Differences in economic development between countries — Paper 2 · IGCSE Economics 0455

5 Abu Dhabi is a rapidly developing economy. It is building three new museums in its new cultural district, which may attract more tourists and help its balance of payments. The museums will include some very highly priced works of art. (a) Define ‘balance of payments’. [2] (b) Explain two characteristics of a rapidly developing economy. [4] (c) Analyse how an increase in tourism can increase a country’s inflation rate. [6] (d) Discuss whether the rich always save more than the poor. [8]

20 marks

Mark scheme: 5(a) Define ‘balance of payments’. Record of economic transactions (1) with other countries (1). Includes current account, capital account and financial account (2). Exports – imports (1). 2 5(b) Explain two characteristics of a rapidly developing economy. 1 mark each for each of two characteristics e.g.: • high increase in real GDP per head • significant improvements in healthcare • significant improvements in education • high proportion of workers employed in the tertiary sector • low rates of population growth • high spending on luxury products • encouragement of MNCs to set up • more use of advanced technology 1 mark each for each of two explanations: • a high increase in real GDP per head will increase living standards/be caused by e.g. higher investment • significant improvements in healthcare will increase life expectancy/be caused by e.g. higher spending on hospitals • significant improvements in education will raise workers’ skills/be caused by increased spending on universities • as countries develop, workers tend to move from the primary and secondary sectors to the tertiary sector • as countries develop, the birth rate tends to fall faster than the death rate • as countries develop, people may be able to spend on more than necessities • the attraction of MNCs may reduce unemployment • advances in technology due to more research and development and investment/will raise productivity. 4 May be able to establish high population growth, if argued that death rate will fall before fall in birth rate. Question Answer Marks Guidance 5(c) Analyse how an increase in tourism can increase a country’s inflation rate. An increase in tourism will increase demand for a range of products (1) higher demand may encourage firms to raise prices (1) leading to demand-pull inflation (1) especially if economy operating close to full employment (1). An increase in tourism may increase the money supply (1) leading to monetary/demand-pull inflation (1). An increase in tourism may increase demand for workers (1) to work in the tourist and related industries (1) this could raise wages (1) causing cost-push inflation (1). An increase in tourism will increase demand for the currency (1) this may cause a rise in the exchange rate (1) if demand for exports is inelastic (1) export revenue could rise (1) increasing total (aggregate) demand (1). 6 Do not expect but reward idea of a multiplier effect. 5(d) Discuss whether the rich always save more than the poor. Up to 5 marks for why they might: Rich have more income (1) greater ability to save (1) can purchase the products they want (1) and have money left to save (1). Rich may be able to save more and as a result may be paid a higher rate of interest (1) receive a higher reward from saving (1). Up to 5 marks for why they might not: Poor may have to save up to purchase products which the rich can buy from current income (1) e.g. a television (1). Poor may be less confident (1) may be anxious to save to cover e.g. health costs (1) may be concerned not to get into debt (1). Poor/unskilled may be concerned that they will lose their jobs (1) during an economic downturn may be the first to lose their jobs (1). 8 May approach the question from the perspective of whether the poor always save less than the rich.

This question in 0455/22 Feb/March 2017

2 Singapore is usually ranked as one of the best countries in which to do business. It is an open economy engaging in free trade. It has a history of strong entrepreneurship, low unemployment, low average costs and relatively low tax rates. Its example may encourage other countries to remove trade restrictions. (a) Define ‘average costs’. [2] (b) Explain two factors that would increase the supply of entrepreneurs in an economy. [4] (c) Analyse how the market for a product would be affected by a reduction of the tax on the product combined with a fall in the price of a complement. [6] (d) Discuss whether low unemployment in a country will encourage multinational companies (MNCs) to set up there. [8]

20 marks

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

This question in 0455/22 Oct/Nov 2017

2 Swaziland is a small African country where six in ten people live in poverty and most firms are small and use little capital equipment. In October 2015 it opened a new airport. Some economists suggest that the building of the airport involved a high opportunity cost and caused a range of external costs. The building of the airport is part of the government’s plan to turn the country from a developing into a developed country. (a) What may be the opportunity cost of building an airport? [2] (b) Explain two reasons why a government would want to turn its country from a developing into a developed country. [4] (c) Analyse the external costs that can be caused by the building and expansion of an airport. [6] (d) Discuss whether people would prefer to buy a product from a small firm or a large firm. [8]

20 marks

Mark scheme: 2(a) What may be the opportunity cost of building an airport? Opportunity cost is the (next) best alternative foregone (1). Relevant example e.g. building a hospital (1). 2 2(b) Explain two reasons why a government would want to turn its country from a developing into a developed country. Developed countries tend to have higher GDP/output/economic growth (1) reduces poverty (1) Developed countries tend to have higher living standards (1) due to earning higher incomes / higher GDP per head (1) Developed countries may have better education (1) e.g. resulting in more skilled workers (1) so improving productivity (1). Developed countries tend to have better healthcare (1) resulting in longer life expectancy / lower death rate (1). Developed countries tend to have more economic power (1) stronger in international negotiations (1). Developed countries tend to have a higher proportion of workers employed in the tertiary sector (1) which may mean better working conditions (1). Tax revenue may be higher (1) enabling more government expenditure (1). 4 Accept response from the perspective of the disadvantages of developing countries. Accept any reason that is linked to improved macroeconomic performance or improved living standards. 2(c) Analyse the external costs that can be caused by the building and expansion of an airport. External costs are harmful effects on third parties / social costs minus private costs (1). Building and operating an airport will cause noise pollution (1) air pollution (1) which will be experienced by those living near the airport (1) reducing their health (1). Traffic congestion may be caused (1) delaying people’s journeys (1). The prices of houses close to the airport may fall (1) reducing local residents’ wealth (1) local residents may be displaced (1). Train companies may lose revenue (1) as people switch from train travel to air travel (1). Environmental damage / global warming (1) e.g. loss of wildlife habitats (1). 6 Accept pollution on its own as one example. Also allow visual pollution, but maximum of 2 marks for types of pollution. Question Answer Marks Guidance 2(d) Discuss whether people would prefer to buy a product from a small firm or a large firm. Up to 5 marks for why they might prefer to buy from a small firm: May be flexible (1) quick to respond to changes in consumer demand (1) as do not have to consult others (1). May provide a personal service (1) can get to consumers and their requirements (1) adapt to particular requirements (1). May be specialised (1) produce high quality products (1). Small firms may receive government subsidies (1) enabling them to keep price low / quality high (1). Unlikely to experience diseconomies of scale (1) example (1). Up to 5 marks for why they might prefer to buy from a large firm: Lower prices (1) due to lower costs (1) because of economies of scale (1) example (1). Better known brands (1) due to advertising (1). Wider variety (1) better quality (1) better after sales (1) due to more funds to invest (1). 8 Accept response from either perspective. Accept better quality for either side, but only one mark if given on both sides. More marks can only be awarded if it is established why there may be better quality.

This question in 0455/22 May/June 2018

3 Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38 000 cows. Farms in the USA compete with farms in both developed and developing countries. The value of the farms’ exports of milk appears in the trade in goods section of the current account of the USA’s balance of payments. (a) Identify two examples of capital goods that may be used by a farm. [2] (b) Explain how a country could have a trade in goods surplus, but a deficit on the current account on the balance of payments. [4] (c) Analyse the economies of scale from which a farm may benefit. [6] (d) Discuss whether or not developing countries benefit from producing mainly primary products. [8]

20 marks

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

This question in 0455/22 May/June 2018

1 The global water crisis In 2015, the World Economic Forum identified the water crisis as the world’s biggest risk. Across many Asian and African nations the water supply was at critically low levels, insufficient to meet the rising demand. Demand has risen because of the expansion of cities and population growth requiring much more agricultural production. Water scarcity is a problem shared by many developing countries which have a low life expectancy. A third of all their healthcare facilities are estimated to lack access to safe water and basic sanitation. Water shortages harm public health – 80% of all illnesses in developing countries are caused by poor water and sanitation conditions. Water shortages also restrict the amount of food production. Table 1 shows the risk of water shortage (highest risk is 5) and Gross Domestic Product (GDP) per head measured in US$. Table 1 Risk of water shortage and GDP per head for countries / regions in 2015 Country / region Risk of Water Shortage GDP per head (highest risk = 5) (US$) Algeria 3.4 4 318 Canada 1.2 43 332 Germany 1.9 40 997 Pakistan 4.3 1 450 Saudi Arabia 5.0 20 813 Western Sahara 5.0 2 500 The shortage of water has led various countries and regions to experiment with privatising their supply. However, because water is a necessity, private supply has in some cases resulted in consumers suffering from significant price increases. A 10% increase in the price of water is estimated to result in only a 0.7% decrease in quantity demanded. This means that governments have to regulate water markets to protect consumers. Some economists argue that consistent undervaluing of water has led to it being used inefficiently. This is because prices fail to take into account the long-run consequences of not conserving this valuable resource. With much of the world facing a hotter and drier future as a result of climate change, water will become increasingly scarce. More than 663 million people are estimated to live without access to clean water. The World Bank funds a range of projects designed to tackle this and in doing so reduce levels of absolute poverty. Improving access to natural resources is seen as essential in promoting economic development in some of the world’s poorest nations. (a) Identify, using information from the extract, two causes of low life expectancy in developing countries. [2] (b) (i) Explain, using information from the extract, how the water shortage is an example of the economic problem. [4] (ii) Explain, using information from the extract, why the problem of water shortages is likely to become even worse in the future. [4] (c) Analyse, using Table 1, the extent to which a high risk of water shortage in a country/region causes low GDP per head. [5] (d) Calculate, using the information in the extract, the price elasticity of demand for water. [2] (e) Discuss whether or not private firms supplying water should increase their prices. [5] (f) Explain what is meant by absolute poverty. [2] (g) Discuss whether or not a country’s economic growth rate depends mostly on the availability of its natural resources. [6]

30 marks

Mark scheme: 1(a) Identify, using information from the extract, two causes of low life expectancy in developing countries. • Poor healthcare facilities • lack of access to safe water • lack of basic sanitation • not enough food production • absolute poverty 2 1(b)(i) Explain, using information from the extract, how the water shortage is an example of the economic problem. The economic problem consists of the allocation of scarce resources amongst competing ends (1). Water supply is at critically low levels (1) showing resources are scarce / limited (1). Rising demand from growth of cities (1) and rising agricultural production (1) wants are unlimited (1). 4 1(b)(ii) Explain, using information from the extract, why the problem of water shortages is likely to become even worse in the future. Water is being undervalued (1) this has led to it being wasted (1) and the prices do not reflect scarcity that will arise in the future (1) this means that as demand continues to rise (1) the gap between wants and the amount of the resource will increase (1). Climate change (1) will cause water supplies to become increasingly scarce (1). Population will continue to rise / cities will expand (1) increasing demand (1) and exceeding the ability of supply to match demand (1). 4 Question Answer Mark Guidance 1(c) Analyse, using Table 1, the extent to which a high risk of water shortage in a country / region causes low GDP per head. The data indicates a link (1) the greater the degree of water scarcity (i.e. the higher the water risk score) the lower the GDP per capita. (1) Canada / Germany have the lowest water risk scores and the highest GDP per capita (1). Pakistan / Western Sahara have high water risk scores and low GDP per capita (1). Saudi Arabia illustrates that this relationship is not perfect (1) and demonstrates that other factors contribute towards GDP per capita (1) 5 1(d) Calculate, using the information in the extract, the price elasticity of demand for water. PED = (–) 0.07 (2) Correct working –0.7% / 10% or –0.07% or 0.7 (1) 2 Question Answer Mark Guidance 1(e) Discuss whether or not private firms supplying water should increase their prices. Up to 3 marks for why they should: An increase in price will increase total revenue (1) as demand is price inelastic (1) meaning an increase in price causes a less than proportional decrease in quantity demanded (1) some of the extra funds could be used to increase the supply of water (1) reducing its shortage (1) and improve the quality of water (1). Higher prices may reduce demand (1) helping to eliminate the shortage / achieve market equilibrium (1). As population is increasing (1) rising prices are needed to ration extra demand (1). Current prices do not take account of the long run costs of failing to conserve supplies (1) higher prices will encourage more efficient use of water / less waste (1). Up to 3 marks for why they should not: Water is a necessity / has very inelastic demand (1) raising prices will harm consumers (1) and will fall more heavily on the poor / the poor will be unable to afford water (1) increase absolute poverty (1) increase inequality (1). Higher water prices can reduce health (1) reduce life expectancy (1) as less people will have access to safe water / basic sanitation (1). Higher water prices reduce income available to spend on other necessities e.g. education (1). 5 1(f) Explain what is meant by absolute poverty. Individuals cannot afford the necessities essential for survival (1) such as food, water, shelter, warmth and clothing (1) individuals living on less than a certain amount per day, e.g. $1. 2 Question Answer Mark Guidance 1(g) Discuss whether or not a country’s economic growth rate depends mostly on the availability of its natural resources. Up to 4 marks for why they might: Natural resources are an important factor of production (1) Countries endowed with natural resources have a good productive capacity as a result (1), boosting the growth that they can enjoy (1). A lack of natural resources such as water can cause poverty / ill health (1). This can harm productivity (1). Countries with insufficient natural resources are reliant on other countries to provide them (1) worsening the current account and reducing the economic growth rate (1) and if a country does not have enough other resources to trade it must rely upon its own natural resources (1). Natural resources are important in agriculture (1) countries with a lack of natural resources may not produce enough food (1) leading to poorer nutrition (1) poorer health and lower productivity (1). Natural resources are essential for the construction of infrastructure e.g. roads and schools (1) Other economic sectors (secondary and tertiary) depend upon natural resources (primary) (1). Up to 4 marks for why they might not: Other factors of production are equally / more important e.g. capital investment or education for skills (1). Through trade (1) a country can obtain from other countries the natural resources it lacks (1) It depends upon what countries specialise in (1) and whether they face trade restrictions (1) if they can import raw materials from other countries their growth will not be limited (1). Finding natural resources can take a long time (1) slowing down economic growth (1). There are many countries in the world with significant natural resources but poor economic growth rates / standard of living (1) and many countries with limited resources but high growth rates, such as Singapore (1). 6

This question in 0455/23 May/June 2018

4 The Malaysian government implemented the Vision 2020 policy which aims to make Malaysia a developed country by the year 2020. Along with this vision, the National Privatisation Policy was also implemented whereby various firms, such as those involved in telecommunications, were privatised. Poverty has significantly reduced since the implementation of these policy measures. (a) Identify the difference between absolute poverty and relative poverty. [2] (b) Explain two characteristics of a developed country. [4] (c) Analyse two policy measures to alleviate poverty. [6] (d) Discuss whether or not moving firms from the public sector to the private sector will benefit an economy. [8]

20 marks

Mark scheme: 4(a) Identify the difference between absolute and relative poverty. Relative poverty is where people have fewer goods and services / income than others in an economy / lower income than the average in the country (1). Absolute poverty is where people are unable to meet basic needs e.g. food and shelter / living on e.g. less than US $1.25 a day / a given % of a country’s average income (1). 2 4(b) Explain two characteristics of a developed country. High incomes / high GDP per capita / high standard of living / high HDI (1) due to high production of goods and services (1). High life expectancy / low death rate / low infant mortality (1) due to e.g. good healthcare, better nutrition, low crime rates (1). High school enrolment / standard of education (1) due to high spending on education (1). Low level of absolute poverty / malnutrition / starvation (1) due to high incomes / fairer distribution of income (1). Low rate of population growth (1) due to e.g. availability of contraception, social attitudes, women working for longer, less need for children to work (1). Low primary / large secondary / tertiary sectors (1) value of output is greater in the secondary/tertiary sector (1). 4 Question Answer Marks Guidance 4(c) Analyse two policy measures to alleviate poverty. Increasing benefits (1) increasing the incomes of the poor (1) e.g. housing benefits, disability benefits, unemployment benefits (1). Increased provision of merit goods such as healthcare (1) and education / improved literacy (1) improving the ability to earn an income through employment (1). Government employment creation schemes (1) creating new jobs and employing more people in the government (1) government providing help to search for employment (1) Encouraging economic growth (1) through fiscal or monetary policies (1) decreasing interest rates (1) increasing government spending (1). Provision of subsidies (1) example (1) keeping down the cost of living (1) leaving more for other essential items (1). Progressive taxation (1) to redistribute income towards the poor (1). The introduction of minimum wage legislation (1) so that everyone can at least afford basic necessities such as food and shelter (1). 6 Max 4 marks for analysis of only one policy measure. Question Answer Marks Guidance 4(d) Discuss whether or not moving firms from the public sector to the private sector will benefit an economy. Up to 5 marks for positive effects: Private sector firms have the profit motive (1) and so the efficiency (1) and quality of their output may be good (1) and so may enable them to pay higher wages (1). The threat of closing down (1) will force firms to provide a good service to stay in business (1). Competition between private firms (1) leads to better response to consumer demand (1) keeping costs (1) and prices low (1). Private firms are accountable to shareholders (1) who want high dividends (1) therefore firms need to be efficient/profitable (1). Investment in the private sector will not be disrupted by fluctuations in government tax revenue (1). May attract financial investment from abroad (1). Up to 5 marks for negative effects: Investment funds may be more available to the public sector than the private sector (1) to provide a quality service (1). A public sector firm can be prevented from going of business (1) guaranteeing the provision of certain products e.g. water (1) maintaining employment (1) Public sector firms are not always motivated by profit (1) the government is more likely to base its decisions on social/external costs and benefits (1) e.g. the environment (1) rather than just private costs and benefits (1). Public sector firms may provide essential services (1) which the private sector is not willing to provide (1) will be more inclined to keep prices low (1) the poor will be able to afford essential products (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. Accept responses from the opposite perspective i.e. positive effects of the public sector and negative effects of the private sector.

This question in 0455/21 Oct/Nov 2018

1 Rubber production in Liberia Liberia is a west African country that has faced a number of serious problems in recent years. These have included a civil war and in 2014 the outbreak of the Ebola epidemic. There have also been improvements. The unemployment rate was 85% in 2004 but had fallen to 4% in 2016. This reduction has influenced both emigration and wages. Workers have received higher wages although some economists think that the higher wages have increased the country’s inflation rate which in 2016 was 8%. The country has a good supply of drinking water and a climate favourable to agriculture. More than 70% of the country’s labour force is currently employed in agriculture. The country’s main exports are rubber, iron ore, timber and gold. A US multinational company (MNC) runs the world’s largest single natural rubber farming operation in Liberia. The price of rubber fell by 75% between 2011 and 2016. The global supply of rubber had exceeded demand as a number of countries imposed import restrictions on rubber. In response to the lower price the US MNC cut its production, but still made a loss. The MNC does not want to go out of business and is trying to survive by cutting its costs. In the long run it hopes to maximise profits. When some of its 7000 workers retire, they will not be replaced. The MNC has introduced new production techniques and diversified into growing cocoa and coffee. The Liberian government is providing subsidies to local rubber farmers to help them buy new equipment and introduce new farming methods. Despite the challenging situation, a number of local Liberian rubber farmers are increasing the size of their operations by buying up more land. Some others are diversifying by using wood from the rubber trees to make furniture. While helping its rubber farmers, the Liberian government is also encouraging the expansion of the secondary and tertiary sectors. Between 2014 and 2016 it increased its expenditure on healthcare but this was at the expense of a number of public sector investment projects. Table 1 compares the infant mortality rate and healthcare expenditure per head in selected countries in 2015. Table 1 Infant mortality rate and healthcare expenditure per head in selected countries in 2015 Infant mortality rate Healthcare expenditure Country (deaths per 1000 per head live births) (US$) Cuba 4.5 459 Hungary 5.0 2 096 India 41.5 248 Liberia 67.5 90 Turkey 18.8 1 148 UK 4.4 3 749 (a) Identify, from the extract, two goals of business organisations. [2] (b) Explain, using information from the extract, two reasons why the price of rubber fell between 2011 and 2016. [4] (c) Analyse how an increase in wages could cause inflation. [5] (d) Analyse to what extent the information in Table 1 suggests that healthcare expenditure per head is an important influence on the infant mortality rate. [4] (e) Discuss whether or not having more of its workers employed in the tertiary sector would benefit the Liberian economy. [5] (f) Explain, using information from the extract, how the concept of opportunity cost affects all rubber farmers in Liberia. [4] (g) Discuss whether or not a high rate of unemployment would always cause emigration. [6]

30 marks

Mark scheme: 1(a) Identify, from the extract, two goals of business organisations. Survival / growth / profit maximisation / diversification 2 1(b) Explain, using information from the extract, two reasons why the price of rubber fell between 2011 and 2016. Supply exceeding demand / diagram showing excess supply (1) the existence of unsold rubber will encourage rubber producers to lower price (1). Improved production methods (1) lowering costs of production / increasing supply (1). The imposition of import restrictions / diagram showing the effect of import reductions (1) lowering demand for rubber / rubber producers may reduce prices to ensure their rubber is still competitive (1). Government subsidies (1) lowering costs of production / increasing supply / diagram showing supply increasing (1). 4 1(c) Analyse how an increase in wages could cause inflation. Higher wages may increase consumer expenditure (1) increasing total (aggregate) demand / diagram showing total (aggregate) demand increasing (1) causing demand-pull inflation (1) if demand rises by more than money supply / the economy is at, or near, full capacity (1). Higher wages may increase costs of production (1) decrease total (aggregate) supply / diagram showing total (aggregate) supply decreasing (1) causes cost- push inflation (1) if wages rise by more than productivity / may cause a wage- price spiral (1). 5 Question Answer Marks Guidance 1(d) Analyse to what extent the information in Table 1 suggests that healthcare expenditure per head is an important influence on the infant mortality rate. Generally, yes, it would be expected that countries spending a higher amount would have a lower infant mortality rate (1) because e.g. they would be able to afford more midwives/doctors (1). Examples of supporting evidence e.g. Liberia spends the least and has the highest (1) UK spends the most and has the lowest (1). There is an exception, Cuba (1) spends the 4th lowest and has the 2nd lowest infant mortality rate (1). 4 Question Answer Marks Guidance 1(e) Discuss whether or not having more of its workers employed in the tertiary sector would benefit the Liberian economy. Up to 3 marks for why it might: Jobs in the tertiary sector tend to be better paid (1) may raise living standards (1) working conditions tend to be better (1) e.g. less dangerous (1) demand for services tend to increase more than demand for primary products (1) imports of services may be reduced (1) exports of services may increase (1) current account position may be improved (1). Productivity/skills may be higher in the tertiary sector (1) which may cause economic growth (1) may make the country more developed (1). A larger healthcare sector could reduce the infant mortality rate / increase life expectancy (1). May attract MNCs/FDI (1) increasing employment (1). Up to 3 marks for why it might not: The country may be better at producing primary or manufactured products (1) the country has a climate suited to agriculture (1) which may reduce economic growth (1). There may be an opportunity cost in terms of less resources being available in the primary and secondary sectors (1). Some jobs in the tertiary sector are low-paid (1) example (1) because they require fewer skills (1). Many tertiary industries are based in cities (1) this may lead to problems of rural-urban migration / overcrowding (1). Liberia’s resources are more suited to producing rubber (1) which can be exported and bring in foreign exchange (1). Imports of manufactured/primary products may increase (1). 5 For all ‘Discuss’ questions Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Generic example Mark Economic growth will increase 1 because of reason« e.g. demand for services is increasing globally 1 Economic growth will decrease (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. a country’s resources may be more suited to producing primary products. 1 Reward but do not expect reference to comparative advantage as equivalent to better at producing. Question Answer Marks Guidance 1(f) Explain, using information from the extract, how the concept of opportunity cost affects all rubber farmers in Liberia. Opportunity cost is the (next) best alternative foregone (1). The US MNC could use its resources to produce rubber (1) or cocoa/coffee (1). The local farmers could sell rubber (1) or rubber wood / make furniture (1). The farmers could use the money to buy more land (1) example, e.g. diversify into other areas / education for their children (1). Subsidies to farmers (1) could be used to help them in other ways e.g. education (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not a high rate of unemployment would always cause emigration. Up to 4 marks for why it might: People may go to other countries in search of jobs (1). A high rate of unemployment is likely to mean wages are low in the country / there is poverty in the country (1) people may emigrate in search of higher wages (1). A high rate of unemployment may mean poor healthcare / education / other services in the country (1) people and governments not having the income to spend much on these services (1) people may emigrate to get a higher standard of living (1). People may have skills more appropriate to jobs in other countries / in greater demand in other countries (1). Up to 4 marks for why it might not: Jobs may not be available abroad (1) unemployment may be higher in other countries (1) there may be restrictions on immigration (1). People may lack the skills to take up any available jobs in other countries (1). People may have family ties (1) restricting their mobility (1). People may not be aware of jobs in other countries / lack of information (1). There may be generous unemployment benefits in the country (1). The costs of living may be low in the country (1) which may discourage e.g. the retired from emigrating (1). People may be deterred by cost of emigration (1). People may be deterred by cultural differences in other countries (1). Unemployment may be short term / believed to be short term / the unemployed may be optimistic about future economic prospects in the country (1) if seasonal or frictional unemployment (1). 6 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

This question in 0455/22 Oct/Nov 2018

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

20 marks

Mark scheme: 4(a) Define earnings. Income / money received by a factor of production (1) received from working / payment to workers (1) includes wages/salaries (1) overtime payments / bonuses / commission (1).income from other sources e.g. undertaking financial investment / renting / running a business (1). 2 4(b) Explain two non-wage factors that influence an individual’s choice of occupation. Accept any valid non-wage factor (1) with a valid explanation (1) e.g. Short working hours (1) would increase leisure time (1) Job security (1) reduces stress (1) Promotion chances (1) increase wages in long run (1) Fringe benefit / example (1) explanation of fringe benefit / explanation of example (1). Qualifications / skills / education (1) allow an individual to choose an appropriate occupation (1). 4 4(c) Analyse why economics graduates are well-paid. Graduates are skilled / more knowledgeable (1) have high levels of qualifications/training/education (1) productive / efficient (1) demand for their services is high (1) demand is inelastic (1) supply is low (1) long period of training required (1) supply is inelastic (1). Graduates tend to work in jobs with high pay/position/responsibility/stress (1) example (1). An economics degree is held in high esteem as a qualification (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not people in developed countries are likely to save more than people in developing countries. Up to 5 marks for why they might: On average people in developed countries have a higher income (1) so are more able to save (1) or more able to save larger amounts so may gain a higher interest rate (1). There tends to be a greater range of financial institutions in developed countries (1) more secure financial institutions (1) this gives greater confidence in saving (1). People in some developed countries may have a culture of saving (1) e.g. Japan (1). Inflation rate may be lower in developed countries (1) enabling people to save more of their income (1). Up to 5 marks for why they might not: The lack of a developed welfare system in some developing countries (1) means that some people may save more for e.g. their old age / retirement (1) future health problems (1). There may be greater confidence about economic prospects in some developed countries (1) encouraging people to spend more (1). The rate of interest may be lower in some developed countries (1) reducing the incentive to save (1). Some people in developing countries are richer than some people in developed countries (1). Some people in developing countries may save more to spend on higher education to increase the opportunity to work abroad (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected. Accept responses from the opposite perspective, i.e. people in developing countries are likely to save less than those in developed countries.

This question in 0455/22 Oct/Nov 2018

4 Mali is a developing country. Its Human Development Index (HDI) rose from 0.297 in 2000 to 0.442 in 2016. Most of Mali’s workers are employed in agriculture and cotton is the country’s main agricultural crop. The country’s main export, however, is gold. The country is the third largest exporter of gold in Africa. (a) Identify two components of the HDI. [2] (b) Explain how the proportion of a country’s resources devoted to the primary, secondary and tertiary sectors change as its economy develops. [4] (c) Analyse, using a demand and supply diagram, how a fall in the price of cotton would affect the market for cotton shirts. [6] (d) Discuss whether or not an increase in the size of a country’s gold mining industry will benefit an economy. [8]

20 marks

Mark scheme: 4(a) Identify two components of the HDI. • GDP (GNI) per head / income per head / average income • education • life expectancy 2 For education accept (adult) literacy. 4(b) Explain how the proportion of a country’s resources devoted to the primary, secondary and tertiary sectors change as its economy develops. A smaller proportion of resources are likely to be devoted to the primary sector (1) increases in technology / productivity / education requires fewer resources / resources move to more financially rewarding uses / use of more machinery (1). A greater proportion of resources are devoted to manufacturing at first (1) and then a smaller proportion (1) the manufacturing sector becomes more efficient (1). The service sector continues to grow (1) in developed economies, most labour is employed in the service sector (1). Some developing countries’ tertiary sector has grown faster than secondary sector – jumped a stage (1). 4 Question Answer Marks Guidance 4(c) Analyse, using a demand and supply diagram, how a fall in the price of cotton would affect the market for cotton shirts. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or P and Q (1). Demand and supply curves correctly labelled (1). Supply curve shifted to the right (1). Equilibriums – shown by lines or e.g. E1 and E2 (1). Up to 2 marks for written analysis: A fall in the price of cotton will reduce the cost of producing cotton shirts (1) price will fall / quantity will rise (1). Do not reward analysis marks for description of diagram e.g. quantity changes from Q1 to Q2. 6 S2 S1 Q1 Q2 P2 P1 D O quantity of cotton shirts price of cotton shirts Question Answer Marks Guidance 4(d) Discuss whether or not an increase in the size of a country’s gold mining industry will benefit an economy. Up to 5 marks for why it might: It may provide more jobs (1) reduce unemployment (1). It may increase output / cause economic growth (1) increase wages (1) increase living standards (1). Some of the gold may be exported (1) improve the current account position (1). The industry may experience (external) economies of scale (1) lower average cost (1) example of an external economy (1). It will be more beneficial if world demand is increasing (1). May attract multinational companies to set up in the country (1). Tax revenue may increase (1) enabling government to spend more on e.g. infrastructure (1). Up to 5 marks for why it might not: A rise in the supply of gold may reduce its price (1) reduce revenue (1) reduce exports (1). External costs may be created (1) damage to the natural environment / pollution (1). The industry may experience (external) diseconomies of scale (1) higher average cost (1) example of an external economy (1). Mining is a dangerous occupation (1) wages may be low as primary sector (1) jobs may be unskilled (1). Resource of gold may be depleted (1) stopping future generations being able to take advantage of them (1). It will be less beneficial if other gold producing countries are increasing their output (1). 8

This question in 0455/22 Oct/Nov 2019

1 (a) Calculate India’s economic growth rate in 2017. [1] (b) Identify two methods of protection. [2] (c) State why India is a mixed economy. [2] (d) Explain why external costs cause market failure. [4] (e) Draw a demand and supply diagram to show the effects of a decrease in the costs of production on the market for cars. [4] (f) Analyse the relationship between the size of countries’ primary sector output and GDP per head. [5] (g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in India. [6] (h) Discuss whether or not India is likely to experience a deficit on the current account of its balance of payments in the future. [6]

30 marks

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

This question in 0455/22 Feb/March 2020

1 (a) Calculate Turkey’s total output. [1] (b) Identify two factors that affect borrowing in an economy. [2] (c) Explain the relationship between the growth of Istanbul’s service sector and its growth in total output. [3] (d) Explain two reasons for Istanbul’s increased population. [4] (e) Analyse how good transport links have contributed to Istanbul’s economic growth. [4] (f) Draw a demand and supply diagram to show the effects on flights to Turkey of greater worries about safety for tourists. [4] (g) Discuss whether or not Istanbul benefits from investment by MNCs. [6] (h) Discuss whether or not competition is beneficial for airlines. [6]

30 marks

Mark scheme: 1(a) Calculate Turkey’s total output. $320 billion 1 1(b) Identify two factors that affect borrowing in an economy. • interest rates • confidence levels • wages / incomes 2 1(c) Explain the relationship between the growth of Istanbul’s service sector and its growth in total output. Logical explanation which might include: Higher growth in service sector leads to higher total economic growth (1). This is expected as countries become more developed, the share of services increases (1) and the share of primary sector decreases (1). For example, in 2011, the service industry grew most rapidly at 28.16% and the total economic growth was 21.9% (1). However, although growth of service sector was lowest in 2010 at 11.9%, total growth was 14.38% (1), higher than in 2014 where growth of service sector was higher (1). 3 1(d) Explain two reasons for Istanbul’s increased population. Logical explanation which might include: People moving from rural areas to the city centre (1) e.g. for higher wages / more employment opportunities / better housing / low cost of living / good transport links (1). Improved healthcare (1) longer life expectancy / lower infant mortality / higher quality of life (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. Question Answer Marks Guidance 1(e) Analyse how good transport links have contributed to Istanbul’s economic growth. Coherent analysis which might include: Good roads could lead to reduction in commute time (1) good roads / air transport leads to faster transport of goods and services (1). Workers can move easily / higher labour mobility (1) reduce unemployment (1). More competition in the labour market (1) more competition in the product market (1) could lead to fall in cost of production (1) increase in productivity (1). Easy to conduct business internationally due to good air transport links (1) access to huge international market (1) e.g. 1.5 billion people within a flight time of 4 hours (1) may have attracted MNCs (1). Contributed to the growth of the transport industry (1) allowing transport firms to take greater advantage of economies of scale (1). 4 1(f) Draw a demand and supply diagram to show the effects on flights to Turkey of greater worries about safety for tourists. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1) Original demand and supply curves correctly labelled (1) Demand curve shifts to the left (1) Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or by labelling equilibrium points as E1 and E2 (1). 4 O Question Answer Marks Guidance 1(g) Discuss whether or not Istanbul benefits from investment by MNCs. Up to 4 marks for why it may be beneficial: Increased investment leads to increased total demand (1) leads to economic growth (1). Increase demand for workers in Istanbul (1) decreasing unemployment rates (1) increasing incomes (1) and increasing standards of living (1). Bring new / better technology (1) increase productive capacity / productivity (1) Increase variety of products on sale (1) produce new products (1) Increase tax revenue (1) allowing local government to spend more on e.g. roads (1). Up to 4 marks for why it may not be beneficial: Replace domestically owned firms in Istanbul / decrease demand for domestic firms (1) MNCs may be more efficient than domestic firms (1) leading to failure of domestic firms / decrease demand for domestic firms (1) monopoly of MNCs (1). Profits leave the country (1) not reinvested domestically (1). MNCs may exploit workers (1) such as low wages (1) poor working conditions (1). MNCs may exploit environment (1) e.g. pollution (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 competition is beneficial for airlines. Up to 4 marks why it is beneficial: Competition will lead to airline being forced to be more efficient (1) productivity increase (1) use latest technology (1) reduce wasteful spending (1) quality increases (1) cost of production goes down (1) prices become more affordable (1) increase in quantity demanded (1) total revenue and profit increases (1). Up to 4 marks why it is not beneficial: Too much competition means less market share for each airline (1) less quantity demanded (1) airlines may have to advertise more (1) increase cost of production (1) total revenue and profit decreases (1) airlines who can’t compete may go bankrupt / leave the market (1). Too much competition may result in the airline being small (1) cannot take advantage of economies of scale (1). An airline may not benefit from becoming more competitive (1) because of brand loyalty (1) lower demand for air travel (1). 6

This question in 0455/21 Oct/Nov 2020

2 Changes in tobacco production and consumption can have both microeconomic and macroeconomic effects. Tobacco plants are grown in at least 124 countries with different levels of development. A higher proportion of the poor than of the rich consume tobacco products. The market for cigarettes, produced using tobacco, is changing. Demand for cigarettes and some other demerit goods is declining in a number of countries. (a) Define microeconomics. [2] (b) Explain two causes of differences in economic development between countries. [4] (c) Analyse how a cut in the interest rate could reduce poverty. [6] (d) Discuss whether or not government intervention will correct the market failure caused by a demerit good. [8]

20 marks

Mark scheme: 2(a) Define microeconomics. Study/analysis of or focus on individual markets / economic agents e.g. individuals, households, and firms (2). Study of economics on a small scale, e.g. demand for cars (1). Demand and supply for individual products/markets (1). 2(b) Explain two causes of differences in economic development between countries. Logical explanation which might include: Resources – land/labour/capital/enterprise (1) affect productive capacity of a country (1). Income (1) enabling people to consume more goods and services (1). Productivity (1) making better use of resources (1). Higher international trade / exports (1) results in higher output (1) Size of primary sector (1) larger primary sectors may mean lower incomes / hard working conditions (1). Saving (1) which can influence the proportion of capital goods produced/the extent to which people have a safety net (1). Investment (1) which may influence economic growth / make work less physically demanding (1). Education / literacy rates (1) which influence choices/income/health (1). Healthcare (1) which affects life expectancy / quality of life (1). 4 One mark for each of two causes identified and one mark for each of two explanations. Allow reference to political instability and social unrest if linked to economic development. Question Answer Marks Guidance 2(c) Analyse how a cut in the interest rate could reduce poverty. Coherent analysis which might include: Cost of borrowing will fall / reward from saving will decline (1) increase borrowing / demand for loans (1) consumer spending will increase (1) firms may invest more (1) output may rise (1) unemployed gain jobs / employment may increase (1) incomes may rise / reduction in absolute poverty (1). The poor who have borrowed in the past (1) will have more money to spend on basic necessities (1) spend on education (1) improve skills (1) get better paid jobs (1) reducing relative poverty (1). Housing may be cheaper (1) making shelter more accessible (1). May enable some of the poor to borrow to start up small businesses (1) and earn a higher income (1). Cheaper for government to borrow (1) enabling it to spend more on education/healthcare (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not government intervention will correct the market failure caused by a demerit good. In assessing each answer, use the table opposite. Why it might: • tax can be imposed/increased • this will raise price • consumers better informed about negative impact • demand would be expected to contract • a minimum price could be imposed • this again would be expected to reduce demand • restrictions could be imposed on the imports of demerit goods Why it might not: • demand may be price inelastic, some demerit goods are addictive • the government may set a tax too high or too low • the rich may not be dissuaded by the tax • producers may not pass on the tax to consumers • a minimum price set below the equilibrium level would have no effect • a minimum price could result in a surplus which may put downward pressure on price, encourage producers to charge less than the minimum price Example of Level 2 answer: Government’s job is to keep the economy going in a healthy way. Therefore, they try eliminating demerit goods to increase the benefits for society as a whole. If there is market failure caused by a demerit good it will be because too many people are consuming them and causing total benefit for society to fall. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information, and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Reward but do not expect provision of information. Question Answer Marks Guidance 2(d) Government intervention such as increasing taxes for merit goods will lower consumption and also with the money collected from taxes they can make merit goods instead of demerit goods. For example, if too many people consume cigarettes and tobacco, the government can raise taxes for tobacco and prices will rise. They can use the taxes collected to make additional videos and tell people the bad things that comes from smoking. Therefore, people will consume less of these demerit goods. However, demerit goods especially addictive things like cigarettes will have a lot of people producing them since its easy to make money. An increase in tax may cause unemployment if they cannot sell as much as before so the fixing of one market failure may cause another one to appear. Principal Examiner comment: This is reasonable on one side but limited on the second side. Example of a Level 1 answer: Government intervention can cause a huge change in the market of a demerit good. Increase in taxes for a demerit good will reduce demand. Principal Examiner comment: One method of government intervention identified.

This question in 0455/23 Oct/Nov 2020

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

30 marks

Mark scheme: 1(a) Calculate Chile’s agricultural output in 2017. $11.76bn / $11 760 000 000 / $11 760m (1). 1 Accept $11.8bn and $12bn. $ is not essential. 1(b) Identify two disadvantages of a country specialising. Two from: • demand may fall / new competitors may appear • supply/output may fall / diseases / natural disasters / bad weather may affect agricultural output / costs may rise • non-renewable resources may run out • structural unemployment may occur • reliance on imports no longer produced by home country / overdependency on other countries 2 One mark each for each of two disadvantages. Rely on a small number of industries is not sufficient. 1(c) Explain one reason why demand for cherries is price-elastic. A luxury product (1) they do not have to be purchased / not essential / not a necessity (1). Has close substitutes (1) example / rise in price will cause some people to switch to rival products (1). 2 In terms of close substitutes, also accept: fall in price will cause some people to switch towards this product and away from rival products. One mark for the reason identified and one mark for the explanation. A candidate who writes a luxury product and has close substitutes and no more has identified two reasons, so just one mark. If a candidate identifies one of the two reasons but does not explain it and then identifies the second reason and explains it, the second reason can be taken and with the explanation, 2 marks. Question Answer Marks Guidance 1(d) Explain how Chile’s population structure differs from Haiti’s population structure. Logical explanation which might include: Chile has a higher proportion of its population aged over 65 / Haiti a lower proportion aged over 65 (1). Chile has a lower proportion of the population aged under 15 / Haiti has a higher proportion aged under 15 (1). Chile is likely to have a lower birth rate / Haiti is likely to have a higher birth rate (1). Chile likely to have a lower death rate / Haiti is likely to have a higher death rate (1). Chile’s population pyramid indicates a relatively high level of development/high income country / Haiti’s population pyramid indicates a relatively low level of development/low income country (1). Chile’s population pyramid is less pyramid shaped / more stationary / constrictive / bulges out in the middle / more egg-shaped / Haiti’s is more pyramid shaped / more expansive (1). Lower dependency ratio in Chile / higher dependency ratio in Haiti (1). Higher proportion of population of working age in Chile / lower proportion of population of working age in Haiti (1). Higher population size in Chile / lower population size in Haiti (1). 4 Accept for the first and second points other relevant age ranges e.g. over 60, under 10. Accept longer life expectancy for lower death rate and shorter life expectancy for higher death rate. Note that each country overall has more females than males, so not a difference. Question Answer Marks Guidance 1(d) Chile has a higher average age / older population / Haiti has a lower average age population / younger population (1). 1(e) Analyse why China buys most of its cherries from Chile. Coherent analysis which might include: Chile has high production standards (1) cherries are likely to be of a high quality (1). China does not impose tariffs on Chilean cherries (1) may keep their price low (1). 4 Free trade agreement on its own is not sufficient. 1(f) Analyse why Chilean astronomers are paid more than Chilean farm workers. Coherent analysis which might include: Most astronomers have a university degree (1) high cost of training/ long period of training (1) well qualified / well educated / high level of knowledge (1) highly productive / highly skilled / efficient (1) in short supply (1) high demand (1) more inelastic demand (1) more inelastic supply (1). Most work in the public sector (1) government may be more willing / able to pay higher wages (1) public sector workers are more likely to belong to a trade union (1) have stronger bargaining power (1). 5 Also accept an approach based on an analysis of why Chilean farm workers are paid less than Chilean astronomers. This may include reference to immigrant farm workers who may be prepared to accept relatively low wages and Chilean farm workers being replaced by capital equipment / more replaceable than astronomers. Question Answer Marks Guidance 1(g) Discuss whether or not Chilean consumers would benefit from more government intervention in the economy. Award up to 4 marks for why they might: • evidence of market failure (1) • merit goods may be underproduced (1) as under- consumed (1) • demerit goods may be overproduced (1) as overconsumed (1) • external costs could be reduced (1) external benefits may be increased (1) external costs / external benefits are not taken into account by the private sector (1) • public goods may not be produced (1) no profit incentive to make them (1) as there can be free riders (1) • inequality (1) poor consumers may lose out / there may be poverty (1) resources may not be devoted to producing what the poor need (1) may not be able to afford prices charged (1) • government subsidies (1) can lower prices (1) • government could set maximum prices (1) lower prices of necessities (1) • government could control (private sector) monopoly power (1) prevent abuse of market power (1) • government investment in education (1) could lower prices / raise quality of output (1). Award up to 4 marks for why they might not: • government failure may occur (1) e.g. government may lack information (1). • market forces can provide wide choice of products (1) may be consumer sovereignty (1) 6 Apply this example to all questions with the command word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Not taking lower taxes, lower subsidies or reduced immigration controls as a form of government intervention. Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease … 1 ... because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • profit incentive (1) industries may respond to changes in consumer demand (1) • efficient industries (1) prices may be low (1) quality may be high (1) • government intervention in the form of nationalisation (1) may reduce competition (1). • government taxes / tariffs / regulation / minimum wages (1) may increase costs (1) raise prices (1) • maximum prices could reduce availability of products (1) • government limits on immigration (1) may reduce availability of products / raise prices (1) Question Answer Marks Guidance 1(h) Discuss whether or not the Haitian economy would benefit from fewer of its people working in Chile. Award up to 4 marks for why it might: • wages may be low in Chile (1) work involves unskilled labour (1) • employment may be rising in Haiti (1) the country could keep more of its skilled workers (1) • larger labour force / more workers (1) higher total demand (1) increase GDP / increase economic growth / increase productive potential (1) increase living standards (1) increase exports (1) • rise in the numbers employed in Haiti could increase tax revenue (1) may enable more spending on e.g. education (1) • fewer parents may leave behind dependent relatives (1) reduce burden on the government (1) • jobs could be found in other countries (1) Award up to 4 marks for why it might not: • wages may be higher in Chile (1) fewer emigrant workers may send money home (1) living standards may be lower (1) lower spending (1) • less money coming into the country (1) may increase a current account deficit (1) • job opportunities may be higher in Chile (1) unemployment may rise in Haiti (1) • if unemployment rises in Haiti, cost of unemployment benefits may rise (1) opportunity cost / higher taxation (1) • opportunities to gain new skills may be reduced (1) these skills could be brought back into the country (1) 6 For an approach which discusses whether or not the Haitian economy benefits from its people working in Chile, award a maximum of 3 marks. Question Answer Marks Guidance 1(h) • may reduce pressure to invest / spend on capital equipment (1) reduce advances in technology / reduce increases in efficiency / productivity (1) • may increase overcrowding / overpopulation (1) increase external costs / pollution (1) pressure on resources (1).

This question in 0455/22 May/June 2021

5 The demand for smartphones has become more price-inelastic as the range of functions available has increased. In low-income countries, smartphones are an important tool for economic development. This is because they provide access to education and banking services which were once not available in rural areas. Smartphones have made it easier for people to borrow and save their money. (a) Define economic development. [2] (b) Explain two reasons why children in rural areas may receive less education than those in cities. [4] (c) Analyse the advantages of selling a product which is price-inelastic in demand. [6] (d) Discuss whether or not an increase in the level of savings is beneficial for an economy. [8]

20 marks

Mark scheme: 5(a) Define economic development. When there is an increase in standards of living of the people of a country / quality of life / economic welfare (2). Increase in income per head / average income/GDP per head / education / healthcare / HDI (1). The process by which low-income economies become high-income economies (1). Movement from primary towards the secondary and tertiary sectors (1). Question Answer Mark Guidance 5(b) Explain two reasons why children in rural areas may receive less education than those in cities. Logical explanation which might include: Low income (1) cannot afford to go to school (1). Poor infrastructure (1) cannot get to school / no schools (1). Have to work on the family farm (1) no time to go to school (1). Parental attitude (1) they do not see benefit of education (1). Low tax revenue in rural areas (1) government spending on schools lower (1). Difficult to recruit teachers (1) poor housing / long distance to travel / low wages (1) Lack of schools (1) difficult to get materials to build schools / may be insufficient children (1). Parents have not been educated (1) don’t see the value in (paying for) education (1) 4 One mark for each cause identified and one mark for each explanation. Question Answer Mark Guidance 5(c) Analyse the advantages of selling a product which is price- inelastic in demand. Coherent analysis which might include: Price-inelastic demand means when price increases, quantity demanded falls by a less than proportionate amount or vice versa (1). Relevant example (1). When demand is price-inelastic, price and revenue move in the same direction (1). PED of less than one (1) may indicate lack of competition / substitutes (1) necessities often have inelastic demand (1) Firms can increase prices (1) total revenue increases (1) may increase in profits (1) if revenue rises faster than cost (1). Less market volatility (1) stability of income/revenue (1) making it easier to plan (1). 6 Award up to 2 marks for a diagram that shows price rising and total revenue rising, but do not reward twice. Question Answer Mark Guidance 5(d) Discuss whether or not an increase in the level of savings is beneficial for an economy. In assessing each answer, use the table opposite. Why an increase in the level of savings may be beneficial: • increase in savings could provide more funds for firms to borrow to invest • could lead to more future expenditure for consumers on things such as education • increase in firms’ productivity due to higher investments • increase in future standards of living / income for consumers • savings for old age / rainy day for consumers • may reduce the need to borrow and so reduce the risk of debt • may reduce inflation • may reduce spending on imports and so improve the current account of the balance of payments Why increase in the level of savings may not be beneficial: • increase in savings will lead to lower spending by consumers, lower total demand and lower economic growth now • lower expenditure on goods and services by consumers which leads to less profits for firms and less government tax revenue • increase in savings may reduce the incentive for firms to invest • increase in savings may be a sign of lower confidence in the economy • may reduce total demand an increase unemployment 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Mark Guidance 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

This question in 0455/23 May/June 2021

1 (a) Calculate the number of obese people in the UK in 2016. [1] (b) Identify two reasons why the demand for vegan food has increased in the UK. [2] (c) Explain one external benefit that may arise from eating less meat. [2] (d) Explain how food consumption in Senegal differed from the US in 2015. [4] (e) Analyse how an increase in labour mobility could improve the performance of a country’s trade in goods. [4] (f) Analyse how an increase in meat consumption could benefit African economies. [5] (g) Discuss whether or not an increase in Senegalese government spending will stop the country experiencing a recession. [6] (h) Discuss whether or not emigration would reduce poverty in Senegal. [6]

30 marks

Mark scheme: 1(a) Calculate the number of obese people in the UK in 2016. 18.2 million/18 200 000/18.2 × 106 1 Accept 18 million. 1(b) Identify two reasons why the demand for vegan food has increased in the UK. Two from: • (concerns about) health • (concerns about) obesity • (compassion for) animal welfare • rise in income/getting richer/higher standard of living • advertising of vegan products • less consumption of meat 2 One mark each for each of two reasons. 1(c) Explain one external benefit that may arise from eating less meat. Healthy/less obese people (1) are more productive/higher output/live longer/government can spend more on education and raise skills (1). Improved environment/air/water quality (1) less greenhouse gases/pollution/people sick (1). 2 One mark for the external benefit identified and one mark for the explanation. Question Answer Marks Guidance 1(d) Explain how food consumption in Senegal differed from the US in 2015. Senegalese citizens consumed fewer calories (1) consumed less than the recommended amount/US consumed more than the recommended amount (1). Senegalese may have suffered malnourishment (1) US may have suffered from obesity (1). Senegalese had a healthier diet (1) e.g. more fruit and vegetables (1). A higher proportion of the Senegalese diet consisted of cereals/grains (1) because it was cheap (1). Senegalese citizens consumed less meat (1) because it was expensive/low incomes (1). Senegalese citizens consumed less sugar and/or sweeteners (1). Senegalese consumed a higher proportion of fruit and/or vegetables (1). Senegalese consumed less added fats and/or oils (1). 4 Accept a response from the viewpoint of the US e.g. US citizens ate more meat. Question Answer Marks Guidance 1(e) Analyse how an increase in labour mobility could improve the performance of a country’s trade in goods. Coherent analysis which might include: Labour markets will become more efficient (1) workers become more skilled (1) workers will move more easily between industries/become more occupationally mobile/respond quickly to changes in demand (1). Workers can move more easily from one place to another/become more geographically mobile (1). If demand for a product rises (1) it will be easier to recruit new workers/fill vacancies (1) more can be produced/supplied (1) less need for imports (1) import expenditure could fall (1) more can be exported (1) export revenue could rise (1). 4 Question Answer Marks Guidance 1(f) Analyse how an increase in meat consumption could benefit African economies. Coherent analysis which might include: May reduce malnutrition/make people healthier (1) make workers more productive/efficient (1) improve quantity/quality of output (1) lower costs of production (1) more competitive internationally (1) exports increase/imports reduce (1) economic growth (1). Increase demand for vets and transport firms (1) increase number of meat processing firms (1) greater investment by firms (1) will increase output (1) raise employment (1) raise incomes/standard of living (1). Reduces government spending on health care (1) can spend more on education/unemployment benefits/infrastructure increasing skill levels/productivity (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Senegalese government spending will stop the country experiencing a recession. Award 1 mark for explanation of recession. Award up to 4 marks for logical reasons for why it might, which might include: • Government spending part of total (aggregate) demand (1) may increase total (aggregate) demand (1) may offset fall in consumer expenditure (1) this may encourage firms to produce more/attract new firms to set up (1) employ more staff/lower (cyclical) unemployment (1) earn more income (1) purchase more goods and services (1). • Government spending on education/training/healthcare infrastructure (1) improves productivity (1) make products more internationally competitive (1) increasing total (aggregate) demand (1) raising output (1). • Government subsidies (1) will lower costs of production (1) encouraging firms to produce more (1). Award up to 4 marks for logical reasons for why it might not, which might include: • May not be great enough to offset fall in investment (1) business confidence may be low (1). firms may not increase output after being given government subsidies (1) 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mar k Tax revenue may decrease 1 because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(g) • Consumer expenditure may fall (1) investment may not rise (1) exports may fall (1) • if consumer confidence is low (1). • May be global recession (1) exports may fall (1). • If taxes are raised to pay for the increase in government spending (1) government borrows (1) effect on total (aggregate) demand may be small (1). Higher spending on education/health/infrastructure may not result in increased workforce/greater productivity (1). Question Answer Marks Guidance 1(h) Discuss whether or not emigration would reduce poverty in Senegal. Award up to 4 marks for logical reasons for why it might, which might include: • Workers’ remittances may increase/emigrants may send money home to Senegal (1) working abroad may enable them to provide more financial support for their families (1) than working at home (1) if wages are higher abroad (1) • Unemployment may fall (1) if potential emigrants could not gain work at home (1) • Increase ability of people to gain skills/work experience (1) increasing their ability to earn more (1) can share those skills with workers when they return to Senegal (1) • Emigration may move the country towards the optimum population (1) if the country lacks resources (1) this could increase income per head (1) increasing ability to purchase basic necessities (1) Award up to 4 marks for logical reasons for why it might not, which might include: • Skilled workers may leave the country (1) reducing output (1) discouraging MNCs (1) reducing jobs (1) reducing income (1) • There will be fewer people to pay taxes (1) lower tax revenue available to spend to reduce poverty (1) e.g. on education (1) • May be more dependents on the government (1) if parents leave children and elderly relatives behind (1) • Fewer workers in the population (1) will make it harder to finance state pensions (1) may reduce income of pensioners (1) 6

This question in 0455/23 Oct/Nov 2021

5 Industries and markets are changing in Vietnam. There is greater use of division of labour in a range of industries. Many markets are becoming more competitive, causing some firms to make losses. Manufacturing was Vietnam’s strongest sector in 2018, when manufacturing output increased by 13%. (a) Define division of labour. [2] (b) Explain two reasons why a loss-making firm may continue to produce. [4] (c) Analyse the advantages that consumers may gain from a competitive market. [6] (d) Discuss whether or not an increase in a country’s manufacturing output will increase its economic development. [8]

20 marks

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

This question in 0455/23 Oct/Nov 2021

1 (a) Calculate the number of Bermudian workers who were unemployed in 2018. [1] (b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. [2] (c) State two reasons why a foreign MNC may want to operate in Bermuda. [2] (d) Explain two reasons why Bermuda has a higher level of economic development than many other countries. [4] (e) Analyse the role of the Bermudian Monetary Authority (BMA). [4] (f) Analyse the relationship between GDP per head and life expectancy. [5] (g) Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate. [6] (h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit goods. [6]

30 marks

Mark scheme: 1(a) Calculate the number of Bermudian workers who were unemployed in 2018. 2345 (1). 1 1(b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. Luxury (not a necessity) (1) expensive / high price (1). 2 If more than two reasons are given, consider the first three, 1(c) State two reasons why a foreign MNC may want to operate in Bermuda. Any two from: Tax haven / no corporation tax (1) High GDP per head (1) High import tariffs (1) High literacy rate / skilled workers / educated workers (1) Low inflation (1). 2 If more than two reasons are given, consider the first three, Question Answer Marks Guidance 1(d) Explain two reasons why Bermuda has higher level of economic development than many other countries. Logical explanation which might include: Large tertiary sector (1) jobs in the tertiary sector tend to be better paid / have better working conditions (1). High literacy rate (1) a higher literacy rate will tend to increase employability / provide more choices / increase quality of jobs obtained / increase pay / increase skills / produce better quality products / may suggest a good level of education / raise productivity / increase output (1). Low population growth (1) a lower population growth may mean that dependency ratio may be low / less stress on resources / more resources can be devoted to e.g. investment (1). High GDP per head (1) a higher GDP per head can increase living standards / result in high consumer expenditure (1). High life expectancy (1) which can reflect good health care / may mean high quality labour (1). 4 One mark each for each of two reasons identified and one mark for each of two explanations. If more than two relevant reasons are identified, consider the first three and take the two which gain the highest marks. Note: no mark for high GDP, low unemployment or just e.g. population growth. 1(e) Analyse the role of the Bermudian Monetary Authority (BMA). Coherent analysis which might include: Carries out (most) of the functions of a central bank (1). Acts as banker to the government (1) receives tax payments / enables government to make payments / manages national debt / allows government to borrow and lend (1). Holds the country’s reserves of foreign currency (1) may use reserves to influence the value of Bermuda’s currency / buy / sell currency (1). Carries out the government’s monetary policy / keeps inflation low (1) by changing interest rate / money supply (1). 4 Maximum of 2 marks for recognising functions (including carrying out the functions of a central bank) from the source material. Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and life expectancy. Coherent analysis which might include: Overview Generally, a positive relationship / the higher the GDP per head, the longer the life expectancy (1). Supporting evidence Evidence in terms of an individual country or group of countries e.g. Monaco has the highest GDP per head and the longest life expectancy or e.g. the three countries with the highest GDP per head have the longest life expectancy (1) evidence in terms of another country or group of countries e.g. Eswatini has the lowest GDP per head and the lowest life expectancy or e.g. Argentina, Bahamas and Eswatini have the lowest GDP per head and the lowest life expectancy (1). Exception Argentina or Bahamas (1) not in same order / reason for why difference may exist (1). Comments Higher income allows more to be spent on healthcare (1) better healthcare reduces illness / reduces death rate (1). 5 No marks for just stating the figures e.g. Monaco has a GDP per head of approximately $185 000 and a life expectancy of 90 years and Eswatini has a GDP per head of approximately $4000 and a life expectancy of 58. Question Answer Marks Guidance 1(g) Discuss whether or not Bermudian government policy measures designed to reduce unemployment would increase the inflation rate. Award up to 4 marks for logical reasons why they might, which may include: Expansionary fiscal and/or monetary policy measures (1) example of a measure (1) could increase total demand / increase spending (1) higher total demand could cause demand-pull inflation (1) if total (aggregate) demand exceeds total (aggregate) supply / there is limited or no spare capacity (1). Shortage of unemployed workers / lower unemployment could push up wage rates / incomes (1) higher output could push up costs of raw materials (1) and cost of capital goods (1) higher costs of production (1) could cause cost-push inflation (1). Award up to 4 marks for logical reasons why they might not, which may include: Supply-side policy measures (1) could raise productivity (1) example of a measure (1) higher productivity could reduce costs of production (1) total supply could increase to match higher total demand / productive potential/capacity could increase (1) avoid / reduce cost-push inflation (1). Expectations of future inflation could be low (1) resulting in e.g. lower wage claims (1). Unemployment rate is at 7% (1) not at full employment (1) unemployed workers may be willing to work at existing wage rates (1) there is some spare capacity (1). Inflation rate is low (1) and so expectations of inflation may be low (1). Expansionary demand-side policy measures may just result in higher savings (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit goods. Award up to 4 marks for logical reasons why they might, which may include: Demerit goods are more harmful than consumers realise / are harmful / consuming less would make people healthier (1) they usually have negative external costs (1) examples include fast food, alcohol and tobacco (1). Demerit goods are overconsumed (1) and overproduced (1) higher indirect taxes will impose an extra cost / raise cost of production (1) which may lower output / supply (1) be likely to raise price (1) which is likely to reduce consumption (1) lower consumption/lower output/lower supply may move output to a point where social costs equal social benefits (1). May raise tax revenue (1) which can be spent on campaigns to reduce e.g. smoking (1). Award up to 4 marks for logical reasons why it might not, which may include: It may be difficult to change consumers’ behaviour / spending patterns (1) some demerit goods are addictive (1) those with high incomes may not be affected by a rise in price (1) demand for demerit goods may be inelastic (1). Producers may not pass on price rise to consumers / products may be sold on an illegal market (1) to avoid fall in demand (1). It can be difficult to determine the output of demerit goods which will avoid market failure. (1) the output where social cost will equal social benefit (1). 6 Examples of demerit goods may be rewarded in why might or why might not.

This question in 0455/22 Feb/March 2022

1 (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 the primary sector to one based on the tertiary sector. [2] (c) Identify two indicators of improving healthcare in Mauritius. [2] (d) Explain two reasons why millions of tourists visit Mauritius each year. [4] (e) Explain two advantages of setting up a firm in Mauritius. [4] (f) Analyse the relationship between the percentage of international trade to GDP and GDP per head. [5] (g) Discuss whether or not outward investment might benefit a Mauritian firm. [6] (h) Discuss whether or not government infrastructure spending benefits the Mauritian economy. [6]

30 marks

Mark scheme: 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).

This question in 0455/21 Oct/Nov 2022

1 (a) Calculate New Zealand’s GDP per head in 2020. [1] (b) Identify two external costs arising from the milk and car industries. [2] (c) Explain the impact on a cow farmer’s profits if they are unable to find a different source of revenue. [2] (d) Explain the two plans that the New Zealand government has to reduce external costs to the environment. [4] (e) Draw a demand and supply diagram to show the effect of a cheaper substitute on the market for petrol‑powered cars. [4] (f) Analyse the relationship between a country’s share of world GDP (%) and its share of world carbon dioxide emissions (%). [5] (g) Discuss whether or not an increase in exports of clean and green products will help the New Zealand government achieve its macroeconomic aims. [6] (h) Discuss whether or not job losses caused by a change to a carbon‑neutral economy will be harmful. [6]

30 marks

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

This question in 0455/23 May/June 2023

2 Liechtenstein is a high‑income economy in the middle of Europe. The country’s low tax rates and low levels of regulation make it an attractive place for foreign firms and individuals to open bank accounts. Firms’ costs of production in Liechtenstein are high but this is slightly offset by low indirect taxation. (a) Identify two types of cost to a firm. [2] (b) Explain two roles of commercial banks for firms. [4] (c) Analyse the causes of differences in the level of income between countries. [6] (d) Discuss whether or not low tax rates benefit an economy. [8]

20 marks

Mark scheme: 2(a) Identify two types of cost to a firm. total cost (1) average total cost (1) fixed cost (1) variable cost (1) average fixed cost (1) average variable cost (1) 2 Accept any relevant costs e.g. labour cost Accept abbreviations e.g. TC If more than two costs given, consider the first three. 2(b) Explain two roles of commercial banks for firms. Logical explanation which might include: Provide loans / overdrafts to banks / source of finance (1) to fund investments / expansion / start−up / day to day operations (1). Help process payments (1) internet banking / fund transfers / credit card / debit card payments (1). Issuing bank drafts / bank cheques (1) to help firms make payments (1). Safe place to store money / savings (1) firms making deposits / earn interest (1). Safekeeping of documents and other items (1) in safe deposit boxes (1). Currency exchange (1) to facilitate transfers between firms / international transactions (1). Provides insurance (1) to reduce various risks to the firm (1). 4 One mark each for each of two roles identified and one mark each for each of two explanations. If more than two roles given, consider the first three. Question Answer Mark Guidance 2(c) Analyse the causes of differences in the level of income between countries. Coherent analysis which might include:  difference in productivity (1) countries with higher productivity have higher incomes (1) as workers can produce more (1) and earn more money from their production (1)  difference in availability of natural resources (1) e.g. valuable commodities such as oil or gold (1).  difference in population growth (1) countries with higher population growth have higher incomes (1) as there are more people to produce goods and services (1) lower labour costs (1) encourage more investments (1)  differences in distribution of primary, secondary and tertiary sectors / level of development (1) those with higher secondary and tertiary sectors have higher incomes (1) more value added (1) less dependent on weather (1) higher productivity (1)  difference in specialisation / diversification (1) level of exports (1).  difference in minimum wage level (1) affects the level of total demand in a country (1)  difference in level of saving and investment (1) higher savings leads to higher investment (1) and higher productivity growth (1) and therefore higher income growth (1)  difference in education levels (1) higher education levels lead to higher incomes (1) workers have more qualification / skills / experience (1) leading to higher productivity / higher output (1) 6 Alternatively, accept arguments which describes reasons for lower incomes. Question Answer Mark Guidance 2(c)  difference in health / healthcare standards (1) higher health / healthcare standards lead to higher incomes (1) less sick / healthier / stronger (1) produce more / higher productivity leading to higher income (1).  difference in unemployment rates (1) the more unemployed resources a country has, the less income is likely to be earned (1).  differences in birth rates / proportion of elderly people (1) high birth rate and ageing population may place high demands on a country's resources (1)  difference in frequency of war / natural disasters (1) reducing a country’s ability to produce goods and services (1) Question Answer Mark Guidance 2(d) Discuss whether or not low tax rates benefit an economy. In assessing each answer, use the table opposite. Why it might:  low corporation tax rates encourage more investments and therefore higher productivity growth which encourages economic growth  low corporation tax rates encourage more investments which increases demand for labour and reduces unemployment  low income tax rates encourage more people to enter the labour force  low income tax rates increase disposable income which can encourage higher consumer expenditure and, as a result, higher output  low indirect tax rates reduce cost of production which reduces cost−push inflation  low indirect tax rates reduce cost of production which increases competitiveness of exports which reduces current account deficit / increases current account surplus Why it might not:  low tax rates reduce government revenues which could reduce spending on public goods / infrastructure, reducing investments / productivity growth  low tax rates increase production which increases pollution and environmental degradation  low direct tax rates may be inflationary 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6−8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one−sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3−5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1−2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Mark Guidance 2(d)  low tax rates increase trade which increases need for international transport such as ships and planes which increases pollution  low direct tax rates increase inequality  low tax rates on demerit goods may worsen health / result in market failure.  low tax rates on imports (tariffs) may worsen the current account of the balance of payments

This question in 0455/23 May/June 2023

2 In 2019, Mozambique was hit by a serious storm which destroyed bridges, factories, roads and electricity lines. Almost 60% of Mozambique’s population live in absolute poverty. The country’s people are keen to increase Mozambique’s economic development. There is a high level of government intervention in Mozambique’s economy. Although Mozambique does not impose import quotas, it does impose a range of import tariffs. (a) Identify two reasons why a person may experience absolute poverty. [2] (b) Explain two causes of an increase in a country’s economic development. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of a serious storm on an economy. [6] (d) Discuss whether or not imposing tariffs on imports will increase a country’s output. [8]

20 marks

Mark scheme: 2(a) Identify two reasons why a person may experience 2 If more than two reasons are given, consider the first three. absolute poverty. Two from: • unemployment • sickness / mental health / poor health • old age • refugees • war / famine / natural disasters • lack of government benefits • low level of education / social skills • income too low to afford basic necessities. 2(b) Explain two causes of an increase in a country’s 4 One mark each for each of two causes identified and one economic development. mark each for each of two explanations. Logical explanation which might include: If more than two causes are given, consider the first three. Improvements in education (1 improve production capacity Note: the development mark might apply to several causes can raise wages / reduce unemployment (1). and are therefore interchangeable. Improvements in healthcare (1) can increase life expectancy (1). Improvements in technology (1) better quality goods and services (1) Increase in savings (1) provide finance for investment (1). Increase in investment (1) raise quality of output / economic growth (1). Increase in FDI (1) can increase job opportunities (1). Increase in proportion of workers in the tertiary sector (1) working conditions / pay may be better (1). Increase in incomes (1) able to buy more goods and services (1). Increase in government expenditure on infrastructure (1) improves labour mobility / access to resources (1). Increase in international trade / exports (1) creates more jobs / income (1). Discovery of new resources (1) e.g. oil improves production (1). 2(c) Analyse, using a production possibility curve (PPC) 6 diagram, the effect of a serious storm on an economy. Up to 4 marks for the diagram: Axes correctly labelled with different outputs (1). Initial curve drawn as a curve/line sloping downward to the axes (1). New curve drawn as a curve/line sloping downward to the axes (1). Shift indicated by arrow or letter (1). Up to 2 marks for coherent analysis which might include: A serious storm will reduce resources / reduce availability of factors of production / destroy infrastructure (1) reduce the ability to produce goods and services / reduce maximum capacity / reduce productive capacity (1). Note: both curves must touch both axes to get the marks. Note: Axes need labelling such as good X / good Y or capital goods and consumer goods. Labelling A and B is not sufficient. 2(d) Discuss whether or not imposing tariffs on imports will 8 Level Description Marks increase a country’s output. 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 to evaluate economic issues and situations. • increase price of imports which may reduce demand for One side of the argument may have more imports depth than the other, but overall, both sides • people may switch to buying domestically produced of the argument are considered and products developed. There is thoughtful evaluation of • net exports may increase, raising total demand economic concepts, terminology, • the higher demand may encourage the country’s firms information and/or data appropriate to the to produce more goods and services question. The discussion may also point out • government could use tax revenue to subsidise the possible uncertainties of alternative domestic goods. decisions and outcomes. Why it might not: 2 A reasoned discussion which makes use of 3–5 economic information and clear analysis to • even with tariffs, imports may still be cheaper than evaluate economic issues and situations. domestically produced products The answer may lack some depth and • there may not be domestically produced substitutes development may be one-sided. There is • if tariffs are put on raw materials and capital goods, relevant use of economic concepts, costs of production could rise and demand may fall terminology, information and data • other countries may retaliate, raising price of exports appropriate to the question. and reducing demand for the country’s exports. 1 There is a simple attempt at using economic 1–2 definitions and terminology. Some reference Note: level 1 would be knowledge and understanding of imports and tariffs or just identification of points. may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/23 Oct/Nov 2023

1 (a) Calculate the price elasticity of demand for coffee. [1] (b) Identify two rewards to factors of production in Nicaragua. [2] (c) Explain one way in which unemployment is measured. [2] (d) Explain two functions of money in Nicaragua. [4] (e) Analyse the relationship between the percentage of the labour force employed in agriculture and GDP per head. [4] (f) Analyse, using a demand and supply diagram, how a drought could affect the market for coffee. [5] (g) Discuss whether or not small firms benefit Nicaraguan consumers. [6] (h) Discuss whether or not Nicaragua should devote more of its resources to coffee production. [6]

30 marks

Mark scheme: 1(a) Calculate the price elasticity of demand for coffee. () 0.3 (1) 1(b) Identify two rewards to factors of production in Nicaragua. Wages (1) profits (1) 2 Only accept these answers if within the first three listed. 1(c) Explain one way in which unemployment is measured. Claimant count (1) based on workers claiming unemployment benefits (1). OR Labour force survey (1) asking people if they are out of work and looking for employment (1). 2 One mark for a way identified and one mark for an explanation. 1(d) Explain two functions of money in Nicaragua. Medium of exchange (1) used to buy and sell products / used to trade (1). Store of value (1) used to save / keeps its value over a period of time (1). 4 One mark each for each of two functions identified and one mark for each of two explanations. Only accept these answers if within the first three listed. Question Answer Mark Guidance 1(e) Analyse the relationship between the percentage of the labour force employed in agriculture and GDP per head. Coherent analysis which might include: Relationship: Inverse or negative relationship / move in opposite directions (1). Countries with a high percentage of their labour force employed in agriculture tend to have a low GDP per head (1). Supporting evidence: The four countries with the lowest % of the labour force employed in agriculture had the highest GDP per head (1) Specific reference to one or more countries e.g. Bahamas had the lowest % employed in agriculture and the highest GDP per head (1). Use of GDP per head data to show comparison between country with high employment in agriculture and one with low percentage employment in agriculture (1). Analysis of expected relationship: Wages may be low in agriculture (1) wages / value added tends to be higher in the secondary and / or tertiary sector (1). Exception: Nicaragua / Dominica (1) Nicaragua has the second highest % of labour force employed in agriculture but the lowest GDP per head / Dominica had the highest % of labour force employed in agriculture but the second to lowest GDP (1). Analysis of exception: Explanation of another influence on GDP per head (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note the four are: Bahamas Barbados Costa Rica Saint Lucia Question Answer Mark Guidance 1(f) Analyse, using a demand and supply diagram, how a drought could affect the market for coffee. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: A drought will lead to a shortage / will increase costs of production (1). OR The lower supply will push up price / reduce quantity (traded) (1). 5 Question Answer Mark Guidance 1(g) Discuss whether or not small firms benefit Nicaraguan consumers. Award up to 4 marks for logical reasons why they might, which may include:  know customers’ requirements (1) provide a personal service / see them often (1) may be flexible (1)  may be many small firms / competitive markets (1) prices may be low (1) quality may be high (1) may offer wider choice collectively than a few large firms (1)  may provide products for which there is only a low demand (1) niche market (1)  makes goods more accessible in rural areas (1). Award up to 4 marks for logical reasons why it might not, which may include:  may not be able to take advantage of economies of scale (1) examples (1) higher average cost of production (1) higher price (1)  small firms may have lower profits (1) may limit investment / funds available (1) fail to raise quality (1)  may limit choice (1) individual small firms may have a limited range of products (1) cannot provide all that consumers may want (1). 6 Apply this example to all questions with the command word DISCUSS  1(g), 1(h), 2(d), 3(d), 4(d) and 5(d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Only reward reference to quality or prices once. Question Answer Mark Guidance 1(h) Discuss whether or not Nicaragua should devote more of its resources to coffee production. Award up to 4 marks for logical reasons why it should, which may include:  global demand for coffee is increasing (1) demand for coffee is price inelastic (1) revenue / profits may increase (1) more tax revenue for government (1)  firms grow in size (1) greater specialisation / economies of scale may reduce average costs (1) raise quality (1) increase profits (1) more competitive (1)  exports may increase (1) improve the current account of its balance of payments (1) lead to economic growth/higher standard of living (1)  may lead to more job opportunities (1) less poverty / less government payments to unemployed (1)  already twelfth biggest world producer (1) growth will give them more monopoly power (1) more power to raise price of coffee (1). Award up to 4 marks for logical reasons why it should not, which may include:  other countries produce coffee (1) these may be more competitive (1)  output may be affected by changes in weather (1) natural disasters (1) overproduction can exhaust land (1) leading to lower yields in future (1)  opportunity cost (1) resources could be used to produce other products (1) example (1) coffee workers only receive low pay (1)  world market for coffee may fall / demand is unpredictable (1) resulting in surplus capacity / wasted resources (1)  bmore dependent on other countries for imports of other (agricultural) products (1)  firms may suffer from diseconomies of scale (1) reduce profits (1). 6 Do not expect, but reward reference to absolute or comparative advantage.

This question in 0455/21 May/June 2024

1 (a) Calculate the percentage contribution of Jakarta to Indonesia’s GDP in 2021. [1] (b) Identify two examples of external costs ignored by the free market. [2] (c) Explain how real GDP per head can be an indicator of living standards. [2] (d) Explain two ways climate change can lead to a fall in the Human Development Index (HDI) of Indonesia. [4] (e) Draw a production possibility curve (PPC) diagram to show the impact of climate change on an economy such as Indonesia. [4] (f) Analyse the relationship between GDP and government spending on the environment. [5] (g) Discuss whether or not internal migration benefits an economy such as Indonesia. [6] (h) Discuss whether or not relocating the capital city from Jakarta will benefit the Indonesian economy. [6]

30 marks

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

This question in 0455/23 May/June 2024

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

30 marks

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

This question in 0455/21 Oct/Nov 2024

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

20 marks

Mark scheme: 4(a) Define supply 2 Accept an incomplete answer for one mark e.g. amount of a good/service produced by a firm / available in the market (1). The willingness (1) and ability to sell/provide a good/service (1). 4(b) Explain the difference between the private sector and 4 Alternatively candidates may present as the public sector. Motive: profit v social welfare Logical explanation which might include: Ownership: individuals / firms v government • private sector is operated and owned by individuals / firms (1) and decisions are made based on self-interest / profits / own utility / efficiency (1) • public sector is operated and owned by the government (1) and decisions are made based on the overall welfare of society / people / externalities (1). 4(c) Analyse the causes of differences in economic development 6 Do not reward economic growth as being the same as between countries. economic development Coherent analysis which might include differences in: • level of income (1) affecting levels of affordability (1) and consumption of various goods and services (1) • education (1) affecting skills / productivity (1) job opportunities (1) purchasing power (1) • healthcare (1) affecting life expectancy (1) level of labour absences from work (1) output (1) • levels of population growth (1) affecting size of workforce (1) affecting dependency ratios (1) which could also affect cost of labour (1) • size of primary, secondary and tertiary sectors (1) large size primary sector usually leads to lower levels of development than the other two sectors (1) lower value added in primary / higher value added in secondary and tertiary (1) • government expenditure / overseas investment (FDI) (1) e.g. in infrastructure projects / education/healthcare (1) raising job opportunities / reducing poverty (1) • availability / development of resources / factors of production (1) e.g. beautiful landscape / labour (1) impact on economic development (1). 4(d) Discuss whether or not the employment of migrant Level Description Marks workers can benefit an economy 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might benefit: migrant labour information and clear and logical analysis to evaluate economic issues and • increases supply of labour –reduce wage cost situations. One side of the argument may • increases the quantity of factors of production in the have more depth than the other, but economy overall both sides of the argument are • increase productive capacity of the economy and considered and developed. There is economic growth thoughtful evaluation of economic • more skilled concepts, terminology, information and/or • more productive data appropriate to the question. The • takes up jobs that locals don’t want to take up discussion may also point out the • income received may create new jobs. possible uncertainties of alternative decisions and outcomes. Why it might not benefit: migrant labour 2 A reasoned discussion which makes use 3–5 • Increases unemployment – takes jobs from local of economic information and clear workers analysis to evaluate economic issues and • usually willing to take jobs at lower pay than local labour situations. The answer may lack some lowering wage rates for all workers depth and development may be one- • means economy may not have capacity to sided. There is relevant use of economic accommodate them leading to lack of housing and other concepts, terminology, information and infrastructure. data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/23 Oct/Nov 2024

1 (a) Calculate the value of Gabon’s oil production as a percentage of Gabon’s GDP. [1] (b) Identify two external benefits of rainforests. [2] (c) Explain what effect an increase in tourism may have on Gabon’s current account of the balance of payments. [2] (d) Explain two reasons why the Gabonese Government wants to reduce reliance on oil. [4] (e) Draw a demand and supply diagram to show the effect of the discovery of new gold deposits on the market for gold. [4] (f) Analyse the relationship between the literacy rate and the percentage of the labour force employed in agriculture. [5] (g) Discuss whether or not a government should pay private sector firms to give work experience to unemployed young people. [6] (h) Discuss whether or not a growth in the size of firms in Gabon’s textile industry will reduce their average cost of production. [6]

30 marks

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

This question in 0455/21 May/June 2025

3 The public sector in Andorra is focusing on developing the healthcare, biotechnology and sports industries. Andorra has the natural advantage of being a mountainous country. Several winter sports firms in Andorra have recently merged. This will affect the level of competition in the winter sports market in Andorra. (a) Define public sector. [2] (b) Explain two types of merger. [4] (c) Analyse how differences in healthcare can lead to differences in economic development between countries. [6] (d) Discuss whether or not competitive markets are beneficial for consumers. [8]

20 marks

Mark scheme: 3(a) Define public sector. 2 Sector which is owned / managed / economic decisions made (1) by the government (1). 3(b) Explain two types of mergers. 4 Accept, but do not expect, explanation of lateral mergers. Logical explanation which might include: Allow vertical backwards and vertical forwards as two • Horizontal merger (1) where two or more firms in the different types of merger. same industry at the same stage of production merge / relevant example (1). • Vertical merger (1) where two or more firms in the same industry but different stage of production merge / relevant example (1). • Conglomerate (1) where two or more firms in different industries merge / relevant example (1). 3(c) Analyse how differences in healthcare can lead to 6 The question can be analysed from either poorer or better differences in economic development between healthcare provision in one country compared with another countries. but the same point should not be rewarded twice. Coherent analysis which might include: If healthcare is better in one country than another, workers will be healthier / take less time off sick (1) the productivity of labour may be higher (1) leading to higher incomes of workers (1) improved standard of living (for workers) (1) longer life expectancy / lower death rate (1) higher HDI (1). Firms may gain higher profits (1) due to lower average cost / higher revenue (1) higher quality output (1) productivity capacity of the economy will increase (1) leading to economic growth (1) exports may increase due to higher competitiveness (1) investment may increase (1) creating more jobs (1) reducing unemployment (1) increasing incomes and reducing (child) poverty (1) may increase spending on education (1). 3(d) Discuss whether or not competitive markets are 8 Level Description Marks beneficial for consumers. 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 • more firms in the market leads to lower price analysis to evaluate economic issues • higher quality and situations. One side of the argument • more choice may have more depth than the other, but • firms may be smaller and so may not experience overall both sides of the argument are diseconomies of scale considered and developed. There is • more innovation in terms of production methods and thoughtful evaluation of economic products concepts, terminology, information and/or data appropriate to the question. Why it might not: The discussion may also point out the • lower profits for firms – less innovation and quality possible uncertainties of alternative improvement decisions and outcomes. • too many choices – takes up consumer time and effort • firms may spend on advertising, increasing their costs 2 A reasoned discussion which makes use 3–5 and prices of economic information and clear • lower quality due to race to the bottom analysis to evaluate economic issues • firms may be smaller and may not experience and situations. The answer may lack some depth and development may be economies of scale • competition may lead to resource depletion / negative one-sided. There is relevant use of economic concepts, terminology, externalities information and data appropriate to the question. 3(d) 8 Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/23 May/June 2025

1 (a) Calculate the number of Malawians who had access to electricity in 2022. [1] (b) Identify two capital goods used in Malawi. [2] (c) Explain what is likely to have happened to Malawi’s production possibility curve (PPC) in January 2022. [2] (d) Explain two reasons why the supply of Malawian tea may increase. [4] (e) Draw a demand and supply diagram to show the effect of a report stating the health risks of consuming sugar on the market for sugar. [4] (f) Analyse the relationship between GDP per head and the percentage of children who complete primary education. [5] (g) Discuss whether or not Malawi should develop a solar energy industry. [6] (h) Discuss whether or not a government should try to stop its country’s foreign exchange rate falling in value. [6]

30 marks

Mark scheme: 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).

This question in 0455/23 Oct/Nov 2025