The role of government — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

One way in which governments seek to reduce market failure is to introduce regulation. Governments also produce some goods and services by …

Accepted Answer

7(a) Define ‘regulation’. Rules/laws (1) set by a government or organisation (1) which place controls on the activities of economic agents/example such as price controls, ban on smoking (1). 2 7(b) Explain two causes of market failure. 1 mark each for each of two causes identified: • failure to take into account all costs and benefits/external costs and benefits • abuse of market failure/exploitation of monopoly power 1 mark each for each of two explanations of the causes: • not considering external costs and benefits will result in under-consumption/under-production and over-consumption/over-production. • Abuse of market power may result in higher price, restricted supply and lower quality. 4 Do not expect but reward references to merit goods, demerit goods, public goods and information failure. 7(c) Analyse the possible opportunity costs of an increase in government spending on higher education services. Opportunity cost is the (next) best alternative forgone (1). An increase in government spending on higher education would leave less funds available to spend on alternatives (1) examples e.g. healthcare/defence (2) effect of a fall in government spending on e.g. healthcare/defence (2). Opportunity cost may be lower in the long run (1) increase in spending on education may raise productivity/output (1) increase government revenue (1) more to spend on alternatives (1). An increase in government spending on higher education may result in increased taxation (1) this would leave households and firms with less income (1) creating an opportunity cost for taxpayers (1) fall in disposable income (1) lower purchasing power (1). 6 Question Answer Marks Guidance 7(d) Discuss whether government policy measures can reduce unemployment. Up to 5 marks for why they might: Cut income tax (1) increase disposable income (1) increase consumer spending (1) raise total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1) raise reward from working (1) reduce voluntary unemployment (1). Cut interest rates (1) can increase borrowing (1) reduce saving (1) increase consumer spending (1) increase total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1). Introduce supply-side policy measures (1) e.g. education (1) can raise productivity (1) increase labour productivity (1) reduce structural unemployment (1). Direct employment by the government (1). Up to 5 marks for why they might not: Consumers may lack confidence (1) so they will not spend more if income tax or interest rates are reduced (1). Firms may lack confidence (1) so will not expand output (1) and will not take on more workers (1). Firms may expand output without taking on more workers (1) due to employing more capital (1) getting existing workers to work overtime (1). Education may be in the wrong areas (1) privatisation may result in firms cutting employment to reduce costs (1). There may be external shocks (1) e.g. a global recession (1) which could offset government policy measures (1). 8

Question 2

More people are becoming billionaires at the same time that other people are living in poverty. While some people enjoy luxuries others lac…

Accepted Answer

4(a) What is meant by ‘redistribution of income’? Taking income from one group e.g. from the rich (1) and giving it to another e.g. to the poor (1). Creating greater equality/reducing inequality/reducing gap between rich and poor (1). May be achieved by using progressive taxation/state benefits (1). 2 equally’. 4(b) Explain two reasons why the rich spend more in total than the poor. • greater income (1) means the rich have more purchasing power (1) • greater wealth/savings (1) which generates income to spend/ e.g. interest, dividends, capital gains (1) • greater ability to borrow (1) because banks are more willing to lend to the rich/the rich have more collateral (1) • more confidence (1) because the rich may expect that their purchasing power will continue to be high (1) 4 Vice versa is acceptable. 1 mark each for each of two reasons identified (×2) 1 mark each for each of two explanations given (×2) Maximum of 2 marks for a list- like approach. 4(c) Analyse why the elimination of absolute poverty would not solve the economic problem. • Absolute poverty is lack of access to basic necessities (1) example e.g. food/living below a certain income level e.g. $1.25 (1) • The economic problem is unlimited wants (1) exceeding finite resources/scarce resources/scarcity (1) • Even if everyone had access to basic necessities, people would still want more products (1) e.g. better quality food (1) there would not be enough resources to meet people’s increasing wants (1) relative poverty will still exist/rich will still be able to spend more than the poor (1) • Over time what is considered to be absolute poverty is likely to change (1) 6 Question Answer Marks Guidance 4(d) Discuss whether GDP per head is the best measure of comparative living standards. Up to 5 marks for why it may be: • Income / output is an important influence on living standards (1) income influences the quantity and quality of goods and services people can consume (1) the healthcare and education they can enjoy (1) • Higher GDP per head can increase tax revenue (1) which can be spent on items e.g. education which can increase living standards (1) • GDP per head takes into account the size of the population / it is an average (1) it is GDP divided by population (1) a rise in GDP matched by a rise in population would not mean that people are better off (1) • GDP per head is measured by all countries and so comparisons can be made (1) relatively easy to calculate / understand (1) Up to 5 marks for why it may not be: • There are wider/more accurate measures of living standards (1) e.g. HDI (1) which takes into account education/literacy (1) and health/life expectancy (1) • GDP per head is an average (1) it does not take into account distribution of income (1) GDP per head may be high but some people may be poor (1) • GDP per head does not take into account leisure time (1) GDP per head may be high but if people are working long hours the quality of their lives may be low (1) • Increases in output may increase pollution (1) e.g. lower air quality may reduce living standards (1) • GDP per head may not fully reflect the quality of products produced (1) which may increase even if GDP per head does not change (1) • GDP per head may not fully reflect the quantity of goods produced (1) due to the existence of the informal economy (1) • GDP per head does not include safe drinking water (1) which has a significant influence on health (1) 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach. Reward but do not expect reference to the Multi- Dimensional Poverty Index/Genuine Progress Indicator/real income/etc.

Question 3

Between 2014 and 2015, Sao Paulo, a large city in Brazil, opened more than 120 km of cycle-only lanes alongside roads. The city has a car c…

Accepted Answer

2(a) Define ‘price-inelastic demand’. When demand changes by a smaller percentage (1) than the change in price (1) when PED is less than 1 (1). 2 2(b) Explain two causes of a shift of a demand curve to the left. 1 mark each for each of two causes identified: • decrease in the price of a substitute • increase in the price of a complement • decrease in income • decrease in population • change in tastes (away from the product)/less advertising 1 mark each for each of two explanations given: • if a substitute becomes cheaper people will switch to it • if a complement becomes more expensive, people will buy less of it and the product which goes with it • lower income will reduce people’s ability to buy the product • lower population will reduce the number of people buying the product • the product may become less popular 4 Do not accept change in the price of a product. 2(c) Analyse how a government could promote the purchase of bicycles. The government could do the following: • Subsidise bicycle producers (1) reducing production costs (1) lowering price (1) improving quality (1) making them more affordable (1) • Subsidise bicycle consumers (1) increasing their purchasing power (1) • Reduce the tax on bicycles (1) encouraging bicycle purchases (1) • Introduce/increase the number of cycle lanes (1) making it safer/faster to cycle (1) • Tax/raise the price of other forms of transport (1) e.g. bus travel, cars (1) which are substitutes (1) discouraging their consumption (1) • Advertising/campaigns/educate people about the health benefits of cycling (1) make bicycles more fashionable/attractive to consumers (1) 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 2(d) Discuss whether governments should discourage car use. Up to 5 marks for why they should: • Cars may cause external costs (1) e.g. pollution (1) cause global warming (1) damaging people’s health (1) reducing living standards (1) damaging local economies, e.g. tourism (1) • May cause congestion (1) increasing firms’ costs of production (1) lowering output (1) • May cause accidents (1) resulting in increased healthcare costs/costs to society (1) Up to 5 marks for why they should not: • Difficult to estimate the correct amount of car use (1) may result in under-consumption (1) • Car industry employs large numbers (1) may reduce the output/revenue from cars (1) reducing GDP/economic growth (1) and causing unemployment in the car industry (1) increasing benefit costs to government (1) reducing government tax receipts (1). • Advances in technology may make cars cleaner (1) car use does not cause congestion in all countries (1) 8 Arguments which focus on people needing cars or the problems of rural areas not to be credited. Arguments about the problems with bicycles are not relevant. A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

Question 4

In 2015, Venezuela was facing a number of challenges. Despite government subsidies, increases in demand meant there were shortages of food.…

Accepted Answer

5(a) Define a ‘subsidy’. 2 A payment by e.g. a government (1) to reduce production costs (1) to increase output (1) to improve quality (1) reduce prices for consumers (1). 5(b) Explain two causes of a decrease in demand for oil. 4 1 mark each for each of two reasons identified: • fall in price of another fuel / reduction in its availability • decrease in car driving • change in fashion/taste e.g. electric cars • greater concern for the environment • decrease in output / manufacturing of goods • decrease in population • decrease in income. 1 mark each for each of two explanations: • if the price of e.g. coal falls, some firms and households may switch from a substitute such as oil • oil/petrol is a complement to a car • e.g. electric cars are substitutes for petrol driven cars • people may use cars less because they are concerned about e.g. pollution • lower output will require less fuel to produce it / fewer people will be using fuel to get to and from work • lower population will mean there are fewer people to consume products that require fuel to produce or use them • decrease in income will decrease demand for products, e.g. car driving which requires fuel. Note: accept an increase in the price of oil as a possible reason. 5(c) Analyse the advantages of being a sole trader. 6 Flexible / can respond quickly to changes in demand (1) as one person makes all the decisions (1). Easy to set up (1) limited finance / limited paperwork needed (1). Can provide a personal service (1) get to know customers personally (1). Profit incentive (1) owner will get all the profits (1). Sole trader has total control (1) can decide e.g. hours of work, holidays (1) May have good relationships with staff (1) less industrial disputes (1). 5(d) Discuss whether a government should be concerned about a growing 8 deficit on the current account of its balance of payments. Up to 5 marks for why it should: Imports exceeding exports (1) country will be living beyond its means (1) consuming more than it produces (1) net exports will be making a negative contribution to output (1) output will be lower than possible (1) employment lower than possible (1) unemployment (1) may lead to increased government spending on benefits (1). May indicate a lack of international competitiveness (1) may suggest that the price of domestically produced products is too high (1) quality of domestically produced products too low (1). Country may be dependent on foreign products (1) causing security concerns (1). May put downward pressure on the exchange rate (1) increase the value of exports that have to be exchanged to gain a certain value of imports (1). Need to cover the deficit with e.g. borrowing/attracting investment from abroad (1). Up to 5 marks for why it should not: Deficit may only be temporary (1) more raw materials (1) capital goods may be imported (1) in the longer run these may be turned into exports (1). The deficit on current account may be balanced out by a surplus elsewhere (1) e.g. direct investment (1). The deficit may have been caused by a fall in incomes abroad (1) these may rise in the future, increasing exports (1). If the country has a floating exchange rate (1) a fall in the exchange rate resulting from the deficit will lower export prices (1) raise import prices (1) and so move the current account position towards a balance (1). A deficit reduces total demand (1) and this can reduce demand-pull inflation (1). Note: reward but do not expect reference to other parts of the balance of payments.

Question 5

In June 2015, trade unions in Argentina demanded higher wages and lower taxes. As well as pressure for increased wages the economy was faci…

Accepted Answer

3(a) Identify two reasons why governments impose taxes. 1 mark each for each of two reasons identified: • raise revenue • discourage consumption of harmful products / correct market failure / negative externalities • discourage purchase of imports • redistribute income / reduce income inequality • reduce total demand / reduce rate of inflation. 2 reference to demerit goods. Question Answer Marks Guidance 3(b) Explain two advantages a business organisation may gain from becoming a public limited company. 1 mark each for each of two advantages identified: • relatively easy to raise finance • likely to be relatively large • sustainability • take advantage of limited liability. 1 mark each for each of two explanations given: • able to sell shares on the stock exchange / limited liability may attract shareholders / banks may be more willing to lend • the ability to raise finance can allow firms to expand/take advantage of economies of scale • not dependent on current owners for survival of firm • owners can only lose the value of their shares. 4 3(c) Analyse how a cut in taxes would increase tax revenue. A cut in income tax rates (1) may increase the incentive to work (1) an increase in disposable income (1) would increase the financial reward from working (1) reduces tax evasion (1). A cut in corporation tax (1) may increase the incentive for firms to increase output (1) increasing the total value of profits that can be taxed (1). A cut in indirect taxes (1) may increase spending (1) raising expenditure that can be taxed (1). 6 Question Answer Marks Guidance 3(d) Discuss whether an economy would benefit from an increase in the strength of its trade unions. Up to 5 marks for why it might: Stronger trade unions may achieve higher wages (1) this could increase living standards (1) enabling workers to afford e.g. better healthcare (1) improve training / skills of workers (1) motivate workers (1). Stronger trade unions may improve working conditions (1) prevent workers being discriminated against (1) this may increase labour productivity (1) can make exports more competitive (1) improving balance of payments (1) which can increase economic growth (1). Stronger trade unions may increase communication between workers and employers (1) may help promote training (1) reduce cost of negotiations / making negotiations more effective (1). Up to 5 marks for why it might not: Stronger trade unions may raise firms’ costs of production (1) higher costs of production can reduce firms’ profits (1) cause wage/price spiral (1) resulting in a fall in output (1) increase in unemployment (1) causing cost push inflation (1). Stronger trade unions may increase industrial action (1) will disrupt firms’ production (1) result in a fall in orders (1) fall in investor confidence (1). Stronger trade unions may restrict the ability of firms to change their output (1) reducing their responsiveness to changes in market conditions (1). 8

Question 6

In England football stadiums are usually built and financed by the private sector, but in some countries the stadiums are built and finance…

Accepted Answer

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

Question 7

More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually regressive. Some of these governments are also inc…

Accepted Answer

7(a) Define regressive tax. A tax that takes a lower percentage of the income of the rich/higher percentage of the income of the poor (2). A tax that falls more heavily on the poor (1). Disadvantages the poor/higher burden on the poor/higher rate for the poor (1). 2 7(b) Explain why the social benefit of healthcare is greater than the private benefit. Social benefit includes both private and external benefits (1). Healthcare also provides external benefits(1). Example of private benefits identified as a private benefit e.g. profits of provider, wages of doctors, higher life expectancy of consumer (max 2). Examples of external benefits identified as external benefits/recognised as 3rd party impacts e.g. higher labour productivity, higher output, reduction in spread of diseases (max 2). 4 7(c) Analyse why a government imposes taxes. To raise revenue (1) to finance government spending/example of spending (1). To discourage the consumption of certain products (1) example/external costs (1). To discourage the production of certain products (1) example/external costs (1). To discourage the consumption of imports (1) improve the current account position on the balance of payments (1). To redistribute income (1) taxing the rich more (1). To influence economic activity (1) raising taxes to reduce total (aggregate) demand (1) to control (demand-pull) inflation (1). 6 Accept but do not expect reference to public and merit goods. Question Answer Marks Guidance 7(d) Discuss whether or not consumers are likely to benefit from state-owned enterprises becoming private sector firms. Up to 5 marks for why they might: There may be more competition in the markets (1) this may force down prices (1) increase quality (1). Firms will be influenced by the profit motive (1) this may make them more responsive to changes in consumer demand (1). State-owned enterprises may be slow in making decisions (1) due to bureaucratic control (1) may not respond quickly enough to consumer demands (1). Up to 5 marks for why they might not: State-owned enterprises might have taken into account social costs and social benefits (1) rather than just private costs and private benefits (1) main goal may be economic welfare (1). Private sector firms may merge (1) form monopolies (1) (use market power to) push up price (1) they may become complacent (1) lower quality (1). Private sector may not have sufficient finance for large-scale projects (1) consumers would lose out on the benefits (1). 8 Accept quality and prices on either side, but only one mark if given on both sides. More marks can only be awarded if a reason for change in quality/prices are given.

Question 8

In the UK, bus journeys outside London have fallen by nearly 40% since 1980. This fall in demand has been largely due to a rise in bus fare…

Accepted Answer

4(a) Define a substitute and give an example. A rival product / a product that can be used instead of another (1) e.g. bus travel and car travel / oranges and apples (1). 2 4(b) Explain two advantages a firm may gain from being a monopoly. May be able to charge high prices / price maker (1) due to lack of competition (1) enabling it to earn a high profit (1). May produce at lower costs (1) due to economies of scale / charge lower prices (1). May produce high quality products (1) as high profits enable it to invest and innovate (1). May be able to compete with foreign firms (1) gain a wider market / export more (1). May have stronger bargaining power with suppliers (1) keeping costs low (1). 4 4(c) Analyse how price elasticity of demand for a product influences the revenue a firm receives. Formula or definition of PED (1). If demand is elastic, a rise in price will cause a fall in revenue (1) because the quantity demanded will fall by more than the rise in price (1) in percentage terms (1) example of type of product with elastic demand e.g. a luxury (1). If demand is inelastic, a rise in price will cause a rise in revenue (1) because the quantity demanded will fall by less than the rise in price (1) in percentage terms (1) example of a product with inelastic demand e.g. one without a substitute (1). If demand is perfectly inelastic, a rise in price will cause an equally proportionate rise in revenue (1) because the quantity demanded will not change (1). If demand is perfectly elastic, a rise in price will cause revenue to fall to zero (1) because people will stop buying the product (1). If demand is unitary, a rise in price will leave total revenue unchanged (1) as the proportionate change in quantity demanded and price will be the same (1). 6 Accept as reasons why demand may be price- elastic, availability of substitutes and why demand may be price- inelastic, lack of substitutes. Question Answer Marks Guidance 4(d) Discuss whether or not a government should subsidise bus transport. Up to 5 marks for why it should: A subsidy will lower costs, (1) it may encourage a rise in bus travel (1) reducing bus fares (1). It may reduce poverty / redistribute income (1) the poor tend to use buses more than the rich (1) better quality travel (1). Bus travel creates fewer external costs than car travel (1) reduce pollution (1) reduce traffic congestion (1) increase employment / reduce unemployment (1) increase labour mobility (1). Up to 5 marks for why it should not: It will involve an opportunity cost (1) the government might instead spend more on e.g. education / raise taxes (1). Bus companies may not pass on the subsidy to passengers (1) subsidies may make bus companies complacent (1) not try to keep their costs low (1) may not improve quality (1). Rail transport may be more efficient (1) may provide more social benefits (1) generate lower social costs (1). 8 Reward but do not expect reference to bus transport being a merit good.

Question 9

Mexico has recently experienced relatively low inflation and the Mexican government wants to maintain this price stability. Despite this it…

Accepted Answer

2(a) Define private cost. Private costs are costs borne by those producing the product (1) consuming the product (1) example of such a cost (1) social costs – external costs (1). 2 2(b) Explain two ways a government could reduce external costs. Up to 2 marks for two explanations from: Impose a tax (1) to discourage production / discourage consumption / turn external into private cost (1). Regulation (1) ban or restrict production / ban or restrict consumption / may be enforced by fines (1). Provide information (1) to discourage consumption / discourage production (1). Government subsidies (1) to encourage cleaner production methods / the consumption of healthier food e.g. fruit instead of high fat foods (1). 4 Reward but do not expect explanation of tradeable / pollution permits / property rights. 2(c) Analyse how a high rate of inflation affects the functions of money. People may not want to save money (1) as it may lose value (1) stop acting as a store of value (1). People may not accept money as a payment (1) as it may lose value / people may not know what its value is (1) stop acting as a medium of exchange (1). People may not be willing to lend money (1) inflation rate may be higher than interest rate (1) stop acting as a standard of deferred payments (1). People may stop valuing products in monetary terms (1) due to instability of prices (1) stop acting as a unit of account / measure of value (1). 6 Maximum 2 marks for a list-like approach applied to high inflation. Maximum 1 mark for a list of three or more functions of money. Question Answer Marks Guidance 2(d) Discuss whether or not a fall in its foreign exchange rate will benefit an economy. Up to 5 marks for why it might: A lower exchange rate will reduce the price of exports (1) raise the price of imports (1) net exports may rise / exports may rise / imports may fall (1) current account of the balance of payments may improve (1) total (aggregate) demand may increase (1) real GDP may increase economic growth (1) employment may rise (1). Up to 5 marks for why it might not: Higher import prices may not reduce spending on imports if demand for imports is inelastic (1) export revenue may not rise if demand for exports is inelastic (1) import restrictions imposed on other countries may make it difficult to sell more exports (1). Higher import prices may cause inflation (1) imported raw material costs may rise (1) causing cost-push inflation (1) imported finished products may not be replaced by domestic products (1) rise in net exports may cause demand – pull inflation (1). Domestic citizens may be able to purchase fewer imports (1) lower living standards (1). If the country is in debt (1) it may increase the cost of repaying the debt (1). If the country is operating at full employment (1) it may not be possible to produce more exports / substitutes for imports (1). Demand for the country’s exports may be low (1) if quality is poor / incomes abroad are falling abroad (1). If the fall is used as a way to capture markets abroad / protect domestic industries (1) there may be retaliation (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

Question 10

The United Nations (UN) has set out development goals for countries to achieve by 2050. These goals include: • conserve natural resources •…

Accepted Answer

6(a) Identify two ways a government could conserve its country’s resources. One mark for each appropriate action identified. Examples include: Ban/place a limit on the amount of resource consumed. Import resources to reduce consumption of country’s own resources. Reduce exports to reduce consumption of limited resources. Put tax/increase tax on resources to reduce demand. Educate consumers to reduce consumption/conserve resources. Control immigration to reduce consumption of resources. Encourage recycling of resources e.g. metals/plastic. Subsidise firms that conserve natural resources. 2 6(b) Explain two external benefits that can arise from education. Higher output (1) due to more skilled workers (1). Better quality output (1) due to more efficient workers (1). More advanced technology (1) due to ideas/ability to operate new technology (1). Improved health/reduction in spread of diseases (1) more informed population (1). Less pollution (1) if population educated on environmental issues (1). Firms may have to spend less on training (1) due to greater supply of skilled workers (1). 4 6(c) Analyse how a cut in the rate of interest could reduce poverty. A lower interest rate will increase the purchasing power of the poor who have borrowed before (1) will make it easier/cheaper to borrow (1) enabling them to buy more necessities (1) spend on education (1) enabling them to get a job / better paid job (1). A lower rate of interest may encourage a rise in consumer expenditure (1) encouraging firms to expand (1) providing cheaper finance for the expansion (1) increase output (1) raise employment (1) raise income (1). Higher output and spending may increase tax revenue (1) enabling the government to increase its spending to reduce poverty (1). 6 6(d) Discuss whether or not economic growth always increases living standards. Up to 5 marks for why it might: Higher output (1) may enable people to enjoy more goods and services (1) especially if GDP per head rises (1) may increase employment (1) raise incomes (1) Higher output may increase tax revenue (1) more resources/higher quality of resources (1) may enable there to be better healthcare (1) increasing life expectancy (1) more/better education (1). Higher output may enable more resources to be devoted to improving environmental conditions (1) e.g. reduce pollution (1). Up to 5 marks for why it might not: The benefits may not be evenly spread (1) income and wealth may be unevenly distributed (1) there may still be high levels of poverty (1). Higher output may have been achieved by increasing working hours (1) working conditions may have declined (1) there may be greater stress (1) quality of output may be lower (1). Expansion of heavy industries (1) may have created pollution (1) reduce health/life expectancy (1). Non-renewable resources may have been depleted (1) reducing the opportunity to achieve sustainable development (1). Economic growth may not be sustainable (1) increase in supply may not match increase in demand (1) causing inflation (1). Economic growth achieved by exporting goods and services (1) economy producing more investment goods at expense of consumer goods (1) resulting in fewer goods available in domestic market (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

Question 11

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

Accepted Answer

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

Question 12

A number of book publishers operate in Pakistan. These include multinational companies (MNCs). They employ a range of specialist workers. A…

Accepted Answer

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

Question 13

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

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

Question 14

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

Accepted Answer

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 15

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

Accepted Answer

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

Question 16

The Indian government subsidises the country’s exports of cotton textiles. The USA, the largest buyer of Indian cotton textiles, benefited …

Accepted Answer

6(a) Identify the difference between an export and an import. An export is sold to other countries / outflow of goods and services in exchange for money / credit item in the balance of payments (1) an import is purchased from other countries / inflow of goods and services in exchange for money / debit item in the balance of payments (1). 2 6(b) Explain how a rise in the income of its main trading partners may affect a country’s trade in goods balance. A rise in income abroad will increase the countries’ ability to purchase products (1) demand for this country’s exports may rise (1) particularly luxury products / products without domestic substitutes (1) exports are a credit item in the trade in goods balance (1) the trade in goods balance may improve (1) may move from a deficit to a surplus / any deficit may be reduced / any surplus may be increased (1). The rise in income may be the result of the countries selling more goods to this country (1) this may increase the country’s imports (1) imports are a debit term (1) the trade in goods balance may move from a surplus to deficit / any deficit may become larger / any surplus may get smaller (1). 4 6(c) Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate. A rise in the exchange rate will make exports more expensive (1) imports cheaper (1) demand for exports may fall / export revenue may decrease (1) demand for imports may rise / import expenditure may rise (1) net exports may fall (1) total (aggregate) demand may fall (1) output may decline (1) demand for labour may fall (1) unemployment may rise (1) cyclical unemployment (1). 6 Reward but do not expect reference to PED. Question Answer Marks Guidance 6(d) Discuss whether or not a government should subsidise its exports. Up to 5 marks for why it should: A subsidy would lower costs of production (1) lower the price of exports (1) this may make them more internationally competitive (1). Some industries producing exports may be infant industries (1) may need support before advantage can be taken of economies of scale (1). Exports may rise (1) this may improve the current account / trade in goods and services balance (1) raise GDP / increase economic growth (1) increase employment / lower unemployment (1). Up to 5 marks for why it should not: Some domestic firms may already be price competitive (1) and so do not need a subsidy (1). The subsidy may encourage some domestic firms to become inefficient (1) not cutting their costs (1) and improving the quality of their output (1). It may be regarded to be a form of trade protection (1) other countries may retaliate (1) so exports may not increase (1). There will be an opportunity cost involved (1) example (1). 8

Question 17

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.…

Accepted Answer

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 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

Australia’s economic growth rate has fallen in recent years. Its Human Development Index (HDI), however, is high and in 2016, Australia had…

Accepted Answer

4(a) Identify the difference between economic growth and recession. • Economic growth is an increase in GDP/output (1). • Recession is a fall in GDP/output / negative economic growth (1). 2 4(b) Explain how the HDI compares living standards between countries. • Measures output/income/material standard of living (1) GDP/GNI per head (1). • Measures healthcare (1) life expectancy (1). • Measures education (1) mean and expected years of schooling / literacy rate (1). • Provides an index figure for each country (1) from 0 to 1 / divides countries into very high, high, medium and low (1). • Higher HDI means higher standard of living (1). 4 4(c) Analyse the effects of a rise in a country’s birth rate. • In the short run, fewer women may be able to work (1) which will decrease the size of the labour force (1) more children (1) increases the dependency ratio (1) putting pressure on the working population (1). • In the longer run there will be more workers (1) this may decrease the dependency ratio (1) population size may increase (1) increase output (1) encourage investment (1). • Government will have to devote more resources e.g. to primary education / childcare / support families (1) this may mean fewer resources can be devoted to e.g. improving living standards (1). • Higher demand for industries related to young children e.g. baby clothes, child minding (1) may reduce unemployment (1). • Increase in population/ overpopulation (1) causes a strain on resources (1) fall in living standards (1). • If birth rate still lower than death rate (1) will still have an ageing population (1). 6 Reward but do not expect reference to the optimum population. Question Answer Marks Guidance 4(d) Discuss whether or not parents should have to pay a fee to send their children to school. Up to 5 marks for why they should: • Some parents can afford to pay (1) some parents will work hard to pay (1) paying may make them more prepared to demand good standards (1) would see themselves as consumers (1). • May result in more resources being devoted to education (1) teachers reive higher pay (1) and motivated to work harder (1) parents demand high standards for their money (1) improving outcomes (1). • Education provides private benefits (1) in the form of higher pay (1) more career choice (1). • The government paying for education (1) involves an opportunity cost (1) e.g. spending on healthcare (1). • A fee may be charged for secondary education but not primary education (1) if it is considered a basic level of education should be available to all (1) parents may choose to pay for education if they think it will be of high quality (1). Up to 5 marks for why they should not: • Some parents may not send their children to school (1) some will not be able to afford to (1) some may undervalue education (1) may reduce desire to have children (1). • Opportunity cost to parents (1) e.g. less spending on other goods / services (1). • It would increase income inequality (1) price would take a higher percentage of the income of the poor (1) less educated workforce (1) lower standard of living (1). • Education provides external benefits (1) higher productivity (1) higher output/GDP (1) these could be lost (1) • The government may need to provide education free to ensure the right quantity of education is consumed (1) that the poor have access to education (1). 8 Reward but do not expect reference to education being a merit good.

Question 20

(a) Calculate India’s economic growth rate in 2017. [1] (b) Identify two methods of protection. [2] (c) State why India is a mixed economy.…

Accepted Answer

1(a) Calculate India’s economic growth rate in 2017. 7% (1). 1 1(b) Identify two methods of protection. One mark each for any two from: • tariff • quota 2 1(c) State why India is a mixed economy. It has a private sector / private sector firms (1) and a public sector / public sector firms /government intervention (1). 2 1(d) Explain why external costs cause market failure. Logical explanation which might include: External costs are not considered (1) base decisions just on private costs and benefits (1). They cause harmful effects to third parties / negative side effects (1) they result in overconsumption (1) and overproduction (1). Their existence may mean that social costs exceed social benefits (1). Examples of causes or costs: e.g. driving, pollution / environmental damage, burning fields and mining (up to 2). They result in a misallocation of resources / inefficient use of resources (1). 4 Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Supply curve shifted to the right (1). Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the equilibrium points E1 and E2 (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. Coherent analysis which might include: Generally, the countries with the relatively smallest primary sectors have the highest GDP per head / inverse relationship (1). Evidence e.g. US has only 1% of output accounted for by the primary sector and the highest GDP per head (1) another piece of supporting evidence e.g. the two countries with the largest primary sectors have the lowest GDP per head (1). Exception is India/Philippines (1) India has a smaller relative sized primary sector but a lower GDP per head (1). This is the expected relationship as primary sector tends to decline as an economy develops / often larger in developing economies / resources move into secondary and then tertiary sectors (1) tertiary sector tends to generate higher incomes / primary sector tends to generate lower incomes (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. Award up to 4 marks for logical reasons why it might, which may include: • subsidies reduce costs (1) increase supply (1) lower prices (1) raise quality of bus travel (1) and cause demand to extend / higher demand (1) • people using buses will reduce the volume of traffic/reduce congestion (1) • buses use cleaner fuel (1). Award up to 4 marks for logical reasons why it might not, which may include: • people may not switch from car to bus travel (1) price of cars may fall (1) cost of producing cars is declining (1) other reason why e.g. more comfortable / door to door (1). • providers of bus transport may not pass on much of the subsidies in the form of lower prices (1) • opportunity cost of using subsidies (1) could spend money on other ways to reduce pollution e.g. education (1) • economy is growing so incomes rising (1) both bus and car travel may increase (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Reward application of subsidies to producers and/or consumers. Increase in supply, lower prices, extension in demand may be shown on a demand and supply diagram. Question Answer Marks Guidance 1(h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. Award up to 4 marks for logical reasons why it might, which may include: • there was a deficit in 2016 and 2017 (1) and it was on an upward trend (1) • incomes are rising / economic growth is occurring (1) and so more imports may be purchased both by consumers and by firms (1) • it is expected that the exchange rate will rise (1) this may increase the price of exports (1) and demand for exports may fall (1) price of imports may fall (1) so demand for imports may rise (1) • Indian trade restrictions may be reduced / Indian government promoting free trade (1) which may increase imports (1). • tax rates may be cut (1) with more disposable income (1) people may buy more imports (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be more foreign tourists (1) if pollution declines (1) • lower tariff on imported raw materials / imported capital goods (1) may reduce costs of production (1). • other countries may remove their trade restrictions (1) allowing India’s exports to rise (1) • if the government does spend more on education (1) productivity may rise (1) and India’s products may become more price and quality competitive (1). • MNCs may be attracted for a number of the reasons given (1) MNCs may produce exports / import substitutes (1). • Higher investment (1) may raise quality of exports / domestic products (1) lower price of exports (1). • Car production is rising (1) more cars may be exported / fewer cars may be imported (1). 6

Question 21

The Chinese government reformed the Chinese tax system in 2016. It extended VAT (sales tax) from the sale of goods to the sale of services …

Accepted Answer

5(a) State two reasons for levying taxes. One mark each for any two from: • raise revenue • redistribute income • discourage consumption of demerit goods • reduce imports • reduce / influence total demand / influence economic activity / reduce inflation. 2 5(b) Explain the difference between a progressive tax and a regressive tax. Logical explanation which might include: A progressive tax takes a larger proportion (1) of the income of the rich / of income as it rises (1) falls more heavily on the rich (1) make income more evenly distributed (1) direct taxes are often progressive (1) example (1). A regressive tax takes a larger proportion (1) of the income of those on low income / falls as income rises (1) falls more heavily on those on low income (1) make income less evenly distributed (1) indirect taxes are often regressive (1) example (1). 4 One mark for each difference identified and one mark for each explanation. Maximum of 2 marks for progressive tax and maximum of 2 marks for regressive tax. Question Answer Marks Guidance 5(c) Analyse how a cut in in the rates of corporation tax and income tax may influence the number of MNCs setting up in the country. Coherent analysis which might include: Firms will be able to keep more of their profits (1) firms may be profit motivated/seeking to maximise profits (1) MNCs will compare the profits they can earn in a number of countries (1) lower corporation tax will enable them to invest more / expand (1) pay higher dividends (1). Lower income tax will increase disposable income (1) may increase demand for consumer goods (1) increase the market for the MNCs products (1) may reduce pressure for wage rises (1) may make workers more motivated and so more productive (1). Lower tax revenue may reduce a government’s ability to spend (1) on e.g. education and healthcare (1) this may reduce labour productivity (1) which may increase MNCs’ costs (1). 6 A maximum of 4 marks if only corporation tax or income tax is considered. Question Answer Marks Guidance 5(d) Discuss whether or not people in a high income country always enjoy a higher living standard than those in a low income country. In assessing each answer, use the table opposite. Why they might: • may be able to enjoy more / better quality goods and services • may receive good healthcare and so enjoy long life expectancy • may enjoy good education and so have more choices • working conditions may be better with less workers in jobs involving hard physical labour / more people working in the tertiary sector • may be able to save, providing security for the future. Why they might not: • income may be unevenly distributed and some people in the population may be living in poverty, some may be unemployed • pollution levels may be higher in the country • people may be working longer hours, having less leisure time, more stressed • some of the products produced in high income countries may be demerit goods • may be high cost of living • may have high tax rate Example of a Level 1 answer: Yes because people living in high income area will enjoy luxuries of life and those living in low income country will get less opportunity to enjoy their life. Principal Examiner comment: This answer is a maximum of L1. It only identifies that people in high income countries are more likely to enjoy luxury products. There is no development of links (analytical or evaluative discussion) in response to either side of the question. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 5(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 22

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

Accepted Answer

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

Question 23

Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many multinational companies (MNCs) to produce in Ire…

Accepted Answer

3(a) State two benefits of free trade. 2 Any two from: Increase choices, more competition, lower prices, more specialisation 3(b) Explain two reasons why governments levy taxes. 4 Logical explanation which might include: To be able to fund government spending (1) types of government spending (1) to improve standards of living (1). To be able to control inflation (1) fiscal policy (1) reducing total demand (1). To reduce inequality (1) tax the rich and help the poor (1). To discourage the consumption of demerit good (1), to improve allocation of resources / reduce external cost (1) to change external costs to private costs (1) e.g. reduce pollution (1). To reduce imports (1) to protect home producers (1). 3(c) Analyse, using a production possibility curve (PPC) diagram, the 6 impact of higher labour productivity on an economy. Up to 4 marks for the diagram: Axes correctly drawn (1) Initial curve or line sloping downward drawn to the axes (1) New curve or line sloping downward drawn to the axes (1) Shift to the right indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Higher labour productivity will increase output per worker (1) increase productive capacity (1). 3(d) Discuss whether or not MNCs always benefit their host countries. 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: • bring in more investment • increase total demand and economic growth • provide more employment opportunities • bring in more foreign capital and more advanced machinery. Why they might not: • MNCs might exploit local workers, pay low wages / provide low quality working environments • most profits of MNCs not reinvested back into the domestic economy but brought back to home country • big MNCs may meddle with domestic policy making.

Question 24

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

Accepted Answer

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

Question 25

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

Accepted Answer

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

Question 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

(a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. [1] (b) Identify two macroeconomic aims, other tha…

Accepted Answer

1(a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. $2.18 billion / $2 180 000 000 1 Accept 2.2 bn. $ sign not essential. 1(b) Identify two macroeconomic aims, other than balance of payments stability, that the Moroccan government could achieve through the Blue Economy. • Economic growth/sustainable economic growth/development/output • Create employment/ lower unemployment/ full employment • Reduce poverty • Improve livelihoods / improve living standards / improve quality of life 2 1(c) Explain why an increase in the global demand for fish could reduce a deficit in Morocco’s current account of its balance of payment. Logical explanation which might include: Increase in global demand could lead to an increase in demand for Moroccan fish / more sales of Moroccan fish / increase supply of Moroccan fish (1) increasing exports (1) creating an inflow of money / raising export revenue (1) improve trade in goods balance/trade balance (1) balance out imports / exports may now equal imports / reduce gap between exports and imports (1). 2 Question Answer Mark Guidance 1(d) Explain two causes of poverty amongst fishermen. Logical explanation which might include: Low wages (1) cannot afford necessities (1) such as food and proper housing (1) high supply / low demand for fishermen (1). Structural unemployment (1) fishermen might not have the skills to take up other jobs (1) after the decline in the fishing industry in their area (1). Seasonal unemployment (1) may not be possible to catch fish throughout the year (1) instability of income (1). 4 One mark for each cause identified and one mark for each explanation. One mark for unemployment. Question Answer Mark Guidance 1(e) Analyse whether GDP per head always increases when the percentage (%) contribution of the primary sector increases. Coherent analysis which might include: Overview No / not always (1) if % contribution of the primary sector increases, GDP per head is lower (1). Supporting evidence e.g. Pakistan/India/Morocco have a high % contribution and low GDP per head (1), Germany has the lowest % contribution but second highest GDP per head (1) comparison e.g. Germany has a higher GDP per head than India but a smaller contribution from the primary sector (1). Exception There is an exception/on the other hand (1) e.g. Australia – higher % contribution than Germany, but higher GDP per head or e.g. Malaysia – higher % contribution than Bulgaria, but higher GDP (1). Comments High-income countries tend to have more resources concentrated in the secondary and tertiary sectors/tertiary sector (1) incomes tend to be higher in the secondary and tertiary sectors / lower in the primary sector (1). 4 Question Answer Mark Guidance 1(f) Analyse how regulation of fishing could ensure economic growth is sustained for future generations. Coherent analysis which might include: Regulation could prevent people from overfishing (1) regulation is backed up by law / fines may be imposed (1) gives time for fish to breed / recover form overfishing (1) so that future generations will still have access to fish stock / maintain fish stocks (1) this means that future generations will still be able to generate revenue from fishing (1) which could lead to increased or sustained investment/consumption/exports (1) ensuring high total demand (1) Regulation on fishing could also help coastal tourism (1) protect the environment (1) increase revenue from tourism (1) as people visit areas of natural beauty (1). (5) Also allow an approach based on how overfishing may threaten sustainable economic growth. Question Answer Mark Guidance 1(g) Discuss whether or not subsidies to fishermen could help the Moroccan economy. Award up to 4 marks for logical reasons why it could, which might include: • subsidies will decrease cost of production (1) and enable Moroccan fishermen to use better technology / capital / / equipment / enable them to take advantage of economies of scale / engage in research & development (1) • increase their productivity (1) lead to an increase in supply / output (1) price of Moroccan fish would decrease (1) this will increase competitiveness of Moroccan fishermen (1) increase demand (1) create jobs / increase employment / reduce unemployment (1) increase exports / reduce imports (1) improve the current account balance (1). • increase revenues/income of fishermen (1) investments / consumption (1) increase total demand (1) leading to economic growth (1). Up to 4 marks how subsidies to fisherman could not help the Moroccan economy: • opportunity cost for the government (1) may result in a budget deficit (1) less spending on education / healthcare (1) decrease overall productivity of the economy (1) less economic growth (1). • subsidies may lead to complacency (1) may become depended on subsidies (1) fishermen may not use the subsidies efficiently (1) may result in overfishing (1) may increase pollution / external costs (1). • Fishing industry only contributes 2% of GDP (1) even if it expands may not increase the country’s output significantly (1). • Competitiveness may not increase (1) prices might not decrease (1) other governments may subsidise their fishermen (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease 1 because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Mark Guidance 1(h) Discuss whether or not a reduction in trade protection by other African countries would be beneficial for Morocco. Award up to 4 marks for logical reasons why it might be beneficial, which might include: • less protectionism will decrease the price of Moroccan exports (1) increase exports (1) improve current account balance (1) • less protectionism will allow Morocco to specialise more / enable it to concentrate on what it is best at producing (1) • demand for labour is derived demand (1), demand for domestic workers will increase (1) therefore unemployment decreases (1) income increases / poverty decreases (1) consumption of good and services can increase (1) more total demand (1) economic growth (1) • inflation may fall (1) lower cost of imported raw materials/imported capital goods (1). Award up to 4 marks for logical reasons why it might not be beneficial, which might include: • decreased protection might lead to other countries products decreasing in price as well (1), Moroccan goods may decrease in competitiveness (1) decrease the demand for Moroccan goods (1) increase in imports (1) • infant/sunrise industries may go out of business (1) unable to compete as not able to take full advantage of economies of scale (1) • sunset/declining industries may go out of business (1) likely to have high costs of production (1) • decrease the demand for workers (1) as less is produced (1) unemployment increases (1) less income (1) consumption of goods and services decrease (1) decreased total demand (1) less economic growth (1). 6

Question 28

(a) Calculate, in $, the total exports of Laos to China in 2017. [1] (b) Identify two roles of commercial banks. [2] (c) Explain how access…

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1(a) Calculate, in $, the total exports of Laos to China in 2017. 1.1832 billion / 1 183 200 000. 1 Accept 1.18 or 1.2 billion. 1(b) Identify two roles of commercial banks. Helps local entrepreneurs to borrow money (1). Encourages households to save / enables households to save (1). 2 Accept loan / lending 1(c) Explain how access to seaports may benefit an economy. Enables an economy to take full advantage of international trade / take greater advantage of international trading opportunities (1) enables immigration of skilled workers (1) Can export and import goods (1) goods can be transported more cheaply (than by rail or air / over longer distances) / may encourage specialisation (1) increases consumer choice (1). May encourage investment (1) attract MNCs (1) create economic growth (1) 2 1(d) Explain two benefits of the free market reforms introduced by the government of Laos. The free market reforms have enabled Laos to sell their abundant raw materials internationally (1) increases export revenue / improves current account balance / creates employment / encourages firms to expand / increases GDP (1). Encourages foreign investment (1) may lower costs of production / increases total demand / improves current account balance / creates employment / increase tax revenue (1). 4 One mark each for each of two benefits identified and one mark each for each of two explanations. Accept improved infrastructure. Question Answer Marks Guidance 1(e) Analyse the impact of improved education on the economy of Laos. Increased adult literacy rate (1) better skills/qualifications (1) increase productivity (1) / increase productive capacity / total supply (1) increase demand for labour (1) reduce unemployment / raise employment (1) raise wages (1) reduce poverty (1). More attractive for entrepreneurs / new businesses / investment (1) increase output / GDP (1) leading to higher living standards (1). Improvements in technology (1) due to workers having higher IT skills (1) Increase the consumption of merit goods / decrease the consumption of demerit goods (1) 4 1(f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP per head. Expected relationship: Positive / direct (1) if ease of doing business (EDB) rank is high, GDP per capita is high (1). Supporting evidence: Singapore has the highest EDB rank and GDP per capita is highest (1) Timor-Leste has the lowest EDB rank and GDP per capita is the lowest (1). Exception: Brunei / Malaysia (1) has lower EDB rank than Malaysia but higher GDP per head (1). Alternatively South Korea / Brunei (1) Brunel has lower EDB rank but higher GDP per head (1). Analysis: The greater the ease of doing business, the more investment there is likely to be (1) higher investment is likely to increase GDP (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not strict rules and regulations benefit an economy. Award up to 4 marks for logical reasons why they might, which could include: • Environmental rules (1) e.g. cap on carbon emission, tax on polluting industries (1) reduce market failure (1) reduce external costs (1) e.g. could decrease pollution / protect natural resources (1) less health problems for the society (1) better standards of living (1). • Anti-competition rules (1) e.g. restrictions on monopoly power (1) improved consumer choice / lower prices / better quality (1) foreign companies will not dominate the market (1) opportunities for domestic firms to develop (1) increased future economic growth (1). • Restrictions on imports (1) may protect domestic industries / allow growth of domestic industries (1). • Bans e.g. prohibiting smoking in public places (1) may reduce market failure / reduce external costs (1). • Labour market legislation (1) protecting workers’ rights (1). Award up to 4 marks for logical reasons why they might not, which could include: • Strict regulation discourages business (1) Laos ranks one of the lowest in the World Bank’s Ease of Doing Business index (1) lack of investment / MNCs discouraged (1) lower productivity (1) lack of competition (1) lack of employment opportunities (1) decreased total demand (1) decreased economic growth / lower GDP (1) lower standards of living (1). 6 Apply this example to all questions with the command word Discuss (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • Bureaucracy / red tape increases the time and effort of doing business (1) increases cost of production (1) lowers profit (1). • Rules and regulations may lack clarity (1) causing them to be implemented incorrectly (1) • Takes time for the government to administer rules and regulations (1) opportunity cost of government spending (1). • Import restrictions reduce competition (1) may result in higher prices (1) lower quality (1) 1(h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of Laos. Award up to 4 marks for logical reasons why it might, which might include: • China is Laos’s largest trading partner / 58% of Laos’s exports are sold to China (1) China slowing down will lead to less demand for Laos’s exports (1) less export revenue / worsen current account (1) less total demand (1) less economic growth (1) may not be able to buy more, irreplaceable imports (1). • China is the largest source of foreign investment into Laos (1) less foreign investments will lead to less job creation (1) less employment / higher unemployment (1) lower standards of living (1). Award up to 4 marks for logical reasons why it might not, which might include: • Reduce dependence on China (1) find new markets and investors (1) other countries’ economies could be expanding (1) which could generate more exports (1) and jobs (1). • May lead to fewer environmental problems (1) less pollution (1) higher standard of living (1). • Domestic investors and firms could fill the gap (1) more employment (1) higher GDP (1). 6

Question 29

In 2019, the government of France proposed a 3% tax on the revenue of large firms that advertise and sell products online. This tax may lea…

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2(a) Define redistribution of income. Transfer of income from some individuals (1) to others (1). Tax taken from the rich (1) is spent on the poor (1). Progressive / regressive taxation (1) 2 2(b) Explain two reasons why governments redistribute income. Logical explanation which might include: • Reduce poverty (1) higher purchasing power (1) afford basic necessities (1) e.g. healthcare / education / proper housing (1). • Reduction in poverty reduces social problems / waste of resources (1) as poverty may create e.g. poor health / reduce productivity (1). • To promote equity / greater equality of income (1) reducing the gap between rich and poor (1) • To increase incentives if redistribute from poor to rich (1) may increase effort / enterprise (1) 4 One mark each for each of two reasons identified and one mark each for each of two explanations. 2(c) Analyse the economic effects of a reduction in a country’s export of services. Coherent analysis which might include: As export of services decreases, total exports will decrease (1) total demand decreases (1) less inflation (1) lower economic growth / lower GDP (1). Less export of services, less demand for service workers (1) less job opportunities / higher unemployment (1). Higher current account deficit / less current account surplus (1) reduces ability to buy imports (1) lower standards of living (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not supply-side policy measures encourage firms to operate in an economy. In assessing each answer, use the table opposite. Why they might encourage firms: • Makes it easier to hire and fire workers might lower costs of employing workers to firms. • Better skills could increase productivity. • Encouraging more workers into the labour market could increase the supply of workers. • Reduction in trade union power can reduce cost / make it easier to start a business. • Lower direct taxes will encourage more firms to start up. • Deregulation will reduce barriers to operate in an economy. • Privatisation will allow private firms to invest in the economy. • Subsidies will give firms an incentive to stay in the country. Why they might not encourage firms: • Less job security could decrease productivity, increasing cost of production for firms. • Costs of hiring workers might still be lower elsewhere. • Supply side measures (e.g. labour market reforms) may take a long time before the effects on the economy are apparent • Lower direct taxes may reduce the government’s ability to spend on education / training which will increase firms’ cost of production • Deregulation may enable other firms to engage in unfair practices • There may be a fear that subsidies might be withdrawn and if there is a fall in demand MNCs will not want to stay in the country anyway • Other governments may be giving larger subsidies 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 2(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 30

The US operates a mainly market economic system. Life expectancy in the US fell in 2017, for the third year in a row. Although the US has a…

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5(a) Identify two ways a government could reduce income inequality. Two from: • progressive taxation • state benefits • spending on state education / training • spending on state healthcare • equal pay legislation • minimum wage 2 Accept higher taxes on high incomes and lower taxes on low incomes but do not accept increasing taxes on incomes as this is TV. Redistributing income is TV – could be redistributing from the poor to the rich. 5(b) Explain two advantages of a market economic system. Logical explanation which might include: Consumer sovereignty (1) with consumers deciding what goods and services are produced (1). Low prices (1) due to competition (1). High quality (1) due to innovation (1). Consumer choice (1) variety of products produced (1). Greater efficiency (1) due to the profit motive (1). Automatic adjustment to changes in demand and supply / quick response to changes in demand and supply (1) via changes in price / with use of the price mechanism / increase consumer satisfaction (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Nothing for no taxes. Question Answer Marks Guidance 5(c) Analyse why life expectancy may decrease. Coherent analysis which might include: Incomes may fall (1) lowering living standards / reducing access to basic necessities (1). Reduction in healthcare (1) e.g limited access to medication (1). Reduction in education (1) people may lead less healthy lives (1) more smoking (1) more ‘junk food’ (1) less exercise (1). Rise in poor nutrition / malnutrition (1) eating more low-quality food / people not having enough food (1). More pollution (1) making people more susceptible to diseases (1). May be spread of new diseases / pandemics (1) wars / civil unrest (1). Climate change (1) may result in more natural disasters (1). More people employed in jobs with poor working conditions / more dangerous jobs (1) resulting in more sickness / accidents (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures can reduce inflation. In assessing each answer, use the table opposite. Why they might: • they may increase total (aggregate) supply, reducing cost-push inflation • they can allow total (aggregate) demand to increase without causing inflation • education and training can increase labour productivity, reducing labour costs • a cut in direct taxes may increase the incentive to be more productive and more innovative • labour market reforms may reduce power of trade unions and reduce rise in wages • subsidies can lower costs of production Why they might not: • privatisation does not always increase competition and so does not always lower prices • education and training can be expensive, may be in areas that are not in demand and will have a time lag • cuts in income tax may increase total (aggregate) demand as well as total (aggregate) supply • resource limitations / unable to increase productive capacity due to e.g. limited land available • inflation may be caused by rise in price of raw materials which have no domestic substitute e.g. oil 8 Only accept lower interest rates, if linked to increasing total supply. 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 31

(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…

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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 32

Bulgaria is part of the European Union (EU), but it has much lower corporation tax rates than other EU members. However, regulation by the …

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

Question 33

(a) Calculate New Zealand’s GDP per head in 2020. [1] (b) Identify two external costs arising from the milk and car industries. [2] (c) Exp…

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1(a) Calculate New Zealand’s GDP per head in 2020. $39 000 (1) 1 Accept the correct figure without the $ sign. 1(b) Identify two external costs arising from the milk and car industries. Air pollution (1). Damages the environment (where wild animals live) (1). 2 If more than two costs given, consider the first three. 1(c) Explain the impact on a cow farmer’s profits if they are unable to find a different source of revenue. Profit is revenue minus costs (1) Profits will fall (1) due to reduction in quantity sold / decrease in supply (1). Less revenue (1) less income for farmers (1) farmers may become unemployed (1). 2 1(d) Explain the two plans that the New Zealand government has to reduce external costs to the environment. Logical explanation which might include: End imports of petrol-powered cars by 2032 (1) decreasing the number of petrol−powered cars in New Zealand / reduce use of fossil fuels / by imposing an embargo/increasing the price of petrol-power cars / increasing usage of greener / electric cars (1). Limit the number of cows that each farmer can have (1) decreasing the amount of air pollution emitted by cows / less habitat damaged by cows / government fines to those who have more cows than permitted/ imposing regulations (1). 4 One mark each for each of two plans identified and one mark each for each of two explanations. Accept milk production for keeping cows. Question Answer Mark Guidance 1(e) Draw a demand and supply diagram, to show the effect of a cheaper substitute on the market for petrol- powered cars. Demand and supply diagram: Axes correctly labelled – price and quantity or P and Q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 4 Question Answer Mark Guidance 1(f) Analyse the relationship between a country’s share of world GDP (%) and its share of world carbon dioxide emissions (%). Coherent analysis which might include: Expected relationship: Positive relationship (1) – the lower / higher total GDP as a % of world GDP, the lower / higher the carbon dioxide emission as a % of world GDP (1). Supporting evidence: up to 2 marks for relevant evidence e.g.  New Zealand has the lowest total GDP as a % of world GDP and lowest level of carbon dioxide emission as a % of world carbon dioxide emissions  Thailand has the second lowest total GDP as a % of world GDP and second lowest level of carbon emissions as % of world carbon dioxide emissions China and USA have the two highest total GDP as a % of world GDP and highest level of carbon emissions as a % of world carbon dioxide emissions. Analysis of expected relationship: As countries produce more goods and services which increases their GDP (1), their carbon emissions also increase as more factories / energy / transport needed for production (1). Exception: China/United States (1) China has 2nd highest GDP as a % of world GDP after the US but China has the highest carbon dioxide emission as a % of world GDP (1). Analysis of exception: e.g. China has a larger secondary sector / higher percentage of heavy industries / larger population (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Mark Guidance 1(g) Discuss whether or not an increase in exports of clean and green products will help the New Zealand government achieve its macroeconomic aims. Award up to 4 marks for logical reasons why it might, which may include:  Increase economic growth / GDP (1) as increased exports lead to increased total demand (1) clean and green products may have higher demand (1) and higher prices (1)  Reduce its current account of the balance of payment deficit (1) as value of exports will increase (1) increasing net exports (1) more inflow into the current account / increase in trade in goods inflow (1)  Decrease unemployment (1) as more goods produced (1) requires more workers (1) reduce poverty (1)  Improved HDI (1). Award up to 4 marks for logical reasons why it might not, which may include:  Not all firms benefit (1) as some firms which are less clean / green will lose revenues / profits (1) cut costs (1) hire less workers (1) increase unemployment (1)  Increased total demand (1) will lead to inflation (1) firms increase the price of their products since demand is higher (1) lower purchasing power of consumers / lower real income (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease … 1 ... because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Mark Guidance 1(h) Discuss whether or not job losses caused by a change to a carbon−neutral economy will be harmful. Award up to 4 marks for logical reasons why there might be negative economic consequences, which may include:  increased poverty (1) as fewer jobs means less income (1) can’t afford basic necessities (1) such as shelter / clothes / food (1) possibility of increased crime (1)  huge losses in the other firms that serve these communities (1) less spending in local shops (1) less revenue / profit (1) may have to shut down (1)  lost output (1) economy not producing at its full capacity (1) unused resources (1) actual output lower than maximum output (1) inefficient allocation of resources due to the existence of labour who wants to work but can’t find work (1)  lost skills / lost motivation (1) occupational immobility /can't find new jobs (1) cost of retraining workers (1)  double effect on government finances (1) unemployed don’t pay taxes (1) but get benefits (1) reduce government revenue (1)  may decrease government expenditure on other areas (1)  Unequal burden (1) structural unemployment (1) increases inequality (1) youth and older individuals more likely to be unemployed (1). Award up to 4 marks for logical reasons why negative economic consequences above may not occur:  temporary (1) frictional unemployment (1) as other jobs in carbon−neutral economy are available (1) 6 Question Answer Mark Guidance 1(h)  an economy with a high mobility of factors of production could avoid such problems (1) workers can move to other industries (1) develop skills for jobs in the carbon−neutral economy (1) if education / training is provided (1).  new jobs may be higher paid (1) boosting total demand (1)  better air quality leads to better health (1) improving productivity (1)  government spends less on health care (1) allowing more to be spent elsewhere e.g. on education and training (1).

Question 34

A third of the world’s ski resorts are located in the Alps. Prices for holidays in the Alps are relatively higher than in other regions. Th…

Accepted Answer

2(a) State how average revenue is calculated. 2 Accept quantity without ‘sold’ as the divisor. Average revenue = total revenue (1) / quantity sold (1) 2(b) Explain two advantages of a large firm. 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Logical explanation which might include: Accept explanation of two different economies of scale. economies of scale (1) (average) cost lower than smaller firms Credit another example of economies of scale e.g. (1) financial economies. finance / capital available (1) ease of getting loans from banks (1) technological development (1) high productivity (1) large customer base (1) high revenue / profits (1) may be well-known (1) increase brand loyalty (1). 2(c) Analyse the possible causes of higher prices of a product 6 Accept any relevant example of a fall in the price of a such as ski holidays in the Alps. complement e.g. ski equipment, as a reason for higher demand. Coherent analysis which might include: • higher demand / higher popularity (1) from e.g. advertisements / reputation (1) rise in quality (1) rise in price of a substitute / another type of holiday (1) • more inelastic demand (1) quantity demanded less responsive to changes in price (1) e.g, due to higher brand loyalty (1) • higher income of target market (1) luxury good (1) • lower supply (1) e.g. due to better quality (1) • more inelastic supply (1) quantity supplied less responsive to changes in price (1) more regulations (1) • higher cost of production (1) higher labour costs (1) higher minimum wage (1) higher living costs of workers in ski industry (1) • investment in improving facilities e.g. ski lifts (1) may raise costs in the short run (1). 2(d) Discuss whether or not government intervention is 8 Level Description Marks beneficial for firms. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and logical analysis to evaluate economic • government could provide subsidies to reduce firms' costs / issues and situations. One side of the help boost output / help during natural disasters / help firms argument may have more depth than survive the other, but overall both sides of the • government could reduce taxes to reduce cost of production argument are considered and • minimum prices could increase revenues of firms developed. There is thoughtful • government spending on education could increase skills of evaluation of economic concepts, workers terminology, information and / or data • government spending on benefits could increase demand appropriate to the question. The for products discussion may also point out the • regulations controlling monopolies could promote possible uncertainties of alternative competition. decisions and outcomes. Why it might not: 2 A reasoned discussion which makes 3–5 use of economic information and clear • government regulations could increase cost of production analysis to evaluate economic issues • minimum wage could add to firms' costs, reducing profits and situations. The answer may lack • indirect taxes or direct taxes could reduce firms’ profits some depth and development may be • maximum prices could reduce firms’ revenues one-sided. There is relevant use of • trade restrictions could limit competition. economic concepts, terminology, information and data appropriate to the question. 2(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 35

One reason why the price of houses in cities such as Hong Kong, London, and New York is very high, is the low price elasticity of supply of…

Accepted Answer

5(a) Identify two monetary policy measures. 2 Accept, but do not expect, quantitative easing as an alternative to money supply. If more than two measures Changes in: interest rates (1) money supply (1) foreign are given, consider the first three. exchange rates (1). 5(b) Explain two microeconomic policy measures that can be 4 Examples could be related to any market – does not taken by a government to reduce the price of a product. have to be housing market. Logical explanation which might include: If more than two policy measures are given, consider the first three. • maximum prices (1) e.g. maximum rents / rent controls (1) • subsidies (1) reduce cost of production (1) e.g. housing subsidies (1) • nationalisation (1) government sets lower prices (1) • direct provision of goods (1) increase supply of goods (1) e.g. government providing public housing (1) • regulation (1) e.g. prohibiting foreign house buying (1) reduce demand (1) • deregulation (1) allowing more firms in the market / more competition (1) • lower (sales) taxes (1) if sellers reduce prices as a result (1). 5(c) Analyse the key determinants of price elasticity of supply of 6 Also accept an approach based on why PES may be a product. inelastic as shown in third bullet point. Coherent analysis which might include: • availability of stocks (1) finished goods which are unsold (1) with a high level of stocks, supply will be elastic (1) • level of spare capacity (1) factors of production available but unused (1) e.g. workers not working full time (1) supply will be more elastic if levels of spare capacity are high (1) • time period under consideration (1) short run / long run (1) short run has inelastic supply (1) with at least one fixed factor of production (1) which makes it more difficult to produce (1) long run has elastic supply (1) when all factors of production are variable (1) making it easier to produce more (1) • difficulty of production process / length of production time (1) produce that is easy to produce will be more elastic (1) e.g. bread is easier to produce compared to a smartphone (1). 5(d) Discuss whether or not trade unions benefit workers. 8 Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 accurately examines both sides of the Why they might: economic argument, making use of economic information and clear and • collective bargaining can result in higher wages logical analysis to evaluate economic • better working hours and working conditions can be issues and situations. One side of the negotiated argument may have more depth than • trade unions may protect employment giving more job the other, but overall both sided of the security argument are considered and • trade unions may influence governments to give favourable developed. There is thoughtful policies for workers, e.g. maternity pay evaluation of economic concepts, • trade unions may provide services for workers e.g. training. terminology, information and / or data appropriate to the question. The Why they might not: discussion may also point out the possible uncertainties of alternative • higher wages negotiated by trade unions may increase decisions and outcomes. costs of production, firms may reduce number of workers to cut costs 2 A reasoned discussion which makes 3–5 • may promote industrial actions / strikes, reducing use of economic information and clear productivity, reducing wages of workers analysis to evaluate economic issues • may reduce competitiveness of the economy, reducing and situations. The answer may lack investment and therefore reducing the demand for workers. some depth and development may be • workers may not agree with the objectives of a trade union one-sided. There is relevant use of • workers may feel that the fees to join a trade union are too economic concepts, terminology, high compared to the benefits they could receive from information and data appropriate to the membership. question. 5(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 36

(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 37

In the US, the supply of meat from emus, a large bird, is price-elastic. Recently, US farmers have switched to keeping other livestock and …

Accepted Answer

4(a) Define elastic supply. 2 The percentage change in quantity supplied is greater than the percentage change in price (2). Change in supply is greater than the change in price / PES > 1 (1). 4(b) Explain two reasons why a government may subsidise 4 One mark each for each of two reasons identified and one food production. mark each for each of two explanations. Logical explanation which might include: Increase output (1) overcome a shortage (1). Reduce price / cost (1) help consumers / reduce poverty / give access to a basic necessity / make food more affordable (1). Increase quality (1) improve nutrition / increase health of population / raise life expectancy (1). Increase incomes of farmers / farm workers (1) raise their living standards of farmers / stop farmers going out of business (1). Reduce imports of food / increase exports of food (1) improve the current account of the balance of payments / agriculture is a strategic industry / reduce dependency on other countries for an essential good (1). Increase employment / reduce unemployment (1) help in rural areas (1). 4(c) Analyse what influences a farmer’s demand for labour. 6 Coherent analysis which might include: Demand for the food they produce (1) derived demand / a higher demand for food will encourage farmers to expand their output / employ more workers (1) more profits earned (1). Wage rates (1) the lower the wage rate, the less it will cost to employ workers (1). Skills of workers (1) the more skilled workers are, the more productive they will be (1). Price of other factors of production / costs of production (1) if the price of e.g. agricultural drones falls, demand for labour may fall (1). Productivity of other factors of production (1) advances in technology may result in farm workers being replaced by machinery (1). Type of farming (1) some farming is more labour-intensive / capital-intensive (1). Size of farm (1) large farms likely to employ more (1). Subsidies (1) subsides may encourage a farmer to expand output and employ more workers (1). Seasons (1) demand for labour is likely to be higher during harvesting (1). 4(d) Discuss whether or not people living in cities have a 8 The answer may be from the view of why people living in higher living standard than those living in rural areas. rural areas may have a higher living standard. In assessing each answer, use the table opposite. Level Description Marks Why they might: 3 A reasoned discussion which 6–8 • may be more job opportunities accurately examines both sides of the • may be higher incomes economic argument, making use of • may be more forms of entertainment economic information and clear and • may be shorter distance to schools and shops logical analysis to evaluate economic • may be more access to healthcare facilities issues and situations. One side of the • may be better quality education/ healthcare. argument may have more depth than the other, but overall, both sides of the Why they might not: argument are considered and • may be more traffic congestion developed. There is thoughtful • may be overcrowding evaluation of economic concepts, • air and noise pollution levels may be higher terminology, information and/or data • stress may be high appropriate to the question. The • higher cost of living in cities. discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes 3–5 use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 38

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

Accepted Answer

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

Question 39

Saudi Arabia’s economic system may change in the future. The country’s central bank is dealing with more private sector banks. In 2020, the…

Accepted Answer

3(a) Identify two types of economic system. 2 Also accept but do not expect: planned / command. No marks for free market system or controlled market Market (1) mixed (1). system. 3(b) Explain two functions of a central bank. 4 One mark each for each of two functions identified and one mark each for each of two explanations. Logical explanation which might include: If more than two functions are given, consider the first three. Operates monetary policy / controls inflation (1) e.g. sets the rate of interest / manages the money supply (1). Carries out quantitative easing (1) to stimulate economic activity during a financial crisis (1). Issues notes and coins (1) often the only bank allowed to do so (1). Acts as bank to the government (1) receives payments to the government and makes payments on behalf of the government / manages the national debt (1). Acts as lender of last resort (1) lends to commercial banks in difficulties (1). Holds reserves of foreign currency (1) to influence the exchange rate (1). May regulate banking system (1) ensuring banks do not take too many risks (1). 3(c) Analyse the advantages of a young population. 6 Coherent analysis which might include: A young population may: be more up to date with modern technology (1) may have received more education / training / are more skillful (1) be more productive (1) increase output (1). add to the labour force (1) increasing productive capacity (1) greater tax revenue (1) government can spend more e.g. to improve infrastructure (1). lead to lower government expenditure on pensions (1) and health services for the elderly (1) so can spend more on factors leading to economic growth e.g. education / infrastructure (1). be more geographically mobile (1) e.g. have fewer family ties (1). be more occupationally mobile (1) less attached to particular jobs / broader range of skills (1). spend more of their income than older people (1) be more innovative (1) able to start their own businesses (1) increasing output / wealth (1). be physically fit / stronger (1) less likely to be off sick (1). be a more skilled labour force (1) will attract investment from abroad / FDI (1). 3(d) Discuss whether or not a ban on cars in a city will 8 Level Description Marks benefit the city’s households and firms. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical analysis • may reduce air and noise pollution to evaluate economic issues and • avoid traffic congestion situations. One side of the argument may • reduce staff absence through illness have more depth than the other, but • avoid accidents overall, both sides of the argument are • greater demand for public transport considered and developed. There is • greater employment in public transport thoughtful evaluation of economic • pedestrianised shopping centres may attract more concepts, terminology, information and/or customers data appropriate to the question. The • free up police and court time discussion may also point out the possible • raise quality of life uncertainties of alternative decisions and • frees up funds to spend on better education / health / outcomes. housing. 2 A reasoned discussion which makes use 3–5 Why it might not: of economic information and clear analysis • journey times by e.g. bikes may take longer to evaluate economic issues and situations. The answer may lack some • people can enjoy driving depth and development may be one-sided. • may reduce visitors to the area, lowering demand for There is relevant use of economic shops concepts, terminology, information and • may lower house prices data appropriate to the question. • car sales firms will move out of the area • reduces labour mobility. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Note: level 1 would be knowledge and understanding of Some reference may be made to terms such as ban, city, household or firms or just economic theory, with occasional identification of points. understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Question 40

Some firms in Monaco have experienced external growth. Firms in Monaco pay high wages. Workers in Monaco benefit from fiscal policy which c…

Accepted Answer

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

Question 41

(a) Calculate Tunisia’s balance on the current account of its balance of payments. [1] (b) Identify two qualities of a good tax that the Tu…

Accepted Answer

1(a) Calculate Tunisia’s balance on the current account of its balance of payments. –$2.4bn 1 Accept –2.4bn. Also accept –6.8 or –6.9 billion TND. 1(b) Identify two qualities of a good tax that the Tunisian government aimed to achieve. Efficiency / efficient / the tax should improve market performance / reduce market failure (1). Economical / economy / the tax should raise more in revenue than it costs to collect it (1). 2 If more than 2 qualities are given, consider the first 3. 1(c) Explain one reason why the Tunisian government regulates the price of flour and milk. Reduce poverty (1) flour and milk are basic necessities /essential products / people may be able to buy enough basic necessities / make them affordable / keep price relatively low (1). Or Prevent monopoly firms exploiting their market power (1) stop the firms raising price to a high level (1). 2 One mark for a reason identified and one mark for an explanation. Question Answer Marks Guidance 1(d) Explain two ways the Tunisian government tried to reduce frictional unemployment. Logical explanation which might include: Increased the labour market information available to workers and employers (1) so workers would be more aware of job vacancies / skills and qualifications required / employers more aware of those seeking jobs / may enable workers to move more quickly/easily between jobs / reduce search time / increase mobility of workers (1). Did not raise unemployment benefit (in line with inflation) (1) so, the purchasing power of unemployment benefit would fall / increase the incentive to work (1). 4 One mark for each of two ways identified and one mark for each of two explanations. If more than 2 ways are given, consider the first 3. Question Answer Marks Guidance 1(e) Analyse the relationship between the change in Tunisia’s average wage and the inflation rate. Relationship (up to 2 marks) Direct relationship / positive relationship (1) as change in the average wage increases so does the inflation rate / if change in average wage / rise in average wage falls so does the inflation rate / both fall and rose together / same trend (1). Evidence (up to 3 marks) 2016 – 2017 / 2018 both the average wage / change in average wage and inflation rate rose (1). Between 2014 – 2018, the average wage rose more rapidly than the inflation rate (1) real wages would have increased between 2014 – 2018 (1). Between 2018 – 2020 / in 2019 – 2020, the inflation rate was higher than the rise in the average wage (1) real wages would have fallen (1). Between 2014 – 2015/2016 / 2018 – 2019/2020 both the change in average wage and inflation rate fell (1). 2018 had the highest rise in the average wage and the highest inflation (1). 2016 had the lowest increase in the inflation rate but not the lowest increase in the average wage / 2020 had the lowest increase in the average wage but not the lowest inflation rate (1). Over the whole period the inflation rate rose while the increase in the average wage fell (1). Explanation (up to 2 marks) A rise in the average wage may increase costs of production / cause cost push inflation / a higher inflation rate will encourage workers to press for a wage rise (1). A rise in the average wage may increase disposable income / consumer expenditure / total demand / cause demand-pull inflation (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note: average wage did not fall. Question Answer Marks Guidance 1(f) Analyse, using a demand and supply diagram, how an increase in wage costs would affect the market for shoes. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: An increase in wage costs would increase costs of production which may raise price (1). 5 Note: higher price needs to be linked to higher costs of production/higher costs/higher wage costs. Question Answer Marks Guidance 1(g) Discuss whether or not the Tunisian government should continue to subsidise electricity production. Award up to 4 marks for logical reasons why it might, which may include:  reduce costs of producing electricity (1) increase supply of electricity (1) lower price of electricity (1) make electricity more affordable / reduce poverty (1)  lower costs of firms that use electricity (1) which may encourage them to expand / attract MNCs / increase output / increase GDP / cause economic growth (1) increase employment / lower unemployment (1)  reduce inflation / firms lower prices (1) make Tunisia’s products more internationally competitive / increase exports / lower imports / improve the current account balance (1)  may reduce pollution / external costs (1) if subsidising green sources of energy (1). Award up to 4 marks for logical reasons why it might not, which may include:  electricity firms may rely on the subsidy (1) may not keep costs low / become inefficient (1) may not pass on the subsidy in the form of lower price (1)  opportunity cost (1) government could spend money on e.g. healthcare (1)  may result in a budget deficit / increase in taxes (1)  may cause pollution / external costs (1) if e.g. coal powered / deplete non-renewable resources (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not a rise in the value of the Tunisian dinar would benefit the Tunisian economy. Award up to 4 marks for logical reasons why it might, which may include:  may reduce inflation (1) imports would be cheaper (1) enable households to buy more imports / higher purchasing power (1) more choice (1) may lower price of some raw materials and/or capital goods (1) increase competitive pressure on domestic firms (1) lower costs of production (1)  lower total (aggregate) demand (1) which may reduce demand-pull inflation (1)  may be taken as an indicator of a strong economy / increase confidence (1) encourage investment / attract MNCs (1)  if demand for exports is price inelastic, export revenue may rise (1). Award up to 4 marks for logical reasons why it might not, which may include:  higher export prices / may reduce exports / export revenue (1) lower price of imports (1) may increase imports / import expenditure (1) reduce international competitiveness (1) increase the deficit / reduce surplus on the current account of Tunisia’s balance of payments (1)  lower net exports may reduce GDP / economic growth (1) which may increase unemployment / reduce employment (1)  may discourage MNCs / investment (1) because of higher cost of setting up in the country (1). 6 Note: lower total demand may be credited on either side but only once. Note: the generic advice above in terms of MNCs. One mark for attract or discourage MNCs. Another mark could be gained by explaining why they may be attracted and another mark for explaining why they may be discouraged.

Question 42

In 2020, wages paid to Mexican workers, including those in the primary sector, fell. This fall contributed to a 9% rise in poverty in the c…

Accepted Answer

2(a) Identify two possible opportunity costs of producing primary sector products. Secondary sector products / capital goods / manufactured goods (1) tertiary sector products / services (1) Wildlife habitats/quality of the ecosystem (1) 2 If more than 2 are given, consider the first 3. Question Answer Marks Guidance 2(b) Explain two policy measures which may reduce poverty. Logical explanation which might include: Introduce / increase minimum wage (1) help low-paid workers / raise income of low-paid workers (1). Provide state benefits (1) e.g. unemployment benefit can enable those who have lost their jobs to purchase basic necessities (1). Reduce indirect taxation (1) tax on goods and services tends to fall more heavily on the poor (1). Provide education / training (1) increase earning potential / income / employment opportunities (1). Job creation schemes / increase jobs in the public sector (1) e.g. expanding state-owned firms / increase employment / raise incomes / Subsidising private sector firms (1) lower prices (1). Reduction in interest rate / expansionary monetary policy (1) encouraging firms to expand / take on more workers (1). Increase in government spending (1) increase employment opportunities (1). Reduce direct taxation / expansionary fiscal policy (1) which may encourage firms to expand and take on more workers / increase disposable income (of the poor) (1). Progressive taxes (1) reduce relative poverty (1). Provide job information (1) reduce frictional unemployment (1). Introduce a maximum price (1) to make necessities more affordable (1). 4 One mark each for each of two policy measures identified and one mark for each of two explanations. If more than 2 policy measures are given, consider the first 3. Explanation marks e.g. reduce unemployment can be given without identification of policy measure as a candidate may write e.g. use a policy measure that will reduce unemployment. Question Answer Marks Guidance 2(c) Analyse how the closure of firms may harm consumers. Coherent analysis which might include: May reduce competition (1) increase monopoly power / market share (1) may result in higher prices (1) may not innovate / spend on R&D / become inefficient / complacent (1) lower quality (1) slower to respond to changes in consumer demand (1). May mean that consumers have to travel further to purchase products (1) may take time to find alternatives (1) there may be a reduction in the range of products available / less choice / less variety (1) lower quantity / it may not be possible to buy some products (1). May reduce consumer confidence (1) lowering quality of life / reduce consumer welfare / living standards (1). May reduce external economies of scale (1) example (1) raise average cost (1) which may raise price (1). 6 Focus should be on consumers. One mark in total for higher price. Question Answer Marks Guidance 2(d) Discuss whether or not a government should encourage people to walk to school and work. In assessing each answer, use the table opposite. Why it might:  may make people healthier  may raise productivity  may reduce healthcare costs  may reduce pollution and traffic congestion  may be less need for car parking space. Why it might not:  may not be safe  may make people late  may increase stress and lower productivity  may reduce demand for bus and train use  may cause some bus and train drivers to lose their jobs  may restrict job choice due to distance from home. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Marks Guidance 2(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 43

(a) Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021. [1] (b) Identify two examples of external costs ignored by…

Accepted Answer

1(a) Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021. 27.3%, 27.27%, 27.2%, 27% 1 Accept without the percentage sign. 1(b) Identify two examples of external costs ignored by the free market. air pollution (1) rising sea levels/floods (1) disease / mosquitoes (1) climate change (1) 2 1(c) Explain how real GDP per head can be an indicator of living standards. Real GDP per head has been adjusted for population / inflation / takes account of the cost of living (1). Low real GDP per head leads to a fall in living standards (1) because lower GDP per head would mean lower income / real GDP per head is average income (1) reducing consumption / material wellbeing / influencing how much people can spend / whether they can buy basic necessities (1). 2 Accept answers based on either higher or lower GDP per head. Question Answer Mark Guidance 1(d) Explain two ways climate change can lead to a fall in the Human Development Index (HDI) of Indonesia. Logical explanation which might include: Schools have been flooded (1) reducing education levels / mean years of schooling / expected years of schooling (1). Floods have led to an increase in diseases (transmitted through water and mosquitoes which breed in water) (1) reducing health level / life expectancy / increasing death rate (1). Farmland has been submerged, (cutting off a vital source of income of many farmers) / roads have been destroyed (1) reducing income levels / GNI per capita / GDP per capita / living standards (1). 4 One mark each for each of two ways identified and one mark for each of two explanations. Accept an explanation combining two different ways, e.g. increase in diseases reducing education levels. 1(e) Draw a production possibility curve (PPC) diagram to show the impact of climate change on an economy such as Indonesia. PPC diagram: Axes correctly with different outputs (1). Initial curve drawn as a curve/line sloping downward to the axes (1). New curve drawn as a curve/line sloping downward to the axes (1). Shift to the left indicated by arrow(s) or letters or numbers e.g. PPC1 to PPC2 (1). 4 Question Answer Mark Guidance 1(f) Analyse the relationship between GDP and government spending on the environment. Coherent analysis which might include: Expected relationship: direct relationship / move in the same direction (1) higher GDP may lead to higher government spending on the environment / higher government spending on the environment may increase GDP (1). Supporting evidence: Japan has highest GDP and highest spending on environment (1) France has second highest GDP and second highest spending on environment (1) Thailand has lowest GDP and lowest spending on environment (1). Analysis: Higher GDP may create more pollution, therefore countries have more to spend on environment / high government spending on the environment can reduce pollution/climate change (1). Higher tax revenue / more education and so more concern for the environment / a cleaner environment can raise productivity (1). Higher GDP therefore more developed and can spend more on other objectives such as protection of the environment (1). Exception: Switzerland/Indonesia (1) Switzerland has lower GDP than Indonesia but higher expenditure on environment/ Indonesia has higher GDP and lower expenditure on environment than Switzerland (1). Analysis of the exception: These countries may be facing different pressures on government spending e.g. higher level of poverty (1). 5 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Mark Guidance 1(g) Discuss whether or not internal migration benefits an economy such as Indonesia. Award up to 4 marks for logical reasons why it might, which may include:  higher production of different crops (1) more income / higher living standards (for farmers) (1)  less pressure on government resources / natural resources (1) e.g., less overcrowding (1) less spending on healthcare if people move away from areas of flooding/ mosquitoes (1)  labour force may increase in some areas (1) moving from low productivity areas to high productivity areas(1) increasing output (1)  housing may be cheaper / more available in some areas (1) reducing cost of living for workers (1)  migration may be to high wage areas (1) boosting total demand (1)  fewer resources may be wasted (1) if migration is to an area where they are under-used e.g. schools, hospitals (1). Award up to 4 marks for logical reasons why it might not, which may include:  as workers migrate, it could also lead to the collapse of entire communities (1) without workers (1) less demand for goods and services in the area (1)  increased inequality between more mobile labour and less mobile labour (1) as some workers who cannot move will not be able to find jobs (1) and gain higher income (1)  more pressure on government resources in areas they move to (1) more overcrowding in those areas / housing shortages (1) external costs (1) more pollution / congestion (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Accept the reverse argument, (e.g. for Q1g internal migration may be to a less polluted area) but recognise that each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Mark Guidance 1(h) Discuss whether or not relocating the capital city from Jakarta will benefit the Indonesian economy. Award up to 4 marks for logical reasons why it might, which may include:  the new city will provide new job opportunities (1) decreasing unemployment in Indonesia (1) increasing incomes / economic growth (1)  reduce inequality between the different regions of Indonesia (1) reducing social dissatisfaction / increase standards of living of everyone in Indonesia (1)  better environment as new city is carbon-neutral / less pollution (1) reduced external costs (1)  better health for population of Indonesia (1) higher productivity (1)  fewer floods that require expenditure to repair the damage (1)  foreign investors may be more willing to relocate to Indonesia (1). Award up to 4 marks for logical reasons why it might not, which may include:  cost of the move may be too high (1) opportunity cost in terms of other areas of government spending (1) e.g. education / healthcare in other regions (1) could result in higher taxes / government budget deficit (1)  the relocation is expected to benefit only a small number of people who already have the financial capital / connection to the government (1) inequality could rise (1)  people may be reluctant to leave Jakarta (1) causing the resources invested in the new city to be wasted (1). 6

Question 44

Since 2020, the revenue gained in the video gaming industry has been higher than the revenue in the film industry. The fastest growing part…

Accepted Answer

3(a) Identify two pairs of products, not in the gaming industry, which are substitutes.  tea and coffee (1)  Netflix and Disney streaming services (1)  iPhones and Android Phones (1)  glasses and contact lenses (1) 2 Accept any relevant pairs of products: 1 mark for each pair. 3(b) Explain two reasons why a firm’s revenue may increase. Logical explanation which might include:  higher demand (1) due to e.g. increase in income / successful advertising / change in taste / fashion (1)  change in price of the product (1) if demand is inelastic (1) a rise in price will cause a rise in revenue (1) / if demand is elastic (1) a fall in price will cause a rise in revenue (1)  increased market power / market share / monopoly (1)  price of substitutes increased / fewer substitutes available (1) demand shifted to this product (1)  price of complements decreased (1) raising demand for the complement (1)  higher incomes of consumers (1) increasing affordability to buy the product (1)  firm selling higher quality product (1) more consumers want to buy the product (1)  government subsidy received (1) extra source of revenue (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. Do not award for decreased costs or increased profits. Question Answer Mark Guidance 3(c) Analyse two economic consequences of having a large proportion of the population aged under 16. Coherent analysis which might include:  requirement for substantial spending on education (1) opportunity cost for other spending (1) e.g. healthcare / infrastructure / any examples of other spending (1) high demand for teachers (1)  high dependency ratio (1) few income earners and many dependents (1) reduced tax revenues (1) lower living standards (1) income has to be shared between many people (1)  low levels of economic activity (1) young population not in the labour force / not working (1) lack of experienced workers (1) less productivity (1) smaller GDP / lower economic growth (1)  greater demand for items consumed by children e.g. toys (1) smaller demand for items consumed by adults e.g. cars (1)  future economic growth potential high (1) when young reach adulthood they enter the labour force (1) increasing the supply of labour (1) lowering labour costs (1) encouraging investments (1). 6 Question Answer Mark Guidance 3(d) Discuss whether or not it would benefit the economy if a government imposed regulations on video game use by young people. In assessing each answer, use the table opposite. Why it might:  government can ban a product or limit the quantity allowed to be bought, decreasing demand for the product  government can impose age limits on certain products  government can ensure the product produced doesn’t create too many external costs e.g. violent crime  improve educational achievement, skills of worker, higher output  improve health, reduce healthcare costs  reduce consumption of a demerit good i.e. violent video games. Why it might not:  policing might not be effective  unofficial / illegal markets could be formed, government spending required to police them  opportunity cost, spending on e.g. healthcare instead of policing  could increase unemployment in the video gaming industry  could reduce GDP / economic growth if the industry is significant  could reduce tax revenue if games are subject to tax  video games can be creative, giving participants skills  could reduce exports and worsen the current account balance. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Mark Guidance 3(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 45

In 2021, the US had a trade in goods deficit on the current account of its balance of payments. The US has many firms in a wide range of in…

Accepted Answer

4(a) Define a trade in goods deficit. Expenditure on imports (of goods) exceeds revenue from exports (of goods) (2). Imports exceed exports (1). 2 4(b) Explain two ways firms can be classified. Logical explanation which might include: By stage (1): primary / secondary / tertiary (1) according to the product produced (1). By sector (1) private sector / public sector (1) according to who owns the firm (1). By size (1) according to amount of output produced / number of workers employed (1). By location (1) MNC or domestically-based (1) according to whether operates in more than one country (1). By level of competition (1) may be a monopoly or competitive firm (1). By use of factors of production (1) capital intensive or labour intensive (1). 4 One mark each for each of two ways identified and one mark for each of two explanations. Question Answer Mark Guidance 4(c) Analyse why a government may protect its country’s industries from foreign competition. Coherent analysis which might include: To improve / stop decline of the balance of payments (1) by increasing exports / reducing imports (1) increasing economic growth (1). To protect infant (sunrise) industries (1) allow growth in order to take advantage of economies of scale (1) charge lower prices (1). To protect declining (sunset) industries (1) allow industries to decline gradually (1) unable to replace workers leaving / retiring (1) to protect jobs / avoid rising unemployment (1). To protect strategic industries (1) to ensure supply of e.g. food (1) not disrupted by e.g. economic sanctions (1). To protect industries from unfair competition (1) e.g. dumping (1) government subsidies (1). 6 Question Answer Mark Guidance 4(d) Discuss whether or not a government should increase its spending on healthcare. In assessing each answer, use the table opposite. Why it should:  to prevent illness / the spread of diseases / reduce death rates  may improve productivity  healthcare may be under-consumed  healthcare is a merit good  the poor may not be able to afford healthcare  may increase life expectancy  may increase employment in healthcare  may boost total (aggregate) demand / economic growth  may reduce unemployment  may increase government tax revenues. Why it should not:  increased cost of healthcare may cause a budget deficit  may have to raise taxes  increased spending may cause inflation  opportunity cost e.g. spending on education  private sector provision may be more efficient  doesn't guarantee higher quality healthcare. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 Question Answer Mark Guidance 4(d) Level Description Marks 0 A mark of zero should be awarded for no creditable content. 0

Question 46

(a) Calculate the percentage of the Jordanian labour force employed in the secondary sector. [1] (b) Identify two components of the current…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the percentage of the Jordanian labour force 1 Accept 19. employed in the secondary sector. 19% (1). 1(b) Identify two components of the current account of 2 If more than two suggested components are given, consider Jordan’s balance of payments. the first three. Trade in services (1) primary income (1). Accept invisibles for trade in services. 1(c) Explain the main type of unemployment experienced by 2 Faill in demand is not sufficient here for fall in total demand Jordan in 2020. as total demand is given in the source material – must be macro. Cyclical unemployment (1) lower total demand / fall in employment in most industries / number of workers greater Accept ‘demand deficient unemployment for cyclical than the number of jobs available (1). unemployment. 1(d) Explain two advantages the Jordanian economy may 4 One mark each for each of two advantages identified and gain from the mergers between its tourism firms. one mark for each of two explanations. Logical explanation which might include: Lower prices may be linked to either ‘raise output’ etc. or Lower prices (1) may raise output/GDP/employment/living ‘raise exports’ etc. standards / may be the result of taking advantage of Similarly higher quality may be linked to ‘raise exports etc.’ economies of scale (1). or ‘raise output etc.’. Higher quality (1) may raise exports / reduce current account deficit / increase international competitiveness / increase tourism revenue / more foreign currency / may be the result of sharing ideas (1). 1(e) Analyse the relationship between birth rate and average 4 Responses do not have to be in the format suggested but age. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship (up to 2 marks): Accept analysis based on how differences in the average of Countries with a low birth rate are likely to have a high population may affect the birth rate. average age (1) an inverse relationship / negative relationship / move in opposite directions (1). For supporting evidence and the second ‘exception’ mark, comparisons must be made. No marks for just stating the Supporting evidence (up to 2 marks): birth rate and average age figures. Four countries with the lowest birth rates had the highest average age (1) Monaco had the lowest birth rate and the highest average age (1) Niger with the highest birth rate has the lowest average age (1) e.g. Germany has a lower birth rate and a higher average age than Jordan (1). Analysis of expected relationship (up to 2 marks): A low birth rate would mean that children would form a small proportion of the population / a high birth rate may mean children would form a high proportion of the population / it would increase the proportion of people aged over 65 (1). A high birth rate may indicate low living standards / lower income which may be associated with low life expectancy (1). A high average age may mean that there are fewer people of child-bearing age (1). Exception (up to 2 marks): Venezuela or Maldives (1) Maldives had a lower birth rate than Venezuela but the same average age (1). Analysis of exception (up to 1 mark): The average age of a country’s population is also influenced by the death rate and net migration (1). 1(f) Analyse, using a demand and supply diagram, how an 5 increase in population size will affect the market for clothing. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: An increase in population size will increase the number of consumers / increase demand for clothes / price increases (1). 1(g) Discuss whether or not the Jordanian government 6 Apply this example to all questions with the command should spend more on renewable energy. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it should, which may include: Each point may be credited only once, on either side of an • need for more energy due to an increase in population argument, but separate development as to how/why the (1) non-renewable sources of energy will run out / outcome may differ is rewarded. reduced dependency on fossil fuels (1) may reduce import bills (1) Generic example mark • would reduce environmental damage (1) reduce external costs (1) lower pollution (1) reduce extent of Tax revenue may decrease… 1 climate change / global warming / promote sustainable development (1) improve health (1). ...because of reason e.g. incomes may be 1 • cheaper in the longer run (1) solar and wind power are lower. free goods (1) lower costs of production (1) reduce household bills (1). Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous Award up to 4 marks for logical reasons why it should not, argument. which may include: • expensive to build (1) opportunity cost (1) example (1) Tax revenue may increase because of a 1 • relies on weather (1) supplies may be disrupted / different reason i.e. not the reverse of a insufficient / unreliable (1) previous argument e.g. government spending • cost of renewable energy projects may increase with on subsidies may stimulate the economy more high interest than spending on education. • rates (1) may be funded by borrowing (1) may increase taxes (1) • may cause visual pollution (1) e.g. wind turbines (1). 1(h) Discuss whether or not the Jordanian central bank 6 Some points e.g. discouraged spending may be considered should have raised the rate of interest in 2021. from either side but see guidance table on 1f. Award up to 4 marks for logical reasons why it should have, which may include: • total demand predicted to increase / may have reduced total demand (1) encouraged saving (1) discouraged spending / borrowing (1) lowered demand-pull (1) inflation (1) reduced imports (1) • may have attracted more funds for the Jordanian government to borrow / use (1) for e.g. renewable energy projects (1). Award up to 4 marks for logical reasons why it should not have, which may include: • cost of government borrowing would have increased / may have difficulty paying off government debt (1) • investment may have been discouraged (1) lowered economic growth (1) reduced growth in employment / caused unemployment (1) • may have increased the exchange rate (1) foreigners depositing money in the country’s banks / attracted hot money flow (1) raised export prices / lowered import prices / decreased exports / increased imports (1) reduced tourism (1) increased the current account deficit (1).

Question 47

(a) Calculate the average cost of producing a car in Belarus in 2021. [1] (b) Identify two reasons why Belarus is described as a mixed econ…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the average cost of producing a car in Belarus 1 Accept 10 650 or 0.010650million or 0.1065m. in 2021. Needs to be to at least 2 dp e.g. 0.011m $10 650 (1). 1(b) Identify two reasons why Belarus is described as a 2 mixed economy. • There is a public sector / some people work in the public sector / there are state-owned firms / there is government intervention e.g. fining the unemployed (1). • There is a private sector (1). 1(c) Explain the type of inflation experienced by Belarus. 2 Cost-push (1) due to a rise in the price of energy / increase in costs of production of firms (1). 1(d) Explain two reasons why the production possibility 4 One mark each for each of two reasons identified and one curve (PPC) of Belarus may have shifted to the left mark for each of two explanations. between 2011 and 2021. No marks for drawing a PPC diagram. Logical explanation which might include: • a decline in the size of the country’s labour force (1) reduction in the quantity of resources / fewer workers will be likely to reduce country’s ability to produce products (1) • a decrease in the number of students going to university (1) reduce quality of resources / labour skills / productivity / (1). 1(e) Analyse the relationship between life expectancy and 4 Responses do not have to be in the format suggested but HDI value. 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: Note: simply repeating the data is not enough for a mark as • a high life expectancy would be expected to be it is only description whereas the skill being tested is associated with a high HDI value (1) analysis. • positive relationship / direct relationship / move in the same direction (1). Supporting evidence: • two countries with the longest life expectancy have the highest HDI value OR two countries with the lowest life expectancy also have the lowest HDI value (1) • specific reference to a country e.g. Norway had the longest life expectancy and the highest HDI value (1). Analysis of expected relationship: • life expectancy is one of the components of HDI (1) accounts for a third of its value / explanation of how better health / life expectancy raises standard of living (1). Exception: • Belarus / Thailand (1) Belarus has a shorter life expectancy but a higher HDI value (1). Analysis of exception: • there are other components of the HDI: education / GDP (GNI) per head (1). 1(f) Analyse, using a demand and supply diagram, how 5 subsidising the production of milk would affect the market for milk. Coherent analysis which might include: D&S diagram: • axes correctly labelled – price and quantity or P and Q (1) • original demand and supply curves correctly labelled (1) • new supply curve shifted to the right (1) • equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: • reduction in cost of production / increase in supply / increase in quantity traded / reduction in price (1). 1(g) Discuss whether or not the construction of electric 6 Apply this example to all questions with the command vehicle charging stations would benefit an economy. word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d) Award up to 4 marks for logical reasons why it might benefit, which may include: Each point may be credited only once, on either side of an • likely to encourage use of electric vehicles (1) stations argument, but separate development as to how/why the and vehicles are complements (1) outcome may differ is rewarded. • improve the environment (1) reduce external costs (1) including air / noise pollution (1) reduce healthcare Generic example Mark costs / improve health of workers (1) • building the stations / building more electric cars may Tax revenue may decrease… 1 create employment (1) • government / private sector investment / purchase of ...because of reason e.g. incomes 1 electric vehicles may raise total (aggregate) demand (1) may be lower. causing higher output / economic growth (1). Tax revenue may increase 0 Award up to 4 marks for logical reasons why it might not because incomes may be higher benefit, which may include: i.e. reverse of a previous • other forms of transport may have more beneficial argument. effects on the environment (1) e.g. cycling / buses (1) • some people may be reluctant to switch (1) price of Tax revenue may increase 1 electric cars may be too high (1) resources are wasted because of a different reason i.e. (1) not the reverse of a previous • if people do switch, it may cause unemployment (1) in argument e.g. government e.g. oil firms / production of diesel and petrol cars / less spending on subsidies may public transport (1) stimulate the economy more than • Increase in electric vehicles on road (1) causes road spending on education. congestion (1) • Opportunity cost of government investment (1) monies could have been spent e.g. education /health / infrastructure (1) • If economy at full employment (1) investment may lead to demand-pull inflation (1). 1(h) Discuss whether or not people should be fined for being 6 unemployed. Award up to 4 marks for logical reasons why they should be fined, which may include: • if frictional unemployment (1) a fine would encourage workers to put more effort into finding a job (1) spend less time between jobs (1) help move economy towards full employment (1) higher output (1) and economic growth (1) • fines may increase government revenue (1) which could be spent on e.g. healthcare / support to find a job (1) • may not be seeking a job as receive benefits (1) fines may encourage them to find work and reduce government spending on unemployment benefits (1). Award up to 4 marks for logical reasons why they should not be fined, which may include: • may be a lack of suitable jobs available (1) the unemployed may have lacked the skills required (1) may not have been able to move to other areas of the country (1) may have disabilities / ill-health (1) providing support may reduce unemployment more quickly (1) • unemployment may be structural / cyclical (1) it would have been more effective to increase training (1) increase total demand (1) • unemployed may have little income to pay the fine (1) may increase their debt (1) lead to greater poverty / unable to pay for basic necessities (1) affect their mental health / wellbeing / causes depression (1) • may encourage the growth of the shadow/unofficial/informal economy (1) as not registered as unemployed (1) • may reduce wages (1) workers may be forced to accept low-paid jobs (1).

Question 48

Some people in Indonesia play tennis. However, badminton is Indonesia’s favourite sport. The equipment needed to play it, including badmint…

Accepted Answer

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

Question 49

(a) Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP. [1] (b) Identify two external benefits of rainforests. [2…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the value of Gabon’s oil production as a 1 Accept 30 without %. percentage of Gabon’s GDP. 30%. 1(b) Identify two external benefits of rainforests. 2 If more than two benefits given, consider the first three. Two from: • reduce air pollution / pollution / improves air quality (1) • protect against floods (1) • prevent soil erosion (1). 1(c) Explain what effect an increase in tourism may have on 2 No marks for simply saying current account of the balance of Gabon’s current account of the balance of payments. payments increases. • Increase in exports (1) • increase trade in services (invisible) surplus / reduces deficit (1) • Improves the current account balance surplus / reduces deficit (1). 1(d) Explain two reasons why the Gabonese Government 4 One mark each for each of two reasons identified and one wants to reduce reliance on oil. mark each for each of two explanations. Logical explanation which might include: Only these two reasons are acceptable. • Running out of oil / create a shortage (1) revenue from the industry will decline / employment in the industry will decline / GDP will decline /cause recession / conserve for future generations / may need to import oil / price for oil may rise (1). • Oil industry creates water pollution / pollution (1) an external cost / harms health / reduces standard of living / protect the environment / attract tourists (1). 1(e) Draw a demand and supply diagram to show the effect 4 of the discovery of new gold deposits on the market for gold. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between the literacy rate and 5 Responses do not have to be in the format suggested but the percentage of the labour force employed in they should address the expected/normal relationship, offer agriculture. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include: Supporting evidence should involve interpretation, not just Expected relationship: description. Simply stating percentages without analysis of • Generally, an inverse / negative relationship (1) the being high or low gets no marks. higher the literacy rate, the smaller the % of the labour force employed in agriculture (1). Accept as analysis where two countries with different levels of adult literacy and percentage employed in agriculture are Supporting evidence: directly compared. • South Africa had the highest literacy rate and the lowest % of the labour force employed in agriculture (1). • Zambia / Sierra Leone / Mali had the lowest literacy rates and the highest %s of labour force employed in agriculture (1). Analysis of expected relationship: • A high literacy rate may increase the chance of workers gaining jobs in high paid tertiary jobs (1) a low literacy rate may mean workers have to undertake unskilled jobs in agriculture / a high proportion of workers employed in agriculture may mean that high literacy rate is not required (1). Exception: • Gabon (1) Gabon has a high literacy rate but also a high % of the labour force employed in agriculture (1). Analysis of exception: • Some jobs in agriculture are skilled / secondary and tertiary sectors may be small (1). 1(g) Discuss whether or not a government should pay 6 Apply this example to all questions with the command private sector firms to give work experience to word DISCUSS unemployed young people. (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Award up to 4 marks for logical reasons why it should, Each point may be credited only once, on either side of an which may include: argument, but separate development as to how/why the outcome may differ is rewarded. • can enable young workers to develop their skills / raise their productivity (1) increase their confidence / Generic example mark motivation to get a job / get higher paid jobs (1) young people may make mistakes and cost firm money while Tax revenue may decrease 1 being trained (1) • can increase the chances of young people gaining a job because of reason e.g. incomes may be lower. 1 (1) reduce unemployment (1) reduce the cost of unemployment benefits (1) reduce future training costs Tax revenue may increase because incomes 0 (1) increase tax revenue (1) leads to economic growth may be higher i.e. reverse of a previous (1). argument. Award up to 4 marks for logical reasons why it should Tax revenue may increase because of a 1 not, which may include: different reason i.e. not the reverse of a previous argument e.g. government spending • the quality of the work experience may not be good (1) on subsidies may stimulate the economy more the young may be given unskilled jobs (1) poor working than spending on education. conditions / not regulated (1) • opportunity cost [implied] (1) government spending could be used to e.g. improve state education (1) government incurs additional expenditure / raises taxes to pay for it (1) the young may have been employed by the private sector without payment by the government (1) • it may reduce the efficiency of private firms (1) reduce their output (1) firms may be corrupt (1). 1(h) Discuss whether or not a growth in the size of firms in 6 Maximum of 2 marks for just listing different types of Gabon’s textile industry will reduce their average cost economies and diseconomies of scale or just stating of production. economies of scale and diseconomies of scale may be experienced without references to examples. Award up to 4 marks for logical reasons why it might, which may include: Essentially full marks can be gained for identification and explanation of two economies of scale and one diseconomy • labour economies (1) workers can specialise / increase of scale OR one economy of scale and two diseconomies of labour productivity (1) scale. • managerial economies (1) employ specialists (1) • technical economies (1) using advanced capital Note there is no marks awarded for simply stating that equipment (1) average costs may or rise or for drawing a diagram showing • buying / purchasing economies (1) receiving a discount average costs changing as a firm grows in size. as buying in bulk (1) • selling economies (1) reducing transport costs (1) • marketing economies (1) spreads fixed costs over more output (1) • financial economies (1) easier / cheaper to borrow (1) • research and development economies (1) introduce new products / new production methods (1) • risk bearing economies (1) able to suffer fall in demand for one product or supply problems connected to one product (1) • may experience external economies of scale (1) example (1). Award up to 4 marks for logical reasons why it might not, which may include: • difficulty of controlling a large firm (1) may be slower to make decisions (1) 1(h) • communication problems (1) may be more difficult to 6 keep everyone informed (1) • poor industrial relations (1) may be less contact between managers and workers / decreasing productivity (1).

Question 50

(a) Calculate the total financial sector contribution (in $) to Switzerland’s GDP. [1] (b) Identify two microeconomic policy measures. [2] …

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the total financial sector contribution (in $) to 1 Accept $73 billion or 73 billion. Switzerland’s GDP. $72 720 000 000. 7.27  1010 $72.7 billion 1(b) Identify two microeconomic policy measures. 2 Accept organising mergers. maximum prices (1) If more than two suggested measures are given, consider subsidies (1) the first three. 1(c) Explain one reason why overdependence on foreign 2 One mark for the reason and one mark for an explanation. markets is a disadvantage to the Swiss economy. Makes it more exposed to external shocks (1) as anything that happens in other countries could also affect the Swiss economy, for example reduced exports / increased import prices / potential shortages (1). 1(d) Draw a demand and supply diagram to show how a 4 subsidy to solar energy producers would affect the market for solar energy. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(e) Explain two reasons why Switzerland had a current 4 One mark each for each of two reasons identified and one account surplus. mark each for each of two explanations. Logical explanation which might include: If more than two reasons are given, consider the first three. • low inflation (1) price of Swiss exports relatively lower, leading to increased exports / price of domestically produced goods relatively lower leading to decreased imports (1) • high-quality products (1) demand for Swiss exports higher, leading to increased exports / demand for domestically produced goods higher, leading to decreased imports (1) • strong currency (1) has kept cost of imported raw materials in Switzerland low, reducing costs of production (1). 1(f) Analyse the relationship between the global GDP 5 Responses do not have to be in the format suggested but growth rate and the change in the value of the Swiss they should address the expected / normal relationship, offer Franc. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include the following. Expected relationship: generally negative / inverse relationship (1) as the global growth rate falls, the value of the Swiss Franc rises / as the global growth rate rises, the value of the Swiss Franc falls (1). Supporting evidence: fall in global growth rate led to rise in the value of Swiss Franc from 2018–2019 or 2019–2020 (1), rise in global growth rate led to fall in the value of Swiss Franc from 2020–2021 (1). Analysis: Swiss Franc’s status as a “safe haven” currency (1) when investors are unsure about the economy, they usually keep their money in Swiss francs (1). Exception: 2021–2022 (1) where global growth was falling but Swiss Franc was stable / rising only slightly (1). Analysis for exception: Other reasons could affect the value of Swiss Franc (1), for example Switzerland was also affected by the Covid–19 pandemic (1). 1(g) Discuss whether or not an increase in interest rates will 6 Falling profits can only be rewarded once. harm the Swiss economy. Apply this example to all questions with the command Award up to 4 marks for logical reasons why it might, which word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d). may include: Each point may be credited only once, on either side of an • cost of borrowing increases for firms (1) increasing total argument, but separate development as to how / why the costs (1) reducing profits (1) outcome may differ is rewarded. • firms may invest less (1) may have to shut down (1) • unemployment rises (1) decreasing incomes Generic example Mark (1)decreasing total demand (1) decreasing economic growth (1) Tax revenue may decrease… 1 • consumers may borrow less (1) save more (1) less spending (1) demand for goods and services decreases ...because of reason e.g. incomes may be 1 (1) as returns from savings increase (1) decreasing lower. revenues of firms (1) decreasing profits (1) • Government borrowing costs more (1) leaving less Tax revenue may increase because 0 funding available for e.g. education / health (1). incomes may be higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may increase because of a 1 different reason i.e. not the reverse of a • hot money inflows strengthen the Swiss Franc (1) previous argument e.g. government reduce cost of e.g. imported raw materials (1) reducing spending on subsidies may stimulate the inflation (1) increasing export competitiveness (1) economy more than spending on education. • reduced demand-pull inflationary pressures (1) as cost of borrowing increases (1) decreasing demand for loans (1) increasing saving / decreasing consumption (1) investment (1) decreasing total demand (1) firms may reduce prices (1) increasing affordability of goods and services for consumers (1). • costs of production may decrease (1) reducing cost- push inflationary pressures (1). 1(h) Discuss whether or not a bank merger will benefit Swiss 6 Award a maximum of 4 marks if candidates only mention consumers and workers. one of consumers or workers. Award up to 4 marks for logical reasons why it might, which Reward, but do not expect reference to inelasticity of may include: demand in monopoly. • to avoid one of them collapsing (1) reducing confidence in the whole banking system (1) greater job security (1) less chance of bank customers losing their savings (1) • economies of scale (1) as output increases (average) costs fall (1) prices may decrease (1) goods and services more affordable for consumers (1) • the merged firm may make higher profits (1) able to pay higher wages to workers who remain employed (1) • workers in merged firm can share skills (1) improving efficiency (1). Award up to 4 marks for logical reasons why it might not, which may include: • monopoly power may increase (1) restricting supply (1) decreasing consumer choice (1) increasing prices (1) decreasing quality (1) • workers may lose their jobs (1) as the bank might shut down some operations / reduce duplication (1) increasing unemployment (1) • the merged firm may be too large / experience diseconomies of scale (1) example (1) reducing efficiency (1).

Question 51

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.

Question 52

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

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the number of Malawians who had access to 1 Accept 3.3  106. electricity in 2022. 3.3 m or 3 300 000. 1(b) Identify two capital goods used in Malawi. 2 If more than two capital goods are given, consider the first three. Two from: Factories (1) power stations (1) solar panels (1) electricity (1) fertilisers (1). 1(c) Explain what is likely to have happened to Malawi’s 2 Accept an accurate and fully labelled PPC diagram showing production possibility curve (PPC) in January 2022. the PPC shifting to the left for the first mark. • It is likely to have shifted to the left / inside / inwards / Second mark for any relevant reason from the source contract (1). material. • due to natural disasters / Storm (Ana) / resources destroyed / productive capacity (or land) reduced / less labour (1). 1(d) Explain two reasons why the supply of Malawian tea 4 One mark each for two reasons identified and one mark may increase. each for two explanations. Logical explanation which might include: If more than two reasons are given, consider the first three. • good weather conditions (1) would increase crop yields / Do not accept an answer that links tea with sugar. prevent crops being destroyed (1). • government subsidies (1) provide a financial incentive / additional payment to that received from consumers / reduce costs of production (1). • fall in price of fertiliser (1) which reduces cost of production / increase crop yields / allows farmers to purchase more fertiliser (1). • fall in exchange rate (1) higher demand for Malawian tea (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a report stating the health risks of consuming sugar on the market for sugar. Coherent analysis which might include the following. D&S diagram: • Axes correctly labelled – price and quantity or p and q (1). • Original demand and supply curves correctly labelled (1). • New labelled demand curve shifted to the left (1). • Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between GDP per head and the 5 Responses do not have to be in the format suggested but percentage of children who complete primary they should address the expected / normal relationship, offer education. supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Coherent analysis which might include the following. Supporting evidence should involve interpretation, not just Expected relationship: description e.g. simply quoting data without reference to Generally, a direct / positive relationship (1) the higher the high or low. GDP per head, the higher the percentage of children who complete primary education (1). 1(f) Supporting evidence: Four countries with the highest GDP per head had the highest percentage of children who complete primary education / Malawi / Uganda have the lowest of both (1). South Africa had the highest GDP per head and the highest percentage of children who complete primary education (1). Comparison of two countries (e.g. Namibia and Senegal where GDP falls as does percentage of children completing primary education). Analysis of the expected relationship: Parents in countries with high incomes are more likely to be able to afford to keep their children in primary education (1). Government tax revenue is likely to be higher in countries with high incomes and so will be able to spend more on primary education (1). Completing primary education may increase the chance of skilled / occupationally mobile high income earning workers (1). Exception: Malawi / Uganda (1) Malawi has a lower GDP per head but a higher percentage of children who complete primary education than Uganda (1). Analysis of exception: A higher percentage of children may complete primary education but the quality of the education may be low leading to a low GDP per head / GDP per head may be high but there may be a high degree of inequality with a relatively high proportion of the population unable to keep their children in primary education (1). 1(g) Discuss whether or not Malawi should develop a solar 6 Apply this example to all questions with the command energy industry. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which may include: Each point may be credited only once, on either side of an • a sustainable source of energy (1) enables future argument, but separate development as to how / why the generations to access energy (1) outcome may differ is rewarded. • would create less pollution / external costs than burning wood and charcoal / improve air quality (1) reduce Generic example mark deforestation (1) improve health (1) • may enable more Malawian households to gain access Tax revenue may decrease… 1 to electricity (1) increase living standards / reduce inequality (1) ...because of reason e.g. incomes may be lower. 1 • setting up solar panels creates jobs (1) leads to increased output / economic growth / access to Tax revenue may increase because incomes 0 electricity for Malawian firms (1) may be higher i.e. reverse of a previous • long hours / 3000 hours of sunshine (1) a good / viable argument. source of energy (1) • less need to import energy (1) reduce current account Tax revenue may increase because of a different 1 deficit (1) reason i.e. not the reverse of a previous • develops employment opportunities (1) raising incomes argument e.g. government spending on subsidies (1). may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • opportunity cost of installing (1) example (1) • opportunity cost of land use (1) reduced agricultural output (1) • dependent on weather / sunshine and days lost (1) unstable supply (1) may experience storm damage / natural disasters (1) • visual pollution (1) might reduce tourism / reduce house prices (1) • cost of developing an electricity distribution network may be prohibitive • cost of switching from fossil-fuel burning domestic appliances to electrical ones may not be affordable to households (1) limiting the impact of the switch (1) • expensive to install (1) worsen government budget position (1) • visual pollution (1) might reduce tourism / reduce house prices (1) • solar panels could be damaged by storms (1) making them inefficient (1). 1(h) Discuss whether or not a government should try to stop 6 Note: many candidates provide incorrect analysis e.g. its country’s foreign exchange rate falling in value. wrong way around. Award up to 4 marks for logical reasons why it should try to Maximum of 3 marks if there is no development / evaluation stop it falling in value e.g. the disadvantages of the fall, of reasons given. including: • will increase import prices (1) reducing imports (1) may increase cost of imported raw materials and capital goods cost (1) cause cost-push inflation (1) cause slow economic growth (1) • may reduce pressure on domestic firms to keep prices low (1) quality high (1) • may reduce confidence in the economy (1) reduce investment (1) increase debt (1). Award up to 4 marks for logical reasons why it should allow a fall in value e.g. the advantages of the fall, including: • will reduce export prices (1) increase exports (1) reduce imports (1) • make domestic goods more competitive (1) reduce a current account deficit / improve the balance of payments (1) • may increase economic growth (1) reduce unemployment (1) attract MNCs / attract investment (1) increase tourism (1) • opportunity cost / costly for government to intervene (1) e.g. less funding for education / healthcare / housing (1) • may increase government tax revenue (1).

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

Questions19 pages

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