International specialisation — Paper 2 — IGCSE Economics 0455 topical questions

Question 1

In June 2015 the value of the Swiss franc rose by 30% against the euro. The countries that Switzerland exports to are changing. Exports to …

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5(a) Define ‘inflation’. A rise in the price level/rise in average prices (2). A rise in prices (1). A change in the price of a good (1). 2 5(b) Explain why a country’s exports to one country may increase, while those to another country decrease. Exports to one country may increase because incomes in that country increase (1) increasing demand for products including imports (1) while incomes in the other country may fall (1) decreasing demand for products including imports (1). Exports to one country may increase because the country’s exchange rate may fall against that country (1) making exports cheaper (1) while the exchange rate may increase against another country (1) making exports more expensive (1). Exports to one country may increase because trade restrictions imposed on them may be reduced (1) e.g. tariffs lowered (1) while trade restrictions may be increased by the other country (1) to protect its industries (1). 4 Maximum of 2 marks if an explanation is a static cause e.g. may be high because the exchange rate is low. Explanations must relate to what causes the change. Reward but do not expect an explanation using comparative advantage. 5(c) Analyse how an appreciation of the exchange rate may reduce the country’s inflation rate. An appreciation in the exchange rate means a rise in the value of the currency (1) higher export prices (1) lower import prices (1) less competitive (1) may reduce net exports (1) may increase imports (1) lower total demand (1) reduce demand-pull inflation (1). Lower import prices will reduce the price of some of the products people in the country buy (1) may lower price of raw materials (1) lower costs of production (1) reduce cost-push inflation (1). Lower import prices and higher export prices will put pressure on domestic firms to keep prices low (1). 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 5(d) Discuss whether a low inflation rate always benefits an economy. Up to 5 marks for why it might: It may mean that domestic products may become more internationally competitive (1) exports may increase (1) current account position may improve (1) output may increase (1) employment may increase (1) resulting in higher economic growth/rise in GDP. A low inflation rate which is also stable (1) may create greater confidence (1) may promote investment/attract MNCs to set up in the country (1) may encourage production (1). It will mean menu and shoe leather costs will be low (1) keeping firms’ costs low (1). It may benefit savers (1) if the interest rate is above the inflation rate (1). It will mean that inflationary noise will not be significant (1) so firms and households can make efficient choices (1). Fiscal drag is unlikely to be a problem (1) people may not be dragged into higher tax brackets (1). Up to 5 marks for why it might not: It may be too low which may discourage production (1). There may be a risk of deflation (1) which may discourage consumption (1). Less tax revenue for the government (1) to spend on objectives such as better education and healthcare (1) It may still be higher than rival countries (1) leading to a current account deficit (1). It may harm certain groups including borrowers (1) who had expected debt to fall at a more rapid rate (1). To achieve low inflation a government may have used deflationary policy measures (1) which could reduce output (1) increase unemployment (1). 8 A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list-like approach.

Question 2

Mining diamonds in Botswana Botswana is the world’s largest producer of diamonds. Indeed, in 2015 diamonds accounted for a third of the cou…

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1(a) Identify, using information from the extract, two reasons why a foreign diamond company may set up in Botswana. 1 mark each for each of two reasons identified: • supply of diamonds / largest producer of diamonds • cheap diamonds • educated labour force / developed education system • free healthcare • good infrastructure e.g. transport system • government encouragement • supporting (ancillary) industries e.g. diamond cutting 2 Do not accept subsidies. Question Answer Marks Guidance 1(b) Explain two benefits that a country may gain from the presence of a foreign multinational company. 1 mark each for each of two benefits identified: • higher output / economic growth • higher employment • contribution to current account position • higher tax revenue • new technology introduced • encourage other MNCs to invest • increase competition • increase variety of products produced • train workers in new skills 1 mark each for each of two explanations given: • MNCs’ output will count in the country’s GDP / raise living standards • MNCs may employ workers from the country • MNCs may export products from the country • MNCs profits will be taxed / tax revenue can be spent on e.g. education • MNCs may use more advanced capital equipment • more MNCs can increase employment • increased competition may make domestic firms more efficient/more productive / lower prices • a greater variety of products will increase consumer satisfaction • more skilled workers will be more productive 4 Maximum of 2 marks for a list of benefits. 1(c)(i) Calculate, using information from the extract, the value of diamonds produced in Botswana in 2015. $6 billion (2). Correct method i.e. 33% of US$18 billion (1). 2 Correct answer and $ sign and billion/bn/b required for 2 marks. 6 + >000s = 1 mark Question Answer Marks Guidance 1(c)(ii) Calculate, using information from the extract, the average price of a 1.5 carat diamond in 2015. $10 000 (2). Correct method: $8000 + 25% (1). OR $10 875 (2). Correct method: $8 700 + 25% (1). OR $10 667 ($10 666.66) (2) Correct method: $8000 × 100 / 75. 2 1(d) Analyse why a country could have lower production costs for a particular good than another country. • It may have a more educated/skilled labour force (1) higher productivity/greater efficiency (1) lower wastage (1). • It may have more capital goods (1) may use more advanced technology (1) lower capital costs (1). • Its firms may be producing on a larger scale (1) taking greater advantages of economies of scale (1) example (1). • The government may subsidise the product (1) or tax the product less (1). • It may specialise in the product (1). • It may have easier access to raw materials / natural resources (1) and so raw materials/natural resources may be cheaper (1). • It may have a large supply of labour (1) with low wage rates (1). • It may have low transport costs (1) due to good infrastructure (1). • It may have a more favourable climate (1). • It may have a lower inflation rate than other countries (1). • It may have lower minimum wage (1) lowering wages cost (1). • It may have weaker trade unions (1) reducing bargaining power (1). • It may have a stronger currency (1) causing lower cost of importing raw materials (1). 5 Accept but do not expect reference to comparative/absolute advantage. Maximum of 3 marks for a list- like approach. Question Answer Marks Guidance 1(e) Discuss whether Botswana should mine all its diamonds and sell them as quickly as possible. Up to 3 marks for why it should: • Increase income (1) and employment (1) and living standards now (1). • Increase government tax revenue (1) enabling government to spend more on e.g. infrastructure (1). • Increase export revenue (1) improving the current account position (1). • Demand may be high now (1) causing price to be high (1) causing greater incentive to supply now (1). • Demand may fall in the future (1) lowering prices (1) so income earned in the future may be lower in the future (1). • Higher output now may result in improved economies of scale (1) lowering costs (1). • Higher output may enable greater advantage to be taken of economies of scale (1) lowering average cost (1). Up to 3 marks for why it should not: • Will deplete stocks of diamonds (1) preventing diamond production in the future (1) there is a finite supply of diamonds (1). • Global demand may be low now (1) demand may be higher in the future (1). • Increase in supply may lower prices (1) which may reduce revenue (1). • Risk of relying on one product / one export / being too dependent on diamonds (1). • Advances in technology (1) may reduce costs of mining in the future (1). • May increase the risk of pollution (1) causing environmental damage (1). • In the long run employment (1) and GDP may be higher (1). 5 Reverse arguments may be awarded if justified by reference to short and long run. A response may develop a mixture of relevant points to achieve up to 3 marks on either side. Maximum of 2 marks for a list- like approach. 1(f) Explain, using information from the extract and Fig. 1, what happened to the market for diamond rings in 2015. The diagram shows: • Demand increasing (1) price rising (1) • Supply extending/rising/higher quantity/more diamond rings (1) due to higher income or other valid reasons (1) • Demand is inelastic (1) • Supply is inelastic (1) 4 No marks for just stating the demand curve has shifted to the right or supply is unchanged. Question Answer Marks Guidance 1(g) Discuss the economic arguments for and against providing free hospital treatment to patients. Up to 4 marks for why it should: • It may increase health (1) increase life expectancy/reduce death rate (1) improve living standards/economic development (1) • It would provide access to the poor (1) reduce poverty/provide a necessity (1) • The social benefit of hospital treatment is greater than the private benefit (1) provides external benefits (1) e.g. better quality/higher output/economic growth (1) higher labour productivity (1) may be under-consumed/under-produced (1) if left to market forces (1) people may not appreciate private benefits/benefits to themselves of hospital treatment (1) • People will have more money to spend on other items (1) Up to 4 marks for why it should not: • May increase government spending (1) opportunity cost (1) government spending on e.g. education could be higher (1) taxes may be higher (1) leading to demand-pull inflation (1) • Some of those treated could afford to pay (1) in this case not a good use of government funds (1) • May result in over-consumption (1) people seeking treatment who do not need it (1). • May reduce the work incentive of potential consumers (1) as people will need less income to pay for healthcare (1) • The quality of healthcare may fall (1) loss of profit motive (1) may reduce e.g. innovation (1) • May encourage people to take greater risks (1) e.g. eat less healthily (1). • Government could charge for healthcare/allow private sector to charge for healthcare to get more tax revenue (1) to spend on e.g. education (1) taxes could be lower (1) 6 A response may develop a mixture of relevant points to achieve up to 4 marks on either side. Maximum of 3 marks for a list- like approach.

Question 3

The Gulf countries, some of which are quite specialised, import a high proportion of the food their inhabitants eat. For example, the Unite…

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7(a) Define ‘specialisation’. The concentration/focus (1) on one task/product / what they are best at (1). 2 7(b) Explain two disadvantages that workers may experience from specialising. 1 mark each for each of two disadvantages identified: • risk may not find another job easily • not finding where key strengths lie • limited skills • boredom • demotivation • increased risk of being replaced by machines • disruption caused by absent fellow workers. 1 mark each for each of two explanations of the disadvantages: • workers may not find it easy to transfer their skills to another job should they lose their jobs / risk of long term unemployment • concentrating on a particular task may mean that workers do not find out what they are best at • performing the same task each day can become tedious • breaking down a process into its separate parts may make it easier to mechanise • workers may feel less appreciated • may have to cover for absent colleagues / example of impact on the workers. 4 Question Answer Marks Guidance 7(c) Analyse how a country could reduce its reliance on imports. Replacing imports with domestic products (1) by producing more domestic products / reducing price of domestic products / raising quality of domestic products (1) It could subsidise domestic producers (1) help infant industries to grow (1) replacing imports with domestic products (1). It could place trade restrictions on imports (1) example: e.g. tariffs (1) reason why restriction could reduce imports e.g. tariff could make imports more expensive (1). It could keep its exchange rate low (1) e.g. by buying the currency (1) keeping import prices high (1). It could use supply-side policy (1) e.g. increase spending on education (1) to improve the quality of output (1) reduce costs of production (1) make domestic products more competitive (1). 6 Question Answer Marks Guidance 7(d) Discuss whether producing more food will increase living standards. Up to 5 marks for why it might: Producing more food may lower the price of food (1) due to economies of scale (1) making it more affordable (1) increasing the availability/quality of food people can consume (1) reducing poverty (1) increasing life expectancy (1). Providing more food may create jobs (1) increase exports / reduce imports (1) increasing output / GDP (1) increasing incomes / GDP per head (1) allowing people to buy more goods and services (1). Up to 5 marks for why it might not: May lead to over-consumption of food (1) obesity (1) healthcare problems caused (1). Intensive farming methods may create external costs (1) e.g. river pollution arising from fertilisers spread on the land (1). Agricultural jobs may be low skilled (1) low paid (1). Those producing more food may lack the appropriate resources to produce it (1) and as a result may produce low quality food (1) high priced food (1). Increased food production may lead to an over-supply of food (1) with the extra output remaining unsold (1) may cause diseconomies of scale (1). There may be an opportunity cost involved (1) relevant example (1) fewer capital goods may be produced (1) which could lower potential economic growth (1) and so living standards in the future (1). Crops may be destroyed / damaged (1) by climate conditions / disease (1). 8

Question 4

Trade protection reduces the opportunity for countries to specialise and influences the current account positions that countries have on th…

Accepted Answer

6(a) Define ‘trade protection’. Protecting domestic firms (1) from foreign competition (1). Helping domestic firms (1) to face foreign competition (1). Implementing trade barriers (1). Deliberate attempt to limit imports (1). Government action (1) that restricts international trade (1). 2 Question Answer Marks Guidance 6(b) Explain two advantages of countries specialising. 1 mark each for each reason identified: • can concentrate on what they are best at / factor endowment • can reduce average costs / create economies of scale • can increase output/income/GDP • can improve quality of output. 1 mark each for each of two reasons explained: • influenced by factor endowment • productivity can be increased / more price competitive / increased speed of production • living standards can rise • ‘practice makes perfect’. 4 Do not reward ‘promotes peace and friendship’. Reward but do not expect reference to comparative or absolute advantage. 6(c) Analyse why developed countries usually have lower death rates than developing countries. They tend to have higher incomes per head (1) enabling them to enjoy better housing (1) better nutrition (1) better education (1) better private sector healthcare (1) people live longer (1). Tax revenue may be higher (1) enabling greater public sector spending on education (1) greater public sector spending on health care (1) and so longer life expectancy (1). Better environment / less pollution / cleaner water (1) less illness (1). 6 Question Answer Marks Guidance 6(d) Discuss whether a rise in income tax will reduce a current account deficit. Up to 5 marks for why it might: A rise in income tax would reduce disposable income (1) which will lower consumer spending (1) lowering spending on imports (1). It may reduce spending on domestic products (1) encouraging firms to switch products to the export market (1). It may reduce demand-pull inflation (1) increasing international competitiveness (1). Up to 5 marks for why it might not: A rise in income tax may reduce saving rather than spending (1). It may be accompanied by a rise in government spending (1) leaving demand unchanged (1). It may increase demand for wage rises (1) which, if granted, would increase costs of production (1) making domestic products less internationally competitive (1). 8

Question 5

In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in the clothing industry. In 2005, import quota…

Accepted Answer

3(a) Define import quota. Limit (1) on quantity of good or service allowed in to a country / bought from abroad / imported (1). 2 3(b) Explain two advantages to a country of specialisation. Generates economies of scale (1) enabling a country to be more internationally price competitive (1) Improves productivity / efficiency (1) by producing what the country is best at (1) Increases GDP (1) by making better use of scarce resources (1) allowing country to export more (1) Increases purchasing power of consumers (1) who through trade can purchase goods and services from the most efficient producers (1) 4 3(c) Analyse the impact on an economy of the removal of import quotas imposed by other countries. Likely to increase exports (1) improving the current account of the balance of payments (1). Extra revenue earned could be spent on imports (1) increasing variety / choice (1). Allows country to specialise more (1) making better use of resources (1). Rising total (aggregate) demand (1) could increase the demand for labour (1) reducing unemployment (1) and causing economic growth (1). Higher demand could cause inflation (1) demand-pull (1) reducing purchasing power (1). 6 Question Answer Mark Guidance 3(d) Discuss whether or not an increase in the role of the private sector will benefit an economy. Up to 5 marks for the benefits: The profit incentive (1) will result in countries taking advantage of specialisation (1), making better use of scarce resources (1) and in doing so increasing total output (1). May be an increase in competition (1) lowering price (1) raising quality (1). More efficient allocation of resources (1) lower production costs (1) the price mechanism means there are no shortages or surpluses (1) with high consumer sovereignty (1). Up to 5 marks for the drawbacks: Poverty could increase (1) as a result of rising inequality (1) and some individuals being unable to access the gains of the market economic system because they are out of work / on low incomes (1) Higher prices (1) private companies could exploit market power e.g. monopoly (1) Goods with external benefits (merit goods) e.g. healthcare may be under-provided (1) goods with external costs (demerit goods) may be over-provided e.g. tobacco. Market failure occurs (1) as externalities are not considered by the market mechanism (1) example (1) 8 Accept, but do not expect, reference to public goods

Question 6

Teachers in many countries oppose their governments’ cuts in spending on education. They worry that this could reduce the standard of educa…

Accepted Answer

6(a) Identify two reasons why a person may want to work in the state sector. Higher wages (1) job security (1) better pension (1) good working conditions (1) status of public sector worker (1) job satisfaction e.g. teacher (1) patriotism / to perform a public service (1) state sector jobs may be more widely available (1). 2 6(b) Explain two reasons why a government may want to cut spending on education. Government would like to reduce its total spending (1) to reduce government borrowing (1) cut the national debt (1) avoid having to raise taxes (1) to reduce total demand (1) reducing inflation (1) Spending on education incurs an opportunity cost (1) government would prefer to spend on other areas e.g. defence, healthcare (1). Education is less valued by the public (1) than other services e.g. health, defence (1). Government would like to reduce wasteful expenditure (1) to increase the efficiency of the public sector (1). A drop in the number of students in education (1) less spending needed (1). Government wants students to bear a greater proportion of costs (1) since students ultimately benefit from better paid jobs (1). 4 Question Answer Marks Guidance 6(c) Analyse the contribution that education can make in an economy. Education enables the population to develop the knowledge (1) skills (1) for future development (1) better skills may improve productivity (1) increased output / economic growth (1) improved quality of output (1) better skills may attract foreign investors / MNCs to the country (1). Educated people have better job opportunities (1) potentially enabling them to earn higher incomes (1) leading to increased consumption (1) which reduces poverty / improves living standards (1). Increased consumption could lead to higher demand in the economy (1) increasing output (1). Education enables the economy to move to a tertiary based economy (1) tertiary based economy relies heavily upon a well-educated population (1). Education enables women to play a more active role in the economy (1) enabling them to find jobs (1) and earn a living independently (1). Education enables people to start their own business (1) increasing output (1). Education provides employment e.g. teachers, janitors (1) More highly educated people may be more concerned about the environment (1) may reduce external costs (1). More highly educated people may be healthier (1) reducing costs of healthcare / raising productivity (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not a worker would always benefit by specialising. Up to 5 marks for why they would benefit: By specialising workers focus on what they are best at (1) acquiring better skills (1) quality of goods increase (1) output/productivity increases (1) worker earns a higher income (1) easier to find job in the same sector (1) more likely to achieve promotion (1) Saves time (1) workers don’t need to think of next process / move from place to place (1). Specialised workers are limited in supply (1) causing their wage to be higher (1). Invention of new technology (1) makes the job easier (1). Up to 5 marks for why they would not benefit: Workers may experience boredom (1) if the work is repetitive (1) reducing productivity/efficiency/motivation (1) Those with a limited amount of skills (1) may find it difficult to obtain alternative jobs (1) may be replaced by machinery more easily (1) risk of unemployment (1). Workers may be over-dependent / too reliant on one skill / risk over- specialisation (1) unable to complete the task without the help of others (1) especially when production is disrupted (1). Training to specialise has an opportunity cost (1) lost income / later starting date (1) 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

Question 7

A relatively high proportion of people from the Philippines either work in call centres or abroad. Call centres employ 1.2 million people i…

Accepted Answer

6(a) Define Gross Domestic Product. The (total) output/income/expenditure (1) of a country/economy (1). 2 6(b) Explain two reasons why a person may be willing to work at night. A person may lack the skills to gain another job (1) have no choice (1). There may be a high unemployment rate (1) a person will be grateful for any job (1). Night work may fit in with family circumstances (1) a person may have to look after children / older relatives during the day (1) The job may be well paid (1) compensating for the inconvenience (1). The job may offer fringe benefits (1) example e.g. longer holidays (1). A person may enjoy their job (1) example (1). A person may need to earn additional income (1) to supplement income from day job / to support their family (1). 4 6(c) Analyse how having some of its population working abroad may benefit an economy. The workers may send income home (1) helping to support dependents / raise living standards of dependents (1) saving on some government benefits having to be paid (1). They may gain skills abroad (1) if they return they will increase the productivity of the labour force (1) may raise output / cause economic growth (1) reduce firms costs of production (1). The money they sent back will be an inflow of foreign currency / remittance / primary income (1) improving the current account position on the balance of payments (1). May reduce unemployment (1) if the workers’ skills are not in demand at home (1). 6 Question Answer Marks Guidance 6(d) Discuss whether or not advances in technology benefit an economy. Up to 5 marks for why they might: Advances in technology will raise the quality / productivity of capital / labour (1) it will increase the output that can be made / cause economic growth / increase GDP (1) may raise income (1) Advances in technology can lower costs of production (1) reduce cost-push inflation (1) make domestic products more internationally competitive (1) improve the current account position of the balance of payments (1). May raise the quality of products produced (1) raise living standards (1) make domestic products more quality competitive (1) improve the position of the current account of the balance of payments (1). May attract MNCs (1). Provide employment for certain classes of worker (1) e.g. skilled (1). Up to 5 marks for why they might not: Advances in technology may result in capital equipment that can replace labour (1) result in unemployment (1). If workers do not have sufficient skills (1) they may not be able to get the most out of more advanced equipment (1). New capital equipment may worsen working conditions (1) e.g. workers may get eye strain by looking at a screen for long periods of time (1). May be an opportunity cost (in the short run) (1) as more resources may have to be devoted to capital goods / R&D (1). New capital equipment may be expensive (1) increase firm’ costs (1) may be an opportunity cost if provided by the government (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

Question 8

In 2016, the world shortage of peanuts increased their price. China, which has traditionally been a net exporter of peanuts, was about to b…

Accepted Answer

5(a) What is the difference between the price of a product and the cost of a product? The price is the amount the customer pays for the product/average revenue/how much the product is sold for (1). The cost is the expenditure involved in producing product e.g. labour costs (1). 2 5(b) Explain two influences on a country’s demand for food. Increase in population size (1) would increase demand as more people consume food (1). Increase in prices (1) will reduce demand and vice versa (1). Increase in income (1) increase demand for food as people have more purchasing power (1). Health awareness (1) in some countries if people become more aware of the health problems of obesity, demand for food may decrease (1). Increase in proportion of young people (1) consume more than old people so demand will rise/patterns of consumption are different (1). The opening of fast food chains (1) may increase demand for meat (1). Advertising (1) may persuade people to eat more (1). 4 . 5(c) Analyse why a country may change from a net exporter of a product into a net importer of the product. Internal demand for the product may increase (1) due to a rise in income (1). There may be a change in tastes from domestic to foreign produced versions (1). There may be supply problems at home (1) due to bad weather/diseases (1). Imports may become relatively cheaper (1) better quality (1). Import restrictions may be removed (1) and foreign producers may be more efficient (1). Higher inflation at home (1) may reduce exports as more expensive/increase imports which are cheaper than before (1). Maybe a change in climate (1) making it difficult to grow a particular crop (1). 6 5(d) Discuss whether or not a central bank should limit the amount commercial banks can lend to its customers. Up to 5 marks for why it should: A function of a central bank maybe to control commercial bank lending (1). Unlimited loans could encourage people to borrow too much (1) they may get into debt (1). Some of the borrowers may not be able to pay back the loans (1) this could result in the banks collapsing (1) this could stop the economy working effectively (1). A limit on the amount lent could control total (aggregate) demand (1) and reduce inflation (1). A limit on bank lending could reduce spending on imports (1) this could improve the current account position on the balance of payments (1). Up to 5 marks for why it should not: Some people who cannot borrow may not have sufficient purchasing power to afford e.g. an adequate amount of food/education for their children (1) move into poverty (1). Limiting loans to firms may cause some to close (1) causing unemployment (1). Some firms may not be able to expand (1) restricting economic growth (1). The limit may discourage MNCs from setting up in the country (1) foregoing the benefits MNCs may bring (1). State of economy (1) if in recession (1) limiting lending by banks could lead to loss of jobs (1). Unlimited loans could reduce the interest rate (1) this could increase economic growth/lower unemployment (1) May force some of the poor to borrow from unregulated lenders (1) causing them to get into further debt (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

Question 9

The price elasticity of demand (PED) for sugar in most countries is less than 1. In 2017, the price of sugar fell. However, the price of sp…

Accepted Answer

7(a) State the formula used to calculate PED. % change in quantity demanded divided by % change in price (2). Change in demand divided by change in price (1). 2 7(b) Explain two reasons why the price of sugar may fall. • demand may fall (1) • supply may increase (1) • a fall in income will lower demand (1) because of less purchasing power (1) • a fall in population will lower demand (1) as there will be fewer consumers (1) • a change in tastes will lower demand (1) as people may find sugar less appealing (1) • concern about health will lower demand (1) as consumers will switch to other foods (1) • a rise in the price of a complement (1) e.g. tea (1) • a fall in the price of a substitute (1) e.g. sweeteners (1) • reduction in costs of production will increase supply (1) as it is likely to lead to higher profits (1) • subsidies will increase supply (1) as they will give an incentive to firms to produce more (1) • a cut in indirect tax will increase supply (1) as it lowers costs (1) • good weather conditions will increase supply (1) as less of the crop will be lost (1) • more firms in the market (1) increasing competition in the market (1) 4 Question Answer Marks Guidance 7(c) Analyse the possible reasons why a producer’s fixed cost may increase. Fixed costs are costs that do not alter with output (1) in the short run (1). Rent may increase (1) landlords may decide to charge more for factories and offices (1). The amount charged for insurance may increase (1) insurance companies may be seeking higher profits / their costs may have risen (1). Interest paid on loans may increase (1) e.g. the central bank may have increased the rate of interest (1). A firm may have moved to a larger factory / changed its production process / using more capital goods (1) leading to higher fixed capital costs (1). Inflation may occur (1) increasing e.g. the cost of workers with long-term contracts (1). 6 Question Answer Marks Guidance 7(d) Discuss whether or not a country will benefit from specialising in an agricultural product such as sugar. Up to 5 marks for why it might: It may increase efficiency/productivity (1) workers may be well trained in sugar production (1) advantage may be taken of economies of scale (1) lower cost (1) lower price (1) exports may increase / imports may fall (1) improving the current account position (1). The country may have the right climate (1) to give a good crop of sugar beet/cane (1) economic growth may increase (1). Agriculture may be labour intensive (1) creating employment for high number of workers (1). The country may gain a reputation for high quality agricultural products (1) increasing demand (1). May benefit if demand for the product is high (1). Up to 5 marks for why it might not: Demand may fall (1) due to a change in tastes (1) rise in competitors (1). Supply may be reduced (1) by bad weather or a disease (1). Demand for manufactured good and for services tend to increase more as income rises (1) larger profits tend to be earned on these products (1). Diseconomies of scale may set in (1) Economies of scale tend to be more significant in manufacturing (1). Agricultural products tend to have more trade restrictions imposed on them (1) making it more difficult to export them (1). Market prices of agricultural products are more variable (1) farmers face uncertainty in predicting income (1). The country may become dependent on other countries for other products (1). 8 Reward but do not expect reference to absolute and comparative advantage.

Question 10

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

Accepted Answer

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

Question 11

Free trade has allowed the Mexican economy to specialise in low-cost manufacturing. Unemployment nationally is relatively low, but approxim…

Accepted Answer

5(a) State the rewards for labour and capital. Wages (1) for labour Interest (1) for capital 2 5(b) Explain the two types of poverty. Logical explanation which might include: Absolute poverty (1) is when someone cannot afford the basic necessities of life (1) less than $1.90 per day at PPP (1). Relative poverty (1) is when someone earns less than is needed to participate in the normal activities of society (1) when there is inequality (1). 4 One mark for identifying absolute poverty and one mark for an explanation. One mark for identifying relative poverty and one mark for an explanation. 5(c) Analyse how firms can benefit from specialisation. Coherent analysis which might include: Improve skills of workers (1) save time (1) lead to invention of new technology (1) increase productivity (1) raise quality (1) decrease average cost of production (1) decrease prices (1) increase demand (1) enable advantage to be taken of economies of scale (1) increase profits (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not supply-side policy measures can reduce unemployment. In assessing each answer, use the table opposite. Why they can: • decrease corporation / profit tax, more profits, more investments, more demand for labour, reduction in cyclical unemployment • decrease interest rates, more borrowing, more investment, more demand for labour, reduction in cyclical unemployment • decrease income tax, increase disposable income, more spending / demand for goods and services, more production, increase demand for labour • government subsidies can encourage firms to expand and take on more workers, reduce cyclical unemployment • increase spending on education and training, increase skills / productivity of labour, increase demand for labour, decrease structural unemployment. • provide more information on jobs / job centres, easier for workers to find jobs, decrease frictional unemployment • reduce unemployment benefit to reduce the time workers are between jobs, decrease frictional unemployment. Why they cannot: • may be a time lag • more investments could lead to increased technological development, less demand for workers • education programmes not according to market needs 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 5(d) • privatisation could lead to firms cutting amount of workers • decrease in minimum wage could decrease incentive to work • may be a lack of total demand. Example of L2 answer: Supply-side measures such as training and education can help to reduce unemployment as they allow people to become more skilled and therefore increase their opportunities to become hired. Also, when a firm is subsidised by the government, it may have more money to invest in labour, and this would reduce unemployment. Privatisation can also cause a reduction in unemployment, as the private sector may be willing to invest more capital to labour to increase its output and this would reduce unemployment. On the other hand, supply-side measures may not reduce unemployment, because subsidies given to firms may increase its capital, but this may be used to become more capital-intensive rather than labour-intensive, which would not reduce unemployment. Also, if people are trained and educated, but gain skills that are not demanded, they may remain unemployed and therefore unemployment would not decrease. Privatisation may lead to firms becoming more capital-intensive rather than labour-intensive, and this would not reduce unemployment. Principal Examiner comment: Reasonable on both sides.

Question 12

There is an area of rubbish, three times the size of France, floating in the Pacific Ocean called the Great Pacific Garbage Patch. It is ma…

Accepted Answer

2(a) Identify the two types of costs that make up social cost. Private costs (1) External costs (1). 2 2(b) Explain two causes of a shift to the right in the demand curve for fish. Logical explanation which might include: • Rise in the price of a substitute for fish (1) people will switch away from buying e.g. chicken to buying fish (1). • Fall in the price of a complement for fish (1) people will buy more of the complement (1). • A rise in income (1) people will be able to afford to buy more fish (1). • A report stating eating fish is good for health / changes in tastes (1) people may buy more fish to try to increase their life expectancy (1). • Increase in population size (1) more people to buy fish (1). • A successful advertising campaign (1) may persuade more people to buy fish (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 2(c) Analyse how cleaning up pollution could benefit an economy. Coherent analysis which might include: • Will reduce external costs (1) improve health / less sickness (1) raise quality of life / standard of living (1). • Less (government) spending on healthcare (1) more can be spent on other priorities e.g., education (1). • Cleaning up pollution may create jobs / employment (1) reduce unemployment (1) may attract MNCs (1) increase in incomes (1) reduction in poverty (1). • Recycling of some of the material collected (1) could increase the country’s output (1) less use of non- renewable resources (1). • Better working conditions (1) productivity of labour could increase (1) reduce costs of production (1) increase output (1) reduce unemployment (1) reduce inflation (1). • Improve the environment (1) Increase tourism (1) increase exports of services (1) improve the current account position (1). • Reduction in ocean pollution (1) will improve fish stock (1) improve quality of fish (1) greater catches of fish (1) leading to rise in incomes / revenue / GDP (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not countries specialising benefits consumers. In assessing each answer, use the table opposite. Why it might: • countries may specialise in what they are best at producing • output may rise • greater availability • costs of production may fall • prices may fall • quality may rise • better paid jobs increasing purchasing power of consumers Why it might not: • a country may gain a monopoly of production, raising price and lowering quality • choice may be reduced / greater reliance on imports • other countries’ producers may have lower health and safety standards • supply problems may affect a particular country, cutting off supplies • trade disputes may cut off supplies 8 Reward but do not expect reference to absolute and comparative advantage. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 2(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 13

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

Accepted Answer

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

Question 14

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

Accepted Answer

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

Question 15

Uganda specialises in agricultural products and has a relatively small secondary sector. In the 1990s, the Ugandan government privatised mo…

Accepted Answer

4(d) Explain the difference between absolute and relative poverty. Logical explanation which might include: Absolute poverty is a lack of basic necessities (1) e.g., food, clothing or housing / e.g. $1.90 a day (1).  Relative poverty is being poor in comparison to other people (in their country) (1) example of a measure such as less than 60 of average income / not able to participate fully in normal activities in their country (1). their basic needs but not their wants. 4(d) Analyse how specialisation can benefit firms. Coherent analysis which might include: Understanding of specialisation of a firm / workers become skilled at producing a particular product (1) lower cost of production (1) gain a good reputation / high quality of good or service (1) increase demand (1) increase output (1) raise revenue (1) increase profit (1). May enable firms to gain advantage of economies of scale (1) example (1) become (internationally) competitive (1). Easier to mechanise / improve technology (1) speeds up / faster production / become more efficient (1). 6 Maximum of one mark for any number of examples of economies of scale. Note that some students only write about division of labour which is not the question but some of the features also apply to specialisation of firms.

Question 16

(a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. [1] (b) Identify two conditions of demand for e…

Accepted Answer

1(a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. 30% 1(b) Identify two conditions of demand for eSports.  Increasing incomes  Decrease in the price of technology needed to participate in this sport 2 1(c) Explain how a change in social attitudes would lead to greater participation by women in the labour force. Logical explanation which might include: Acceptance that women are equal to men / that it is acceptable for women to work (1) and that their role is not only as a home maker (1) childcare is not just female role (1). It is more acceptable for women to be educated / there is more encouragement for women to study (1) which increases their job opportunities (1). Women feel more comfortable / accepted at work (1) more jobs will be open to women (1.) Wages paid to women may rise (1) eSports are no longer seen as a male-only sport (1). 2 Question Answer Marks Guidance 1(d) Explain two differences between private sector investment and public sector investment. Private sector investments are investments made by firms (1) while the public sector investments are investments made by the government (1). Private sector investments are made to maximise profits (1) while public sector investments are made to maximise welfare of society (e.g. provide employment) (1). Private sector investments made based on private costs and benefits (1) while public sector investments are made based on social costs and benefits (1). Profits from private sector investment go to shareholders (1) profits from public sector investment go to public spending e.g. health care (1) The aim of private sector investment is to be more competitive / gain market share (1) the aim of public sector investment is to improve macroeconomic performance (1). Private sector investment may be financed by retained profits/entrepreneurs (1) public sector investment may be financed by tax revenue (1). 4 For the 2nd mark for public sector investment, accept any of the macroeconomic objectives as the reason why public sector investment is made. Question Answer Marks Guidance 1(e) Analyse how the development of eSports in Malta can help the government achieve its macroeconomic aims. Coherent analysis which might include: Economic growth is indicated (1) as eSports is part of the service sector that contributes 90% of Malta's GDP (1) development of eSports in Malta can increase Malta’s GDP (1) Unemployment may be reduced / employment increased (1) because it will be able to attract investments (1) creating more jobs (1) from building infrastructure (1) and more professional e-sports players (1) Current account may also be improved by more inflow of money (1) from increased expenditure on exports (1) of services / tourism (1). Tax revenues may increase (1) enabling the government to increase spending on e.g. education (1). 4 Question Answer Marks Guidance 1(f) Analyse the relationship between GDP per head and the proportion of females in the labour force. Coherent analysis which might include: Overview: Generally, GDP per head is higher when the proportion of females in the labour force is higher / positive relationship between GDP per head and proportion of females in the labour force (1). Supporting Evidence: (up to 2 marks) Yemen has the lowest female labour force participation rate and also the lowest GDP per head (1) Luxembourg has the highest female labour force participation rate and the highest GDP per head (1) Yemen, Saudi Arabia, and Bangladesh have the 3 lowest figures for both female participation rate and GDP per head (1) Luxembourg, France and Malta have the 3 highest figures for both female participation rate and GDP per head (1) Exception: However, exception is Saudi Arabia / Bangladesh (1) Saudi Arabia has a lower female labour force participation rate but higher GDP per head than Bangladesh (1). Comments: This is because higher female labour force participation rate means there are higher quantities of labour which is a factor of production / more labour is available to contribute to the growth of the economy (1) increased availability of education for women will positively affect GDP (1) 5 Give BOD if answer states GDP alone and not GDP per head. Question Answer Marks Guidance 1(g) Discuss whether or not specialisation at a national level is harmful to an economy. Award up to 4 marks for logical reasons why it might be harmful, which might include: Specialisation could lead to overdependence on a specific industry / danger of over-specialisation (1) if this industry fails (1) e.g. if there is a fall in demand / revenue from eSports, the whole Maltese economy could be adversely affected (1). Specialisation makes it difficult for the workers to retrain to other industries (1) danger of structural (1) unemployment (1). Specialisation might lead to diseconomies of scale (1) where long run average costs increase as output increases (1). Resources may become exhausted (1) making industry unsustainable (1) Award up to 4 marks for logical reasons why it might not be harmful, which might include: Specialisation leads to increase in efficiency (1) increased competitiveness (1) as the economy focuses on what they do best (1), they will be able to produce more (1) and at a better quality (1) lower cost (1). Specialisation enables workers to become highly trained / skilled (1) and increase their productivity (1) leading to higher incomes (1) and demand for their labour (1). Specialisation could help the economy achieve economies of scale (1) where long-run average cost falls as output increases (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Reward but do not expect reference to comparative/absolute advantage. Question Answer Marks Guidance 1(g) Specialisation enables countries to trade more with other countries (1) increased export earnings can enable countries to afford more imports as well (1) leading to increased choices (1) higher standards of living (1). As output increases and trade increases, governments receive more tax revenue (1) Question Answer Marks Guidance 1(h) Discuss whether or not government investment in education and training will help the Maltese economy. Award up to 4 marks for logical reasons why it could, which might include: Government investment in education and training will enable more students to gain access to e.g. higher education / create a more educated labour force (1) which will enable them to increase their skills (1) productivity / efficiency (1) and enable them to get jobs in the future (1) reducing unemployment (1) increase incomes (1) which would increase consumption / total demand (1) and output / GDP (1) Organising work placements for Maltese students will enable students to gain work experience (1) further increasing their skills (1) and help firms develop (1) with new ideas / extra help (1) at low cost (1) increasing output (1) and economic growth (1). Tax from incomes of those employed (1) will improve public finances (1) Bringing in professionals from other countries to train Maltese students could introduce more expertise (1) helping to transfer new skills (1). May contribute to the growth of the tertiary sector (1) increase development (1). A more educated labour force may attract MNCs (1) more efficient production (1). Award up to 4 marks for why it could not, which might include: Investment in education and training is expensive (1) using public finances (1) 6 Question Answer Marks Guidance 1(h) opportunity cost for the government (1) less spending on government projects such as Healthcare (1) could decrease overall productivity of the economy (1) less economic growth (1). Education and training might not be successful (1) work placements might not teach students the right skills needed in the future / scholarship schemes misused or not given out fairly / foreign professionals might not be able to transfer knowledge effectively (1). Education and training can take a very long before it impacts the economy (1) scholarship schemes usually at least 3 years for a degree level course (1). In the short run, it could reduce the size of the labour force (1) reduce output / lower productive potential (1). There may be emigration of skilled workers (1) other countries gaining the benefits (1).

Question 17

The economic problem results in choices and opportunity cost. People have to decide what job to do and where to live. In recent years Austr…

Accepted Answer

2(a) Define opportunity cost. 2 The (next) best alternative / choice (1) forgone / sacrificed (1). 2(b) Explain the economic problem and why it is always 4 likely to exist. Logical explanation which might include: The economic problem is finite / limited resources (1) and infinite / unlimited wants / wants exceed resources (1) scarcity (1). It is always likely to exist as wants grow faster than resources / wants are increasing (1) there will never be enough resources to produce all the products people would like to have (1). People are living longer / population is increasing (1) more resources are needed / some resources are being depleted (1). 2(c) Analyse why the wages of all teachers may increase. 6 Coherent analysis which might include: The wages of teachers may increase if demand for teachers rises (1) derived (1) this may be because there are more children to educate / rise in population size (1) smaller class sizes / children staying in education longer (1) teachers being more productive / skilful (1). A decrease in supply will increase wages (1) this may be due to a rise in qualifications needed (1) long period of training (1) rise in wages in other occupations / need to compete with other occupations (1) need to compete with wages paid to teachers in other countries / recruit from higher paying countries (1). Bargaining power of teachers may increase (1) more teachers may belong to trade unions (1) may be more prepared to take strike action (1) wages may be raised to keep up with inflation / maintain real wages (1). Government policy may favour teachers (1) e.g. there may be an increase in school leaving age / increase provision of education (1). Increase in minimum wage (1). 2(d) Discuss whether or not a teacher would benefit from 8 Level Description Marks specialisation. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and • may be trained more quickly logical analysis to evaluate economic • become more skilled / productive issues and situations. One side of the argument may have more depth than • may be in higher demand the other, but overall both sided of the • may be better paid argument are considered and • may increase chance of promotion developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • subject may become less popular appropriate to the question. The • may become bored teaching the same subject discussion may also point out the • if lose job, may find it difficult to get another job possible uncertainties of alternative • may spend a long time developing the specialisation decisions and outcomes. • may not get the opportunity to move into another 2 A reasoned discussion which makes 3–5 subject. use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 18

(a) Calculate Australia’s unemployment rate in 2021. [1] (b) Identify two substitutes for coal. [2] (c) Explain one economy of scale that c…

Accepted Answer

1(a) Calculate Australia’s unemployment rate in 2021. 4% Allow 4 without percentage 1(b) Identify two substitutes for coal. Two from:  gas  offshore wind / wind power  solar power / panels 2 1(c) Explain one economy of scale that could benefit a coal- mining firm. Managerial / labour economy (1) employing specialist workers e.g. mining engineers (1). Technical economy (1) employing efficient / technologically advanced equipment e.g. drones (1). External economy of scale (1) example e.g. skilled labour force (1). 2 One mark for the economy of scale identified and one mark for an explanation. 1(d) Explain two influences on the price elasticity of supply of coal. Storage time (1) expensive to store so inelastic supply (1). Construction of new mine / production time (1) takes a long time, so inelastic supply (1). Stocks (1) may make supply elastic (1). 4 One mark each for each of two influences identified and one mark each for each of two explanations. Question Answer Marks Guidance 1(e) Draw a demand and supply diagram to show how setting a maximum price below the equilibrium price will affect a market. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Price line set below the equilibrium (1). Demand shown as greater than supply (1) e.g. has the two dotted lines downwards (it does not have to be labelled Qs and Qd). 4 Note: Accept unlabelled price line / line drawn only to demand curve. Accept shortage if correctly identified on the diagram. Do not accept demand greater than supply if demand and supply curves are incorrectly drawn Question Answer Marks Guidance 1(f) Analyse whether large coal-producing countries are likely to be net exporters of coal. Coherent analysis which might include: Expected outcome: Large coal producing countries may have a surplus to sell / may have grown their production in order to sell abroad (1) most of the evidence supports this relationship (1) Supporting evidence: Five of the seven countries consume less coal than they produce (1) calculation e.g. US could have exported 11 million tonnes / Australia could have exported 394 million tonnes or simply the difference (1). Analysis: Countries that produce more coal than they consume may benefit from economies of scale / can export because their prices are low (1). Exceptions: China or India are an exception (1) as they consumed more coal than they produced (1). Analysis: they may have been net importers (1) since had used up stocks of coal / need more energy as a developing country (1) may not be able to export coal if world demand for coal is low / countries may both import and export coal (1). 5 Responses do not have to be in the format suggested but they should address the expected / normal outcome, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Question Answer Marks Guidance 1(g) Discuss whether or not an increase in the size of its coal industry will benefit the Australian economy. Award up to 4 marks for logical reasons why it might, which may include:  may increase GDP / economic growth (1) increasing living standards / raise incomes / reduce poverty (1)  may reduce unemployment (1) structural unemployment (1)  may improve current account position / have a surplus (1) as Australia seems to be a net exporter of coal (1)  may increase tax revenue (1) increasing government’s ability to spend (1)  economies of scale (1) result in lower prices for households and industries (1). Award up to 4 marks for logical reasons why it might not, which may include:  may increase pollution (1) lowering living standards / cause health issues (1) reduce tourism / negative impact on current account (1)  other forms of power may not be developed (1) example (1)  some workers may leave other jobs (1) these jobs may have better working conditions (1)  coal mining is a relatively dangerous industry (1) so life expectancy may be reduced / creates chronic illnesses / workers unable to work (1).  Global demand for coal may fall (1) impact upon Australia e.g. unsold stock (1).  May rapidly deplete stocks (1) leading to lower exports (1) and less employment (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 Australia is likely to have a budget deficit in 2026. Award up to 4 marks for logical reasons why it might, which may include:  unemployment is forecast to increase (1) so there may be more government spending on unemployment benefits (1) less income tax revenue (1)  there may be more government spending on retraining unemployed workers (1)  some of the rise in population may result in more government spending (1) e.g. on pensions / healthcare / education (up to 2 marks)  budget deficit in previous years (1) would mean interest would have to be paid on the debt that has built up (1). Award up to 4 marks for logical reasons why it might not, which may include:  population and the labour force are forecast to increase (1) so there may be more taxpayers / fewer claiming benefits (1)  tax revenue may rise (1) due to higher profits / higher tax rates (1)  GDP is forecast to increase (1) more people in work (1) which would be likely to increase direct and indirect tax revenue (1)  state support for industries may fall (1) may have been high in 2021 due to Covid-19 (1). 6

Question 19

(a) Calculate the total number of people in Cambridge aged 18–29 in 2019. [1] (b) Identify two types of industries in Cambridge that operat…

Accepted Answer

Question Answer Marks Guidance 1(a) Calculate the total number of people in Cambridge aged 18– 1 29 in 2019. 37 440 (1) 1(b) Identify two types of industries in Cambridge that operate in 2 If more than two types are given, consider the first three. the tertiary sector. Education (1). Healthcare (1). Research and development (1). 1(c) Identify two benefits of having highly knowledge-intensive 2 If more than two benefits are given, consider the first exports. three. Exports highly priced (1). Accept high value for highly priced. Price inelastic in demand (1). Increased demand for exports (due to increased global incomes) (1). 1(d) Explain how having a more educated labour force can 4 reduce poverty. Logical explanation which might include: a more educated labour force will be more skilled / more productive (1) enabling them to earn higher wages (1) able to afford basic necessities (1). a more educated labour force may have more job opportunities / less unemployment (1) wages may be higher than unemployment benefits (1). a more educated labour force has access to more information on health (1) increasing the ability to work (1) have access to better healthcare (1). 1(e) Draw a demand and supply diagram to show the effects of 4 increased global income on the market for education in Cambridge. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New 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 percentage of 5 Responses do not have to be in the format suggested population with a university degree and GDP per head. but they should address the expected / normal relationship, offer supporting evidence of that, highlight Coherent analysis which might include: any exceptions to that, and analyse the overall data. Expected relationship: Positive / direct relationship (1) the higher percentage of population with a university degree, the higher the GDP per head (1). Analysis of expected relationship: as percentage of population with a university degree increases, the more skills / qualification they will have (1) therefore, they have higher productivity and can earn more (1). Supporting evidence: e.g. Indonesia lowest percentage of population with a university degree, lowest GDP per head ; Canada, Switzerland and UK have the highest three in each category; Colombia has the second lowest percentage of population with a university degree and the second lowest GDP per head (2). Exception: Switzerland (1) has lower percentage of population with a university degree than Canada or the UK, but higher GDP per head (1). Analysis of the exception: Other influences, e.g. quality of secondary education, proportion of the population employed in banking (1). 1(g) Discuss whether or not free trade is beneficial for a city 6 Apply this example to all questions with the such as Cambridge. command 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 argument, but separate development as to how / why • easier to export (1) increased export revenues (1) increased the outcome may differ is rewarded. revenue / profits for producers (1) higher growth in the city (1). Generic example mark • easier to import / more imports (1) cheaper imports of goods and materials / lower costs for firms (1) lower prices (of Tax revenue may decrease… 1 exports) (1). • more jobs created (1) reducing the level of unemployment ...because of reason e.g. incomes may be 1 (1). lower. • increase size of the market (1) economies of scale (1) e.g. purchasing / technical / marketing / managerial / financial Tax revenue may increase because 0 (1). incomes may be higher i.e. reverse of a • increased choice for consumers (1) from increased imports previous argument. (1) higher quality goods / variety of goods (1). • more competition (1) or more transfer of ideas and Tax revenue may increase because of a 1 knowledge (1) leads to more innovation (1) lower prices (1) different reason i.e. not the reverse of a • encourage entrepreneurship / investment (1) profit incentive previous argument e.g. government (1) spending on subsidies may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • overdependence on foreign markets (1) economic shocks in other countries can negatively affect revenues of firms (1) reduce economic growth and development in the city (1). • free trade could reduce competitiveness of firms (1) other economies might have relatively lower costs (1) cheap imports / more imports (1) stop development of infant industries (1) may lead to job losses in the city (1). • free trade only affects certain producers / firms / workers (1) leads to increased inequality / uneven distribution of income (1). • free trade leads to more environmental degradation (1) due to more production / more need for cross-border transport (1) creating external costs / negative externalities (1). • may increase consumption of demerit goods (1) reduce health (1). • free trade could lead to the creation of global monopolies (1). reducing the ability of smaller domestic firms to compete (1). 1(h) Discuss whether or not firms in Cambridge will continue to 6 grow. Award up to 4 marks for logical reasons why it might, which may include: • ease of access to a large amount of highly-skilled and educated workers, from all over the world (1) easy to find workers (1) to produce goods and services (1) or lower cost of labour (1) • skilled workers are more productive (1) more innovation / new ideas / high quality products (1) • young workers (1) may be up-to-date with modern technology (1) • good infrastructure (1) such as access to ultra-fast broadband (1) productivity is higher (1) faster production / less delays (1) • good transport links to other cities and international airports (1) easy to export / high demand for their exports (1) easy to reach customers (1) faster deliveries (1) increased demand for goods and services (1). Award up to 4 marks for logical reasons why it might not, which may include: • high land and office costs (1) high cost of production (1) higher capital start-up costs (1) lower profits (1) • high house prices (1) poor air quality (1) may discourage workers from locating in Cambridge (1) difficult for firms to find workers (1) • small population (1) small market (1) limited demand (1) limited scope for revenue / profits for Cambridge firms (1) • overdependence on one sector (e.g. education) (1) limits potential growth from other sectors (1) • skilled workers are available in other cities (1).

Question 20

Malaysia once specialised in the production and export of natural rubber. The production of natural rubber was very labour‑intensive. Howev…

Accepted Answer

4(a) Identify, other than natural rubber, two primary-sector 2 If more than two products are given, consider the first products. three. Accept process rather than product e.g. fishing. e.g. coal, oil, fish, wood, wheat 4(b) Explain two reasons why a country may change its 4 One mark each for each of two reasons identified and specialisation. one mark each for each of two explanations. Logical explanation which might include: • Change in quantity / quality of resources (1) discovery of new resources (1) or new technology (1) other economies may be more / less efficient in production of certain products (1). • Change in cost of production (1) change in labour costs (1) e.g. increase in minimum wage (1) change in capital costs (1) e.g. cheaper technology (1) • Changes in demand (1) changes in consumer behaviour (1) change in revenue / profits (1) • Changes in level of competition (1) other countries’ producers may gain a competitive advantage (1). 4(c) Analyse the economic benefits for a country in producing 6 manufactured goods instead of primary sector products. Coherent analysis which might include: • higher price (1) higher output (1) higher revenues / profits (1) higher value added (1) • more exports (1) increased total demand (1) economic growth (1) • higher productivity (1) economies of scale (1) • more demand for workers (1) lower unemployment (1) may be more skilled jobs (1) higher income of workers (1) higher standards of living / reduction in poverty (1) • does not require stock of natural resources (1) skills / technology could be learnt / imported (1) • less dependent on weather changes (1) more stable revenues / income (1) easier to plan / budget (1) • higher tax revenues for the government (1) higher government spending (1) more development spending e.g. healthcare services / education services / infrastructure (1) resulting in higher levels of economic development (1). 4(d) Discuss whether or not labour-intensive production will 8 Level Description Marks harm an economy. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and logical analysis to evaluate economic • labour may cost more than capital issues and situations. One side of the • labour may be more unreliable – inefficient / inconsistent. argument may have more depth than • labour may be protected by trade unions – more disruptions the other, but overall both sides of the • labour may be less productive argument are considered and • labour may need more breaks than machines developed. There is thoughtful • labour intensive production may be less cost-effective, evaluation of economic concepts, reducing international competitiveness. terminology, information and / or data appropriate to the question. The Why it might not: discussion may also point out the possible uncertainties of alternative • provides high employment levels – high standards of living decisions and outcomes. • lower levels of unemployment – less government spending on unemployment benefits 2 A reasoned discussion which makes 3–5 • labour may be more flexible than machines – can change use of economic information and clear skills / production / more mobile analysis to evaluate economic issues • labour may be able to respond to people / customers more and situations. The answer may lack easily. some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

Question 21

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

Accepted Answer

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

Question 22

(a) Calculate the price elasticity of demand for coffee. [1] (b) Identify two rewards to factors of production in Nicaragua. [2] (c) Explai…

Accepted Answer

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.

Question 23

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

Accepted Answer

4(a) Identify two reasons why tax revenue is likely to fall during a recession. Two from:  lower spending / lower demand  lower incomes / lower wages / higher unemployment / lower employment  lower profits  lower tax rates  lower imports  fewer tax payers  lower output  lower revenue 2 If more than 2 reasons are given, consider the first 3. 4(b) Explain two characteristics of money. Logical explanation which might include: Generally acceptable (1) people willing to accept it as a payment / reward / in settlement of a debt (1). Portable (1) easy to carry (1). Recognisable (1) easy to see it is the country’s currency (1). Durable (1) will last some time / can be saved (1). Limited in supply (1) so maintains value (1). Divisible (1) there should be units of different value (1). Homogeneous / uniform (1) people not preferring e.g. one note of a certain value other another note of the same value (1). 4 One mark each for each of two characteristics identified and one mark for each of two explanations. If more than 2 characteristics are given, consider the first 3. Accepting ‘breakable’ for ‘divisible’. Explanation marks e.g. maintain value or accept as a payment can be given without identification up to a maximum of 2 marks. Question Answer Marks Guidance 4(c) Analyse the advantages an economy may gain from having some of its people working in other countries. Coherent analysis which might include: The workers may send money home to (support) their families staying at home (1) reduce poverty / raise living standards (1). Will improve the current account position of the balance of payments / bring in foreign currency (1) secondary income (1). The workers may receive training (1) gain skills (1) ideas / knowledge / awareness of new technology (1) experience (1) higher productivity / efficiency (1) which they can bring back to the country (1) increase quality of output (1). Start their own firms in the country when they return (1) increase output / economic growth / increase GDP (1). May reduce unemployment (1) if lack of jobs at home (1) and so may reduce government spending on unemployment benefits / may reduce government spending on dependents (1). 6 No marks for general benefits of emigration. Question Answer Marks Guidance 4(d) Discuss whether or not consumers would benefit from firms buying new capital equipment. In assessing each answer, use the table opposite. Why they might:  may embody new technology  more innovation / new products  may increase efficiency / lower costs of production  may lower prices  may reduce mistakes  increase quality of output  may increase output and so availability. Why they might not:  may raise prices in the short run to cover the cost of the purchase  may reduce quality / output in the short run as workers get used to the new capital equipment  firms may switch from producing consumer to capital goods  products may become more standardised. 8 Focus should be on consumers and not workers. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 4(d) Level Description Marks 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

Question 24

Finland is a high-income country that usually has a higher value of exports than imports. It has a strong commercial banking sector which h…

Accepted Answer

5(a) Identify a difference between an export and an import. 2 Export is a good or service that leaves the country / sold to another country (1), import is a good or service that enters the country / bought from another country (1). Export is a credit item in the current account of the balance of payments (1) imports are a debit item (1). Foreigners spend on exports (1) the home country’s population spend on imports (1). Exports lead to money coming into an economy (1), while imports lead to money going out of an economy (1). 5(b) Explain why commercial banks may increase their lending. 4 Reward but do not expect reference to reduced required liquidity ratio and quantitative easing. Logical explanation which might include: To increase profits / revenue (1) earn more interest / high interest rates (1) as most commercial banks are in the private sector (1) main aim is likely to be profit maximisation (1). Increase in demand for loans (1) due to low interest rates (1) increase One mark in total for either high or low interest optimism about the future (1) higher demand for bank loans may increase rates but explanation marks can be given. profits (1). Increased confidence loans will be repaid (1) due to e.g. rise in incomes (1). Increase in bank deposits (1) more money to lend (1). Take advantage of economies of scale (1) lower average costs (1). Central bank / government encouragement / (expansionary) monetary policy / instructions (1) to increase total demand / increase consumer spending / increase investment (1). To promote social welfare (1) by reducing poverty (1). To keep up with competitors (1) attract more customers / gain more market share (1). 5(c) Analyse how an ageing population may affect a country’s economic 6 1 mark for either increase and / or decrease growth rate. economic growth. Similarly, 1 mark for either more productive and Coherent analysis which might include: / or less productive labour force, more or less • May increase economic growth / GDP / output (1) as an ageing saving etc. population may have experience (1) more productive / more efficient / more skilled (1). Not crediting comments on the change in the • May have more spending power (1) increase total demand (1). pattern of consumer spending e.g. spending • May train young workers to be more reliable / older workers may be less on toys and more on teeth implants. more reliable (1). • May reduce economic growth / GDP / output (1) as may have out-of- date skills / not able to operate new technology (1) lack mobility (1). • More retired people / more economically inactive people (1) may mean a decrease in size of the labour force (1) increase dependency ratio / more dependents (1). • May save more (1) reducing total demand (1). • May be less healthy workers (1) more days absent from work due to sickness (1). • The government may have to spend more on state benefits / pensions / healthcare (1) lower tax revenue (1) reducing spending on items that could increase economic growth e.g. education, infrastructure / opportunity cost (1). 5(d) Discuss whether supply-side policy measures will reduce a 8 Only accept a lower interest rate if linked to government’s budget deficit. encouraging a rise in investment. In assessing each answer, use the table opposite. Answers that show an awareness of supply- side policy measures but which confuse a Why they might: budget deficit with a bop deficit will not be • education and training may raise productivity analysing the question, so will be in Level 1. • increase economic growth and employment • raise direct and indirect tax revenue Level Description Marks • privatisation may reduce government spending to support state- owned firms 3 A reasoned discussion 6–8 • revenue will be raised from the sale of privatised firms which accurately • privatised firms may earn high profits which may raise tax revenue examines both sides of the • subsidies may encourage firms to expand and earn higher profits economic argument, • unemployment benefit may be cut to increase incentive to work. making use of economic • budget deficit may be increased in short term but reduced in the long information and clear and term. logical analysis to evaluate economic issues and Why they might not: situations. One side of the • education and training will increase government spending and may argument may have more not be successful depth than the other, but • lower tax rates may reduce tax revenue overall both sided of the • regulation will involve costs to enforce argument are considered and developed. There is • spending on infrastructure projects may involve high government thoughtful evaluation of spending. economic concepts, • sale of profitable government-owned firms to the private sector may terminology, information reduce government revenue from profits and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 5(d) Level Description Marks 2 A reasoned discussion 3–5 which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt 1–2 at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Question 25

(a) Calculate St. Kitts and Nevis’s government budget deficit in 2022. [1] (b) Identify two examples of the factor of production ‘land’ in …

Accepted Answer

Question Answer Mark Guidance 1(a) Calculate St. Kitts and Nevis’s Government budget 1 Accept 18m. deficit in 2022. ($)18 000 000 / – ($)18 000 000. $18 m / – $18 m (1). 1(b) Identify two examples of the factor of production land in 2 If more than two examples given, consider the first three. St. Kitts and Nevis. Two from: beaches (1), (coral) reefs (1), marine life / fish (1) rainforests (1) and soil (1). 1(c) Explain how tourism causes external costs in St. Kitts 2 One mark for explanation of external costs. and Nevis. One mark for example based on tourism. • Social costs are greater than private costs / social costs include private costs and external costs / harmful effects on third parties / those not directly involved in producing or consuming the product (1). • Example of an external cost caused by tourism in St Kitts and Nevis e.g. pollution / environmental damage / death of wildlife / death of marine life / overcrowding (1). 1(d) Explain two reasons why a foreign bank may open a 4 One mark each for each of two reasons identified and one branch in St. Kitts and Nevis. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. • High incomes in the country (1) high demand for Most of the explanation points e.g. high profit could be banking services / high demand for loans / may save linked to any of the three identification points except high more / borrowers likely to be able to repay loans / high disposable income should be linked to absence of personal profit / high revenue (1). income tax. • Absence (low) of personal income tax (1) workers would be able to keep all of their income / more disposable Do not give two explanation marks for one identification. income / firms may be able to pay lower wages / increase workers’ motivation (1). Explanation marks here are dependent on the • Relatively high literacy rates (1) awareness of benefits identifications. of having a bank account / saving / skilled workers / high productivity (1). 1(e) Draw a demand and supply diagram to show the effect 4 of an increase in the productivity of onion farmers on the market for onions. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between healthcare spending 5 Responses do not have to be in the format suggested but as a percentage of GDP and life expectancy. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Expected relationship: and analyse the overall data. Direct / positive relationship (1). Generally, the higher healthcare spending, the higher the life expectancy (1). Supporting evidence should involve interpretation, not just description. Supporting evidence: E.g.: Haiti has the second lowest % healthcare spending and the shortest life expectancy (1) Canada spends a higher % on healthcare than Egypt and has a longer life expectancy / Canada spends the highest percentage on health care and has the second highest longest life expectancy / Canada and Sweden spend a high % on healthcare and have long life expectancy (1). Analysis of the supporting information: Higher spending on healthcare would be expected to raise the health of the population / provide better quality healthcare (1) increase awareness of need for healthy living / provide more check-ups / preventative medical care / reduce the death rate (1). Exception: Monaco (1) spends the lowest % on healthcare but has the longest life expectancy (1). Analysis of exception: 1.9% of a very high GDP can mean higher spending than e.g. 12.9% of a lower GDP / Monaco may have a high GDP (1). There are other influences on life expectancy e.g. nutrition / education/housing/war (1). 1(g) Discuss whether or not an increase in the size of its 6 Award one mark in total for higher / lower average costs, fishing industry would benefit St. Kitts and Nevis. one mark for lower / higher fish prices, one mark for higher / lower profits (1). Award up to 4 marks for logical reasons why it might, which may include: Higher / lower profits should be linked to the fishing industry. • may reduce imports of fish (1) reduce risk of supply-side shocks / imports being cut off (1) enable fish to be Apply this example to all questions with the command exported (1) may improve the current account word DISCUSS balance / improve the balance of payments (1) (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) • may increase employment / increase job opportunities / reduce unemployment (1) raise incomes Each point may be credited only once, on either side of an (1) increase living standards (1) increase argument, but separate development as to how/why the GDP / increase output / cause economic growth (1) outcome may differ is rewarded. higher tax revenue (1) • may enable greater advantage to be taken of Generic example Mark economies of scale (1) example (1) lower average cost (1) lower fish prices (1) Tax revenue may decrease … 1 • (larger boats) may be more efficient / more productive (1) make the industry more profitable / increase profits ... because of reason e.g. incomes may be 1 from fishing (1). lower. Tax revenue may increase because incomes 0 may be higher i.e. reverse of a previous argument. Tax revenue may increase because of a different 1 reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1(g) Award up to 4 marks for logical reasons why it might not, which may include: • opportunity cost (1) could use resources in other industries / government can spend more on e.g. education / increase budget deficit (1) • over-fishing (1) deplete fish stocks / lose marine life / deplete resources (1) raise fish prices in the long run (1) • may experience diseconomies of scale (1) example (1) higher average cost (1) reduce profit (1) • may cause external costs / environmental harm (1) may damage coral reefs / cause pollution (1) harm tourism (1) • may be a dangerous occupation (1) may be low-paid (1) low-skilled (1) may experience seasonal unemployment (1) • risk of over specialisation / too great a dependency on the industry (1) may be harmed by a fall in demand for fish / rise in competition from other countries (1). 1(h) Discuss whether or not deflation is likely to have 6 Award one mark for malign (bad) deflation is harmful harmed St. Kitts and Nevis. whereas benign (good) deflation is beneficial. Award up to 4 marks for logical reasons why it might, which Mark for higher employment and mark for higher GDP can may include: only be awarded if come from higher total supply. • may have increased real value of debt (1) may default (1) may have decreased investment (1) ‘save more’ may be credited on either side but only once. • may have resulted in a deflationary spiral (1) may have resulted from lower total demand (1) lower GDP / lower output / reduce economic growth / may cause a recession (1) lower employment / increased unemployment (1) lowered wages / income (1) • may reduce confidence (1) may discourage MNCs (1) • may reduce consumer expenditure / save more / create uncertainty (1) delay buying goods and services (until price is lower) (1). Award up to 4 marks for logical reasons why it might not, which may include: • may have increased purchasing power / real income / with the same income more goods and services can be purchased (1) (some) people may spend / consume more (1) • value of saving may have increased (1) increasing wealth (1) • may be the result of higher total supply (1) due to advances in technology / lower costs of production (1) higher output / economic growth (1) higher employment (1) • may have increased international competitiveness of its products / lower export prices (1) increased exports / export revenue (1) reduced imports / import expenditure (1) improve current account balance (1).

Question 26

(a) Calculate the number of people who are in poverty in Egypt. [1] (b) Identify two of Egypt’s primary sector exports. [2] (c) Explain how…

Accepted Answer

Question Answer Mark Guidance 1(a) Calculate the number of people who are in poverty in 1 30 690 000 Egypt. Accept 30.7 million. 30.69 million 1(b) Identify two of Egypt’s primary sector exports. 2 Accept any two Two from: oil (1), citrus fruits (1), gold (1) 1(c) Explain how building a new city can reduce 2 Only one mark if not linked to building. unemployment. Building a new city requires labour / creates job opportunities / increases demand for labour (1) to work in construction / build new buildings (1). 1(d) Explain why tourism is a good source of economic 4 Award a maximum of 2 marks for just identification of points growth for Egypt. without explanation. Logical explanation which might include: Egypt has many ancient / human-made attractions and buildings (1) not found in many parts of the world / that tourists want to visit (1) creating more employment / tax revenue (1). Egypt has natural attractions, such as beautiful beaches / warm climate / good weather (1) these attract tourists / low government spending required / low investments required (1). Egypt has good infrastructure (1) this can attract tourists as its easier to travel to the country or attractions / can attract investors with lower cost of production (1). Egypt has good security (1) tourists feel safe / investors are confident in the security of their investments (1). Egypt has experienced a fall its currency value (1) making holidays more affordable (1). 1(e) Draw a demand and supply diagram to show the likely 4 effect of falling incomes on the market for housing in the new city. D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New demand curve shifted to the left (1). 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 investment (as a % of 5 Responses do not have to be in the format suggested but GDP) and economic growth rates for Egypt. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: Positive / direct (1) higher / lower investment should lead to higher / lower economic growth rates (1). Supporting evidence: From 2017–2019, Investment rising and economic growth also rising (1) From 2019–2020, investment falling and economic growth also falling (1). Analysis: Higher investment leads to higher economic growth due to higher total demand / investment is a component of total demand (1) and increased productivity / lower cost of production (1). Exception: identification of an exception 2015–2017 or 2020–21 (1), 2015–2017, investment rising but economic growth falling slightly / relatively stable / largely unchanged (1), 2020–2021, investment falling but economic growth rate rising (1). Analysis of the exception: Current investment increase now could lead to a delayed response in economic growth rates (1) data shows percentage not total investment (1). 1(g) Discuss whether or not deregulation in education in 6 Answers not referring to education, max 3 marks. Egypt will increase living standards. Apply this example to all questions with the command Award up to 4 marks for logical reasons why it might, which word DISCUSS may include: (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) • deregulation has led to an increased number of schools / universities in Egypt (1) may increase competition Each point may be credited only once, on either side of an between private schools / universities (1) may lower argument, but separate development as to how/why the fees (1) raise quality (1) outcome may differ is rewarded. • more people have opportunities for education and training (1) making people more educated / skilled / Generic example mark qualified / literate / productive (1) easier to find jobs (1) earn an income (1) increasing affordability of goods and Tax revenue may decrease 1 services (1) more educated people tend to enjoy better health / spend more on healthcare (1) longer life because of reason e.g. incomes may be lower. 1 expectancy (1) increase HDI (1) • more school buildings will increase employment (1) of Tax revenue may increase because incomes 0 builders (1) teachers (1) may be higher i.e. reverse of a previous • may reduce government spending on education (1) argument. allowing the government to spend more on items that could increase living standards e.g. healthcare (1). Tax revenue may increase because of a different 1 reason i.e. not the reverse of a previous Award up to 4 marks for logical reasons why it might not: argument e.g. government spending on • opening more private schools and universities in Egypt subsidies may stimulate the economy more than might increase the level of inequality (1) as private spending on education. education remains unaffordable to lower income groups (1) restricting their employment opportunities (1) as private education is usually more expensive than state- provided education (1) • standards of living only improve for those from higher income groups (1) lower income groups remain in relative poverty (1) widen gap between rich and poor / increase relative poverty (1) • private schools and universities may prioritise profits (1) over the quality / standards of education provided (1). 1(h) Discuss whether or not a fall in the value of the 6 One mark for identifying increase or decrease in investment. Egyptian currency would harm the Egyptian economy. Award up to 4 marks for logical reasons why it might, which may include: • fall in the value of the Egyptian currency may cause cost push (1) inflation (1) reducing the purchasing power of Egyptians (1) as imported goods become more expensive (1) standards of living could decrease (1) • cost of production could increase (1) increasing the price of domestically produced goods (1) some firms may try to cut cost by reducing jobs (1) increase unemployment (1) • may create uncertainty / reduce confidence (1) discourage investment (1). Award up to 4 marks for logical reasons why it might not, which may include: • Egyptian exports become cheaper (1) increasing demand for exports / increasing revenues of domestic producers / incomes (1) causing economic growth (1) demand may switch from imports to domestically produced products (1) may reduce current account deficit (1) • industries such as the tourism industry may benefit (1) as holidays in Egypt become more affordable for non- Egyptians (1) • workers also have more job opportunities (1) since there is more demand for domestically produced goods and services (1) • may increase investment / hot money flows (1) reduced cost to set up an MNC / may expect profit if currency value rises later (1).

Question 27

One of the world’s more expensive roads opened in Montenegro in 2022. To build the road, the Montenegro Government was helped by a foreign …

Accepted Answer

2(a) Define international trade. 2 Movement / exchange of goods and services / products (1) between countries (1). Exports and imports (1) of goods and services / products (1). 2(b) Explain the importance of commercial banks to 4 Accept the role of commercial banks in helping implement governments. monetary policy (1) they are likely to change their interest rates in line with that of the central bank (1). Logical explanation which might include: • facilitating transactions for the government (1) e.g. managing government payments to suppliers / workers / receive tax payments (1) • financing government borrowing (1) commercial banks may also lend money to the government / buy bonds from government (1) • lending to the private sector (1) enables investment (1) facilitating economic growth (1) may increase employment (1) • may help to maintain financial stability (1) by helping other commercial banks in trouble (1) • they influence the money supply (1) by lending / creating credit (1). 2(c) Analyse how building roads can help a government 6 achieve its macroeconomic aims. Coherent analysis which might include: Building roads may involve government spending (1) creates jobs / requires labour (1) such as road builders (1) reducing unemployment (1) increase income (1) increase consumption (1) support other industries (1) such as raw material suppliers / private contractors (1) which increases total demand in the economy (1). Building roads may lead to reduced transport costs / cheaper transport (1) due to greater efficiency / productivity / time saving (1) reducing overall costs of production (1) increasing investment / attracting MNCs (1) causing economic growth (1) increased exports (1) improving the current account balance (1) reducing cost-push inflation (1). Building roads could lead to better quality transportation / easier access to places of work (1) reducing unemployment (1) may reduce poverty (1). 2(d) Discuss whether or not multinational corporations 8 Level Description Marks (MNCs) benefit host countries. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why MNCs might benefit host countries: economic information and clear and • bring in new capital and technology logical analysis to evaluate economic • bring in investment issues and situations. One side of the • create jobs argument may have more depth than • may provide high quality training the other, but overall both sides of the • pay taxes argument are considered and • may increase competition developed. There is thoughtful • may buy raw materials from the country evaluation of economic concepts, terminology, information and/or data Why MNCs might not benefit host countries: appropriate to the question. The • may exploit domestic labour by poor work conditions discussion may also point out the • may take profits out of the country and not reinvest possible uncertainties of alternative domestically decisions and outcomes. • may avoid taxes • may dominate domestic market and drive local firms out 2 A reasoned discussion which makes 3–5 use of economic information and clear of the market • are footloose and may leave anytime – more instability analysis to evaluate economic issues and situations. The answer may lack • may deplete natural resources some depth and development may be • may damage the environment one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(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.

Question 28

Missions to outer space face the same basic economic problem as that experienced on Earth. The African Space Agency was created to improve …

Accepted Answer

5(a) Define the basic economic problem. 2 The basic economic problem is the scarcity (1) of resources / factors of production (1) compared to unlimited wants of humans (1) . 5(b) Explain how a market allocates resources. 4 One mark for more resources devoted to products in high demand / fewer resources devoted to products in low Logical explanation which might include: demand. A market is made up of buyers (1) and sellers (1) who trade products (1) through the interaction of demand (1) and supply (1) creating market equilibrium (1) Price signals / price mechanism indicate to sellers how to allocate their resources (1) profit provides the incentive for sellers to respond to changes in demand (1). If demand for the product increases, price will rise (1) more resources will be devoted to its production (1). If demand for the product decreases, price will fall (1) fewer resources will be devoted to its production (1). 5(c) Analyse the benefits a country may gain from exporting 6 Reward but do not expect reference to comparative or to and importing from other countries. absolute advantage. Allows countries to specialise (1) in what they are best at producing (1) develop skills (1) increase efficiency (1) Exports create demand for the output of domestic producers (1) causing economic growth in that country (1) creating employment (1) Exports create larger markets (1) able to take advantage of economies of scale (1) produce at a lower average cost (1). Incomes in other countries maybe higher (1) allowing more income to be earned by exporting (1) Exports are a component of total (aggregate) demand (1) so increased exports will lead to higher output / cause economic growth (1). Imports allow consumers to enjoy more goods and services (1) greater choice / variety (1) at low prices (1) increase living standards (1). Imports provide greater competition (1) which can increase quality (1). Imports allow countries to obtain goods / raw materials they cannot produce (1) at a lower price (1) reducing costs of production (1) obtain tariff revenue (1). Spread of ideas / technology (1) increasing productivity (1). 5(d) Discuss whether or not an increase in government 8 Level Description Marks spending will 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: information and clear and logical • increase total demand analysis to evaluate economic issues • some forms of government spending e.g. education / and situations. One side of the argument healthcare may increase productivity may have more depth than the other, but • reduce unemployment overall both sided of the argument are • increase economic growth considered and developed. There is • reduce inequality thoughtful evaluation of economic • increase access to merit goods concepts, terminology, information • provide public goods and/or data appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative • increased inflation decisions and outcomes. • increase a current account deficit if spent on e.g. imported capital goods 2 A reasoned discussion which makes use 3–5 • increased taxation to pay for increased spending of economic information and clear • increase government debt analysis to evaluate economic issues • government spending may be inefficient – the private and situations. The answer may lack some depth and development may be sector may be more efficient one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 5(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.

Question	Answer	Marks	From
1	see sheet	20	0455/21 May/June 2017
2	see sheet	30	0455/22 May/June 2017
3	see sheet	20	0455/22 Oct/Nov 2017
4	see sheet	20	0455/23 Oct/Nov 2017
5	see sheet	20	0455/23 May/June 2018
6	see sheet	20	0455/21 Oct/Nov 2018
7	see sheet	20	0455/22 Oct/Nov 2018
8	see sheet	20	0455/23 Oct/Nov 2018
9	see sheet	20	0455/22 May/June 2019
10	see sheet	20	0455/23 May/June 2019
11	see sheet	20	0455/21 Oct/Nov 2020
12	see sheet	20	0455/21 May/June 2021
13	see sheet	30	0455/22 May/June 2021
14	see sheet	30	0455/21 Oct/Nov 2021
15	see sheet	20	0455/21 May/June 2022
16	see sheet	30	0455/23 May/June 2022
17	see sheet	20	0455/22 Oct/Nov 2022
18	see sheet	30	0455/21 May/June 2023
19	see sheet	30	0455/21 Oct/Nov 2023
20	see sheet	20	0455/21 Oct/Nov 2023
21	see sheet	30	0455/22 Oct/Nov 2023
22	see sheet	30	0455/21 May/June 2024
23	see sheet	20	0455/22 May/June 2024
24	see sheet	20	0455/22 Feb/March 2025
25	see sheet	30	0455/22 May/June 2025
26	see sheet	30	0455/23 May/June 2025
27	see sheet	20	0455/23 May/June 2025
28	see sheet	20	0455/23 May/June 2025

International specialisation — Paper 2 · IGCSE Economics 0455

Questions11 pages

Mark scheme28 answers

Another paper, or another topic

Questions as text

Q1 · In June 2015 the value of the Swiss franc rose by 30% against the euro 0455/21 May/June 2017

Q2 · Mining diamonds in Botswana Botswana is the world’s largest producer of diamonds 0455/22 May/June 2017

Q3 · The Gulf countries, some of which are quite specialised, import a high proportion of the… 0455/22 Oct/Nov 2017

Q4 · Trade protection reduces the opportunity for countries to specialise and influences the… 0455/23 Oct/Nov 2017

Q5 · In the 1990s Cambodia became a mixed economy 0455/23 May/June 2018

Q6 · Teachers in many countries oppose their governments’ cuts in spending on education 0455/21 Oct/Nov 2018

Q7 · A relatively high proportion of people from the Philippines either work in call centres… 0455/22 Oct/Nov 2018

Q8 · In 2016, the world shortage of peanuts increased their price 0455/23 Oct/Nov 2018

Q9 · The price elasticity of demand (PED) for sugar in most countries is less than 1 0455/22 May/June 2019

Question 10 0455/23 May/June 2019

Q11 · Free trade has allowed the Mexican economy to specialise in low-cost manufacturing 0455/21 Oct/Nov 2020

Q12 · There is an area of rubbish, three times the size of France, floating in the Pacific… 0455/21 May/June 2021

Q13 · Calculate Chile’s agricultural output in 2017 0455/22 May/June 2021

Q14 · Calculate, in $, the total exports of Laos to China in 2017 0455/21 Oct/Nov 2021

Q15 · Uganda specialises in agricultural products and has a relatively small secondary sector 0455/21 May/June 2022

Q16 · Calculate Europe’s percentage contribution to the global total eSports revenue in 2019 0455/23 May/June 2022

Q17 · The economic problem results in choices and opportunity cost 0455/22 Oct/Nov 2022

Q18 · Calculate Australia’s unemployment rate in 2021 0455/21 May/June 2023

Q19 · Calculate the total number of people in Cambridge aged 18–29 in 2019 0455/21 Oct/Nov 2023

Q20 · Malaysia once specialised in the production and export of natural rubber 0455/21 Oct/Nov 2023

Q21 · Calculate what percentage of Honduran people did not have access to electricity in 2020 0455/22 Oct/Nov 2023

Q22 · Calculate the price elasticity of demand for coffee 0455/21 May/June 2024

Q23 · Tajikistan is one of Asia’s low-income countries 0455/22 May/June 2024

Q24 · Finland is a high-income country that usually has a higher value of exports than imports 0455/22 Feb/March 2025

Question 25 0455/22 May/June 2025

Q26 · Calculate the number of people who are in poverty in Egypt 0455/23 May/June 2025

Q27 · One of the world’s more expensive roads opened in Montenegro in 2022 0455/23 May/June 2025

Q28 · Missions to outer space face the same basic economic problem as that experienced on Earth 0455/23 May/June 2025