Globalisation, free trade and protection — Paper 2 · IGCSE Economics 0455

7 Argentina once had one of the highest levels of Gross Domestic Product (GDP) per head in the world and one of the highest economic growth rates. Many multinational companies were producing in the country. Some suggest that for Argentina to regain its position among the top ten richest countries, it needs to increase spending on education and move towards free trade. (a) Define ‘free trade’. [2] (b) Explain two reasons why governments aim for economic growth. [4] (c) Analyse why the social benefits of education are greater than the private benefits. [6] (d) Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. [8]

20 marks

Mark scheme: 7(a) Define ‘free trade’. Trade without restrictions/having no barriers (1) example of a trade restriction (1) without intervention of governments (1). 2 7(b) Explain two reasons why governments aim for economic growth. 1 mark each for each of two reasons identified: • Higher living standards/higher incomes (1) • higher employment (1) • less government spending on benefits (1) • more tax revenue (1) allowing more spending on e.g. health (1) • more exports (1) • reduced poverty (1) • To attract investment from abroad/MNCs (1) 1 mark each for each of two explanations given: • higher living standards as people can enjoy more goods and services (1) • more workers will be needed to produce the higher output (1) • government may be able to spend more on e.g. education and healthcare (1) • fewer unemployed workers will reduce the burden on government expenditure (1) • current account position will improve if there is the demand for exports (1) • incomes will rise which may allow more people to enjoy basic necessities (1) • growth means foreign firms have the potential to earn high revenues/make high profits (1) 4 7(c) Analyse why the social benefits of education are greater than the private benefits. • Social benefits are private benefits plus external benefits (1) • Private benefits include self-fulfilment (1) increased job opportunities (1) higher income/standard of living (1) better health (1) • Education also provides external benefits (1) higher output/GDP/economic growth (1) better quality output (1) improved literacy (1) more skilled workers (1) • improved productivity (1) more tax revenue (1) 6 Maximum of 3 marks for a list-like approach. Question Answer Marks Guidance 7(d) Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. Up to 5 marks for why some will: • The countries will have high average incomes (1) there may be a high demand for the firms’ products (1) can sell at high prices (1) increase revenue (1) raise profits (1) • The countries may have a skilled labour force (1) high labour productivity (1) low costs of production (1) • The countries may have better infrastructures, e.g. motorways (1) reducing transport costs (1) making transport more reliable (1) Up to 5 marks for why some will not: • Countries with a high GDP per head may not have supplies of specific raw materials/they may be expensive (1) which the companies can use for their production (1) • Countries with a high GDP per head may have few unemployed workers (1) that the firms can recruit (1) at low wages (1) • Countries with a high GDP per head may have more expensive labour (1) land (1) making production costs high (1) • The government of the country may provide subsidies for the firms to set up there (1) this would, in effect, reduce average costs (1) • There may already be (similar) MNCs in the country (1) increasing competition (1) increasing PED for the firm’s products (1) reducing ability to charge high prices (1) 8 Accept arguments from the perspective of countries with a low income per head, but don’t count them twice. A response may develop a mixture of relevant points to achieve up to 5 marks on either side. Maximum of 2 marks on each side of the discussion for a list- like approach.

This question in 0455/23 May/June 2017

3 Qatar is a growing economy and has benefited from the expansion of the insurance industry. This industry is currently dominated by one firm and is a long way from perfect competition. The economy has also experienced a general increase in labour productivity. However, the nature of the relationship between free trade and economic growth is debated among economists. (a) Define ‘perfect competition’. [2] (b) Explain two influences on the size of firms. [4] (c) Analyse the causes of an increase in labour productivity. [6] (d) Discuss whether a country that engages in free trade is likely to have a higher economic growth rate than one that uses trade protection. [8]

20 marks

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

This question in 0455/21 Oct/Nov 2017

4 In Pakistan there is a limited choice of cars to buy. The country has a population of approximately 190 million but only about 120 000 cars a year are produced there. The firms producing cars in Pakistan are protected from foreign competition by a range of methods of trade protection. (a) Name two factors of production used in making cars. [2] (b) Explain how two methods of trade protection may reduce imports. [4] (c) Analyse the social costs created by car production and car use. [6] (d) Discuss whether demand for cars is likely to increase in the future. [8]

20 marks

Mark scheme: 4(a) Name two factors of production used in making cars. 1 mark each for each of two factors identified: • car workers / labour • car factory / capital • car firm owner / entrepreneur • water/land 2 4(b) Explain how two methods of trade protection may reduce imports. 1 mark each for each of two methods identified: • tariffs • quotas • embargoes • exchange control • voluntary export restraint (VER) • quality standards • subsidies • expensive paperwork 1 mark each for each of two explanations given: • tariffs – tax on imports will raise price of imports which may reduce demand • quotas – a limit on imports will restrict quantity of imports that can be purchased • embargo – a ban on imports will reduce quantity imported to zero • exchange control – a limit on availability of foreign currency will make it difficult to get the currency to buy imports • VER – agreements between governments to restrict exports to each other • quality standards – making it difficult / expensive to achieve requirements • subsidies – given to domestic producers to make them internationally competitive expensive paperwork – increase the costs of exporting to the country 4 Question Answer Marks Guidance 4(c) Analyse the social costs created by car production and car use. Social costs are private costs plus external costs (1). Private costs are the costs to the car firm/buyers of cars (1) example: e.g. wages paid to workers / price paid for the cars (1). External costs are likely to exist in the form of costs to third parties (1) firms/buyers will not take them into account (1) examples: e.g. air pollution / noise pollution / congestion (up to 2). 6 Maximum 4 marks if no reference to cars. Question Answer Marks Guidance 4(d) Discuss whether demand for cars is likely to increase in the future. Up to 5 marks for why it might: Rising incomes (1) people may switch from other forms of transport e.g. bus travel / can afford to buy cars (1). Price may fall (1) cars become more affordable (1). Advances in technology (1) increasing availability of hybrid / electric cars / raise quality (1) any other relevant cause of a fall in price (1). Population is increasing (1) creating more potential buyers (1). Greater availability of bank loans / credit (1) cars may be purchased using bank loans (1). More effective advertisements (1) persuading people to buy more cars (1). Up to 5 marks for why it might not: Other forms of transport may become cheaper (1) example of a substitute (1). Concern for the environment may increase (1) causing people to walk or cycle (1). Prices of complements may rise (1) e.g. petrol / car parking charges / road tolls / inner city charges (1). Governments may increase taxes on car travel / impose restrictions on car use (1) to reduce external costs (1). There may be a global recession / higher unemployment (1) reducing people’s confidence in buying cars (1). 8 Maximum of 4 marks for a list-like approach.

This question in 0455/22 Oct/Nov 2017

5 Nauru is one of the smallest countries in the world with a population of only 10 000. Fifty years ago the population was one of the richest per head in the world, largely the result of exporting the phosphate created over many centuries by sea-bird droppings. This labour-intensive industry has declined significantly. Now incomes are much lower and one third of workers are jobless. (a) What is meant by a ‘labour-intensive industry’? [2] (b) Explain two reasons why a country may stop exporting a product. [4] (c) Analyse the effects of an increase in unemployment on inflation. [6] (d) Discuss whether having a relatively small population is an advantage or a disadvantage for an economy. [8]

20 marks

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

This question in 0455/22 Oct/Nov 2017

7 The Gulf countries, some of which are quite specialised, import a high proportion of the food their inhabitants eat. For example, the United Arab Emirates imports 83% of all the food that it consumes. The Gulf countries are trying to reduce their reliance on imports of food. (a) Define ‘specialisation’. [2] (b) Explain two disadvantages that workers may experience from specialising. [4] (c) Analyse how a country could reduce its reliance on imports. [6] (d) Discuss whether producing more food will increase living standards. [8]

20 marks

Mark scheme: 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

This question in 0455/22 Oct/Nov 2017

2 In Saudi Arabia, output of cement has risen as a result of an increase in demand from the construction industry for building houses, schools, hospitals and roads. The market for cement is also being affected by price changes, export bans and mergers between companies making cement. (a) Define ‘demand’. [2] (b) Explain two reasons why a country might want to restrict exports. [4] (c) Analyse how information on the price elasticity of demand for its product can influence a firm’s pricing decisions. [6] (d) Discuss whether a merger of two firms in the same industry will be likely to reduce the price of the product. [8]

20 marks

Mark scheme: 2(a) Define ‘demand’. The willingness/desire/want (1) and ability to buy a product (1) in a given period (1). 2 2(b) Explain two reasons why a country might want to restrict exports. 1 mark each for each of two reasons identified: • keep prices low on home market • prevent stocks running out • maintain monopoly of raw materials • reduce balance of payments surplus / reduce demand-pull inflation • raise price of exports. 1 mark each for each of two explanations given: • reducing exports may increase supply on the home market • a government may want to conserve e.g. oil for future generations to enjoy • reducing exports of raw materials that are found mainly in the country may mean that other countries/firms will not be able to produce the product • may increase export revenue if demand is inelastic. 4 2(c) Analyse how information on price elasticity of demand for its product can influence a firm’s pricing decisions. If a firm knows that demand for its products is price-elastic (1) it will know a fall in price will cause a rise in revenue (and vice versa) / percentage price change causes a bigger percentage change in demand (1). It will also know that its products probably have close substitutes (1). If it knows demand for its products is price-inelastic (1) it will know a rise in price will cause a rise in total revenue / percentage change in price is greater than percentage change in demand (1). It will also know its products probably do not have close substitutes (1). If it knows that demand for its products have unit price elasticity of demand (1) it will know that its revenue will not change if it changes price (1). It is difficult to calculate PED (1) firms may use other factors to determine price (1). 6 Question Answer Marks Guidance 2(d) Discuss whether a merger of two firms in the same industry will be likely to reduce the price of the product. Up to 5 marks for why it might: A horizontal merger may allow the firm to enjoy economies of scale (1) example/s (2) lower average costs (1) enabling the firm to lower prices and maintain/increase profit / pass on savings (1). A horizontal merger may allow a firm to rationalise (1) to cut out duplication (1). Up to 5 marks for why it might not: A merger may result in a firm experiencing diseconomies of scale (1) example/s (2) higher average costs (1). A merger may increase market share / power / firm becomes a price maker (1) reducing competition (1) making demand price-inelastic (1) prices may rise rather than fall (1). 8

This question in 0455/23 Oct/Nov 2017

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

20 marks

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

This question in 0455/23 Oct/Nov 2017

6 Trade protection reduces the opportunity for countries to specialise and influences the current account positions that countries have on their balance of payments. There are differences in the amount and types of trade protection used by developed and developing countries. Developed countries also usually have a lower death rate than developing countries. (a) Define ‘trade protection’. [2] (b) Explain two advantages of countries specialising. [4] (c) Analyse why developed countries usually have lower death rates than developing countries. [6] (d) Discuss whether a rise in income tax will reduce a current account deficit. [8]

20 marks

Mark scheme: 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

This question in 0455/23 Oct/Nov 2017

4 In 2015, the Tripartite Free Trade Area (TFTA) was established. It covers 26 countries and is the biggest free trade area in Africa. Removing trade restrictions can enable economies to take greater advantage of economies of scale. Some economists argue that improving Africa’s roads would be more beneficial and would do more to reduce a current account deficit on the balance of payments and raise living standards. (a) Define economies of scale. [2] (b) Explain two benefits consumers may gain from free trade. [4] (c) Analyse how reducing transport costs could increase a country’s exports and imports. [6] (d) Discuss whether or not raising living standards is the most important economic objective for developing countries. [8]

20 marks

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

This question in 0455/21 May/June 2018

7 World output has grown in recent years, but a number of countries have experienced a recession. The removal of trade restrictions such as import tariffs has slowed down, reducing the growth of world trade. (a) Define import tariff. [2] (b) Explain two benefits of an increase in world output. [4] (c) Analyse how a recession may reduce a country’s imports. [6] (d) Discuss whether or not a developing country will benefit from the removal of trade restrictions. [8]

20 marks

Mark scheme: 7(a) Define import tariff. A tax (1) imposed on products purchased from other countries / imports (1). 2 7(b) Explain two benefits of an increase in world output. Higher output may increase employment (1) better use of resources (1). Higher output may increase incomes (1) reduce poverty / raise living standards (1) increase choice (1). Higher output may increase government tax revenue (1) to increase education/healthcare (1). Higher output may include higher agricultural output (1) reduce risk of malnutrition (1). 4 7(c) Analyse how a recession may reduce a country’s imports. A recession is a decrease in GDP (1) over 6 months or more / two consecutive quarters (1). A recession is likely to reduce incomes (1) increase unemployment (1) reduce confidence levels (1) consumer spending is likely to fall (1). As output is falling (1) firms are likely to buy less raw materials from abroad (1) buy fewer capital goods from abroad (1). During recessions governments may impose trade restrictions which will reduce imports (1). A recession may cause a depreciation of the currency (1) making imports more expensive (1). 6 7(d) Discuss whether or not a developing country will benefit from the removal of trade restrictions. Up to 5 marks for why it might: Developing countries tend to have more trade restrictions on their products (1). The removal of trade restrictions on the country’s products can enable a country to specialise in the products it is best at producing (1) they can be sold at a lower price which may increase demand in foreign markets (1). The removal of trade restrictions that the country imposes may mean it can purchase raw materials (1) and capital equipment (1) at a lower price (1) reducing costs of production (1). Consumers may enjoy a greater variety of products (1) greater availability of products (1) lower prices (1) higher quality (1). Domestic firms may respond to greater competition by becoming more efficient (1). The removal of trade restrictions may increase inward investment / attract MNCs (1). Up to 5 marks for why it might not: Infant industries (1) may not be able to survive without protection (1) because they cannot take advantage of economies of scale (1). Declining industries (1) may go out of business more quickly (1) causing unemployment (1). Strategic industries (1) may go out of business disrupting the rest of the economy (1). There may be dumping (1) with foreign firms selling products at below cost price (1) to drive domestic firms out of business (1) and then raising price (1). Demerit goods may be imported (1). May result in imports exceeding exports, (1) causing a current account deficit (1). Tax revenue may fall (1) revenue from tariffs may account for a relatively high proportion of a developing country’s tax revenue (1). 8

This question in 0455/22 May/June 2018

3 In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in the clothing industry. In 2005, import quotas for clothing in the key markets of the USA and the EU were removed. Clothing now accounts for 80% of Cambodia’s exports. The increased role of the private sector has resulted in a rise in malnutrition in Cambodia. (a) Define import quota. [2] (b) Explain two advantages to a country of specialisation. [4] (c) Analyse the impact on an economy of the removal of import quotas imposed by other countries. [6] (d) Discuss whether or not an increase in the role of the private sector will benefit an economy. [8]

20 marks

Mark scheme: 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

This question in 0455/23 May/June 2018

2 In 2016, there was a global surplus in the steel market pushing down steel prices. This situation led to various calls for protectionist measures by other steel producers such as those in the EU and the USA. However, such measures were not supported by car producers as approximately 22% of a car manufacturer’s costs depend on steel prices. (a) Define protectionism. [2] (b) Explain two methods of trade protection. [4] (c) Analyse, using a demand and supply diagram, the effect of falling steel prices on the market for cars. [6] (d) Discuss whether or not protectionism is effective in raising living standards. [8]

20 marks

Mark scheme: 2(a) Define protectionism. Protectionism is the deliberate attempt to limit imports or promote exports / make foreign products less competitive (1) have trade restrictions (1). 2 2(b) Explain two methods of trade protection. Tariffs (1) tax on imports that would increase the price of imports (1). Quotas (1) limit on the volume of imported goods allowed into the country (1). Subsidies (1) to reduce the costs of domestic firms / reduce the price of domestic goods and services (1). Embargoes (1) total restriction / ban on imported goods (1). Exchange controls (1) limit on the amount of foreign currency that can be purchased (1) Regulations (1) making it difficult to import (1) 4 Question Answer Marks Guidance 2(c) Analyse, using a demand and supply diagram, the effect of falling steel prices on the market for cars. Diagram up to 3 marks: • P, Q, S, D correctly labelled • Shift in supply curve to the right • Decrease in P and increase in Q • New equilibrium indicated Written analysis up to 3 marks: • Steel prices decreasing will lead to a decrease in car manufacturers’ costs (1) • This may be passed on in lower price of cars (1) • The extent of the change might be influenced by PED/PES (1) 6 O Price Quantity D P1 Q1 Q2 P2 S2 S1 Question Answer Marks Guidance 2(d) Discuss whether or not protectionism is effective in raising living standards. Up to 5 marks on how it will be effective in raising living standards: Protectionism may increase the price of imports (1) the quantity of imports demanded will decrease (1) the quantity of domestic goods demanded may increase (1) demand for labour is derived demand (1) demand for workers will increase (1), therefore unemployment decreases (1) domestic incomes increase (1) consumption of goods and services increase (1) employment in infant/declining (sunrise/sunset) industries may be protected (1). Increased demand for products of domestic firms may lead to an increase in total revenue (1) and profits (1). Protectionism can decrease imports of demerit goods (1) reducing external costs (1) e.g. pollution, health/social problems (1). Up to 5 marks on how it will not be effective in raising living standards: Protectionism may reduce the possibility of specialisation (1) to produce what a country is best at (1) increasing production costs (1) increasing import prices (1). Protectionism might lead to retaliation (1) other countries may adopt protectionist policies on imports (1) increasing the price of the country’s exports (1) decreasing the demand for exports (1) reducing the demand for workers (1) unemployment increases (1) less income (1) consumption/production of goods and services decreases (1). Protectionism may reduce competition / choices available to domestic consumers (1) reducing the quality of the products available (1). Protectionist policies in one country could reduce employment in other countries (1) as they are no longer able to export the same amount (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

This question in 0455/21 Oct/Nov 2018

7 The price of gold rose in 2016. This encouraged owners of gold mines to employ more resources to increase the supply of gold. The level of competition in gold production varies in the different gold producing countries. A number of countries, including India, impose a tariff on imported gold. (a) Identify two factors of production involved in mining gold. [2] (b) Explain two reasons why a government may impose a tariff on imported gold. [4] (c) Analyse how perfect competition differs from monopoly. [6] (d) Discuss whether or not an economy should mine and sell all of its gold now. [8]

20 marks

Mark scheme: 7(a) Identify two factors of production involved in mining gold. Any 2 from: Labour/miner (1) land / gold ore (1) capital/equipment (1) enterprise/owner (1) 2 7(b) Explain two reasons why a government may impose a tariff on imported gold. To discourage the purchase of the foreign gold / reduce the demand for imported gold (1) to improve the current account position on the balance of payments (1). To raise revenue (1) to fund government expenditure (1). If gold is an infant industry (1) enable domestic industries to grow (1) increase output / become more competitive / efficient / natural resources discovered (1) Protect domestic gold industry (1) protect jobs / keep unemployment low (1) encourage expansion of domestic firms (1). Retaliation (1) in response to trade restrictions on gold imposed by other countries (1). 4 Reward but do not expect an argument based on the dumping of gold. 7(c) Analyse how perfect competition differs from a monopoly. In perfect competition there are many sellers (1) in monopoly there is only one (1). In perfect competition there are no barriers to entry and exit / free entry and exit (1) in monopoly there are barriers (1). Firms in perfect competition are price takers (1) a monopoly is a price maker (1). In perfect competition there is perfect knowledge (1) that other firms may not be aware of e.g. the profit being earned by a monopoly (1). In perfect competition there is a low degree of market concentration (1) in monopoly it is 100% (1). In perfect competition there are perfect substitutes / homogenous products / identical products (1) in monopoly there are no substitutes / a unique product (1). 6 Reward but do not expect that perfectly competitive firms can only earn normal profit in the long run, whereas a monopoly can earn supernormal/abnormal profit. Question Answer Marks Guidance 7(d) Discuss whether or not an economy should mine and sell all of its gold now. Up to 5 marks for why it should: Will create employment (1) raise output / higher economic growth (1) increase incomes (1) increase living standards (1). It can be exported (1) demand may be high now (1) improve trade in goods (1) improve the current account position (1). More tax revenue can be earned (1) enable the government to spend more on e.g. education/healthcare (1). Up to 5 marks for why it should not: It will stop future generations (1) being able to benefit from its sale / reduce economic growth (1) as resources will be depleted (1) as a result of higher demand (1) e.g. due to higher income (1). The price of gold may rise in the future (1) now may not be the best time to sell it (1). The exchange rate may currently be low (1) which may reduce the revenue that the country can gain from exporting the gold (1). Advances in technology (1) may lower costs of extraction in the future (1). Gold mining may cause external costs (1) example e.g. pollution (1). In the long run, gold may have to be imported (1) increasing the current account position (1). It may lead to overspecialisation (1) potential for structural unemployment (1). 8 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is expected.

This question in 0455/22 Oct/Nov 2018

1 Nigeria adopts a floating exchange rate In June 2016, Nigeria adopted a floating exchange rate after the country’s central bank had spent months trying to maintain its fixed exchange rate. It had used foreign currency reserves to buy its currency, imposed tariffs and limited the amount of foreign currency that Nigerians could purchase. Most economists thought that the value of Nigeria’s currency would depreciate. A lower value of the Nigerian naira might help increase output and reduce the deficit on the current account of the country’s balance of payments. In 2015, Nigeria experienced a deficit on its current account for the first time in 20 years. Countries with a current account deficit often have a higher inflation rate and a lower economic growth rate than those with a current account surplus. Fig. 1 shows the inflation rate, economic growth rate and the current account balance of selected countries in 2015. Fig. 1 The inflation rate, economic growth rate and current account balance of selected countries in 2015 China Colombia Germany Nigeria Turkey -8 -6 -4 -2 0 2 4 6 8 10 Inflation rate Economic growth rate Current account balance (% of GDP) A current account deficit can lower the exchange rate and so may increase import prices. A higher price of imports, including imported food, can accelerate inflation. In 2015, as well as experiencing a current account deficit, tax revenue fell in Nigeria and was lower than government expenditure. Some economists predicted that the government would cut spending on education and healthcare in 2016 to reduce the gap between tax revenue and government spending. The Nigerian government has been trying to reduce poverty in the country. In 2015, more than 60% of the population were living in poverty. Among the causes of the high level of absolute poverty was an unemployment rate of 9.5%. One policy measure proposed to reduce poverty in Nigeria is for the government to raise the wages of low-paid workers. The government also wants to diversify the economy because the oil industry accounts for almost 90% of the country’s export earnings. The oil industry pays high wages to some of its workers and relatively high interest rate payments to local banks. It also creates water pollution and air pollution. (a) Identify, from the extract, two methods of trade protection. [2] (b) Analyse what may cause a depreciation in an exchange rate. [5] (c) Analyse to what extent the information in Fig. 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. [4] (d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–16. [4] (e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. [5] (f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. [4] (g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. [6]

30 marks

Mark scheme: 1(a) Identify, from the extract, two methods of trade protection. Tariffs (1) Exchange control/limit on foreign currency that people can buy (1). 2 1(b) Analyse what may cause a depreciation in an exchange rate. A deficit on the balance of payments on current account (1) imports are greater than exports resulting in fall in market price (1). A fall in demand for the currency (1) a rise in the supply of the currency (1). A fall in exports/rise in imports (1) due to higher inflation (1) lower quality of goods being produced (1) higher costs of production (1). A rise in imports/fall in exports (1) due to increase in demand in the economy/economic growth (1). A fall in the rate of interest (1) due to a fall in FDI/speculation (1). An expansionary government monetary policy (1) to sell currency to encourage exports (1). 5 1(c) Analyse to what extent the information in Table 1 suggests that countries with current account deficits have higher inflation rates and lower economic growth rates than those with current account surpluses. The three countries with current account deficits do have higher inflation rates (1). Correct identification of Columbia/Nigeria/Turkey as the three countries with a deficit (1). China and Germany have lower inflation (1). The picture is less certain in terms of economic growth (1). Evidence (up to 2) e.g. Columbia has a deficit but relatively high economic growth (1). Germany had a surplus but low economic growth (1). 4 Question Answer Marks Guidance 1(d) Explain, using information from the extract, two reasons why poverty may have increased in Nigeria in 2015–2016. Higher price of imported food (1) the poor spend a high proportion of their income on food (1). Current account deficit (1) results in lower demand and unemployment rises (1). Inflation (1) people can afford less (1). Spending on education and health care may have been cut (1) this may have reduced some people’s ability to access this services/reduced employment in these sectors/unable to get jobs due to lack of skills/illness (1). Unemployment may have increased/high unemployment (1) reducing some people’s income (1). Lower tax revenue (1) spending on welfare benefits may have fallen (1). Water pollution (1) clean drinking water is seen as a necessity (1). 4 Question Answer Marks Guidance 1(e) Discuss whether or not a cut in government spending on education would reduce the gap between government spending and tax revenue. Up to 3 marks for why it might: Spending on education may form a relatively high percentage of government spending/a reduction will reduce overall government spending (1) this could have big impact on gap if government does not raise spending on other items (1) if tax revenue remains unchanged (1). The government may have used the tax revenue to spend on stimulating the economy (1) raising tax revenue (1). Up to 3 marks for why it might not: Lower government spending on education may reduce skills (1) lowering employment (1) reducing incomes (1) lowering tax revenue (1) increasing government spending on benefits (1) gap may widen (1). Government may increase spending elsewhere e.g. infrastructure (1) therefore gap is not reduced (1). May encourage emigration (1) fewer people to pay taxes (1). 5 For all ‘Discuss’ questions Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded. Generic example Mark Tax revenue may decrease 1 because of reason« e.g. incomes may be lower 1 Tax revenue may increase (reverse of 1st argument) 0 because of a different reason / not a reverse argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 1(f) Explain, using information from the extract, two external costs that arise from oil production in Nigeria. Water pollution (1) imposing a cost on fishermen/poor quality drinking water affects health of local people/cost on third parties/government may have to spend money clearing up the pollution (1). Air pollution (1) imposing a cost on local people e.g. quality of air affects breathing/damage to the environment/global warming (1). 4 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. Up to 4 marks for why it might: One cause of poverty is low pay (1) raising the pay of the poor can take them out of poverty/increase their income (1) their spending is likely to increase (1) enabling them to buy more basic necessities (1) reducing absolute poverty (1) stimulating higher output/demand (1) reducing unemployment (1). Enables low-income families to spend on education of children (1) raising skills and pay in long-run (1). Raising the pay of low-paid workers may increase their motivation (1) which may increase their productivity (1) increasing their chances of keeping their jobs/gaining promotion (1). Up to 4 marks for why it might not: Increase may be very small (1) insufficient to take people out of poverty (1) Increase maybe less than inflation rate (1) leaves poor worse off (1). Poor may not have jobs (1) increase in pay has no affect for them (1). The rise in pay (1) may increase firms’ costs of production (1) causing them to make some workers redundant (1) reducing their income (1). 6 Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is to be rewarded.

This question in 0455/23 Oct/Nov 2018

7 It was predicted that global unemployment would rise by over two million in 2017. Unemployment rates, however, vary between countries. Some governments use fiscal policy measures and others use supply-side policy measures to reduce unemployment. The unemployment rate can also be influenced by trade protection. (a) Identify two fiscal policy measures. [2] (b) Explain two reasons why the unemployment rate may be higher in one country than another. [4] (c) Analyse how supply-side policy measures may reduce unemployment. [6] (d) Discuss whether or not a government should protect its country’s industries from foreign competition. [8]

20 marks

Mark scheme: 7(a) Identify two fiscal policy measures. • Government spending • Taxation 2 Allow two different types of taxes or two different areas of government spending, or a combination. 7(b) Explain two reasons why the unemployment rate may be higher in one country than another. Total demand may be lower (1) higher cyclical unemployment / recession (1). Lower labour mobility (1) causing structural unemployment (1). Greater pace of technological advancement (1) replacing labour / causing structural unemployment (1). Greater voluntary unemployment (1) due to higher benefits (1). Labour force growing faster than economy (1) creating shortage of jobs (1). Lower education standards (1) means workers are less employable (1). Labour market restrictions (1) may make employing workers more expensive (1). 4 Question Answer Marks Guidance 7(c) Analyse how supply-side policy measures may reduce unemployment. Supply-side policy measures increase productive capacity within the economy (1). Education and training (1) could raise the skills of workers (1) labour productivity could rise (1) firms may be encouraged to take on more workers (1). A cut in income tax (1) may increase total (aggregate) demand (1) causing firms to produce more (1) and so take on more workers (1) it may also have an incentive effect (1). A cut in unemployment benefit (1) may encourage more of the unemployed to take jobs (1) if wages are now higher than benefits (1). Privatisation (1) could result in an expansion of firms (1) if they are more competitive (1) and so they may take on more workers (1). Subsidies (1) will lower costs of production (1) encouraging firms to expand (1) employ more workers (1). Trade Union reforms (1) may encourage firms to employ more workers (1) e.g. cheaper / more flexible labour force (1). 6 These must be measures introduced by a government. Question Answer Marks Guidance 7(d) Discuss whether or not a government should protect its country’s industries from foreign competition. Up to 5 marks for why it should: The industries might be infant industries (1) not able to take full advantage of scale (1) and so not able to compete on price (1). The industries may be declining industries (1) if they go out of business quickly, unemployment may increase (1). The industries may be facing dumping (1) which will make it difficult for firms to compete against foreign producers selling at below cost price (1). The government may want to reduce a current account deficit (1) caused by imports exceeding exports (1) encourage economic growth (1) create more jobs (1). Up to 5 marks for why it should not: It may push up the price of imported products if tariffs are used (1) costs of production may rise (1) causing inflation (1) consumers’ purchasing power would fall (1). It may reduce competition for domestic firms (1) this may reduce efficiency (1) raise prices (1) reduce quality (1). Other countries may retaliate (1) reduce exports (1). Opportunity cost (1) e.g. resources could be used to support education / healthcare / infrastructure (1). Free trade may result in lower prices (1) greater variety for consumers (1). 8 Do not accept descriptions of the types of protection measures.

This question in 0455/21 May/June 2019

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

30 marks

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

This question in 0455/22 May/June 2019

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

20 marks

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

This question in 0455/22 May/June 2019

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

20 marks

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

This question in 0455/23 May/June 2019

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

30 marks

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

This question in 0455/21 Oct/Nov 2019

6 A local manufacturer of medicines (pharmaceuticals) in Nigeria wants to expand which will increase the contribution of this industry to the Gross Domestic Product (GDP) of the country. This firm’s expansion may enable Nigeria to reduce its dependence on imports of medicines and may make medicines more affordable. To ensure success, however, the firm will need to increase its investment in research and development. (a) Define Gross Domestic Product (GDP). [2] (b) Explain two ways in which more affordable medicines can improve standards of living. [4] (c) Analyse how investment in research and development (R&D) can help a firm to grow in size. [6] (d) Discuss whether or not a reduction in imports is beneficial to an economy. [8]

20 marks

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

This question in 0455/21 Oct/Nov 2019

6 The Indian government subsidises the country’s exports of cotton textiles. The USA, the largest buyer of Indian cotton textiles, benefited from this. India planned to stop the subsidy by 2019. This was welcomed by other cotton textile exporters. The USA may not be much affected, in part, because income usually rises in the country. The value of the Indian rupee against the US dollar was relatively stable in this period but rose slightly in mid-2017. (a) Identify the difference between an export and an import. [2] (b) Explain how a rise in the income of its main trading partners may affect a country’s trade in goods balance. [4] (c) Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate. [6] (d) Discuss whether or not a government should subsidise its exports. [8]

20 marks

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

This question in 0455/22 Oct/Nov 2019

7 In 2016, France had a trade in services deficit. France is a rich, developed country with a high standard of living. The country is, however, facing several challenges including population problems. Also, after elections in 2017, politicians and economists debated whether the country should try to move towards freer international trade. (a) Define a trade in services deficit. [2] (b) Explain two population problems a rich, developed country may experience. [4] (c) Analyse how a move to freer international trade may benefit a country’s producers. [6] (d) Discuss whether or not the standard of living is higher in developed countries than in developing countries. [8]

20 marks

Mark scheme: 7(a) Define a trade in services deficit. • Imports of services being greater than exports of services (2). • A deficit on a section of the balance of payments (1). 2 7(b) Explain two population problems a rich, developed country may experience. • an ageing population (1) due to a falling death rate and birth rate / increasing dependency / increasing the cost of healthcare and/or pensions (1). • A decreasing population (1) a declining labour force (1) due to a falling birth rate / increasing dependency (1). • net immigration (1) putting pressure on schools/hospitals/housing (1). 4 7(c) Analyse how a move to freer international trade may benefit a country’s producers. • With lower tariffs (1) their exports will be cheaper (1) the volume of exports will not be restricted by quotas (1). • If producers are efficient (1) they will sell more abroad (1). • Producers will be able to buy imported raw materials more cheaply (1) this will reduce their costs of production (1) increase their profits (1). 6 Question Answer Marks Guidance 7(d) Discuss whether or not the standard of living is higher in developed countries than in developing countries. Up to 5 marks for why it might be: • Higher average income (1) enabling people to buy more goods and services (1) spend money on healthcare (1) education (1) enabling people to live longer / be more productive (1). • Government tax revenue is likely to be higher (1) enabling the government to spend more on e.g. pensions, healthcare (1). Up to 5 marks for why it might not be: • Some people’s living standards in developed countries are low/some people’s living standards in developing countries are high (1) income is not evenly distributed (1). • Working hours in some developed countries are high (1) leading to stress (1) less leisure time (1). • Environmental conditions are better in some developing countries (1) with less pollution (1). 8 Reward answers from the opposite perspective - developing countries have a lower standard of living than developed countries.

This question in 0455/23 Oct/Nov 2019

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

30 marks

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

This question in 0455/22 Feb/March 2020

3 There is a smaller proportion of large firms in Africa than in Asia. The two African countries with the largest firms are Nigeria and South Africa. These two countries’ firms have more capital goods than most other African countries’ firms. Firms in South Africa produce a range of products including gold and petrochemicals. In recent years, a number of African firms have developed into multinational companies (MNCs), producing mainly in other African countries. (a) Define a capital good. [2] (b) Explain two challenges facing small firms. [4] (c) Analyse, using a demand and supply diagram, how a rise in income may affect the market for gold. [6] (d) Discuss whether or not MNCs increase production and productivity in their host countries. [8]

20 marks

Mark scheme: 3(a) Define a capital good. 2 Human-made good (1) used in production/used to produce other goods and services (1). 3(b) Explain two challenges facing small firms. 4 Logical explanation which might include: Lack of finance/difficulty raising finance (1) banks may be more reluctant to lend to small firms (1). May not be able to take advantage of economies of scale (1) may have higher average cost (1). Not well known (1) difficult to attract consumers (1). May face fierce competition from large firms (1) which may lower their prices/spend more on advertising (1). Risk of failure (1) due to inexperience of owners (1). 3(c) Analyse, using a demand and supply diagram, how a rise in income 6 may affect the market for gold. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Demand curve shifted to the right (1). Equilibriums – shown by lines P1, P2/Q1, Q2 or marking the equilibrium points E1 and E2 (1). Up to 2 marks for logical analysis: An increase in income will increase people’s ability to buy gold/raise purchasing power (1). Price will rise/quantity traded will rise (1). 3(d) Discuss whether or not MNCs increase production and productivity in 8 their host countries. In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes use of economic 3–5 information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why they might: • may have high demand for their products • may create demand for raw materials from domestic firms • may bring new technology and working practices into the countries • may train workers • may pay higher wages which may motivate workers. Why it might not: • may drive some domestic firms of business • may deplete natural resources, reducing output in the future • may have long/unsociable working hours • may generate external costs including pollution which may reduce the health of workers. Limit to level 2 if only production or productivity is considered.

This question in 0455/21 May/June 2020

1 (a) Calculate Pakistan’s trade in goods balance in 2017. [1] (b) Identify two possible causes of demand-pull inflation in Pakistan in 2017. [2] (c) Explain the opportunity cost to Pakistan of producing consumer goods. [2] (d) Explain two reasons why education is a merit good. [4] (e) Analyse why the children of poor families tend to receive less education than the children of rich families. [4] (f) Analyse the relationship between GDP per head and imports per head. [5] (g) Discuss whether or not the supply of teachers in Pakistan is likely to increase in the future. [6] (h) Discuss whether or not an increase in its import tariffs would be likely to benefit the Pakistani economy. [6]

30 marks

Mark scheme: Question Answer Marks 1(a) Calculate Pakistan’s trade in goods balance in 2017. 1 –$36.5bn (1). 1(b) Identify two possible causes of demand-pull inflation in Pakistan in 2 2017. Any two from: Higher government spending (1) higher consumer spending / rising population (1) increased investment (1). 1(c) Explain the opportunity cost to Pakistan of producing consumer 2 goods. Logical explanation which might include: Capital goods (1) resources that could have been used to produce capital goods are being used to produce consumer goods / (next) best alternative forgone (1). 1(d) Explain two reasons why education is a merit good. 4 Logical explanation which might include: People underestimate full benefit / private benefit (1) not appreciating health and job opportunity benefits (1). People not taking into account external benefits (1) e.g. better quality products/larger quantity of products or economic growth (1). 1(e) Analyse why the children of poor families tend to receive less 4 education than the children of rich families. Coherent analysis which might include: The children of the poor may not attend school (1) they may have to work (1) to help support their families (1). Poor families are likely to have difficulty paying to have their children educated (1) some schools in Pakistan are in the private sector (1) there seems to be a lack of low-cost schools (1). The children of the poor may leave school at a younger age (1) may miss more school days due to ill health (1). 1(f) Analyse the relationship between GDP per head and imports per head. 5 Coherent analysis which might include: Generally the countries with the highest GDP per head spend the most per head on imports (1) examples e.g. Norway has the highest income per head and the highest spending on imports per head and Haiti has the lowest income and the lowest spending on imports (up to 2) exception: Russia has a higher income per head than Mexico but a lower spending per head on imports (1). Expected relationship as income rises (1) people can afford more imports (1). The four countries with above average GDP per head spend above the global average on imports (1). The two countries with below average GDP per head spend more on imports (1). 1(g) Discuss whether or not the supply of teachers in Pakistan is likely to 6 increase in the future. Generic example mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. 0 reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on 1 subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why it might, which may include: • education standards may rise (1) which may increase those qualified to be teachers (1) • working conditions may improve (1) with better buildings (1) • population is increasing (1) which may increase the size of the labour force (1). Award up to 4 marks for logical reasons why it might not, which may include: • wages may not rise (1) teachers may switch to other jobs (1) • teachers may emigrate to other countries (1) • the qualifications required to be a teacher may increase (1) by more than educational standards rise (1). 1(h) Discuss whether or not an increase in its import tariffs would be likely 6 to benefit the Pakistani economy. Award up to 4 marks for logical reasons why it might, which may include: • may reduce the trade deficit (1) by reducing demand for imports (1) • tax revenue may increase (1) enabling the government to increase its spending (1) • may help protect infant industries (1) until they can take advantage of economies of scale (1). Award up to 4 marks for logical reasons why it might not, which may include: • demand for some finished imports may be price inelastic (1) • demand for capital goods / raw materials may be inelastic (1) • incomes may rise (1), leading to higher spending on imports (1) • other countries may impose trade restrictions (1) reducing Pakistan’s ability to export (1).

This question in 0455/22 May/June 2020

3 Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many multinational companies (MNCs) to produce in Ireland. Other reasons why firms want to produce in Ireland include access to freer trade with other European countries, higher labour productivity and government grants. (a) State two benefits of free trade. [2] (b) Explain two reasons why governments levy taxes. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the impact of higher labour productivity on an economy. [6] (d) Discuss whether or not MNCs always benefit their host countries. [8]

20 marks

Mark scheme: 3(a) State two benefits of free trade. 2 Any two from: Increase choices, more competition, lower prices, more specialisation 3(b) Explain two reasons why governments levy taxes. 4 Logical explanation which might include: To be able to fund government spending (1) types of government spending (1) to improve standards of living (1). To be able to control inflation (1) fiscal policy (1) reducing total demand (1). To reduce inequality (1) tax the rich and help the poor (1). To discourage the consumption of demerit good (1), to improve allocation of resources / reduce external cost (1) to change external costs to private costs (1) e.g. reduce pollution (1). To reduce imports (1) to protect home producers (1). 3(c) Analyse, using a production possibility curve (PPC) diagram, the 6 impact of higher labour productivity on an economy. Up to 4 marks for the diagram: Axes correctly drawn (1) Initial curve or line sloping downward drawn to the axes (1) New curve or line sloping downward drawn to the axes (1) Shift to the right indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Higher labour productivity will increase output per worker (1) increase productive capacity (1). 3(d) Discuss whether or not MNCs always benefit their host countries. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes use of economic 3–5 information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why they might: • bring in more investment • increase total demand and economic growth • provide more employment opportunities • bring in more foreign capital and more advanced machinery. Why they might not: • MNCs might exploit local workers, pay low wages / provide low quality working environments • most profits of MNCs not reinvested back into the domestic economy but brought back to home country • big MNCs may meddle with domestic policy making.

This question in 0455/23 May/June 2020

4 South east Asian countries have reduced tariffs between themselves through the ASEAN Free Trade Agreement. ASEAN member countries are also removing non-tariff methods of protection. The intention is to raise economic growth through more international trade. This should enable small and medium-sized firms in ASEAN countries to grow and increase their exports. (a) Define tariffs. [2] (b) Explain two non-tariff methods of protection. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the beneficial effects for a country of the growth of its small and medium-sized firms. [6] (d) Discuss whether or not increased international trade can promote economic growth. [8]

20 marks

Mark scheme: 4(a) Define tariffs. Tariffs are a tax (1) on imports/exports (1) which increase the price of imported/exported goods (1). 2 4(b) Explain two non-tariff methods of protection. Logical explanation which might include: Quotas (1) quantitative restriction on the amount of imports that can enter a country (1). Subsidies (1) grants given to domestic firms to reduce domestic cost of production and reduce demand for imported goods (1). Embargoes (1) total restriction on a certain product from a certain country (1). 4 Also accept other non-tariff barriers such as rules and regulations, exchange controls, etc. One mark for each of two reasons identified and one mark for each of two explanations. 4(c) Analyse, using a production possibility curve (PPC) diagram, the beneficial effects for a country of the growth of its small and medium-sized firms. Up to 4 marks for the diagram: Axes correctly labelled (1). Initial curve drawn as a curve or downward sloping line to the axes (1). New curve drawn as a curve or downward sloping line to the axes (1). Shift to the right indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: The growth of its small and medium-sized firms will lead to an increase in the number of firms in the economy (1) this will increase productive potential / increase productive capacity / cause economic growth (1). 6 Also accept a tilt outward of the new PPC curve. Question Answer Marks Guidance 4(d) Discuss whether or not increased international trade can promote economic growth. In assessing each answer, use the table opposite. Why it may: • increase size of the market for domestically produced goods, increase exports, increase total demand • firms can specialise and achieve economies of scale, decrease cost of production, increase demand for goods and services produced domestically • increase competitive pressure (1) making firms more efficient (1) • increase access to products not available domestically, e.g. raw materials to produce other goods, increase output of an economy (1). Why it may not: • Increase amount of imports, decrease total demand of the economy • domestic firms may not be able to compete causing less revenue, less profits, more unemployment, • may result in shortages of e.g. rice in the domestic market • make the economy more subject to sudden changes in demand and supply. 8 Level Descriptors Mark 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0 Question Answer Marks Guidance 4(d) Example of L2 answer: Increased international trade may not benefit a country because the country may be in a trade deficit as the cost of a country’s imports exceed the total value of its exports. Consumers may purchase more goods and services from abroad than from domestic firms which may reduce economic growth as they make less profit. The value of the currency may fall eventually because more goods and services are being imported instead of exported. Principal Examiner comment: Limited on one side.

This question in 0455/21 Oct/Nov 2020

2 Mexico has a history of trade deficits. The government is moving the economy closer to free trade, to try to improve its macroeconomic performance. It was predicted in 2017 that Mexico’s economy would experience a small rise in its unemployment rate. In 2017 the economy’s inflation rate was 6.6%, the highest rate since 2001. A number of policy measures may be used to reduce inflation, including increasing the rate of income tax. (a) Define trade in goods balance. [2] (b) Explain two benefits producers may gain from free trade. [4] (c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. [6] (d) Discuss whether or not an increase in the rate of income tax will reduce inflation. [8]

20 marks

Mark scheme: 2(a) Define trade in goods balance. Value of exports of goods / revenue earned from exports minus value of imports of goods / expenditure on imports of goods (2). Exports minus imports (1) of goods / visible items (1). 2 Accept exports (of goods) = imports of (goods) for 1 mark 2(b) Explain two benefits producers may gain from free trade. Logical explanation which might include: Availability of larger/global market (1) may increase revenue/profit (1). Ability to produce on a larger scale / higher output (1) take advantage of economies of scale (1) specialise (1). Access to cheaper / better quality raw materials / raw materials without tariffs imposed on them (1) lowering costs of production/raising quality of products produced/lowering price (1). Access to advanced technology/ideas from abroad (1) resulting in improved methods of production/new products (1). Increased competitive pressure (1) which may raise efficiency (1). 4 One mark for each of two benefits identified and one mark for each of two explanations. Question Answer Marks Guidance 2(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in unemployment on an economy. Up to 4 marks for the diagram: Axes correctly labelled (1). Curve drawn as a curve or downward sloping line to the axes (1). Two production points shown – one on or to left of PPC and the other further to the left of the PPC (1). Movement of the production point inwards indicated by arrow or lettering (1). Up to 2 marks for coherent analysis which might include: Unemployment means resources are not used (1) there is inefficiency (1) reduces output/GDP / causes a recession (1). 6 For analysis, only accept a PPC shifted inwards if logical justification is given i.e. an increase in unemployment may cause some workers to leave the labour force – ‘unemployment causing unemployment’. capital goods O consumer goods A B Question Answer Marks Guidance 2(d) Discuss whether or not an increase in the rate of income tax will reduce inflation. In assessing each answer, use the table opposite. Why it might: • reduce disposable income/purchasing power • consumer expenditure likely to fall • investment may fall • total (aggregate) demand may fall • demand-pull inflation may decrease • higher government revenue may increase government spending on supply-side policy measures. Why it might not: • workers may seek higher wages • higher wages may increase costs of production • cost-push inflation/wage-price spiral may occur • higher tax revenue may increase government spending • higher government spending may offset lower consumer expenditure leaving total (aggregate) demand unchanged • people may be very confident about the future so they cut back on savings rather than spending. 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 2(d) Example of L3 answer: Due to an increase in the rate of income tax, inflation may fall as disposable income will fall. People will have less money to spend so they may spend less and total demand will fall. A fall in demand will cause prices to fall as producers will not be able to sell as many goods and services. They will want to keep their market share. Demand-pull inflation will decrease. However, an increase in income tax may not cause inflation to fall. Workers may force up the wage rate. Firms’ labour cost and costs of production will increase so firms may push up prices to maintain profits. This can cause cost-push inflation and a wage price spiral. Plus, government revenue from high taxes will rise and government spending may rise. This may offset the fall in consumer expenditure and inflation may not fall. Principal Examiner comment: Strong on both sides. Example of L1 answer: Inflation refers to the fall in the purchasing power of money. Income tax is a payment to the government. The increase in direct tax will definitely help the government. This may help the government solve the problem of inflation and will increase the purchasing power of money. Principal Examiner comment: Definitions given but the answer does not explain why inflation may, or may not, be reduced.

This question in 0455/22 Oct/Nov 2020

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

30 marks

Mark scheme: 1(a) Calculate the number of Germans aged over 65 in 2017. 17.82m / 17 820 000 (1). 1 Accept 17.8 m and 18 m. 1(b) Identify two measures of living standards. Two from: • GDP per head / average income • HDI • quality of education / education 2 If more than two are given, consider the first two. 1(c) Explain one cause of globalisation. Fall in transport costs (1) reducing costs of exporting and importing / increasing international trade (1). Improvement in communications (1) due to advances in technology / increasing growth in MNCs / encouraging consumers to buy from other countries / enabling branches in different countries to keep in touch (1). 2 One mark for the cause identified and one mark for the explanation. 1(d) Explain two advantages of an increase in the occupational mobility of labour. Logical explanation which might include: Lower unemployment / increase employment (1) workers losing one job will find another job more quickly / find another job more easily / maybe more skilled / reduce frictional unemployment / reduce structural unemployment (1). Higher output / higher GDP / economic growth (1) firms experiencing higher demand will be able to expand more quickly / more elastic supply / quicker adjustment to changes in market conditions / workers may be able to multitask / change roles / may be more skilled / fewer unfilled vacancies / greater use of resources / fewer idle resources (1). 4 One mark each for each of two advantages identified and one mark each for each of two explanations. Do not credit ‘more skilled’ more than once. Question Answer Marks Guidance 1(e) Analyse why the price of German luxury cars may have increased in 2018. Coherent analysis which might include: Increase in demand (1) rise in incomes (1) people buy more luxury cars as they get richer / luxury cars become more affordable (1). rise in price of US luxury cars (1) these are substitutes to German luxury cars (1). Fall in the price of petrol / gas (1) petrol / gas is a complement to cars (1) firms can raise revenue / profits by increasing price (1). Decrease in supply (1) rise in wages (1) increasing costs of production (1). 4 Question Answer Marks Guidance 1(f) Analyse whether the strength of German trade unions increased from 2013–2016. Coherent analysis which might include: Overview Trade union membership fell (1) unemployment fell and / or wages rose (1). Analysis of why trade union strength may have fallen Trade union members represented a smaller proportion of labour force / proportion fell from 42.7% to 39.3% / number of members fell by approx. 5.6% (1). Fewer members so funds of / subscriptions to trade unions may have fallen (1) reduces ability to take industrial action / reduces collective bargaining strength (1). Lower unemployment / higher wages may mean workers feel less need to join a union (1). Analysis of why trade union strength may have increased Lower unemployment / higher wages may be the result of successful collective bargaining (1) firms would have found it more difficult to replace members asking for better wages / better working conditions / firms may be reluctant to dismiss staff (1) industrial action would have more effect / collective bargaining power may be stronger (1). Output / profits / demand for products may have increased (1) Comments. Other factors may have influenced trade union power e.g. government trade union legislation (1). Other factors may have influenced wages / unemployment e.g. national minimum wage / higher output /more skilled labour force (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an ageing labour force will reduce productivity. Award up to 4 marks for why it might: • May discourage investment (1) workers will have less capital equipment to work with (1). • Older workers may find it more difficult to adapt to new technology (1) may resist change (1) there may not be the time to train them (1) may be less mobile (1). • Older workers may be less fit (1) less able to do manual work (1) may have time off sick (1) may have less energy / get tired (1) work slower (1). Award up to 4 marks for why it might not: • May encourage investment because of shortage of workers / desire to rely less on labour / help workers (1). • Older workers may have more experience (1) built up more skills / qualifications (1) may need less training / have received more training (1) may train young workers (1) make fewer mistakes / produce better quality output (1). • May be more reliable (1) e.g. better punctuality (1). • May stay with the employer longer / lower rate of labour turnover (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Mark Tax revenue may decrease… 1 ...because of reason e.g. incomes may be lower. 1 Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. 0 Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. 1 Question Answer Marks Guidance 1(h) Discuss whether or not immigration will increase a country’s budget surplus. Award up to 4 marks for reasons why it might: • May increase size of the labour force (1) quality of the labour force may rise (1) employment may rise (1) more people with incomes (1) higher tax revenue (1) more income tax / direct tax revenue (1) more spending / higher total demand (1) more indirect tax revenue (1) higher profits may increase corporate tax revenue (1). Award up to 4 marks for reasons why it might not: • Some immigrants may be dependents (1) some may be unemployed (1) increase government spending on state benefits / unemployment benefits (1) pensions (1). • The government may have to spend more on education (1) healthcare (1) housing / infrastructure (1). • Labour force / population may not increase if matched by emigration (1), • Larger population size may result in the government having to spend more on measures to reduce pollution (1). 6 Increase in the size of the labour force linked to why it might.

This question in 0455/22 Feb/March 2021

1 (a) Calculate the value of Nigeria’s exports of goods in 2017. [1] (b) Identify two examples of capital goods. [2] (c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. [2] (d) Explain how government spending on training may increase tax revenue in the long run. [4] (e) Analyse how living standards in Nigeria compare with living standards in Ethiopia in 2017. [4] (f) Analyse how a government could encourage firms to increase their investment. [5] (g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. [6] (h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. [6]

30 marks

Mark scheme: 1(a) Calculate the value of Nigeria’s exports of goods in 2017. $43.1bn 1 $ is not essential. 1(b) Identify two examples of capital goods. Two from: • [delivery] vehicles • machines • [office] equipment 2 1(c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. • budget deficit (1) • government spending exceeded tax revenue (1) • government spending was $19.5bn and tax revenue was $12.9bn (1) 2 1(d) Explain how government spending on training may increase tax revenue in the long run. Logical explanation which might include: • Training may increase skills of workers (1) raise productivity (1) raise wages / incomes (1) increase job opportunities / employment / reduce unemployment (1) increase income tax revenue (1). • Higher wages may increase spending / demand (1) increase indirect tax revenue (1). • A more productive labour force may reduce costs of production (1) raise profits (1) increase corporation tax revenue (1). 4 Question Answer Marks Guidance 1(e) Analyse how living standards in Nigeria compare with the living standards in Ethiopia in 2017. Coherent analysis which might include: • Nigeria’s higher GDP per head (income) (1) suggests Nigerians may have been able to enjoy more goods and services (1). • Nigeria has a lower life expectancy (1) suggesting poorer healthcare (1). • Nigeria has a higher average number of years spent at school (1) suggesting the labour force may be more educated (1). • Nigeria has a higher percentage of underweight five-year olds (1) suggesting poor nutrition / income inequality (1). • Overall comment: Nigeria’s income per head and average years spent at school suggests a higher living standard but life expectancy and percentage of five years underweight suggests a lower living standard (1). 4 Question Answer Marks Guidance 1(f) Analyse how a government could encourage firms to increase their investment. Coherent analysis which might include: • Reduce the rate of interest (1) making it cheaper to borrow (1) encouraging borrowing as consumer spending is likely to rise (1). • Lower corporation tax (1) increasing the funds available to invest (1) increasing the incentive to invest as return from investment would rise (1). • Create greater economic certainty / confidence (1) by e.g. keeping inflation low and stable / not changing government spending and taxation frequently (1) making it easier for firms to plan / it can take time to get a return from investment (1). • Provide subsidies/grants/loans (1) decreasing cost of investments (1) encouraging MNCs (1). • Raise tariffs (1) increasing demand for home produced goods (1). • Less government regulation/policies (1) reduces costs for firms (1) more willing to invest (1). 5 Question Answer Marks Guidance 1(g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. Award up to 4 marks for why it might: • Fall in death rate (1) may indicate improved healthcare (1). • Total (aggregate) demand will increase (1) may enable existing firms to expand / increase output (1) new firms to set up (1) attract MNCs (1). • Labour force may increase (1) causing total (aggregate) supply to increase / raise productive capacity (1) increase output / GDP (1). • May move country towards optimum population (1) if there are unused resources (1). • Net immigration will increase labour force (1) and reduce dependency ratio (1) • More tax revenue (1) can be spent on improving e.g., public services (1). Award up to 4 marks for why it might not: • Birth rate is rising (1) will increase dependency (1) resources which may have increased economic growth may have to be devoted to rearing the children (1). • Labour force may fall in the short run (1) to look after the children (1). • Pressure will be put on the environment (1) there may be more pollution (1) causing overcrowding / poor health (1). • If food output cannot be increased (1) may be more malnourishment/famine / poverty (1) more food is required / food may have to be imported (1) food prices may increase (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) • Population is rising but age structure may be changing (1) as there is net emigration of young people (1) may result in reduction in labour force (1). • [Opportunity] cost for government (1) which has to spend on health/education rather than infrastructure (1). • Increase in output to meet demand (1) results in faster usage of resources in country (1) and shortages (1). Question Answer Marks Guidance 1(h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output of Nigerian rice. Award up to 4 marks for why it might: • A higher tariff may raise the price of imported rice (1) may reduce demand for / consumption of imported rice (1) may cause Nigerians to demand more home- produced rice as it is cheaper (1) effect would be greater, the greater the elasticity of demand for the import of rice (1) may enable Nigerian rice farmers to raise their price / make more profit (1). • A tariff may raise government tax revenue (1) some of this could be used to subsidise Nigerian rice farmers / modernise farming methods and so raise productivity (1). Award up to 4 marks for why it might not: • Nigerian farmers are less productive than Asian competitors (1) have high(er) costs of production (1) Nigerian price may still be higher even with the higher import tariff (1). • The supply of Nigerian rice may be price-inelastic (1) so even if Nigerian farmers could sell their rice for more, they may have difficulties adjusting supply (1). • More Nigerian rice will not be sold if quality is poor (1) consumers my prefer the varieties of rice produced in other countries (1) other countries retaliate by imposing higher tariffs (1) current account surplus may be reduced (1). • Increase in import tariffs may be small (1) making little difference to import prices and consumption (1). • Not enough resources/ factors of production e.g., farmers (1) to produce more rice in Nigeria (1). 6

This question in 0455/21 May/June 2021

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

20 marks

Mark scheme: 4(a) Define birth rate. The number of births per thousand of the population (1) in a year (1) live births (1) 2 Not sufficient to have just number of births. 4(b) Explain two causes of an increase in the quality of labour in a country. Logical explanation which might include: Improvements in education (1) qualifications / knowledge (1). Improvements in training (1) increasing skills (1). Improvements in healthcare (1) making workers physically/mentally stronger (1). Increases in pay (1) raising motivation (1). Improvements in nutrition (1) enabling workers to work harder / concentrate more (1). Reduction in working hours / length of working day (1) keeping workers fresher / enabling them to concentrate more (1). Improvements in working conditions (1) raising motivation / enabling workers to work harder / concentrate more (1) Immigration (1) of skilled workers (1). Experience (1) becoming more familiar with tasks (1). Specialisation (1) become more familiar with one task / ‘practice makes perfect’ (1). 4 One mark each for each of two causes identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a rise in the interest rate could cause a recession. Coherent analysis which might include: A higher interest rate would increase the cost of borrowing (1) reduce borrowing (1) reduce the spending power of people who have borrowed in the past (1) increase saving (1) consumer expenditure / spending may fall (1) investment may fall / may discourage MNCs (1) unemployment may increase / employment may fall (1) total demand may fall (1) the output of goods and services / GDP may fall (1) if output falls over a period of two quarters / six months there will be a recession (1). A higher interest rate may encourage more people to buy the currency (1) to put money into the country’s financial institutions (1) raising the value of the foreign exchange rate (1) raising the price of exports (1) lowering demand for exports (1) reducing the price of imports (1) increasing demand for imports (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not MNCs improve the economic performance of the host countries in which they operate. In assessing each answer, use the table opposite. Why they might: • may bring in new technology and methods of production, increasing economic growth • may create new jobs, may reduce unemployment • may add to exports, reducing a current account deficit / increasing a current account surplus • may create more competition / have greater efficiency, lowering inflation • may increase tax revenue, enabling the government to spend more on e.g. education and healthcare Why they might not: • may drive out domestic producers, leaving the country’s output unchanged • may employ workers from their home country • may import capital equipment and raw materials from their home countries • may deplete non-renewable resources, reducing sustainable economic growth • may provide only low-skilled, low-paid jobs to locals • send profits back to home country • may cause external costs e.g. pollution 8 Help avoid a recession = one relevant identification. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 May/June 2021

1 (a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. [1] (b) Identify two macroeconomic aims, other than balance of payments stability, that the Moroccan government could achieve through the blue economy. [2] (c) Explain why an increase in the global demand for fish could reduce a deficit in Morocco’s current account of its balance of payment. [2] (d) Explain two causes of poverty amongst fishermen. [4] (e) Analyse whether GDP per head always increases when the percentage (%) contribution of the primary sector increases. [4] (f) Analyse how regulation of fishing could ensure economic growth is sustained for future generations. [5] (g) Discuss whether or not subsidies to fishermen could help the Moroccan economy. [6] (h) Discuss whether or not a reduction in trade protection by other African countries would be beneficial for Morocco. [6]

30 marks

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

This question in 0455/23 May/June 2021

1 (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 to seaports may benefit an economy. [2] (d) Explain two benefits of the free market reforms introduced by the government of Laos. [4] (e) Analyse the impact of improved education on the economy of Laos. [4] (f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP per head. [5] (g) Discuss whether or not strict rules and regulations benefit an economy. [6] (h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of Laos. [6]

30 marks

Mark scheme: 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

This question in 0455/21 Oct/Nov 2021

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

20 marks

Mark scheme: 4(a) Identify two benefits of free trade. Two from: • higher output/growth • higher income/living standards • more employment/more jobs • more choice/access to other markets • lower price • greater ability to take advantage of economies of scale/greater efficiency/specialisation • drives competition • better quality goods • stronger global co-operation 2 Question Answer Marks Guidance 4(b) Explain two differences between a floating foreign exchange rate and a fixed foreign exchange rate. Logical explanation which might include: A floating exchange rate is determined by market forces (1) a fixed exchange rate is set by the government/central bank (1). A floating exchange rate can change on a day-to-day basis (1) whereas a fixed exchange does not often change in value (1). A rise in the value of floating exchange rate is an appreciation / a fall in the value of a floating exchange rate is a depreciation (1) a rise in the value of a fixed exchange rate is a revaluation/a fall in value of a fixed exchange rate is a devaluation (1). A floating exchange rate does not require a central bank to buy and sell the currency (1) a fixed exchange rate needs reserves of foreign currency to maintain it (1). 4 One mark each for each of two differences identified and one mark each for each of two explanations. Question Answer Marks Guidance 4(c) Analyse how a change in the pattern of employment in a country may change its average wage. Coherent analysis which might include: A higher proportion of skilled workers (1) due to better education/training (1) will raise the average wage/skilled workers tend to be highly paid (1). An increase in proportion of workers in the tertiary sector/smaller proportion of workers in the primary sector (1) example of industry/as economy develops there tends to be more workers in the tertiary sector/fewer in the primary sector (1) will tend to increase the average wage (1). A greater proportion of women workers (1) change in social attitudes/anti-discrimination legislation (1) may increase the average wage (1). A higher proportion of workers in the public sector (1) may be better training / may be more fringe benefits/may be more job security (1) may increase/reduce the average wage (1). A larger proportion of workers in the formal economy (1) more likely to be represented by a trade union/will have legal rights (1) may increase the average wage. Age (1) older workers may be more experienced/in promoted posts (1) may be better paid (1). 6 Allow up to 3 marks for why wages may change due to changes in demand and supply with reference to a particular industry. Note: answers must address a change in pattern of employment Question Answer Marks Guidance 4(d) Discuss whether or not a government should stop firms merging. In assessing each answer, use the table opposite. Why it should: • will have greater market share • may abuse greater market power • may become complacent • consumers may experience higher prices and lower quality • may engage in rationalisation • may increase unemployment • may experience diseconomies of scale Why it should not: • may innovate more • may provide consumers with lower prices and higher quality • may be more international competitive • may improve current account position • may increase economic growth • may experience economies of scale 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Question Answer Marks Guidance 4(d) Level Description Marks 1 There is a simple attempt at u sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/23 Oct/Nov 2021

2 South Africa (SA) experienced a recession in the second half of 2019 and an unemployment rate of 29%. Only a small proportion of this unemployment was frictional. South Africa’s foreign exchange rate fell from 1 SA rand = US$0.08 in 2018 to 1 SA rand = US$0.06 in 2019. South Africa had reduced import tariffs, but in 2019 some South African economists suggested tariffs should be used to protect its infant industries. (a) Define frictional unemployment. [2] (b) Explain why an infant industry may need protection. [4] (c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. [6] (d) Discuss whether or not a reduction in income tax will end a recession. [8]

20 marks

Mark scheme: 2(a) Define frictional unemployment. Workers in between jobs / caused by a delay between workers moving from one job to another job (1) temporary / short term unemployment (1) Seasonal / casual / search / voluntary unemployment (1) Unemployment that exists when there is full employment (1). 2 2(b) Explain why an infant industry may need protection. Logical explanation which might include: New industries (1) need time/potential to grow / to survive / to establish themselves / to build up a reputation / lack resources (1) need time to take advantage of economies of scale / may be competing with foreign firms which are more able to take advantage of economies of scale (1) economies of scale lower costs / foreign firms may have lower costs (1). Lower costs may reduce price the infant industry can charge (1) make the infant industry more competitive / be able to compete / foreign firms may be more competitive / foreign firms may drive the infant industry out of business (1). The growth of infant industry may increase employment / elimination may increase unemployment (1) growth of infant industry may reduce imports/increase exports/promote domestic products / elimination of infant industry may increase imports/reduce exports (1) growth of infant industry may increase economic growth / elimination of infant industry may reduce economic growth (1). 4 Question Answer Marks Guidance 2(c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: Deficit occurs when debit items including imports on the current account of the balance of payments exceed credit items including exports (1). Fall in the exchange rate would reduce price/value of the currency / depreciation/devaluation has occurred (1) this would reduce the price of exports (1) increase price of imports (1) make exports more competitive / imports less competitive (1) demand for exports is likely to rise / exports increase (1) increase export revenue / money flowing into the country (1) demand for imports is likely to fall / imports reduce / switch from imports to domestically produced products (1) reduce import expenditure / reduce money flowing out of the country (1) increase net exports (1) if demand is price-elastic (1). Value of remittances/money sent home may rise (1) increasing secondary income (1). 6 Accept imports exceed exports for understanding of a deficit on the current account of the balance of payments for the first mark. Question Answer Marks Guidance 2(d) Discuss whether or not a reduction in income tax will end a recession. In assessing each answer, use the table opposite. Why it might: • increase disposable income • increase consumer expenditure • increase investment (spending on capital goods) • increase total (aggregate) demand • increase employment • raise GDP. Why it might not: • lack of confidence • people save more • more could be sold from stocks / inventory • workers may work fewer hours keeping disposable income unchanged • people may spend more on imports • people may still delay spending if prices are falling • may reduce tax revenue and government spending on e.g. education. 8 Accept a discussion of a cut in personal income tax and/or corporate income tax. Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 2(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 Feb/March 2022

4 The South Korean government thinks that Japan is dumping steel. South Korean firms trade with, and produce in, other countries. Some South Korean multinational companies (MNCs) claim to reduce poverty in their host countries. In 2019, South Korean firms were affected by a depreciation in South Korea’s foreign exchange rate. Some firms also experienced a shortage of workers, which was influenced by the country’s very low birth rate. (a) Define dumping. [2] (b) Explain two reasons why a country’s foreign exchange rate may depreciate. [4] (c) Analyse how a MNC could reduce poverty in a host country. [6] (d) Discuss whether or not a very low birth rate would be a cause for concern for a government. [8]

20 marks

Mark scheme: 4(a) Define dumping. The sale of a product at less than cost price (1) in a foreign country (1) to gain a larger market share (1) to get rid of surplus stock / to prevent price falling on the domestic market (1). 2 Accept the sale of a product at a low price. 4(b) Explain two reasons why a country’s foreign exchange rate may depreciate. Logical explanation which might include: Inflation / fall in productivity (1) may make domestic products less internationally competitive / reducing net exports / reducing exports / increasing imports (1). Income at home may rise (1) increasing demand for imports / diverting products from the home market (1). Incomes abroad may have fallen (1) reducing demand for exports (1). The rate of interest may have fallen (1) discouraging an inflow of funds from other countries / encouraging an outflow of funds to other countries (1). There may be speculation that the currency will fall in value (1) selling the currency before it falls in value (1) Inward foreign direct investment may fall / outward fdi may increase (1) due to changes in economic activity (1). A central bank/government may sell the currency (1) to increase exports / reduce imports / improve the balance of payments (1). Increase in supply of currency (could be shown by a diagram) (1). Decrease in demand for the currency (could be shown on a diagram) (1). 4 One mark for each of two reasons identified and one mark for each explanation. A common response may be an increase in the supply of the currency (1) to buy more imports (1); A decrease in demand for the currency (1) if less exports are sold (1). Total = 4. Question Answer Marks Guidance 4(c) Analyse how a MNC could reduce poverty in a host country. Coherent analysis which might include: A MNC could increase employment / create job opportunities (1) some of the unemployed could gain jobs / unemployment could fall (1). It may pay higher wages / incomes may rise (1) increasing workers’ ability to buy products / buy basic necessities (1). It may provide accommodation (1) and healthcare for workers (1). It may provide infrastructure (1) making e.g. transport/energy more affordable (1). It may provide training / invest in education (1) enabling people to earn higher wages in the long run (1). It may sell products at a cheaper price (1) enabling more goods and services to be purchased (1). It may pay taxes to the government / tax revenue may rise (1) enabling the government to spend on measures to reduce poverty (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not a very low birth rate would be a cause for concern for a government. In assessing each answer, use the table opposite. Why it might:  may create an ageing population  may reduce size of the labour force in the future  may increase dependency ratio  may reduce tax revenue  may take population below the optimum level. Why it might not:  may maintain the size of the labour force in the short run as parents do not have to leave the labour force  may reduce overcrowding  may reduce pollution  may reduce depletion of non-renewable resources. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 68 Question Answer Marks Guidance 4(d) 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 35 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 12 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 May/June 2022

2 Voralberg, a region in Austria, has the highest income and best healthcare of any region in Austria. It benefits from its short distance to Germany and Switzerland, and from the free trade between these countries. However, Voralberg hosts only a small number of foreign multinational companies (MNCs) and its inflation is higher than most areas in Europe. (a) Define free trade. [2] (b) Explain two possible causes of better healthcare. [4] (c) Analyse why few MNCs may choose to locate in a particular region. [6] (d) Discuss whether or not inflation is always a disadvantage to an economy. [8]

20 marks

Mark scheme: 2(a) Define free trade. Free trade is when countries export and import between each other / countries exchange goods and services (1) without any restrictions / protection (1) such as tariffs or quotas (1). 2(b) Explain two possible causes of better healthcare. Logical explanation which might include:  More government expenditure on healthcare (1) e.g. on hospitals / training / due to higher tax revenue (1)  Higher incomes (1) can spend more on healthcare (1)  Better / more hospitals (1) better quality service / less waiting time (1)  Better (health) training / education (1) more qualified / specialised / doctors (1)  Better medical technology (1) better machines / life-saving equipment (1)  Easier access to medicine (1) more affordable (1) 4 One mark for each of two causes identified and one mark for each explanation. Question Answer Marks Guidance 2(c) Analyse why few MNCs may choose to locate in a particular region. Coherent analysis which might include: The region may have higher cost of production / inflation (1) than other regions. e.g. higher cost of labour / land (1) reduces potential profit (1). May also be higher taxation e.g. corporation tax (1) which may reduce the incentive of an MNC to locate in the region (1). May be more regulations e.g. labour laws (1) which may make it more difficult for an MNC to locate in that region / which may increase costs (1). May be a lack of skilled workers (1) due to poor education (1) may reduce productivity (1). May be low/lack of demand (1) limiting the revenues and profitability of the MNC (1). May be a lack of subsidies (1) which would reduce the incentive of an MNC to locate in the region (1). May be a lack of resources e.g. raw materials, labour (1) Major competitors may have already located in that region (1) The region may have corrupt government(s) (1) causing political instability / war (1) It may be outside a free trade area, e.g. the EU (1) unable to gain benefits (1) 6 Accept answers that analyse why MNC's may choose to locate in a region (rather than few choosing to locate there). Question Answer Marks Guidance 2(d) Discuss, whether or not, inflation is always a disadvantage to an economy. In assessing each answer, use the table opposite. Why it might be a disadvantage:  lower purchasing power for consumers – lower standards of living  lower price competitiveness of exports – lower exports / high imports  higher cost of production – lower profits  lose value of savings and lenders lose value of lending  difficult for consumers, firms, and governments to plan for the future.  shoe leather costs, menu costs  may discourage investment as may be difficult to plan  those on fixed incomes may lose Why it might be an advantage:  borrowers may benefit – value of debt decreases  may encourage investment as may be cheaper to borrow  may be a sign that an economy is growing  may be demand-pull inflation – increasing firms’ revenue / employment  if inflation is low and stable – it is better than prices decreasing (deflation)  may be lower than other countries’ inflation rates 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 2(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/23 May/June 2022

3 Leading jewellery firms in Qatar and Ukraine have asked their governments to remove trade protection between them to increase trade in jewellery. The jewellery firms of Qatar and Ukraine produce unique products which are improving in quality. They believe that increased trade between the two countries will enable them to exploit internal economies of scale in jewellery production. (a) Identify two internal economies of scale. [2] (b) Explain two methods of protection in international trade. [4] (c) Analyse, using a demand and supply diagram, the effects of higher quality products on the market for jewellery. [6] (d) Discuss whether or not protection in international trade benefits an economy. [8]

20 marks

Mark scheme: 3(a) Identify two internal economies of scale. Purchasing / buying (1) managerial (1) technical (1) financial (1) risk-bearing (1) labour (1) marketing (1) 3(b) Explain two methods of protection in international trade. Logical explanation which might include:  tariffs (1) are taxes on imports / which would increase the price of imports (1)  import quotas (1) are quantitative limitations on imports / reducing supply of imports (1)  subsidies (1) are grants given to domestic producers (1) to reduce price of domestic products and exports / enable them to compete with foreign goods (1)  embargoes / bans (1) are total restrictions on a product from a country / total restrictions on particular products / usually for political / social reason (1) 4 One mark for each of two methods identified and one mark for each explanation. Question Answer Marks Guidance 3(c) Analyse, using a demand and supply diagram, the effects of higher quality products, on the market for jewellery. Up to 4 marks for the diagram: Axes correctly labelled – price and quantity or p and q (1) Original demand and supply curves correctly labelled (1) Demand curve shifts to the right (1) Equilibriums – shown by lines; P1, Q1 and P2, Q2; or equilibrium points E1 and E2 (1). Up to 2 marks for written comments: Higher quality products will encourage more people to buy jewellery (1) price / quantity will be higher (1). 6 Question Answer Marks Guidance 3(d) Discuss, whether or not, protection in international trade benefits an economy. In assessing each answer, use the table opposite. Why it might be a benefit:  reduce imports – reduce current account deficit  helps infant industries grow – increase competitiveness in the future  helps maintain sunset industries – ensures employment  develop specialisation  help strategic industries – such as defence  restrict imports of demerit goods – such as alcohol Why it might not be a benefit:  increase in the price of goods and services – inflation - decreasing purchasing power of consumers  retaliation – difficult to export goods and services to other countries  increase in cost of production if firms require raw materials / semi- manufactured goods from other countries  complacency – low quality domestic goods and services  may cause unemployment e.g. in industries relying on imported products  if PED is less than one it may not be effective  may encourage smuggling 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 Question Answer Marks Guidance 3(d) Level Description Marks 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/23 May/June 2022

1 (a) Calculate the total value of the tertiary sector in Mauritius in 2019. [1] (b) Explain the meaning of a change from an economy based on the primary sector to one based on the tertiary sector. [2] (c) Identify two indicators of improving healthcare in Mauritius. [2] (d) Explain two reasons why millions of tourists visit Mauritius each year. [4] (e) Explain two advantages of setting up a firm in Mauritius. [4] (f) Analyse the relationship between the percentage of international trade to GDP and GDP per head. [5] (g) Discuss whether or not outward investment might benefit a Mauritian firm. [6] (h) Discuss whether or not government infrastructure spending benefits the Mauritian economy. [6]

30 marks

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

This question in 0455/21 Oct/Nov 2022

5 While 15% of US exports go to Mexico, 80% of Mexico’s exports go to the US. In 2019, the US government imposed some methods of protection to reduce imports from Mexico. This US action caused a fall in Mexico’s foreign exchange rate. Despite a rise in its inflation rate, Mexico’s central bank reduced the rate of interest from 7.75% at the end of 2019 to 6.5% in March 2020. (a) Identify two methods of protection. [2] (b) Explain two reasons why a government may want to reduce imports. [4] (c) Analyse how a fall in a country’s foreign exchange rate could increase its inflation rate. [6] (d) Discuss whether or not a decrease in the rate of interest will increase a country’s GDP. [8]

20 marks

Mark scheme: 5(a) Identify two methods of protection. 2 Tariffs (1) quotas (1) subsidies (1) embargo (1). 5(b) Explain two reasons why a government may want to 4 One mark for each of two reasons identified and one mark reduce imports. for each explanation. So, for improve balance of payments reason, there is a maximum of 2 marks. Logical explanation which might include: To improve the current account of the balance of payments (1) reduce a current account deficit (1) move from a deficit to a surplus / move to a balance / achieve balance of payments stability (1) increase net exports (1). To increase GDP / economic growth (1) switch demand from imports to domestically produced products / increase demand for domestically produced goods / protect domestic firms (1) allow infant industries to grow (1) Prevent dumping (1) the sale of goods from abroad at below cost / predatory prices (1). To increase employment / reduce unemployment (1) to raise living standards (1). To reduce dependence on other countries / make the country more independent (1) as risk of supplies being cut off / price being increased (1). To stop / reduce a fall in the exchange rate (1) less of the currency will be sold to buy imports (1). 5(c) Analyse how a fall in a country’s foreign exchange rate 6 could increase its inflation rate. Coherent analysis which might include: Raise import prices (1) increase price of imported raw materials / capital goods (1) increase costs of production (1) if demand is inelastic (1) cause cost-push inflation / imported inflation (1). Reduce export prices (1) increase demand for exports (1) increase export revenue if demand is elastic (1) switch demand for imports to domestic products (1) increase total demand (1) cause demand-pull inflation (1). 5(d) Discuss whether or not a decrease in the rate of interest 8 Level Description Marks will increase a country’s GDP. 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 • reduce saving logical analysis to evaluate economic • increase borrowing issues and situations. One side of the argument may have more depth than • increase consumer spending the other, but overall both sided of the • raise total demand argument are considered and • encourage firms to produce more developed. There is thoughtful • increase investment evaluation of economic concepts, • raise ability of firms to produce more terminology, information and/or data appropriate to the question. The Why it might not: discussion may also point out the • households and firms may be worried about the future possible uncertainties of alternative and so may not spend more decisions and outcomes. • there may be a culture of saving • households and firms may think the cut is only 2 A reasoned discussion which makes 3–5 use of economic information and clear temporary • the rate may initially have been low analysis to evaluate economic issues and situations. The answer may lack • may spend more on imports, increasing other countries’ some depth and development may be GDP one-sided. There is relevant use of • an economy may initially have been at full employment. 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. 5(d) For an answer which shows awareness of how a change in the rate of interest may affect GDP but writes about an increase in the rate of interest = maximum of 2 marks.

This question in 0455/22 Oct/Nov 2022

5 Palau is a small island country in the Pacific Ocean. It has received considerable financial support from the US. Living standards are thought to be lower in Palau than in the US. Palau imposes some of the highest tariffs in the world. These trade tariffs affect Palau’s current account of its balance of payments. In 2019, commercial bank lending to firms and households in Palau increased. (a) Identify two components of the current account of the balance of payments. [2] (b) Explain two reasons for differences in living standards between countries. [4] (c) Analyse the reasons why a country may impose tariffs on imports. [6] (d) Discuss whether or not an increase in commercial bank lending will increase economic growth. [8]

20 marks

Mark scheme: 5(a) Identify two components of the current account of the 2 Also accept visible balance, invisible balance, income and balance of payments. current transfers. Trade in goods (1) In addition, accept exports and imports. Trade in services (1) Primary income (1) Secondary income (1). 5(b) Explain two reasons for differences in living standards 4 One mark for each of two reasons identified and one mark between countries. for each explanation. Logical explanation which might include difference in: Rate of employment /level of income (GDP per head) (i) will influence the ability to buy goods and services (1). Productivity (1) resulting in differences in ability to enjoy a different quantity of goods and services (1). Availability of resources / factors of production (1) resulting in differences in productive capacity (1). Level of technology (1) resulting higher quality of goods and services / better sanitation / clean water (1). Healthcare (1) resulting in differences in life expectancy (1). Education (1) causing differences in skills / job outcomes (1). International trade (1) resulting in differences in GDP per head (1). Cost of living (1) affecting ability to buy goods and services (1). Environment (1) level of pollution / density of housing (1). War/conflict (1) causing reduced welfare / opportunity / diverted resources (1). 5(c) Analyse the reasons why a country may impose tariffs 6 on imports. Coherent analysis which might include: To increase the price of imports (1) may reduce demand for imports (1) reduce import expenditure (1) improve the current account position / balance of payments (1) increase demand for domestic firms (1) reduce unemployment (1) increase economic growth (1). To protect infant industries (1) enabling them to take advantage of economies of scale / stop them from being driven out by foreign firms with much lower costs due to size (1). To protect declining industries (1) prevent unemployment rising (1). To protect strategic industries (1) ensure self-sufficiency (1). To discourage demerit goods (1) to improve health / welfare of consumers (1). To stop dumping of overseas goods (1) where goods sold at below cost price / aimed at driving out domestic firms (1). As a source of government revenue (1) e.g. to use to subsidise domestic producers (1). As a countermeasure / retaliation (1) in response to unilateral imposition of tariffs by another country (1). 5(d) Discuss whether or not an increase in commercial bank 8 Level Description Marks lending will increase economic growth. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and • households may spend more on goods and services logical analysis to evaluate economic • higher total demand may increase output issues and situations. One side of the argument may have more depth than • firms may invest more leading to higher employment the other, but overall both sided of the • higher investment will increase total demand and argument are considered and productive capacity. developed. There is thoughtful evaluation of economic concepts, Why it might not: terminology, information and/or data • economy may already be at full employment appropriate to the question. The • higher total demand may increase prices / rate of discussion may also point out the inflation rather than output possible uncertainties of alternative • households and firms may spend on imports decisions and outcomes. • households and firms may borrow to repay past debts • variable interest rate increase could then affect level of 2 A reasoned discussion which makes 3–5 future consumption and investment 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.

This question in 0455/23 Oct/Nov 2022

1 (a) Calculate the value of US imports from China in 2020. [1] (b) Identify two causes of the increase in the quantity of US factors of production. [2] (c) Explain one way that import tariffs could improve the US economy. [2] (d) Explain two reasons why the US inflation rate fell in 2020. [4] (e) Draw a demand and supply diagram to show the effect of an increase in the price of a complement on the market for ice cream. [4] (f) Analyse the relationship between government spending and unemployment. [5] (g) Discuss whether or not a central bank should aim for a low inflation rate. [6] (h) Discuss whether or not economic growth benefits everyone in the US. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate the value of US imports from China in 1 Accept the correct figure without the $ sign. 2020. 560 000 000 000. 5.6  10^11 $560bn (1). 1(b) Identify two causes of the increase in the quantity 2 If more than two causes given, consider the first three. of US factors of production. Accept increase in labour for increase in the labour force. Land reclamation (1) increase in the labour force (1). 1(c) Explain one way that import tariffs could improve 2 One mark for a way identified and one mark for an explanation. the US economy. If more than one way identified, consider the first two. Could improve the current account / trade in goods / To gain two marks, one mark must come from improving the trade in goods and services / balance of payments (1) current account, increase output or raise tax revenue. by reducing imports / making domestic goods more competitive with imports / raising the price of imports Could raise more revenue is not sufficient – need more tax (1) revenue or more government revenue / income. Could increase output / cause economic growth (1) by increasing demand for US goods / raise employment (1). Could raise tax revenue (1) allowing the government to spend more on (e.g. education) / improve the (government budget position) (1). 1(d) Explain two reasons why the US inflation rate fell 4 One mark each for each of two reasons identified and one mark in 2020. each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Fall in consumer expenditure (1) lower total demand / reduce demand-pull inflation (1). Reduction in bargaining power may also be linked to lower total Reduction in workers’ bargaining power (1) fall in demand. wage rises / wages / fall in rise in costs / fall in costs / reduce cost-push inflation (1). Higher unemployment (1) reduces confidence / lower total demand / fall in consumer spending (1). Fall in (real) GDP (1) lower incomes / purchasing power / lower total demand (1). Current account deficit (1) lower total demand / reduce demand-pull inflation (1). 1(e) Draw a demand and supply diagram to show the 4 effect of an increase in the price of a complement on the market for ice cream. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between government 5 Alternatively, some candidates may argue that changes in spending and unemployment. unemployment, could lead to changes in government spending. Credit both responses. Coherent analysis which might include: Overview: Inverse relationship / negative relationship (1) generally, the higher government spending, the lower the unemployment rate (1). Supporting evidence: E.g. 2015 to 2019, government spending increased and unemployment fell / 2015 to 2017 government spending increased and unemployment fell (1) processing / interpreting of data e.g. between 2015 to 2019, government spending rose by $700bn and unemployment fell by 1.6% (points) (1). Analysis of the expected relationship: • higher government spending will increase total demand (encouraging firms to expand and employ more workers) (1) • higher government spending may be on e.g. education, training, infrastructure, subsidies which could increase workers’ chances of gaining jobs (1) • higher employment will provide more tax revenue for the government to spend / lower employment will reduce tax revenue for the government to spend (1). Exception: 2020 (1) both government spending and unemployment rose / government spending and unemployment both at their highest (1). 1(f) Analysis of the exception: • government spending on unemployment benefits may have increased / rise in government spending not enough to stop GDP / consumer expenditure falling / GDP fell / there may be a time delay before higher government spending reduces unemployment (1). 1(g) Discuss whether or not a central bank should aim 6 May approach the answer from the point of view of the for a low inflation rate. disadvantages of high inflation. 2nd side should examine either the possible negative effects of Award up to 4 marks for logical reasons why it should, what the central bank may do to reduce the inflation rate or the which may include: possible loss of any beneficial effects of high inflation. • can increase international price competitiveness (1) improve the current account balance / No marks for possible effects on the exchange rate. increase exports (1) increase employment / reduce unemployment (1) Apply this example to all questions with the • can create certainty (1) which may increase command word DISCUSS confidence (1) which may encourage investment / (1g, 1h, 2d, 3d, 4d and 5d) attract MNCs (1) which may increase output / result in economic growth (1) Each point may be credited only once, on either side of an • can prevent a random redistribution of income (1) argument, but separate development as to how / why the outcome e.g. protect savers (1) may differ is rewarded. • may protect purchasing power (1) by promoting price stability (1) Generic example Mark • maintain / increase living standards (1) if wages rise by more than the price level (1) Tax revenue may decrease… 1 • can avoid fiscal drag (1) prevent people being put in higher tax brackets (1) ...because of reason e.g. incomes may be lower. 1 • can reduce menu / shoe leather costs (1) reduce firms’ costs of production (1). Tax revenue may increase because incomes may be 0 higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it should not, which may include: Tax revenue may increase because of a different 1 • increases in the rate of interest (1) contractionary reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may monetary policy (1) can reduce consumer stimulate the economy more than spending on expenditure / can reduce investment (1) can education. reduce total demand (1) 1(g) • lower total demand can increase unemployment (1) cyclical unemployment (1) reduce economic growth (1) • low inflation can turn into deflation (1) leading to a recession (1) • makes it harder to pay off debt (1) increasing the risk of firms going out of business / households getting into difficulties (1) • central bank may aim for economic growth / low unemployment (1) higher demand-pull inflation may provide more encouragement to firms to expand (1). 1(h) Discuss whether or not economic growth benefits 6 everyone in the US. Award up to 4 marks for logical reasons why it might, which may include: • economic growth increases output / GDP (1) increases income per head / higher incomes / higher wages (1) enables more purchasing power / people to enjoy more goods and services (1) • economic growth can increase employment (1) raise living standards (1) may reduce poverty (1) • economic growth can increase tax revenue (1) enabling the government to spend more on e.g. education and healthcare (1) • economic growth may introduce better working conditions (1). Award up to 4 marks for logical reasons why it might not, which may include: • there may be an increase in unemployment due to lack of skills / some industries declining / greater use of capital / capital-intensive production (1) structural unemployment may occur (1) • income is unevenly distributed (1) those on low incomes e.g. the sick may not benefit (1) • higher output may result in external costs (1) e.g. pollution (1) people living near factories may suffer (1) • higher output may be the result of more resources being devoted to capital goods (1) may take time for consumers to benefit from more consumer goods (1) 1(h) • higher output may reduce natural resources (1) reducing future generations’ ability to benefit from them / reduce sustainability (1) • higher output may be the result of workers working longer hours (1) in poor working conditions (1) • may cause inflation (1) adversely affecting the poor / savers (1).

This question in 0455/22 Feb/March 2023

2 Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now compete with foreign multinational companies (MNCs) and public sector firms. The Vietnamese government encourages MNCs to locate in Vietnam as a host country. It also intervenes in the economy to encourage the consumption of merit goods. (a) Identify two reasons why people become entrepreneurs. [2] (b) Explain two benefits that an MNC can bring to its host country. [4] (c) Analyse how a government could encourage the consumption of merit goods. [6] (d) Discuss whether or not private sector firms are likely to charge lower prices than public sector firms. [8]

20 marks

Mark scheme: 2(a) Identify two reasons why people become 2 If more than two reasons given, consider the first three. entrepreneurs. To make money / earn a profit (1) to be independent / not having to be told what to do (1) to follow an interest / be innovative / to run / own business (1) willingness to take risks (1) possess good leadership skills (1) easier to set up a firm / lower barriers to entry (1) for self-esteem / status / become well-known (1) flexible working hours (1) unable to find a job (1). 2(b) Explain two benefits an MNC can bring its host 4 One mark each for each of two benefits identified and one mark country. each for each of two explanations. Logical explanation which might include: If more than two benefits given, consider the first three. Increase employment (1) raise living standards / increase income / higher wages / reduce poverty (1). Increase skills (1) provide training to workers (1). Increase exports / reduce imports (1) improve the current account of the balance of payments (1). Increase GDP / output (1) raise economic growth (1). Increase competition (1) raise efficiency / reduce prices (1). Bring in new technology (1) raise quality / raise productive capacity / productivity / reduce costs of production (1). Increase the range of goods and services available in the country (1) raise living standards (1). Increase tax revenue (1) enable the government to spend more (1). Increase infrastructure (1) an MNC may build e.g. roads / reduce e.g. transport costs (1). 2(c) Analyse how a government could encourage the 6 Note: reference to measures to reduce consumption of demerit consumption of merit goods. goods can only be rewarded if clearly linked to switching to alternative merit goods. Coherent analysis which might include: Provide a subsidy (1) reduce any indirect tax (1) lower price (1) make the goods more affordable (1) raise quality (1). Provide information about the benefits of consuming the goods (1) e.g. health campaigns / advertisements (1) overcome information failure (1). Use regulation (1) make consumption compulsory / impose fines for non-consumption (1) e.g. school attendance (1). Provide services such as education / healthcare (1) free to consumers (1). Set maximum price (1) to make the goods more affordable (1) but may create a shortage (1). Measures to reduce demerit goods clearly linked to idea of encouraging substitution of merit goods (1) relevant example (1). 2(d) Discuss whether or not private sector firms are 8 Level Description Marks likely to charge lower prices than public sector firms. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical analysis Why they might: to evaluate economic issues and • competition may encourage private sector firms to situations. One side of the argument may charge low prices have more depth than the other, but • private sector firms may seek to reduce waste overall, both sides of the argument are and costs to avoid going out of business considered and developed. There is • private sector firms may have more funds to thoughtful evaluation of economic invest concepts, terminology, information and / • higher investment may reduce costs of production or data appropriate to the question. The • may be an MNC with significant economies of discussion may also point out the scale possible uncertainties of alternative decisions and outcomes. Why they might not: 2 A reasoned discussion which makes use 3–5 • profit motive may encourage private sector firms of economic information and clear to charge high prices analysis to evaluate economic issues • private sector firms may be monopolies and situations. The answer may lack • public sector firms may be subsidised some depth and development may be • public sector firms may charge low prices to make one-sided. There is relevant use of the products affordable economic concepts, terminology, • public sector firms may produce on a large scale information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0455/22 Feb/March 2023

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

20 marks

Mark scheme: 5(a) Identify the opportunity cost of households spending their income and the opportunity cost of Chinese firms exporting goods and services. Saving (1) selling the products at home / consuming the products (1). 2 5(b) Explain two reasons why some top sportspeople have high earnings. Logical explanation which might include: High demand / inelastic demand for top sportspeople (1) large crowds watch top sportspeople / events (1) top sports events can be sold to TV firms for large fees (1) high merchandise sales / sponsorship deals / high gate receipts / can generate high profits for firms (1). Low supply / inelastic supply of sportspeople / lack of substitutes (1) high bargaining power (1) top sports people are skilled / talented (1) it may take years of training (1) high level of experience (1) some sports are dangerous (1). 4 Reasons may be linked in different ways. Also allow explanation of two reasons for high demand or two reasons for low supply. Reward but do not expect high mrp of labour and derived demand for labour. Question Answer Marks Guidance 5(c) Analyse the reasons for imposing tariffs on imports. Coherent analysis which might include: To improve the current account balance (1) make imports more expensive (1) reduce demand for imports / increase net exports (1) increase total demand (1). To protect domestic industries / infant industries / sunrise industries (1) protect sunset / declining industries (1) protect strategic industries (1) to increase economic growth (1) reduce unemployment / increase employment (1) encourage people to switch from buying imports to buying domestically produced products (1). To raise revenue (1) which the government can spend on e.g. education / reduce a budget deficit (1). To discourage the imports of harmful products / demerit goods (1) example (1). To prevent dumping / unfair competition (1) the selling of products at less than cost price / the selling of products produced by child labour (1). To retaliate (1) against another country’s tariffs (1). To prevent a fall in the exchange rate (1) to prevent switch from domestic to foreign currency (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a country with a high economic growth rate will have a deficit on the current account of its balance of payments. In assessing each answer, use the table opposite. Why it might:  incomes will rise and consumers may buy more imports  firms may switch products from foreign markets to the growing home market  firms may import more raw materials and capital goods  the country may experience inflation which may reduce its international price competitiveness Why it might not:  the economic growth may be export-led  economic growth may encourage more investment, this could raise the quality of domestically produced products and lower their prices  higher tax revenue may result in improvements in education and healthcare which could increase productivity  the country may impose trade restrictions / reduce exchange rate. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sided of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0455/22 May/June 2023

1 (a) Calculate the total number of people in Cambridge aged 18–29 in 2019. [1] (b) Identify two types of industries in Cambridge that operate in the tertiary sector. [2] (c) Identify two benefits of having highly knowledge‑intensive exports. [2] (d) Explain how having a more educated labour force can reduce poverty. [4] (e) Draw a demand and supply diagram to show the effects of increased global income on the market for education in Cambridge. [4] (f) Analyse the relationship between the percentage of population aged 25–64 with a university degree and GDP per head. [5] (g) Discuss whether or not free trade is beneficial for a city such as Cambridge. [6] (h) Discuss whether or not firms in Cambridge will continue to grow. [6]

30 marks

Mark scheme: 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).

This question in 0455/21 Oct/Nov 2023

1 (a) Calculate what percentage of Honduran people did not have access to electricity in 2020. [1] (b) Identify two benefits the Honduran economy could gain from a growth in the US economy. [2] (c) Explain one advantage of an economy specialising. [2] (d) Explain two ways a government could redistribute income. [4] (e) Draw a demand and supply diagram to show how a report stating that bananas are good for health would affect the market for bananas. [4] (f) Analyse the relationship between the percentage of population living in poverty and life expectancy. [5] (g) Discuss whether or not the cost of producing clothes in Honduras will fall in the future. [6] (h) Discuss whether or not a fall in unemployment in Honduras is likely to cause inflation. [6]

30 marks

Mark scheme: 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).

This question in 0455/22 Oct/Nov 2023

2 Botswana uses both capital goods and labour in its diamond mining industry. The country had an average economic growth rate of 3.8% between 2015 and 2019 compared to a global average of 2.8%. Over this period, the country experienced a low inflation rate and a move away from protectionism and towards free international trade. (a) Define, with an example, a capital good. [2] (b) Explain two reasons why a low inflation rate may increase a country’s economic growth rate. [4] (c) Analyse how a government could reduce protectionism and move towards free international trade. [6] (d) Discuss whether or not a country will benefit from diamond mining. [8]

20 marks

Mark scheme: 2(a) Define, with an example, a capital good. 2 If more than two examples are given, consider the first two. A good used to produce another good or service / a human- made good used for production (1) e.g. a machine (1). 2(b) Explain two reasons why a low inflation rate may 4 One mark each for each of two reasons identified and one increase a country’s economic growth rate. mark each for each of two explanations. Logical explanation which might include: • make the country’s products internationally competitive (1) sell more exports / buy fewer imports (1) • create greater certainty (1) encourage investment / attract MNCs (1) • keep increase in costs low (1) may reduce claims for higher wages/ higher profits (1) • increase confidence (1) may increase demand / increase profits 1). 2(c) Analyse how a government could reduce protectionism 6 Allow deregulation as an alternative to remove quotas or and move towards free international trade. embargoes. Coherent analysis which might include: Reward removing / reducing bureaucracy, voluntary export restraints. • remove tariffs (1) reduce price of imports (1) if firms have lower costs of production, they will be able to Reward but do not expect reference to exchange control. compete (1) • remove quotas / increase quota (limit) (1) remove bans / embargoes (1) increase quantity of imports / reduce limits on imports (1) • remove subsidies (1) firms’ products will not be artificially cheap (1) • other countries may remove their protectionism (1) enabling exports to be sold without restrictions (1). 2(d) Discuss whether or not a country will benefit from 8 Reward but do not expect reference to social welfare will be diamond mining. increased if social benefit exceeds social cost. In assessing each answer, use the table opposite. Leve Description Mark l s Why it might: • high global demand 3 A reasoned discussion which 6–8 • can improve the current account of the balance of accurately examines both sides of payments the economic argument, making • create employment, both skilled and unskilled jobs use of economic information and • increase output / economic growth clear and logical analysis to • may increase tax revenue. evaluate economic issues and situations. One side of the Why it might not: argument may have more depth • demand will fall in a recession than the other, but overall, both • price may fluctuate sides of the argument are • may be competition considered and developed. There • can be accidents is thoughtful evaluation of • can create external costs e.g. pollution economic concepts, terminology, • if mined by an MNC, profit may be sent to the home information and/or data appropriate country to the question. The discussion • supply may be depleted may also point out the possible uncertainties of alternative • price may increase in the future so better to conserve decisions and outcomes. diamonds now • may not be a large proportion of GDP. 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(d) 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

This question in 0455/22 Oct/Nov 2023

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

20 marks

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

This question in 0455/23 Oct/Nov 2023

4 In 2021, the Suez Canal was blocked by one of the world’s biggest container ships. This affected some firms’ profits and caused a shortage in a number of products. The delivery of luxury chocolate and salt, for example, was delayed. These two goods have differences in their price elasticity of demand. The disruption to international trade created particular difficulties for those countries which import most of the food they consume. (a) Define a shortage. [2] (b) Explain two ways a firm can increase its profit. [4] (c) Analyse the reasons why the price elasticity of demand for one brand of luxury chocolates is likely to be different from that of salt. [6] (d) Discuss whether or not a country should import most of the food it consumes. [8]

20 marks

Mark scheme: 4(a) Define a shortage. 2 Demand exceeding supply (2). Too much demand / not enough supply / supply is low and demand is high (1). 4(b) Explain two ways a firm can increase its profit. 4 One mark each for each of two ways identified and one mark for each of two explanations. Logical explanation which might include: Note: in each case, reduce cost of production, raise Becoming more capital-intensive (1) which may reduce cost demand, increase revenue can only be rewarded once. of production (1). Buying cheaper raw materials (1) which may reduce cost of Nothing for change in price without relative reference to production (1). PED. Increasing efficiency / raising quality of product (1) by e.g. employing skilled workers (1). Increase training of workers (1) to raise productivity (1). Merging (1) enabling greater advantage to be taken of economies of scale (1). Advertising / improved packaging / adding more features (1) to increase demand / raise revenue (1). Gaining greater market power (1) enabling price to rise and revenue to increase / making demand inelastic (1). Raise revenue (1) by reducing price if demand is elastic / by raising price if demand is inelastic (1). 4(c) Analyse the reasons why the price elasticity of demand 6 Award: for one brand of luxury chocolates is likely to be Demand for a luxury brand of chocolate may be inelastic is different from that of salt. consumers have brand loyalty (1) reinforced by advertising (1). Coherent analysis which might include: One brand of chocolates is likely to have substitutes / other brands to switch to (1) is narrowly defined (1) it is not a necessity / is a want (1) the purchase can be postponed (1) it takes up a large proportion of income (1) demand is likely to be price elastic (1) a rise in price will cause a greater percentage change in quantity demand (1). Salt does not have substitutes (1) is widely defined (1) it takes up a small proportion of income / is likely to be cheap (so price change less noticeable) (1) people become addicted to the taste (1) may be seen as a necessity (1) demand is likely to be price inelastic (1) a rise in price will cause a smaller percentage change in quantity demanded (1). 4(d) Discuss whether or not a country should import most of 8 Level Description Marks the food it consumes. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it should: economic information and clear and • may lack appropriate resources to produce food logical analysis to evaluate economic • will allow the country to produce other goods and issues and situations. One side of the services argument may have more depth than • value added may be greater in the secondary and the other, but overall both sides of the tertiary sectors argument are considered and • wages may be higher in the secondary and tertiary developed. There is thoughtful evaluation of economic concepts, sectors • working conditions may be better in the secondary and terminology, information and/or data appropriate to the question. The tertiary sectors discussion may also point out the • the output of food can be affected by changes in possible uncertainties of alternative weather and natural disasters. decisions and outcomes. 2 A reasoned discussion which makes 3–5 Why it should not: use of economic information and clear • makes the country dependent on other countries analysis to evaluate economic issues • agriculture may be considered to be a strategic industry and situations. The answer may lack • foreign producers may raise price some depth and development may be • food is a basic essential one-sided. There is relevant use of • a higher price could increase poverty economic concepts, terminology, • there may be disruptions in supply. 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. 4(d) Reward but do not expect reference to comparative advantage or absolute advantage.

This question in 0455/22 Feb/March 2024

3 Indonesia operates a mixed economic system. Indonesia’s central bank, Bank Indonesia, aims for stable prices. The country’s price level can be influenced by changes in population size. Indonesia’s population continues to grow but at a slower rate. Many of the country’s industries are growing with particularly fast growth in Indonesian domestic and international air travel. (a) Identify who allocates resources in a mixed economic system. [2] (b) Explain two benefits a firm may gain from an increase in the size of the country’s population. [4] (c) Analyse the reasons why governments aim for stable prices. [6] (d) Discuss whether or not the global economy would benefit from an increase in air travel. [8]

20 marks

Mark scheme: 3(a) Identify who allocates resources in a mixed economic system. Firms / producers (1) the government (1) OR The private sector / private firms (1) the public sector / nationalised firms (1) 3(b) Explain two benefits a firm may gain from an increase in the size of the country’s population. Logical explanation which might include: Higher demand / more consumers / larger market (1) which may increase revenue / profits (1). May increase ability to take advantage of economies of scale (1) lower average cost of production (1). May be higher supply of labour (1) may make it easier to employ workers / reduce wages (1) can increase output / supply (1). 4 One mark each for each of two benefits identified and one mark for each of two explanations. Question Answer Mark Guidance 3(c) Analyse the reasons why governments aim for stable prices. Coherent analysis which might include: Stable prices give consumers confidence to buy (1) prices remain affordable / knowing they can afford it (1). Stable prices attract MNCs (1) leads to greater employment (1) government / firms more able to plan use of resources (1) increases investment (1) and economic growth (1). To avoid inflation (1) which can discourage investment due to less certainty (1) could lead to lower wage demands (1) can make exports more / imports less price competitive (1) which may cause a current account deficit on the balance of payments (1). Inflation can cause a random redistribution of income (1) lenders / savers may lose (1) borrowers may gain (1). Inflation can cause menu costs (1) e.g. the cost of changing prices (1) and may cause shoe leather costs (1) e.g. cost of shopping around for lowest prices (1). To avoid deflation (1) which can result in a downward spiral of demand and prices (1) consumers and firms may delay their purchases (1) this can result in a rise in unemployment (1) and a recession (1). 6 Question Answer Mark Guidance 3(d) Discuss whether or not the global economy would benefit from an increase in air travel. In assessing each answer, use the table opposite. Why it might:  may increase employment in the air travel industry  may increase employment and output in related industries e.g. tourism  may reduce firms’ costs of production if quicker than other forms of transport  may increase mobility of labour  air travel is a safer form of travel than e.g. road travel  encourages tourism and economic development of some countries. Why it might not:  may cause noise and air pollution (carbon footprint)  may contribute to climate change  may need to build new airports / extend existing airports which may reduce land available for e.g. housing.  may reduce demand for other forms of transport  unemployment may increase in e.g. sea travel  high costs prevent movement of heavy goods. 8 See Guidance table at the end of the mark scheme.

This question in 0455/21 May/June 2024

4 Healthcare is in the tertiary sector. Healthcare provides both private and external benefits. In 2019, there were five mergers between large US healthcare firms. As well as operating in the US, US healthcare firms operate in a number of host countries, including Singapore. (a) Define tertiary sector using an example apart from healthcare. [2] (b) Explain the difference between a private benefit and an external benefit of healthcare. [4] (c) Analyse why a government may prevent a horizontal merger. [6] (d) Discuss whether or not a foreign multinational company (MNC) will continue to produce in a host country for many years. [8]

20 marks

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

This question in 0455/21 May/June 2024

4 In 2021, the US had a trade in goods deficit on the current account of its balance of payments. The US has many firms in a wide range of industries. Import tariffs are used to protect some of these industries. The US government’s higher spending on healthcare, which reached $797bn that year, also affected many of the country’s industries. (a) Define a trade in goods deficit. [2] (b) Explain two ways firms can be classified. [4] (c) Analyse why a government may protect its country’s industries from foreign competition. [6] (d) Discuss whether or not a government should increase its spending on healthcare. [8]

20 marks

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

This question in 0455/23 May/June 2024

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

30 marks

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

This question in 0455/21 Oct/Nov 2024

2 Unemployment in the United Kingdom (UK) fell in December 2021 to 4.1%. Market forces would usually mean that wages would increase due to this lower unemployment. However, workers’ living standards did not increase. New international trade deals were not made fast enough to offset the decreasing trade between the UK and the European Union. (a) Identify two ways of measuring unemployment. [2] (b) Explain two factors that could influence living standards, apart from unemployment rates. [4] (c) Analyse how market forces can increase wages. [6] (d) Discuss whether or not free trade between countries increases economic growth. [8]

20 marks

Mark scheme: 2(a) Identify two ways of measuring unemployment. 2 claimant count (1) (labour force) survey (1) 2(b) Explain two factors that could influence living standards 4 One mark for each factor identified and one mark for each apart from unemployment rates. explanation. Logical explanation which might include: Accept arguments which describe reasons for either • income / wage levels (1) higher wages allow people to low / high living standards. afford more goods and services (1) • education (1) high education levels lead greater skills Accept answers that give HDI (1) with reference to either and to better paid jobs / lead to high human GDP per head, education or health. development index (1) • health standards / healthcare (1) high health standards lead to better enjoyment of life / less illness / better well- being (1) • cost of living / inflation rate (1) affecting purchasing power (1) • working hours (1) lower working hours gives more leisure time (1) • hygiene / sanitation (1) good water quality prevents diseases (1) • environmental standards (1) e.g. pollution reduces quality of life (1) • availability of public / merit goods (1) e.g. street lights / parks (1) • crime rates (1) low crime rates improve safety / quality of life (1) 2(c) Analyse how market forces can increase wages. 6 Reward, but do not expect, answers that analyse this question using elasticity of demand and supply. Coherent analysis which might include: • an increase in demand (1) for labour (1) may increase wages if the demand for a product increases (1) i.e. derived demand (1), there will be an increase in demand for workers producing that product (1) for example, if price of substitutes such as robots increases, there will be an increase in the demand for human labour (1) • a decrease in supply (1) of labour (1) may increase wages if it is caused by a decrease in the labour force (1) or a decrease in number of people qualified / having skills in that occupation (1). 2(d) Discuss whether or not free trade will increase 8 Level Description Marks economic growth. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • may enable countries to specialise on what they are clear and logical analysis to best at producing evaluate economic issues and • higher competition may increase productivity and lower situations. One side of the costs of production, increasing demand for their argument may have more depth products than the other, but overall both • may enable firms to buy raw materials and capital sides of the argument are goods at a lower price considered and developed. There • may give firms access to larger markets, enabling them is thoughtful evaluation of to expand output. economic concepts, terminology, information and / or data Why it might not: appropriate to the question. The • may prevent infant industry from growing discussion may also point out the • may speed up the closure of declining industries possible uncertainties of • may replace domestic output with imports alternative decisions and • may reduce tax revenue outcomes. • firms may gain monopoly power and may restrict output • firms may engage in unfair competition e.g. dumping. 2(d) 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

This question in 0455/21 Oct/Nov 2024

4 The World Trade Organization (WTO) estimates that India has the largest levels of trade protection of any major economy. The highest tariffs are imposed on products from the primary sector. For example, in 2018 India imposed a tariff of approximately 90% on imports of coffee to protect its coffee farmers. However, the markets for coffee substitutes and complements do not have such levels of government intervention. (a) Identify two methods of trade protection apart from a tariff. [2] (b) Explain how the price of coffee substitutes and complements can affect the demand for coffee. [4] (c) Analyse possible reasons why a government may want to intervene in a market. [6] (d) Discuss whether or not high tariffs can reduce unemployment. [8]

20 marks

Mark scheme: 4(a) Identify two methods of trade protection apart from a 2 Accept any relevant methods. tariff. Two from non-tariff barriers: • import quotas • subsidies • embargoes / bans • licences • product standards / regulations 4(b) Explain how the price of coffee substitutes and 4 Maximum of 3 marks if only substitutes or complements are complements can affect the demand for coffee. explained. Logical explanation which might include: Relationship between price and demand of substitutes is positive (1) when price of coffee substitutes increases, demand for coffee increases, or vice versa (1) because as price of coffee substitutes increases, coffee is relatively cheaper (1) demand for the substitute will decrease, and the demand for coffee will increase (1) e.g. coffee and tea (1). Relationship between price and demand of complements is negative (1) when price of coffee complements increases, demand for coffee falls or vice versa (1) because as price for coffee complements increases, the demand for the complement will fall, and therefore the demand for coffee will decrease (1) e.g. coffee and sugar (1). 4(c) Analyse the possible reasons why a government may 6 Maximum of three marks for identification of reasons want to intervene in a market. Coherent analysis which might include: Government may want to intervene in a market due to market failure / when the market mechanism leads to inefficient allocation of resources (1) Reasons for intervention: • to provide public goods (1) not provided by the market (1) due to non-rivalry / non-excludability (1) creating the free rider problem / no profit-incentive for private producers (1) • to provide merit goods (1) under-consumed and under- produced by the market (1) external benefits which are ignored by the market (1) e.g. vaccinations (1) • to reduce provision of demerit goods (1) over-consumed and over-produced by the market (1) external costs are ignored by the market (1) e.g. pollution (1) • to reduce monopoly power (1) that creates high prices (1) while reducing consumer choices (1) and reducing quality (1) • to reduce factor immobility (1) factors of production unable to move around to its best possible use (1) e.g. labour immobility where workers cannot move around (1) and therefore are unemployed (1) • to protect consumers of essential items (1) by setting a maximum price (1) keeping the price below the market price (1) • to protect low paid workers (1) by setting a minimum wage (1) keeping the wage above the market wage (1) • to give subsidies / impose tariffs (1) e.g. protect infant industries (1) so that they can grow in the long- term / protect employment (1). 4(d) Discuss whether or not high tariffs can reduce 8 Level Description Marks unemployment. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • high tariffs lead to increase price of imports reducing the clear and logical analysis to demand for imports evaluate economic issues and • high tariffs make consumers choose domestic products situations. One side of the instead which increases demand for domestic workers argument may have more depth • high tariffs provide government with extra revenue than the other, but overall both which could be used to subsidise domestic sides of the argument are firms / domestic employment considered and developed. There • high tariffs can be a major source of tax revenue. Some is thoughtful evaluation of of this could be spent on e.g. education and training economic concepts, terminology, which will increase workers’ skills and mobility, and so information and / or data reduce unemployment. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of • high tariffs lead to retaliation which leads to decrease in alternative decisions and demand for exports and therefore decrease demand for outcomes. domestic workers • high tariffs still not enough to offset lower cost of imports • domestic production may not be able to increase due to full employment / lack of natural resources • higher prices of imported raw materials could increase costs of production, so reducing profits and lowering output • domestic prices may rise as domestic firms become complacent as they are protected. 4(d) 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

This question in 0455/21 Oct/Nov 2024

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

20 marks

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

This question in 0455/22 Oct/Nov 2024

5 Australia has a number of firms that operate in other countries. These multinational companies (MNCs) provide several benefits for their home country of Australia. The Australian Government imposes relatively low import tariffs and the country has a floating exchange rate. In recent years, Australia has experienced an increase in investment and a higher Human Development Index (HDI) value. (a) Identify two benefits an MNC may provide for its home country. [2] (b) Explain two disadvantages of import tariffs. [4] (c) Analyse how an increase in investment can result in a rise in a country’s HDI value. [6] (d) Discuss whether or not having a floating exchange rate benefits an economy. [8]

20 marks

Mark scheme: 5(a) Identify two benefits an MNC may provide for its home 2 If more than two benefits given, consider the first three. country. Identify means that the benefit does not have to be Two from: explained. • profits • (increased) exports • raw materials • job opportunity / wages for workers • raise country’s income 5(b) Explain two disadvantages of import tariffs. 4 One mark each for each of two disadvantages identified and one mark each for each of two explanations. Logical explanation which might include: If more than two disadvantages given, consider the first • Reduce (free) trade (1) lower competition (1) . three. • Risk of retaliation (1) resulting in trade war / unemployment (1). Only allow one mark for reference to lower competition. • Raise price of imports (1) which may raise price of domestically produced goods (because of the lack of competition) (1) . • Raise the price of imported raw materials / capital goods (1) cause cost-push inflation (1) . • Reduce quality (1) due to lower competition (1) • Protected industries / infant industries / declining industries may become inefficient (1) if become reliant on tariff (protection) (1). • Reduce output / consumption / less quality / less choice (1) lower living standards (1). • Reduce ability of countries to specialise (1) less efficient use of resources / loss of potential economies of scale (1). 5(c) Analyse how an increase in investment can result in a 6 rise in a country’s HDI value. Coherent analysis which might include: • Investment can increase GDP / GNI (1) employment (1) which may increase GDP/ GNI per head (1) higher GDP/ GNI may raise tax revenue (1) enabling the government to spend more on education and healthcare (1). • Higher personal income / wages (1) enabling families to afford sending children to school (1) pay for private healthcare (1). • An increase in investment in healthcare facilities (1) can increase life expectancy (1). • An increase in investment in education (1) will increase mean / expected and expected years of schooling (1) increase skills/productivity (1) which may increase GDP per head (1) raise awareness about nutrition (1) increase life expectancy (1). • An increase in investment may introduce more advanced technology (1) which can make work less physically demanding (1) improving health / life expectancy (1). 5(d) Discuss whether or not having a floating exchange rate 8 Level Description Marks benefits 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 • may eliminate a current account imbalance analysis to evaluate economic issues • if there is a current account deficit, exchange rate may and situations. One side of the fall making exports fall in price and imports rise in price argument may have more depth than • no need to keep reserves of foreign exchange the other, but overall both sided of the • no need to change interest rates to influence the argument are considered and exchange rate developed. There is thoughtful • enable government to concentrate on other aims as evaluation of economic concepts, does not have to keep the exchange rate fixed. terminology, information and/or data appropriate to the question. The Why it might not: discussion may also point out the • may make it difficult for firms to plan, not knowing how possible uncertainties of alternative much they will have to pay for imports and earn from decisions and outcomes. exports • may create uncertainty 2 A reasoned discussion which makes 3–5 • discourage investment use of economic information and clear • speculation can cause (significant) destabilising analysis to evaluate economic issues changes in the exchange rate. and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 5(d) 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 0 no creditable content. Note: reward candidates if they refer to the impact of appreciation and depreciation of the currency in their answers.

This question in 0455/21 May/June 2025

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

20 marks

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

This question in 0455/22 May/June 2025

2 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 commercial bank and another multinational company (MNC). This new road could help the Montenegro Government achieve its macroeconomic aims and increase Montenegro’s international trade. MNCs can have a significant impact on the host countries in which they locate. (a) Define international trade. [2] (b) Explain the importance of commercial banks to governments. [4] (c) Analyse how building roads can help a government achieve its macroeconomic aims. [6] (d) Discuss whether or not MNCs benefit host countries. [8]

20 marks

Mark scheme: 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.

This question in 0455/23 May/June 2025

1 (a) Calculate the total financial sector contribution (in $) to Switzerland’s GDP. [1] (b) Identify two microeconomic policy measures. [2] (c) Explain one reason why overdependence on foreign markets is a disadvantage to the Swiss economy. [2] (d) Draw a demand and supply diagram to show how a subsidy to solar energy producers would affect the market for solar energy. [4] (e) Explain two reasons why Switzerland had a current account surplus. [4] (f) Analyse the relationship between the global GDP growth rate and the change in the value of the Swiss franc. [5] (g) Discuss whether or not an increase in interest rates will harm the Swiss economy. [6] (h) Discuss whether or not a bank merger will benefit Swiss consumers and workers. [6]

30 marks

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

This question in 0455/21 Oct/Nov 2025

5 Some countries engage in dumping by selling their products at less than cost price in Cambodia. The Cambodian Government wants the country to become a high-income economy by 2050. It uses fiscal, monetary and supply-side policies to increase its economic growth rate. Cambodia subsidises some infant industries. The country has one of the world’s largest deficits on the current account of its balance of payments (as a percentage of GDP). Some economists suggest cutting taxes would reduce this deficit. (a) Identify two motives for a firm dumping some of its products in a foreign market. [2] (b) Explain two differences between monetary policy and supply-side policy. [4] (c) Analyse how a government subsidy could help to protect an infant industry against foreign competition. [6] (d) Discuss whether or not cuts in taxes will reduce a deficit on the current account of a country’s balance of payments. [8]

20 marks

Mark scheme: 5(a) Identify two motives for a firm dumping some of its 2 If more than two motives are given, consider the first three. products in a foreign market. • Drive domestic firms out of the market / increase market share / gain monopoly power in (overseas) market (1). • Clear away surplus stock (1) keep price high on the domestic market (1) increase exports / sales / revenue (1). 5(b) Explain two differences between monetary policy and 4 If more than two differences are given, consider the first supply-side policy. three. Logical explanation which might include the following. • Monetary policy is usually implemented by the central bank (1) supply-side policy by the government (1). • Monetary policy may be used to increase or reduce economic activity (1) supply-side policy is only used to increase economic activity (1). • They have different policy measures (1) e.g. monetary policy has the rate of interest whereas supply side policy has privatisation (1). • Monetary policy aims to influence total demand (1) supply-side policy aims to increase total supply (1). • Supply side policies tend to take longer to implement and have an impact (1) than monetary policy which tends to have a more short -term impact (1). 5(c) Analyse how a government subsidy could help to 6 protect an infant industry against foreign competition. Coherent analysis which might include: An infant industry’s costs may initially be high (1) government subsidy is an extra payment to an industry (1) some of the subsidy could be used to buy more capital goods / technological innovation (1) employ skilled workers (1) enable an infant industry to grow in size / increase output (1) obtain economies of scale (1) lower (average) cost / improve productivity (1) lower their prices (1) making their products more (internationally) competitive (1) increase demand for their goods (1) increase exports (1) raise quality (1) increase quality competitiveness (1). 5(d) Discuss whether or not cuts in taxes will reduce a 8 Level Description Marks deficit on the current account of a country’s balance of payments. 3 A reasoned discussion which accurately 6–8 examines both sides of the economic In assessing each answer, use the table opposite. argument, making use of economic information and clear and logical Why it might: analysis to evaluate economic issues • cut in corporation (corporate income) tax may increase and situations. One side of the willingness and ability to invest argument may have more depth than • higher investment may raise quality and reduce costs the other, but overall, both sides of the • increase exports and lower imports argument are considered and • cut in personal income tax may increase workers’ developed. There is thoughtful motivation, raise productivity and cut costs evaluation of economic concepts, • lower corporation (corporate income) tax could be terminology, information and/or data imposed on infant industries appropriate to the question. The • attract MNCs which can increase exports and reduce discussion may also point out the imports possible uncertainties of alternative • cuts in indirect taxes may lead to lower prices which decisions and outcomes. may increase the demand for domestic goods and reduce the demand for imported substitutes 2 A reasoned discussion which makes 3–5 • cuts in tariffs may make it easier for firms to import use of economic information and clear cheaper raw materials from abroad which may enable analysis to evaluate economic issues them to reduce prices increasing export and situations. The answer may lack competitiveness. some depth and development may be one-sided. There is relevant use of Why it might not: economic concepts, terminology, • cut in personal income tax may increase spending information and data appropriate to the which may increase total demand leading to inflation question. reducing international competitiveness • more imports may be purchased • exports may be diverted to the home market • reduce tax revenue and lower government spending • lower government spending on education, healthcare, transport could reduce productivity • lower taxes on imports (tariffs) may increase imports. 5(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for 0 no creditable content.

This question in 0455/22 Oct/Nov 2025

4 The Central African country Chad has a triangle-shaped population pyramid and a high level of poverty. It regularly has an overall deficit on the current account of its balance of payments. Chad usually has a surplus on its secondary income. However, its trade in goods, trade in services and primary income are all usually in deficit. Some economists suggest that the Chadian Government should impose import quotas to reduce its trade in goods deficit. (a) Define primary income. [2] (b) Explain two influences on the shape of a country’s population pyramid. [4] (c) Analyse the causes of poverty. [6] (d) Discuss whether or not imposing import quotas will reduce a trade in goods deficit. [8]

20 marks

Mark scheme: 4(a) Define primary income. 2 Very few candidates understand this term. Component of the current account of the balance of Award one mark if there is any understanding that it relates payments (1). to the balance of payments with other countries. Example of an item: profit / interest / dividends / wages earned abroad (1). 4(b) Explain two influences on the shape of a country’s 4 One mark each for two influences identified and one mark population pyramid. each for two explanations. Logical explanation which might include: If more than two influences are given, consider the first three. • birth rate / fertility rate (1) a high birth rate / fertility rate will result in a wide base for the pyramid (1) Note: accept low birth rate, high life expectancy, emigration • life expectancy / death rate / aging population (1) high with reverse explanation. death rate / low life expectancy will result in a narrow top for the pyramid (1) • migration (1) high immigration of people of working age would result in a wide middle in the pyramid (1) • gender balance (1) example of imbalance in overall shape of pyramid (1). 4(c) Analyse the causes of poverty. 6 Answer requires more than one cause of poverty to get full marks. Coherent analysis which might include the following. Reference to absolute and relative poverty may be relevant • Low quantity / quality of education (1) can reduce job to more than one bullet point but only reward each once. opportunities (1) low skilled jobs (1) low paid jobs (1). • Unemployment (1) lower income (1) reliant on welfare Maximum of three causes can be given a mark. benefits (1). • Illness / disability (1) poor healthcare (1) reduce ability to earn an income (1). • Old age (1) may have low or no state benefits (1) absolute poverty (1). • Uneven distribution of income / wealth (1) resulting in relative poverty (1). • Corruption (1) reducing tax revenue available to spend on reducing poverty (1). • Large families (1) many children (1) trapped in / child poverty (1). • Single parent families (1) parent unable to work (1) reliant on state benefits (1). • Poor housing (1) harms health (1) limited access to employment (1) high cost of living (1). • Natural disaster / conflict (1) causes loss of ability to work / earn income (1). • Geographical immobility (1) prevents access to paid jobs (1). • Work in agriculture (1) where wages are low / not regular income (1). • High inflation (1) cannot afford to buy basic necessities (1). 4(d) Discuss whether or not imposing import quotas will 8 Level Description Marks reduce a trade in goods deficit. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical analysis • restrict imports to evaluate economic issues and • lower supply may drive up price situations. One side of the argument may • consumers and firms may switch to domestic goods have more depth than the other, but • could reduce gap between import expenditure and overall, both sides of the argument are export revenue. considered and developed. • consumers and firms may switch to domestic substitutes There is thoughtful evaluation of • could reduce gap between import expenditure and economic concepts, terminology, export revenue. information and/or data appropriate to the question. The discussion may also Why it might not: point out the possible uncertainties of • import quotas may be higher than demand alternative decisions and outcomes. • depends on the breadth of goods affected – fewer goods, less effective 2 A reasoned discussion which makes use 3–5 • may not be domestic substitutes of economic information and clear • may be retaliation which could reduce export revenue analysis to evaluate economic issues • smuggling may occur and situations. The answer may lack some depth and development may be • reduction in import spending may appreciate currency one-sided. There is relevant use of value, reducing exports. economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content. L1 and up to 2 marks for an understanding of import quotas.

This question in 0455/23 Oct/Nov 2025