research and development and investment. This could raise the quality of products and increase economic growth • may enable the new firm to compete more effectively internationally which could improve the current account position • a vertical merger can increase the efficiency of production by co- ordinating the production stages. This could increase productive potential. Why they might not: • the new firm may experience diseconomies of scale, higher average cost and higher prices. This may increase the inflation rate • a horizontal merger will reduce competition which can increase prices, reduce choice, lower efficiency and reduce quality. This may reduce international price competitiveness which may harm the country’s current account position. It could also lower the country’s economic growth rate • the new firm may rationalise and this may result in unemployment.

Question 21

There is a high level of division of labour in the United Kingdom (UK) energy industry. Cold weather in early 2018 caused very high demand …

Accepted Answer

5(a) Define market failure. 2 Market failure is when the market mechanism / price mechanism / demand and supply (1) does not lead to an efficient allocation of resources (1). 5(b) Explain two influences, other than weather, that could affect the 4 demand for a product. Logical explanation which might include: Price of substitutes (1) If the price of substitutes increase, demand for the product will increase or vice versa (1). Price of complements (1) If the price of complements increase, demand for the product will decrease or vice versa (1). Expected future prices (1) if the price is expected to increase in the future, demand for the product will increase now or vice versa (1). Advertising (1) if there is a successful advertising campaign, demand will increase (1). Income (1) if income increases, demand will increase for a normal good or vice versa (1). Change in price (1) if price increases, demand will contract, vice versa (1). 5(c) Analyse the possible effects of a shortage of a product such as energy 6 on an economy. Coherent analysis which might include: Low supply (1) high prices (1) increase cost of production for firms (1). Cost- push inflation (1) firms might try to cut cost (1) by firing workers (1) increase unemployment (1). Increase price of goods and services (1) decrease affordability (1) decrease demand for goods and services (1) decrease standards of living (1). More imports to address shortage (1) less production (1) leading to lower growth rate (1). 5(d) Discuss whether or not workers benefit from division of labour. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes use of economic 3–5 information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why it is a benefit: • saves time • increased skills • increased productivity • increased wages Why it is not a benefit: • increased boredom • limited skills • lack of motivation • lack of occupational mobility • overdependence on others

Question 22

(a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. [1] (b) Identify two variable costs of produc…

Accepted Answer

1(a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. 60% (1). 1 Accept 60. 1(b) Identify two variable costs of producing palm oil. • fertilisers • palm oil seeds • casual labour 2 If more than two are given, consider the first two only. Accept ‘labour’, ‘workers’ or ‘wages’ for ‘casual labour’. 1(c) Explain one opportunity cost of conserving forests in Indonesia. Logical explanation which might include: Palm oil not produced / rice not produced / tourism lost as a result of building fewer hotels / lost opportunity to Norwegian government to spend on e.g. education (1) (next) best alternative forgone (1). 2 1(d) Explain two external costs of the destruction of forests in Indonesia. Logical explanation which might include: Loss of wildlife habitats (1) extinction of species / harmful effect on animals not involved in the economic decision (1). Harmful gases/air pollution/pollution (1) unpleasant atmosphere for local residents / illnesses / global warming (1). 4 One mark for each of two costs identified and one mark for each of two explanations. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effect of a ban on burning stubble on the market for rice. Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or by labelling equilibrium points as E1 and E2 (1). 4 For quantity label accept Q, quantity demanded, quantity supplied. Do not reward a completely macro diagram. O S2 P2 Q2 Q1 P1 S1 D1 price of rice quantity of rice Question Answer Marks Guidance 1(f) Analyse the relationship between countries’ GDP per head ranking and HDI ranking. Coherent analysis which might include: Expected relationship: Generally, the higher the GDP per head ranking, the higher the HDI ranking / positive relationship / direct relationship (1). Supporting evidence: The top country, the top two or top three countries with the highest GDP per head ranking have the highest HDI ranking (1) the country, two countries with the lowest GDP per head ranking have the lowest HDI ranking (1). Exception: Cuba or Indonesia (1) supportive data – Cuba has a lower GDP per head ranking than Indonesia but a higher HDI ranking than Indonesia (1). Analysis: It is the expected relationship (1). GDP is a component of HDI / HDI ranking influenced by additional factors – education and/or life expectancy / higher GDP per head enables more to be spent on education and healthcare (1). 5 HDI now includes years of schooling but accept an idea that it includes education - adult literacy rate was included in the old measure. Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Marks Guidance 1(g) Discuss whether or not the immigration of workers would be likely to benefit the Indonesian economy. Up to 4 marks why it might: • may be skilled workers (1) who may be more productive (1) • may be motivated to work harder (1) to improve quality of life (1) • bring in new ideas (1) improving production methods / use advanced technology (1) • may pay taxes (1) enabling the government to spend more (1) • fill vacancies left by Indonesians going to work abroad (1) • increase size of labour force (1) increase productive capacity (1) reduce dependency ratio (1) • may increase exports / total (aggregate) demand (1) may result in economic growth / increase output (1). Up to 4 marks why it might not: • population is already increasing (1) immigration may take it above the optimum level / lead to overpopulation / put pressure on resources (1) • pressure may be put on housing / education / food (1) • may put downward pressure on wages (1) may replace Indonesian workers / cause unemployment (1) lowering living standards (1) • may need training (1) increasing firms’ costs (1) • may increase pollution (1) • may send money home to relatives (1) may have to import more e.g. rice (1) negative impact on the current account of the balance of payments (1). 6 For an answer that examines the effects of migration of workers from Indonesia, a maximum of 2 marks. Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)). Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease … 1 ... because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not the Indonesian tourism industry will increase in the future. Up to 4 marks for why it might: • it is currently price competitive (1) • if the exchange rate continues to fall (1), price of tourism for foreign visitors will fall (1) • it has natural tourist attractions (1) may preserve forests (1) • global economy is growing (1), incomes are rising (1) enabling foreigners to afford more holidays (1) • people coming from abroad to work in high paid jobs may be skilled / highly motivated (1) raise quality of tourism (1). • Indonesian government may subsidise the tourism industry (1) lowering costs of production (1). • the industry may be promoted /advertised (1) • air travel is falling in price (1) air travel is a complement to holidays (1) • foreign investment may be attracted into the industry (1) Up to 4 marks for why it might not: • pollution may discourage visitors (1) worried about health (1) • there are substitutes (1) Indonesia has competition from neighbouring countries (1) • natural areas of beauty may be destroyed (1) by e.g. new palm oil plantations / natural disasters (1) • net emigration (1) may mean there are not enough workers (1). • Covid-19 may continue to reduce tourism (1). 6

Question 23

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 c…

Accepted Answer

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.

Question 24

(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 g…

Accepted Answer

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.

Question 25

In 2018, the US had its lowest unemployment rate for 18 years. Cyclical unemployment was very low and so was the rate of inflation. The US …

Accepted Answer

3(a) Define cyclical unemployment. • Workers without jobs (1) • due to a lack or fall in total (aggregate) demand (1) • more people unemployed than there are job vacancies (1) • in a recession / economic downturn (1). 2 Nothing for a fall in demand for a product. 3(b) Explain two ways a firm could increase the productivity of its workers. Logical explanation which might include: • Raise wages / performance related pay / commissions (1) increase motivation of workers (1). • Provide training (1) increase workers’ skills / efficiency (1). • Division of labour by firm (1) enables greater specialisation (1) • Buy capital goods / invest (1) workers will be working with better equipment (1). • Reduce working hours (1) workers may feel fresher / more alert (1). • Improve working conditions (1) reduce stress (1). • Subsidise workers’ healthcare (1) making them fitter / fewer days lost through illness (1). • Working from home (1) reduce stress from travelling (1). 4 One mark each for each of two ways identified and one mark each for each of two explanations. Question Answer Marks Guidance 3(c) Analyse the advantages of a low rate of inflation. Coherent analysis which might include: • Low inflation means prices are still rising (1) but not a high rate (1). • May stop purchasing power being reduced too much / wages may keep pace with inflation (1). • May increase international price competitiveness (1) as may be below the inflation rate of other countries (1) increasing exports (1) reducing imports (1) improving the current account position (1). • May create greater certainty / stability (1) as costs may not be rising significantly (1) encouraging firms / MNCs to invest (1) increasing output / GDP (1) increasing employment / lowering unemployment (1). • May encourage saving (1) as real value may be maintained (1) provide funds for investment (1). • It may raise profit (1) if demand-pull (1) encouraging firms to expand (1) increasing employment / lowering unemployment (1). • May stop a random redistribution of income (1) protecting savers (1). • Low menu costs (1) reduce pressure on firms’ costs of production (1). 6 ‘Increasing employment / lowering unemployment’ can only be credited once. Question Answer Marks Guidance 3(d) Discuss whether or not a fall in a country’s unemployment rate will reduce poverty in that country. In assessing each answer, use the table opposite. Why it might: • increase the income of those who gain jobs • absolute poverty may be reduced with more people being able to buy basic necessities • tax revenue may rise • the government could spend more on benefits for the poor • the government could spend more on education, reducing future poverty Why it might not: • jobs may be part-time, low-paid, at national minimum wage • jobs may be seasonal • relative poverty may increase if extra jobs are gained by the well-paid • the unemployment rate may fall but unemployment may rise if there are more people in the labour force • may be more retired people living in poverty • sick and disabled people may not be able to get out of poverty • unemployment is only one of a number of factors affecting poverty • absolute poverty may remain 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 3(d) 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 26

(a) Calculate Chile’s agricultural output in 2017. [1] (b) Identify two disadvantages of a country specialising. [2] (c) Explain one reason…

Accepted Answer

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).

Question 27

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

Accepted Answer

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

Question 28

Cyclical unemployment is below the national average in some big cities in Canada such as Toronto, Vancouver, and Montreal. This could be a …

Accepted Answer

3(a) Define structural unemployment. Workers without jobs (1) Unemployment due to a change in the structure of the economy / change in demand and supply conditions / decline of some industries (2) lack of the appropriate skills (1) lack of labour mobility (1). 3(b) Explain two causes of low productivity. Logical explanation which might include: Poor education and training (1) leading to lack of skills / qualifications (1). Poor technology (1) slower or less output per capital / labour input (1). Poor management (1) waste of resources (1). Lack of investment (1) capital older/slower/out-of-date (1). Emigration of skilled workers (1) output of unskilled workers who are left is lower (1). Poor working conditions (1) making it difficult for workers to do their jobs efficiently (1). Low pay (1) which may demotivate workers (1). Long working hours (1) making workers tired (1). 4 One mark for each cause identified and one mark for each explanation. Lack of specialisation is too vague. Question Answer Mark Guidance 3(c) Analyse how higher government spending and tax cuts can lead to a fall in cyclical unemployment. Coherent analysis which might include: Higher spending on e.g. unemployment benefits / education / infrastructure / healthcare (1) could lead to higher demand for goods and services (1) increased demand for goods and services leads to higher revenues/profits for firms (1) increased investments (1) increasing output (1) increased demand for workers to produce the output (1). Tax cuts such as income tax cuts (1) increased disposable income (1) increase consumer expenditure (1) increased demand for goods and services (1) higher revenues/profits for firms (1) increased investments (1) increasing output (1). Tax cuts such as corporation tax cuts (1) increased after tax profits (1) increased investments (1) increasing output (1). Tax cuts such as indirect tax cuts (1) decrease cost of production (1) increased supply / output (1). 6 Maximum of 4 marks for only higher spending OR tax cuts Question Answer Mark Guidance 3(d) Discuss whether or not competition between firms in the same industry is always a disadvantage to workers. In assessing each answer, use the table opposite. Why it might be a disadvantage • more competition between firms means firms try to be more efficient, which could lead to lower job opportunities / greater instability of employment • there may be greater use of short-term employment contracts • more competition between firms could push down the wages of the workers. • more competition between firms could lead to workers being exploited e.g. overtime work, worse working conditions. Why it might be an advantage • more competition between firms would lead to firms training workers to be more productive • increased productivity leads to higher wages • increased productivity could lead to more investments – leading to more demand for workers • more competition between firms could lead to lower prices, which benefits workers who are also consumers • lower prices could lead to more demand, which increases the demand for workers as well • greater efficiency could result in higher revenue some of which may be spent improving working conditions • more competition between firms could lead to them raising wages and / or improving working conditions to attract the best workers • more competition between firms gives more opportunities for workers to switch jobs. 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 Mark Guidance 3(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 29

Some economists criticise high government spending and trade unions for creating market disequilibrium. However, trade unions may also play…

Accepted Answer

5(a) Define market disequilibrium. When quantity demanded does not equal quantity supplied (2). When there are shortages (1) or surpluses (1) of a product. 2 5(b) Explain the difference between labour-intensive and capital- intensive industries Logical explanation which might include: Labour-intensive industries rely more on human labour (1) i.e. workers (1) low-cost labour may be available (1) example of industry (1) Capital-intensive industries rely more on capital (1) i.e. machines (1) capital more efficient / cheaper than labour (1) example of industry 4 5(c) Analyse how trade unions could increase economic development. Coherent analysis which might include: Trade unions could help engage in collective bargaining on wages (1) higher wages (1) leads to higher purchasing power of workers (1). May increase motivation of workers (1) increase output (1). Better working hours (1) improved working conditions (1) protect workers’ rights (1) better health and safety (1) more job security (1) leads to higher standards of living (1) higher life expectancy (1). Increased productivity / efficiency of workers (1) decreases cost of production (1) decrease final price of goods and services produced in the country (1) increase competitiveness (1) higher output / economic growth (1). May help with training (1) raise quality of output (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not high government spending can help a government achieve its macroeconomic aims. In assessing each answer, use the table opposite. Why high government spending can help a government achieve its macroeconomic aims: • economic growth – increase total demand • full employment/low unemployment – increase demand for workers through more government infrastructure projects • government spending on education may raise workers’ skills and so lower unemployment • balance of payments stability – through subsidies for producers • redistribution of income – through spending on social welfare. Why high government spending cannot help a government achieve its macroeconomic aims: • increased total demand could lead to increase demand-pull inflation • too much government spending could lead to less private investments • overreliance of government subsidies could lead to complacency • high spending on social welfare could discourage the unemployed from trying to find jobs • may be accompanied by higher taxes which could be a disincentive to effort and enterprise • may increase budget deficit which could reduce confidence in the economy. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sided of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 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 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

Question 30

A number of countries, including Morocco, capture water from fog. Water is used in the primary, secondary and tertiary sectors. In recent y…

Accepted Answer

2(a) Define a free good. No opportunity cost (1) a good that takes no resources/factors of production to produce / naturally abundant in supply / does not use scarce resources (1). 2(b) Explain, with examples, the difference between the secondary sector and the tertiary sector. Logical explanation which might include: Secondary sector covers manufacturing (and construction) / converts primary products into finished goods (1) e.g. car industry (1). Tertiary sector covers services / final stage of production (1) e.g. insurance (1). 4 For tertiary sector, it is not sufficient to just have the sector which sells products as this is only part of the sector. But for the tertiary sector example accept the sale of a product e.g. the sale of jewellery. Question Answer Marks Guidance 2(c) Analyse, using a production possibility curve (PPC), the effect of an increase in the quality of its resources on an economy. Up to 4 marks for the diagram: Axes correctly labelled with different outputs (1). Initial curve drawn as a curve / line sloping downward to the axes (1). New curve drawn as a curve / line sloping downward to the axes (1). Shift indicated by arrow or letter (1). Up to 2 marks for coherent analysis which might include: Better quality resources will increase productivity (1) enable more of both types of goods to be produced (1) with a given quantity of resources (1) increase productive potential / productive capacity / total supply (1) cause economic growth (1). 6 Nothing for higher output, higher GDP as this is uncertain. Question Answer Marks Guidance 2(d) Discuss whether or not a fall in a country’s birth rate will benefit an economy. In assessing each answer, use the table opposite. Why it might: • reduce the number of dependents • fewer workers away from work to bring up children • enable resources to be used to increase economic growth / raise living standards • reduce pressure on the environment • move towards the optimum population Why it might not: • reduce the size of the labour force in the longer term • reduce labour mobility • create an ageing population • reduce size of markets 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 2(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 31

(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…

Accepted Answer

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

Question 32

Industries and markets are changing in Vietnam. There is greater use of division of labour in a range of industries. Many markets are becom…

Accepted Answer

5(a) Define division of labour. Workers specialising (1) in particular tasks / repeating the same task (1). Breaking down production into different / separate tasks (1) using different workers for the different tasks (1). 5(b) Explain two reasons why a loss-making firm may continue to produce. Logical explanation which might include: May not expect the loss to last (1) may think demand will rise/costs will fall in the future (1). May be subsidised by the government (1) to e.g. promote social welfare/encourage consumption of merit goods/increase exports/respond to dumping by other countries (1). May lower prices to drive out competitors/increase market share (1) raising price when successful (1). May accept losses in short-term (1) in order to expand in long-term (1) May have high retained profits (1) to allow for downturns in demand/cover the losses (1). May be a new firm (1) in the process of growth/trying to survive (1). A firm’s main objective may not be profit maximisation (1) e.g. growing market share/charity/provides public goods (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Reward but do not expect reference to predatory pricing. Question Answer Marks Guidance 5(c) Analyse the advantages that consumers may gain from a competitive market. Coherent analysis which might include: Wide choice of producers (1) producing a similar product (1). Efficiency (1) better quality (1) greater choice of products (1) firms may innovate (1) as firms try to gain a larger share of the market (1). Lower price (1) as firms try to beat competition (1) increasing consumers’ purchasing power/standard of living (1). Raise consumer sovereignty (1) firms may respond quickly to changes in consumer demand (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not an increase in a country’s manufacturing output will increase its economic development. In assessing each answer, use the table opposite. Why it might: • increase products available for households • increase capital goods enabling greater capacity • may raise incomes/profits • create employment • may promote growth of the other two sectors – greater demand for raw materials and greater demand for services e.g. insurance • may mean firms are getting larger – economies of scale, reduced average costs, increased exports • likely to have a higher value added than primary sector • greater stability in income than primary sector Why it might not: • may create pollution/reduce open spaces • jobs may have poor working conditions • employment may not rise if capital-intensive methods are used • opportunity cost/less resources used in primary and/or tertiary sectors • wages may be lower than tertiary sector • may reduce natural resources available for future • goods produced may be of poor quality/inefficiently produced/uncompetitive 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 5(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 33

New Zealand is a small country with a population of 5 million. Most New Zealand firms are relatively small and most do not experience disec…

Accepted Answer

3(a) Define diseconomies of scale. Higher average costs of production (1) as a result of a larger scale of production / growing too large / internal diseconomies of scale affect a firm whereas external diseconomies of scale affect an industry (1). 2 3(b) Explain two reasons why a high-income household may borrow more than a low-income household. Logical explanation which might include: Banks may be more willing to lend to them (1) more confident of being repaid (1). Banks may charge a low interest rate (1) as a high-income household may borrow a larger amount (1). High-income households may be more confident of being able to repay the loan / able to repay the loan quickly (1) may expect income to rise / have greater job security (1). High-income households may have significant wealth / assets (1) able to offer collateral (1). High-income households may borrow for a big-ticket items/luxuries (1) e.g. to buy an expensive house, expensive car, to pay for children’s education / to increase/maintain status / living standards (1). 4 One mark for each of two reasons identified and one mark for each explanation. Note: the focus here is on households not firms. Nothing for just high-income households spend more. Question Answer Marks Guidance 3(c) Analyse, using a diagram, the effect of an increase in output on average fixed cost (AFC) and total fixed cost (TFC). Up to 4 marks for the diagram: Axes correctly labelled: costs and output (1) TFC horizontal line (1). AFC downward sloping (1). Curves correctly labelled: TFC / FC and AFC (1). Up to 2 marks for coherent written analysis which might include: A higher output will have no effect on total fixed cost / fixed costs do not change with output in the short run / fixed costs have to be paid even when output is zero (1). Average fixed cost will fall with output / as the same cost figure is divided by a higher output / AFC is TFC divided by output (1). 6 Do not reward a demand/supply/demand and supply or PPC diagram. Question Answer Marks Guidance 3(d) Discuss whether or not the introduction of a national minimum wage will reduce poverty. In assessing each answer, use the table opposite. Why it might: • low-paid workers may be better paid • higher income may enable people to buy basic necessities • reduce absolute poverty • pay gap between high-income and low-income workers may be reduced, lower relative poverty • higher pay may increase spending, creating more jobs and income • higher tax revenue may enable the government to spend more on reducing poverty • higher wages may increase productivity which could encourage firms to hire more workers. Why it might not: • may be set below current low pay and so have no effect • may result in some workers losing their jobs • unemployed will have lower income • may discourage MNCs operating in the country • does not help people who are poor because of age, unemployment or sickness • may result in inflation, leaving purchasing power/real wages unchanged. 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

Question 34

(a) Calculate the number of births in Cyprus in 2019. [1] (b) Identify two indicators of living standards. [2] (c) State why the global mar…

Accepted Answer

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

Question 35

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

Accepted Answer

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

Question 36

Leading jewellery firms in Qatar and Ukraine have asked their governments to remove trade protection between them to increase trade in jewe…

Accepted Answer

3(a) Identify two internal economies of scale. Purchasing / buying (1) managerial (1) technical (1) financial (1) risk-bearing (1) labour (1) marketing (1) 3(b) Explain two methods of protection in international trade. Logical explanation which might include:  tariffs (1) are taxes on imports / which would increase the price of imports (1)  import quotas (1) are quantitative limitations on imports / reducing supply of imports (1)  subsidies (1) are grants given to domestic producers (1) to reduce price of domestic products and exports / enable them to compete with foreign goods (1)  embargoes / bans (1) are total restrictions on a product from a country / total restrictions on particular products / usually for political / social reason (1) 4 One mark for each of two methods identified and one mark for each explanation. Question Answer Marks Guidance 3(c) Analyse, using a demand and supply diagram, the effects of higher quality products, on the market for jewellery. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1) Original demand and supply curves correctly labelled (1) Demand curve shifts to the right (1) Equilibriums – shown by lines; P1, Q1 and P2, Q2; or equilibrium points E1 and E2 (1). Up to 2 marks for written comments: Higher quality products will encourage more people to buy jewellery (1) price / quantity will be higher (1). 6 Question Answer Marks Guidance 3(d) Discuss, whether or not, protection in international trade benefits an economy. In assessing each answer, use the table opposite. Why it might be a benefit:  reduce imports – reduce current account deficit  helps infant industries grow – increase competitiveness in the future  helps maintain sunset industries – ensures employment  develop specialisation  help strategic industries – such as defence  restrict imports of demerit goods – such as alcohol Why it might not be a benefit:  increase in the price of goods and services – inflation - decreasing purchasing power of consumers  retaliation – difficult to export goods and services to other countries  increase in cost of production if firms require raw materials / semi- manufactured goods from other countries  complacency – low quality domestic goods and services  may cause unemployment e.g. in industries relying on imported products  if PED is less than one it may not be effective  may encourage smuggling 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

Question 37

(a) Calculate the total value of the tertiary sector in Mauritius in 2019. [1] (b) Explain the meaning of a change from an economy based on…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the total value of the tertiary sector in Mauritius in 2019. 1 $ sign not essential. $10.79 billion 1(b) Explain the meaning of a change from an economy based on the 2 Accept any examples of primary sector primary sector to one based on the tertiary sector. industry for 1 mark and any examples of tertiary sector-based industry for 1 mark. When an economy moves from mainly primary industries e.g. agriculture / fishing (1) to mainly tertiary industries e.g. tourism. (1) 1(c) Identify two indicators of improving healthcare in Mauritius. 2 Life expectancy increased (1) and infant mortality rate fallen. (1) 1(d) Explain two reasons why millions of tourists visit Mauritius each year. 4 Coherent analysis which might include: Mauritius has tourist attractions (1) such as its beautiful beaches (1). Easy to travel to Mauritius (1) as the government does not require visa / just need passport (1). Good infrastructure (1) such as good airports / ports and public transport around the island (1). 1(e) Explain two advantages of setting up a firm in Mauritius. 4 Fast growth (1) higher incomes which leads to higher consumption of good and services (1). Political stability (1) which reduces risk / increases confidence (1). Low levels of regulations to start and run a business (1) lower cost of start up / easier to register for a business (1). Better infrastructure (1) more efficient / lower cost of production (1). 1(f) Analyse the relationship between the percentage of international trade 5 to GDP and GDP per head. Coherent analysis which might include: Overview Generally, as percentage of international trade to GDP increases, GDP per head is increasing as well / positive relationship between percentage of international trade to GDP and GDP per head (1). Supporting Evidence Kenya has the lowest percentage of international trade to GDP and lowest GDP per head (1) while Luxembourg has the highest percentage of international trade to GDP and highest GDP per head (1). Exception Mauritius (1) where percentage of international trade to GDP is higher than Qatar but GDP per head is lower (1). Comments This is because trade brings gains from specialisation / enables exploitation of economies of scale (1) increases earnings from exports / total demand / economic growth (1) 1(g) Discuss whether or not outward investment might benefit a Mauritian 6 Apply this example to all questions with firm. the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might be beneficial, which might include: Each point may be credited only once, on • Enables firms to enter new markets (1) increase export (1) increase either side of an argument, but separate revenues (1) achieve economies of scale (1) e.g. of economies of scale development as to how/why the outcome (1) increase output (1) increase profits (1). may differ is rewarded. • Import products at a lower cost (1) lower cost of production (1). • Increase access to foreign technology (1) better quality / higher Generic example mark productivity (1) decrease average cost (1). Tax revenue may decreases 1 Award up to 4 marks for logical reasons why it might not be beneficial, which might include: because of reason e.g. incomes 1 • Capital aboard might not be reinvested back (1) to help the firm in the may be lower. home country (1) lower firm’s potential productivity (1) decrease profits (1). Tax revenue may increase 0 • Changes in international economy may affect potential earnings (1) because incomes may be higher recession in another country will affect export earnings (1) may create i.e. reverse of a previous recession domestically as well (1) decrease output (1). argument. • Other countries might impose restrictions on Mauritian investment (1) or Mauritian government could impose restrictions on outward investment Tax revenue may increase 1 (1) cost might be higher (1). 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(h) Discuss whether or not government infrastructure spending benefits 6 the Mauritian economy. Award up to 4 marks for logical reasons why it might be beneficial, which might include: • Increase efficiency / productivity (1) decrease cost of production for firms (1) increase profits (1) increase investment (1) increase output (1). • Decrease factor immobility (1) decrease market failure (1) easier for workers to move from one place to another in the economy (1) decrease structural unemployment (1). • Increase government spending (1) increase total demand (1) increase output (1) economic growth (1). • Increase job opportunities (1) decrease unemployment (1). Award up to 4 marks how why it might not be beneficial, which might include: • Increase total demand (1) could lead to increase demand-pull (1) inflation (1). • Cost of providing infrastructure is very high (1) opportunity cost of the government (1) cannot spend on other projects such as education and healthcare (1) which may be more beneficial than infrastructure spending (1). • Infrastructure such as big new international airports not really needed (1) domestic demand too low (1) white elephant projects (1). • Benefits foreign firms more than the local community (1).

Question 38

Washington State is the state which grows the most apples in the US. In 2019, apple production increased in Washington State but the market…

Accepted Answer

2(a) Define market disequilibrium. 2 A market where demand and supply are not equal / balanced / matched (2). A market where there is a surplus / excess supply (1) or a shortage / excess demand (1). 2(b) Explain opportunity cost and how it can influence a 4 farmer’s decision to grow apples. Logical explanation which might include: Opportunity cost is the (next) best alternative / choice / option (1) sacrificed / forgone / given up (1). A farmer could grow another crop (1) size of opportunity cost / choice made is influenced by revenue / cost / profit / resources available / weather (1). 2(c) Analyse how labour-intensive production can benefit an 6 This is a static analysis so do not reward answers that write economy. about higher government revenue and expenditure and rise in total demand and economic growth. Coherent analysis which might include: Labour-intensive production uses a high proportion of labour (1) it may increase employment (1) lower unemployment (1) raise incomes (1) raise standard of living / reduce poverty (1). The country may have a large supply of labour (1) the labour force may be relatively unskilled (1) which is cheap to employ / cheaper than using capital (1) saving money for firms (1) more flexible than capital in adjusting supply (1) less pollution / more environmentally friendly (1). Labour-intensive production may provide individually made products / handcrafted / higher quality (1) raise skills level of workforce (1) may be in high demand internationally (1) increase exports / reduce deficit on current account balance (1). 2(d) Discuss whether or not consumers benefit from a 8 Level Description Marks competitive market. 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 they might: economic information and clear and • give consumers some power logical analysis to evaluate economic • may lower prices issues and situations. One side of the argument may have more depth than • may raise quality the other, but overall both sided of the • increase choice argument are considered and • goods and service may be readily available. developed. There is thoughtful evaluation of economic concepts, Why they might not: terminology, information and/or data • firms may be too small to take advantage of economies appropriate to the question. The of scale discussion may also point out the • firms may not have much profit to invest in research possible uncertainties of alternative and development decisions and outcomes. • there may be wasteful duplication • there may be wasteful expenditure on advertising 2 A reasoned discussion which makes 3–5 • there may a reduction in quality because of cost-cutting use of economic information and clear • there may be too much choice, taking time to make analysis to evaluate economic issues and situations. The answer may lack decisions some depth and development may be • consumers may benefit more from monopoly where one-sided. There is relevant use of economies of scale result in lower prices than in a economic concepts, terminology, competitive market 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. 2(d) This is a discussion of a market not of an economic system so public goods and merit goods are not relevant.

Question 39

In 2019, India became the world’s largest producer of sugar. Sugar cane is grown in the country by a large number of mainly low‑income farm…

Accepted Answer

3(a) Define a minimum price. 2 A price set by e.g. government (1) above the equilibrium price (1). A price floor (1) to encourage higher supply (1) will result in a surplus (1). 3(b) Explain two advantages of capital-intensive 4 One mark each for each of two advantages identified and one production. mark each for each of two explanations. Logical explanation which might include: If more than two advantages are given, consider the first three. Lower costs of production (1) can produce on a large scale / may result in lower prices / higher profits (1). Raise productivity / efficiency (1) higher output / can Accepting lower costs of production as overall lower costs. produce faster (1). Nothing for lower labour costs. Quality may increase / consistency of quality may be greater (1) may increase demand (1). Absence of human error (1) less wastage (1). Capital goods can work long hours (1) need few breaks / no need for holidays (1). Capital goods will not take industrial action (1) will not disrupt production (1). Can eliminate boring / repetitive / physically demanding tasks (1) increase workers’ job satisfaction (1). 3(c) Analyse why low-income farmers are likely to have 6 low living standards. Coherent analysis which might include: May be unable to afford basic necessities / may spend a high proportion of income on basic necessities / low purchasing power / low ability to consume goods and services (1). Unable to save much (1) banks reluctant to lend to them (1) examples of items they may need to borrow to buy which could improve their quality of life (1). Unable to afford good quality housing (1) which can result in poor health / overcrowding (1). Unable to afford good health care (1) good nutrition / food (1) more likely to become ill (1) lower life expectancy (1). Unable to afford good education (1) reduce range of interests (1). Unable to buy good capital equipment for farms (1) making work hard (1). May have to reinvest into their farms giving them less to spend (1). May experience poor working conditions / physically demanding work (1) long hours (1) reducing health (1) Live in rural areas (1) which may lack infrastructure (1). 3(d) Discuss whether or not a government subsidy on 8 Level Description Marks the export of sugar will help it achieve its macroeconomic aims. 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 • lower price of exports and increase their supply situations. One side of the argument may • increase export revenue and improve the current have more depth than the other, but account balance overall, both sides of the argument are • higher output of sugar can contribute to economic considered and developed. There is growth thoughtful evaluation of economic • more people may be employed in growing sugar concepts, terminology, information and / and processing sugar cane or data appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative • other countries’ sugar may still be cheaper decisions and outcomes. • may make farmers and mill owners lazy 2 A reasoned discussion which makes use 3–5 • sugar sellers may not lower their prices of economic information and clear • demand for sugar may be price-inelastic analysis to evaluate economic issues • introduction of capital equipment may lower and situations. The answer may lack employment some depth and development may be • other countries may retaliate against the subsidy one-sided. There is relevant use of and so current account position may not be economic concepts, terminology, improved information and data appropriate to the • higher exports may increase total demand question. resulting in inflation • opportunity cost – e.g. spending on education 1 There is a simple attempt at using 1–2 which may be more effective. economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Question 40

Safiye Ali became the first female doctor in Turkey in 1923. By 2020, 40% of Turkish doctors were women. Over this period, labour productiv…

Accepted Answer

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.

Question 41

(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 …

Accepted Answer

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

Question 42

(a) Calculate what percentage of Honduran people did not have access to electricity in 2020. [1] (b) Identify two benefits the Honduran eco…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate what percentage of Honduran people did not 1 Accept 8.0 or 8.3. have access to electricity in 2020. 8.3%. 1(b) Identify two benefits the Honduran economy could gain 2 If more than two benefits are given, consider the first three. from a growth in the US economy. Accept increase trade for more exports. Sell more exports to the US (1). Receive more money from Honduran workers in the US (1). Accept increase employment / lower unemployment for More job opportunities for Honduran workers in the US (1). more job opportunities. 1(c) Explain one advantage of an economy specialising. 2 One mark for an advantage identified and one mark an explanation. Gain skills (1) raise productivity / raise efficiency / ‘practice Identification mark must come directly from the source makes perfect’ / lower costs of production / raise quality / material. increase output / supply / less waste (1). A relevant explanation mark can be given even in the Gain a good reputation (1) increase demand (1). absence of an identification. 1(d) Explain two ways a government could redistribute 4 One mark each for each of two ways identified and one income. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Provision of unemployment benefit / state benefit / welfare benefit / benefits (1) raise income of those on low or no One mark for taxing the rich and giving to the poor. income / enable the unemployed to buy basic necessities / reduce absolute poverty (1). Progressive income tax system (1) takes a higher proportion of the income of the rich / use some of tax revenue raised to increase spending to help those on low incomes (1). 1(e) Draw a demand and supply diagram to show how a 4 report stating that bananas are good for health would affect the market for bananas. Coherent analysis which might include: 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 right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). If a candidate draws two diagrams, they may be able to get 3 marks: 1 mark for axes 1 mark for D & S labelled correctly 1 mark for the demand curve shifted to the right. They would not get the mark for the equilibriums as the two diagrams are likely to conflict on this. 1(f) Analyse the relationship between the percentage of 5 Responses do not have to be in the format suggested but population living in poverty and life expectancy. 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: Inverse / negative (1) the higher the level of poverty, the lower the life expectancy / the lower the level of poverty, the higher the life expectancy (1). Supporting evidence: Sweden has the lowest % of population living in poverty and the highest life expectancy / The country / two countries / three countries / four countries with the lowest levels of poverty head had the longest life expectancy (1) the two countries, Chad and South Sudan, with the highest level of poverty had the lowest life expectancy (1). Analysis of expected relationship: A high level of poverty is likely to mean poor healthcare (1) low nutrition / poor housing / poor sanitation / low levels of education (1). Exception: Chad / South Sudan (1) Chad had a lower level of poverty but also a lower level of life expectancy than South Sudan (1) Analysis of exception: Life expectancy is determined by other influences e.g. wars (1). 1(g) Discuss whether or not the cost of producing clothes in 6 Allow higher productivity / efficiency once either in Honduras will fall in the future. connection with labour or capital. Some points may be given in reverse e.g. price of raw Award up to 4 marks for logical reasons why it might, which materials may fall. may include: Not accepting subsidising the clothes industry as the source • more training (1) better working conditions (1) may material indicates that it is a successful industry. increase labour productivity / efficiency / skills (1) reduce labour costs (1) Apply this example to all questions with the command • more use of capital goods (1) may reduce disruption to word DISCUSS production / make fewer mistakes / less waste (1) speed (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) up production / increase productivity / efficiency (1) • improved working conditions (1) may reduce industrial Each point may be credited only once, on either side of an action (1) more motivation (1) argument, but separate development as to how/why the • successful clothes industry so firms may grow in size (1) outcome may differ is rewarded. more able to take advantage of economies of scale (1). Generic example Mark Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may decrease… 1 • price of raw materials may rise (1) may be subject to bad weather (1) exchange rate may fall / tariffs may be ...because of reason e.g. incomes 1 imposed on imported raw materials (1) reduce supply may be lower. (1) country has experience of inflation (1) • unemployment may fall (1) making it more difficult for Tax revenue may increase 0 the clothes industry to recruit labour (1) strengthening because incomes may be higher the bargaining power of workers (1) raising wages / i.e. reverse of a previous increasing labour costs (1) argument. • providing training (1) and better working conditions will involve a cost (1) Tax revenue may increase 1 • more use of capital goods may involve initial high because of a different reason i.e. not the reverse of a previous spending on equipment (1) firms may experience argument e.g. government diseconomies of scale (1) • higher indirect tax / tax may be imposed (on clothes / spending on subsidies may stimulate the economy more than clothes firms) (1). spending on education. 1(h) Discuss whether or not a fall in unemployment in 6 Honduras is likely to cause inflation. Award up to 4 marks for logical reasons why it might, which may include: • unemployment is already low (1) may move towards full employment (1) may push up wages (1) increase (average) costs (1) cause cost-push inflation / total supply less than total demand (1) • lower unemployment may increase incomes (1) causing a rise in consumer spending / purchasing power (1) increasing total demand (1) causing demand-pull inflation / total demand higher than total supply (1). • inflation already exists (1) which may lead workers to expect it to continue (1) increasing wage claims (1). Award up to 4 marks for logical reasons why it might not, which may include: • may be higher investment (1) could increase total supply / total supply may rise in line with total demand (1) reducing cost-push inflation (1) • lower unemployment could reduce spending on unemployment benefit (1) increase tax revenue (1) reduce the budget deficit (1) reduce the growth in total demand (1) some of higher tax revenue could be spent on supply-side policy / unemployment may have fallen due to supply-side policy (1) • the extra income may be saved / spent on imports (1) due to uncertainty about the future (1) • A fall in unemployment does not necessarily mean a rise in employment (1) the unemployed could have e.g. retired / emigrated (1).

Question 43

Healthcare is in the tertiary sector. Healthcare provides both private and external benefits. In 2019, there were five mergers between larg…

Accepted Answer

4(a) Define tertiary sector using an example apart from healthcare. The sector covering the provision of services (1). Example e.g. banking / car showroom / coffee shop / education (1). 4(b) Explain the difference between a private benefit and an external benefit of healthcare. Logical explanation which might include: A private benefit is enjoyed by the person consuming the product (1) e.g. a person may enjoy better health / longer life expectancy (1). OR A provider of healthcare e.g. hospital (1) and revenue / profits made (1). An external benefit is a benefit enjoyed by a third party / someone not directly involved in the consumption or production of the product (1) e.g. less risk of catching a virus when other people are vaccinated / higher output (1). 4 Question Answer Mark Guidance 4(c) Analyse why a government may prevent a horizontal merger. Coherent analysis which might include: A horizontal merger is a merger between two firms in the same industry and same stage of production (1). A government may prevent a merger if it thinks it will give the new firm monopoly power (1) and result in market failure (1). Less competition may result in higher prices (1) lower quality (1) there may be a substantial loss of jobs (1) through rationalisation (1). A government may be concerned that the new firm may be too large (1) may experience diseconomies of scale (1) example (1) may become less internationally competitive (1) lower exports (1). A government may want to avoid a reduction the number of suppliers (1) resulting in less choice for consumers / less innovation (1). 6 Note: need both same industry and same stage of production to get the mark for horizontal merger. Question Answer Mark Guidance 4(d) Discuss whether or not a foreign multinational company (MNC) will continue to produce in a host country for many years. In assessing each answer, use the table opposite. Why it might:  may earn a high revenue / profit due to high demand  may experience low costs due to low wages / low raw material costs in the country  may have access to high quality labour due to good education and training in the country  may be subsidised by the host country’s government. Why it might not:  natural resources it was extracting may run out  tax in the host country may increase  a rise in the host country’s foreign exchange rate may increase the price of its exports  there may be industrial action undertaken by trade unions in the host country  more profitable opportunities may occur in other countries  may be changes in regulations. 8 See Guidance table at the end of the mark scheme.

Question 44

Tajikistan is one of Asia’s low-income countries. Its currency, the somoni, has the key characteristics of money. More than one million Taj…

Accepted Answer

4(a) Identify two reasons why tax revenue is likely to fall during a recession. Two from:  lower spending / lower demand  lower incomes / lower wages / higher unemployment / lower employment  lower profits  lower tax rates  lower imports  fewer tax payers  lower output  lower revenue 2 If more than 2 reasons are given, consider the first 3. 4(b) Explain two characteristics of money. Logical explanation which might include: Generally acceptable (1) people willing to accept it as a payment / reward / in settlement of a debt (1). Portable (1) easy to carry (1). Recognisable (1) easy to see it is the country’s currency (1). Durable (1) will last some time / can be saved (1). Limited in supply (1) so maintains value (1). Divisible (1) there should be units of different value (1). Homogeneous / uniform (1) people not preferring e.g. one note of a certain value other another note of the same value (1). 4 One mark each for each of two characteristics identified and one mark for each of two explanations. If more than 2 characteristics are given, consider the first 3. Accepting ‘breakable’ for ‘divisible’. Explanation marks e.g. maintain value or accept as a payment can be given without identification up to a maximum of 2 marks. Question Answer Marks Guidance 4(c) Analyse the advantages an economy may gain from having some of its people working in other countries. Coherent analysis which might include: The workers may send money home to (support) their families staying at home (1) reduce poverty / raise living standards (1). Will improve the current account position of the balance of payments / bring in foreign currency (1) secondary income (1). The workers may receive training (1) gain skills (1) ideas / knowledge / awareness of new technology (1) experience (1) higher productivity / efficiency (1) which they can bring back to the country (1) increase quality of output (1). Start their own firms in the country when they return (1) increase output / economic growth / increase GDP (1). May reduce unemployment (1) if lack of jobs at home (1) and so may reduce government spending on unemployment benefits / may reduce government spending on dependents (1). 6 No marks for general benefits of emigration. Question Answer Marks Guidance 4(d) Discuss whether or not consumers would benefit from firms buying new capital equipment. In assessing each answer, use the table opposite. Why they might:  may embody new technology  more innovation / new products  may increase efficiency / lower costs of production  may lower prices  may reduce mistakes  increase quality of output  may increase output and so availability. Why they might not:  may raise prices in the short run to cover the cost of the purchase  may reduce quality / output in the short run as workers get used to the new capital equipment  firms may switch from producing consumer to capital goods  products may become more standardised. 8 Focus should be on consumers and not workers. 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

Question 45

Approximately 95% of students in Macao, a special administrative region of China, attend a private school. Internationally, competition for…

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3(a) Define privatisation. 2 Privatisation is the sale / transfer of assets (1) from the public sector (1) to the private sector (1). 3(b) Explain how technological innovation can benefit firms. 4 One mark for each identification and one mark for each relevant explanation. Logical explanation which might include: • technological innovation can lead to new / better technology (1) increasing efficiency / productivity (1) • higher levels of output (1) economies of scale / reducing average cost (1) leading to lower prices (1) attracting consumers (1) leading to higher profits (1) • improved / faster capital equipment / IT systems / software (1) producing better quality products (1) • more capital-intensive firms (1) reduced labour costs (1) reduced errors (1). 3(c) Analyse the effects of increased competition amongst 6 Accept lower quality (1) due to firms reducing costs (1) firms. Coherent analysis which might include: • lower price (1) as firms try to attract more consumers (1) this will benefit consumers (1) but could cause firms to close down (1) • improved quality / innovation (1) such as longer-lasting products / products that provide more satisfaction to consumers / products that consumers want to buy (1) • increased choice (1) consumers can to choose between different firms for products (1) • reduced profits for firms (1) costs may increase because of the need to improve quality (1) each firm will have fewer consumers since demand will be distributed between more firms (1). • firms may need to spend more on advertising / marketing (1) increasing costs (1) this may cause external costs e.g. pollution (1) but may provide better information to consumers (1). 3(d) Discuss whether or not improving education can help a 8 Level Description Marks government achieve its macroeconomic aims. 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 • a more skilled / productive workforce attracts more clear and logical analysis to investments leading to higher total demand and evaluate economic issues and economic growth situations. One side of the • improved education can make finding work easier and argument may have more depth may lead to full employment / lower unemployment than the other, but overall both • high productivity could lead to lower average cost of sides of the argument are production leading to more stable prices / low inflation considered and developed. There • higher level of exports leads to more balance of is thoughtful evaluation of payments stability economic concepts, terminology, • education could give everyone the chance to get a well- information and / or data paid job leading to a more equal redistribution of appropriate to the question. The income. discussion may also point out the possible uncertainties of Why it might not: alternative decisions and • improving education requires increased government outcomes. expenditure leading to higher total demand and may cause inflation • improved education in the country could lead to emigration of skilled workers, causing lower economic growth • there might not be enough jobs for those highly qualified leading to increase unemployment amongst graduates / underemployment • better education might only be accessible to those on higher incomes, therefore increasing inequality in income distribution 3(d) • a better educated workforce may demand higher wages 2 A reasoned discussion which 3–5 causing increase costs of production, decreasing price makes use of economic competitiveness, worsening the current account of the information and clear analysis to balance of payments evaluate economic issues and • the gains from improved education are long term, not situations. The answer may lack short term. 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.

Question 46

The central bank of Madagascar intervenes in the country’s foreign exchange market. However, Madagascar has a largely market economic syste…

Accepted Answer

3(a) Define foreign exchange market. 2 An arrangement / place (1) where different countries’ currencies are bought/demanded (1) and sold/supplied (1) one currency is exchanged for another currency (1). 3(b) Explain two reasons why a firm may adopt labour- 4 One mark each for each of two reasons identified and one intensive production. mark for each of two explanations. Logical explanation which might include: • Labour may be low in price / wages may be low (1) which might make labour cheaper than capital / there may be a high supply of labour (1). • Labour may be very productive / efficient (1) which can make employment profitable / result in low costs of production (1). • The government may subsidise the employment of workers (1) to reduce unemployment (1). • The firm may provide personal services (1) with individual attention (1). • Labour may be more creative / adaptable / provide feedback (1) produce high quality products / improve methods of production (1) • Labour may be unskilled / low level of education (1) unable to use high-tech capital equipment (1). 3(c) Analyse how the macroeconomic aims of economic 6 growth and balance of payments stability may conflict. Coherent analysis which might include: Economic growth may increase employment (1) increase wages / incomes / purchasing power (1) this may increase imports (1). Higher consumer spending (1) may encourage firms to switch products to the domestic market (1) reduce exports (1) increase / cause a current account deficit (1). To produce more goods and services, firms may import more raw materials (1) capital goods (1). Economic growth may result in inflation (1) which would make domestic products less price competitive (1). Economic growth may deplete resources (1) increase need for imports (1). Economic growth may be export-led (1) may be achieved by restricting imports (1) result in a current account surplus (1). Migrant workers may send more money home (1). Export-led growth may increase the exchange rate (1) which may increase imports / reduce exports (1). 3(d) Discuss whether or not a high level of poverty is likely 8 Level Description Marks to exist in a market economic system. 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 be unemployment logical analysis to evaluate economic • lack of welfare benefits issues and situations. One side of the argument may have more depth than • likely to be income inequality the other, but overall both sides of the • merit goods including healthcare and education may be argument are considered and under-consumed and so underproduced developed. There is thoughtful • monopolies may develop resulting in higher prices. evaluation of economic concepts, terminology, information and/or data Why it might not: appropriate to the question. The • competition / profit motive may result in low prices discussion may also point out the • efficiency is encouraged which can result in high wages possible uncertainties of alternative and high employment decisions and outcomes. • greater response to changes in consumer demand, may increase economic growth 2 A reasoned discussion which makes 3–5 • countries with efficient private sector firms may have use of economic information and clear relative poverty but low absolute poverty. 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.

Question 47

In 2022, Paraguay’s production possibility curve (PPC) shifted to the right. Paraguay has a mixed economic system. Its government provides …

Accepted Answer

3(a) Identify what is measured on the axes of a production 2 Two types of products may be shown on the axes on a PPC possibility curve. diagram for two marks. (Output of) two types of product (2). If more than two items are given, consider the first three. Output (1) one type of product (1) another type of product (1). 3(b) Explain, with an example of each, the difference 4 One mark for an explanation of a merit good and one mark between a merit good and a public good. for an example of a merit good. One mark for an explanation of a public good and one mark Logical explanation which might include: for an example of a public good. A merit good is under-consumed / underproduced / Accept but do not expect reference to non-rejectable / zero consumers do not appreciate its full value / has external cost of producing an extra unit for a public good. benefits / can be produced by the private sector / can be produced by the private sector and the public sector / is a Allow public park. private good / is rival and excludable (1) e.g. education / healthcare / fruit (1). No mark for roads unless qualified by e.g. uncrowded roads A public good would not be produced by the private sector / with many entry and exit points. is (usually) supplied / produced by the government / funded by the government (1) non-excludable / non-rival (1) e.g. street lighting / defence / flood control (1). 3(c) Analyse how division of labour can benefit firms. 6 Coherent analysis which might include: • Workers can specialise (1) in what they are best at producing (1) save time / speed up production (1) reduce waste (1) reduce mistakes (1) increase productivity /skill / efficiency (1) increase output / supply (1) lower (average) cost (1). • Increase quality (1) lower prices (1) raise demand / increase sales (1) increase revenue (1) increase profits (1). • Make it easier to mechanise production (1) reduce labour required (1). • Reduce training / training costs (1) as reduce tasks undertaken / division of labour involves breaking production down into different tasks (1). 3(d) Discuss whether or not consumers would benefit from 8 Level Description Marks only one firm producing shampoo. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why they might: information and clear and logical • one firm may be able to benefit from economies of scale analysis to evaluate economic issues • lower average cost may lead to lower prices and situations. One side of the argument • firm may spend a large amount on research and may have more depth than the other, but development due to high profits and security overall both sides of the argument are • quality of product may be high considered and developed. There is • less time / less effort choosing shampoo. thoughtful evaluation of economic concepts, terminology, information Why they might not: and/or data appropriate to the question. • lack of competition may drive up prices The discussion may also point out the • lack of choice possible uncertainties of alternative • if quality is poor, cannot switch to substitutes decisions and outcomes. • firm may experience diseconomies of scale. 2 A reasoned discussion which makes use 3–5 of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Question 48

Japan has faced significant periods of deflation in recent decades. Despite efforts to stimulate the economy through fiscal policy measures…

Accepted Answer

3(a) Identify two fiscal policy measures. 2 If more than two measures are given, consider the first three. • government spending (1) • taxation (1) Accept two types of spending, or two types of taxes. Allow contractionary (1) expansionary (1) measures. 3(b) Explain two influences on productivity. 4 One mark each for two influences identified and one mark each for two explanations. Logical explanation which might include the following. If more than two influences are given, consider the first Quality of factors of production (1) better quality improves three. efficiency / poor quality reduces efficiency (1). Working conditions / wages (1) influencing worker motivation (1) technology (1) machine speed / effects on capital productivity (1) education (1) skilled workers / effects on labour productivity (1). Healthcare (1) healthier workers capable of producing higher output / sick workers take time off work (1). Effectiveness of institutions (1) amount of bureaucracy affects efficiency (1) use of resources (1) whether wasted or used efficiently (1). 3(c) Analyse reasons why central banks are important for an 6 economy. Coherent analysis which might include: • control inflation (1) by implementing monetary policy (1) such as changes in interest rates (1) prevent prices from rising too much (1) prevents deterioration of purchasing power / affordability of goods and services (1) prevent deflation (1) • maintain financial stability (1) monitoring health of banks (1) preventing collapse of banks (1) assuring savings are protected (1) ensuring consumers have access to credit (1) ensuring liquidity of the economy (1) • provision of economic information (1) which can help decision-makers (1) • buying / selling currency (1) to influence exchange rates (1) • lenders of last resort (1) providing liquidity to commercial banks (1). 3(d) Discuss whether or not deflation is a problem for an 8 economy. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 accurately examines both sides of Why it might be a problem: the economic argument, making use of economic information and clear • decreases confidence in the economy and logical analysis to evaluate • deflationary cycle economic issues and situations. One • loss of jobs side of the argument may have more • delays in spending reduce demand depth than the other, but overall, • lower profits for firms from lower prices. 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 3–5 use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3(d) Why it might not be a problem: Level Description Marks • decreases prices, increasing affordability for consumers 1 There is a simple attempt at using 1–2 • if it is caused by decreases in cost, problems for the economic definitions and economy are less significant terminology. Some reference may be • increase in international competitiveness made to economic theory, with • it depends on the extent and duration of the deflation. occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

Question 49

Some markets in Belgium are in equilibrium. The country produces a wide range of goods and services with different degrees of price elastic…

Accepted Answer

2(a) Define market equilibrium. 2 Demand equalling supply (2). No shortage (1) no surplus (1). Balance of demand and supply (2). 2(b) Explain two ways an economy could reach a point 4 One mark each for two ways identified and one mark each outside its current PPC. for two explanations. Logical explanation which might include the following. If more than two reasons are given, consider the first three. • Increase investment (1) devoting more resources to capital goods (1). • Encourage immigration (1) increase size of the labour force (1). • Land reclamation (1) creating more land on which to e.g. grow crops (1). • Increase in education and training (1) raise quality / efficiency / productivity of labour (1). • Increase spending on research and development / new technology (1) increase quality / efficiency / productivity of capital (1). • Discovery of sources of resources (1) example/enables extra output to be produced (1). 2(c) Analyse how price elasticity of demand can influence a 6 Reward, but do not expect: firm’s pricing decisions. Facilitate price discrimination (1) charging higher prices in Coherent analysis which might include the following. markets with inelastic demand (1) valid example, e.g. higher rail fares at peak times (1). Price elasticity of demand is a measure of the responsiveness of demand to a change in price (1). If demand is elastic, a rise in price will cause a greater percentage change in demand (1) may indicate the firm’s product has close substitutes / is not a necessity / takes a significant proportion of consumers’ incomes (1) may encourage firms to lower price (1) raise revenue (1). If demand is inelastic, a rise in price will cause a smaller percentage change in demand (1) may indicate the firm’s product has few substitutes / is a necessity / takes a small proportion of consumers’ incomes (1) may encourage firms to raise prices (1) revenue would increase (1). 2(d) Discuss whether or not firms benefit from their workers 8 Level Description Marks undertaking training. 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 • may increase productivity analysis to evaluate economic issues • may enable workers to work with more advanced and situations. One side of the technology argument may have more depth than • may lower costs of production the other, but overall, both sides of the • may be able to fill promoted posts argument are considered and • reduce waste developed. There is thoughtful • raise quality of output evaluation of economic concepts, • training may be provided by the government at no direct terminology, information and/or data cost for firms. appropriate to the question. The • increase workers motivation, reducing labour turnover discussion may also point out the • increase flexibility to cover absences. possible uncertainties of alternative decisions and outcomes. Why they might not: • if the firms provide the training, increase costs / 2 A reasoned discussion which makes 3–5 use of economic information and clear opportunity cost • output may fall while workers are being trained analysis to evaluate economic issues and situations. The answer may lack • training may not be successful some depth and development may be • trained workers may demand higher wages one-sided. There is relevant use of • trained workers may leave to work for other firms – economic concepts, terminology, other firms will gain the benefits of the training. 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 0 no creditable content.

Question 50

In April 2023, a French cosmetics firm merged with an Australian cosmetics firm. It is expected the merger will lower average total cost as…

Accepted Answer

3(a) Define average total cost. 2 Total cost divided by output (2). Cost per unit (1). 3(b) Explain how using renewable raw materials may affect a 4 A simple statement that profits rise or fall with no relevant firm’s profits. explanation is 0 marks. Logical explanation which might include the following. Profits rising and profits falling can both be credited if each is explained. • Using renewable resources may be more expensive (1) increase costs of production (1) reduce profits (1). • Can advertise that renewable resources which create less pollution / improve environmental sustainability are being used (1) increase image of the firm (1) raise demand (1) increase profits (1). • Using renewable resources may be subsidised (1). May become cheaper to use renewable resources in the long run (1). • Resources will not be depleted / firms have a constant supply of raw materials (1) raise profits (1). 3(c) Analyse the internal economies of scale that a 6 Maximum of 3 marks for a list of different types of internal cosmetics firm could experience. economies of scale with no development / explanation. Coherent analysis which might include the following. • Buying / purchasing economies (1) buy ingredients in bulk at a discount (1). • Labour economies (1) workers specialising e.g. designing the packaging (1). • Managerial economies (1) e.g. specialist human resource manager (1). • Technical economies (1) advanced technology could be used to produce perfume (1). • Financial economies (1) the firm finding it cheaper / easier to borrow from banks (1). • Research and development economies (1) develop new perfumes (1). • Selling / marketing economies (1) lower average advertising costs (1). • Risk-bearing economies (1) selling perfume in more markets (1). 3(d) Discuss whether or not perfume should be taxed at a 8 Level Description Marks higher rate than food. 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: information and clear and logical • perfume is a luxury whereas food is a necessity analysis to evaluate economic issues • rich spend more on perfume than the poor and situations. One side of the • taxing food more may increase poverty as poor spend a argument may have more depth than high proportion of their income on food the other, but overall, both sides of the • perfume is less likely than food to be a merit good argument are considered and • a higher price for perfume will not significantly contribute developed. There is thoughtful to inflation, not a significant item in CPI evaluation of economic concepts, • perfume may be imported while food may be supplied terminology, information and/or data by domestic firms. appropriate to the question. The discussion may also point out the Why it should not: possible uncertainties of alternative • demand for perfume may be elastic and so may not decisions and outcomes. raise much revenue. In contrast, inelastic demand for food so may raise high tax revenue 2 A reasoned discussion which makes 3–5 • perfume may be an important domestic industry. Higher use of economic information and clear taxes may result in closure / unemployment analysis to evaluate economic issues • some food is a demerit good e.g. food with a high sugar and situations. The answer may lack content some depth and development may be • taxing demerit food may improve health one-sided. There is relevant use of • taxing food may reduce obesity. economic concepts, terminology, information and data appropriate to the question. 3(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

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Questions19 pages

Mark scheme50 answers

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