Firms — Paper 2 · IGCSE Economics (9-1) 0987

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 0987/21 May/June 2020

5 Mali is a low income and low productivity country in Africa. Its government is using fiscal policy to reduce poverty. The country’s main industries are agriculture and gold mining. In recent years, however, there have been some changes in its resource allocation. The country is developing its iron ore industry. Globally, the iron ore industry is one which has experienced a significant number of mergers in recent years. (a) State two key questions about how resources are allocated. [2] (b) Explain two fiscal policy measures that can be used to reduce poverty. [4] (c) Analyse why a country may have low productivity. [6] (d) Discuss whether or not mergers benefit an economy. [8]

20 marks

Mark scheme: 5(a) State two key questions about how resources are allocated. 2 One mark each for two from: What to produce, how to produce it, for whom / who gets what is produced. 5(b) Explain two fiscal policy measures that can be used to reduce poverty. 4 Logical explanation which might include: Rise in government spending on education (1) make it easier for people to gain jobs / better paid jobs (1). Rise in government spending on healthcare (1) providing a basic necessity / increase productivity of workers (1). Subsidise / free provision of food (1) providing a basic necessity / reduce absolute poverty (1). Subsidise / free provision of housing (1) helping those unable to afford housing (1). Increase in state benefits (1) e.g. paying more in unemployment benefit will raise the income of some of the poor (1). Use of progressive taxes / reduction of regressive taxes (1) reduce relative poverty (1). 5(c) Analyse why a country may have low productivity. 6 Coherent analysis which might include: Education may be low (1) and training may be low (1) workers may lack skills (1). Wages may be low (1) working conditions may be poor (1) reducing the motivation of workers (1). There may a lack of investment (1) workers working with out of date/low quality capital goods (1). Healthcare may be low (1) causing workers to be tired (1). 5(d) Discuss whether or not mergers benefit an economy. 8 In assessing each answer, use the table below. Level Description Marks 3 A reasoned discussion which accurately examines both 6–8 sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other but, overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 2 A reasoned discussion which makes use of economic 3–5 information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using economic definitions 1–2 and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no creditable 0 content. Why they might: • may enable the new firm to take greater advantage of economies of scale, lower average cost and lower prices, resulting in lower inflation • may enable the new firm to earn higher profits and spend more on research and development and investment. This could raise the quality of products and increase economic growth • may enable the new firm to compete more effectively internationally which could improve the current account position • a vertical merger can increase the efficiency of production by co- ordinating the production stages. This could increase productive potential. Why they might not: • the new firm may experience diseconomies of scale, higher average cost and higher prices. This may increase the inflation rate • a horizontal merger will reduce competition which can increase prices, reduce choice, lower efficiency and reduce quality. This may reduce international price competitiveness which may harm the country’s current account position. It could also lower the country’s economic growth rate • the new firm may rationalise and this may result in unemployment.

This question in 0987/22 May/June 2020

1 (a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. [1] (b) Identify two variable costs of producing palm oil. [2] (c) Explain one opportunity cost of conserving forests in Indonesia. [2] (d) Explain two external costs of the destruction of forests in Indonesia. [4] (e) Draw a demand and supply diagram to show the effect of a ban on burning stubble on the market for rice. [4] (f) Analyse the relationship between countries’ GDP per head ranking and HDI ranking. [5] (g) Discuss whether or not the immigration of workers would be likely to benefit the Indonesian economy. [6] (h) Discuss whether or not the Indonesian tourism industry will increase in the future. [6]

30 marks

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

This question in 0987/22 Oct/Nov 2020

5 The money supply in Bangladesh increased every year from 2010 to 2018. Changes in the money supply and the foreign exchange rate can affect a government’s macroeconomic policy aims, including full employment. There have been few mergers between commercial banks in Bangladesh, although its banks are larger than many of its other firms. (a) Identify two functions of money. [2] (b) Explain two reasons why commercial banks may want to merge. [4] (c) Analyse how a fall in a country’s foreign exchange rate could increase employment. [6] (d) Discuss whether or not it is an advantage to keep a firm small. [8]

20 marks

Mark scheme: 5(a) Identify two functions of money. Two from: Medium of exchange, store of value, standard of deferred payments, unit of account / measure of value. 2 Note: a description of the function gets the mark e.g. money can be used to buy and sell products, may be used to trade. Nothing for characteristics of money, 5(b) Explain two reasons why commercial banks may want to merge. Logical explanation which might include: Greater market power/share (1) eliminating a competitor / providing a greater range of services (1). More opportunity to take advantage of economies of scale (1) lower costs of production / higher profit / example e.g. share ATMs (1). May enable the merged bank to operate in more than one country / become a multinational company (1) access to new market (1). Become better known (1) large banks may be more likely to have a brand image (1). May enable rationalisation (1) eliminate duplication / rase efficiency (1). Survival (1) may have been loss making / at risk of going out of business (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Nothing for increase revenue. Question Answer Marks Guidance 5(c) Analyse how a fall in a country’s foreign exchange rate could increase employment. Coherent analysis which might include: A fall in a country’s foreign exchange rate will lower the price of exports (1) raise the price of imports (1) make domestically produced products more price competitive (1) reduce demand for imports (1) increase demand for exports (1) increase total demand (1) raise firms’ revenue and/or profits (1) encourage firms to increase output (1) take on more workers (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not it is an advantage to keep a firm small. In assessing each answer, use the table opposite. Why it might: • flexible, less people to consult, more in touch with consumers • may be able to provide more personal attention • may receive government subsidies • may be able to concentrate on a niche market • may have good labour relations • may avoid diseconomies of scale Why it might not: • may not be able to take advantage of economies of scale • may be driven out of business by larger competitors • may be difficult to raise finance • risk of being taken over by a larger firm • may have difficulty recruiting highly skilled workers • may not have the resources to survive a fall in demand 8 Accept an answer based on the advantages that large firms have over small firms. 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 0987/22 May/June 2021

1 (a) Calculate how many dollars 6400 Nigerian naira would have bought in 2019. [1] (b) Identify two ways a bank could increase demand for its services. [2] (c) State why a merger between two commercial banks is a horizontal merger. [2] (d) Explain two reasons why a large US commercial bank may charge a high price for its services. [4] (e) Analyse how an increase in unemployment may affect the Nigerian government’s budget. [4] (f) Analyse the relationship between countries’ average years of schooling and birth rates. [5] (g) Discuss whether or not a subsidy, given to farmers by the Nigerian government, would reduce the deficit on the current account of its balance of payments. [6] (h) Discuss whether or not the US government should impose a minimum price on chocolate. [6]

30 marks

Mark scheme: Question Answer Marks Guidance 1(a) Calculate how many dollars 6400 Nigerian naira would 1 have bought in 2019. 16 (1). 1(b) Identify two ways a bank could increase demand for its 2 services. Open more branches (1) carry out an advertising campaign (1) improve online / mobile banking (1). 1(c) State why a merger between two commercial banks is a 2 horizontal merger. Same stage of production / both in the tertiary (service) sector / same sector (1) same industry / same product / same service (1) can increase market share (1). 1(d) Explain two reasons why a large US commercial bank 4 One mark for each of two reasons identified and one mark may charge a high price for its services. for each explanation. Logical explanation which might include: High spending on opening new branches / advertising campaigns / developing online banking (1) need to get back costs / make a profit / may experience diseconomies of scale (1). May offer high quality services (1) have high demand / customers willing to pay a high price (1). High degree of monopoly / market power / control 32% of market (1) customers may have brand loyalty / reluctant to switch banks / lack of substitutes / inelastic demand / can charge high prices to earn high profits/raise total revenue / be a price maker (1). High incomes in the US (1) many customers have the ability to pay a high price (1). Employ skilled / well educated workers (1) so may pay high wages / may have high costs of production (1). 1(e) Analyse how an increase in unemployment may affect 4 the Nigerian government’s budget. Coherent analysis which might include: Likely to increase a deficit / reduce a surplus / may result in a budget deficit (1). Tax revenue likely to fall / budget likely to fall (1) due to lower incomes (1) less income tax revenue (1) lower profits (1) less corporation tax revenue (1) lower spending (1) less indirect tax revenue (1) government may cut taxes to reduce unemployment (1). Government spending likely to rise (1) more spending on e.g. benefits / subsidies to the poor / law and order/ healthcare (1) may be more spending on measures to reduce unemployment / expansionary fiscal policy (1) may spend less on other areas e.g. education (1). 1(f) Analyse the relationship between countries’ average 5 No marks for just stating what the figures are e.g. Germany years of schooling and birth rates. has 15 years of schooling and a birth rate of approximately 8. US has 14 years of schooling and a birth rate of Coherent analysis which might include: approximately 12. Argentina has 11 years of schooling and Overview a birth rate of approximately 16 etc. Generally, an inverse relationship / the more years of schooling, the lower the birth rate / the fewer years of schooling, the higher the birth rate (1). Supporting evidence Up to 2 marks maximum for two pieces of relevant supporting evidence e.g.: • Germany has the highest years of schooling and lowest birth rate (1) • Chad has lowest years of schooling and highest birth rate (1) • US has more years of schooling than Argentina and so a lower birth rate (1) • the three countries with three highest years of schooling have the three lowest birth rates (1). Exception Nigeria / Eritrea (1) Nigeria has more years of schooling than Eritrea but a higher birth rate (1). Comments More years of schooling is likely to cause people to form partnerships / have children later / focus on careers / increase awareness of contraception/family planning / increase health / reduce size of families (1) increase cost of raising children / having more children may reduce the ability of families to keep their children in education for many years / exception may be result of other influences e.g. differences in fertility rates / differences in social attitudes (1). 1(g) Discuss whether or not a subsidy, given to farmers by 6 Apply this example to all questions with the command the Nigerian government, would reduce the deficit on word DISCUSS the current account of its balance of payments. (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 It should raise supply / increase output (1) equivalent to outcome may differ is rewarded. lower cost (1) lower price (1) increasing international competitiveness (1). Generic example mark There may be more funds available to invest (1) raise quality (1) increase exports / reduce imports (1). Tax revenue may decrease… 1 Award up to 4 marks for logical reasons why it might not, ...because of reason e.g. incomes may be 1 which may include: lower. It may increase inefficiency (1) as firms rely on the subsidy (1) may not pass on the benefit of the subsidy to consumers Tax revenue may increase because incomes 0 (1). may be higher i.e. reverse of a previous Nigeria may have a high inflation rate (1) which may offset argument. the cost advantage of the subsidy (1). There may an increase in incomes at home (1) which may Tax revenue may increase because of a 1 increase imports / divert exports to the home market (1). different reason i.e. not the reverse of a There may be a recession abroad / decrease in incomes of previous argument e.g. government spending trading partners (1) which reduces exports (1). on subsidies may stimulate the economy more Lower export prices will not raise export revenue if demand than spending on education. is inelastic (1). The exchange rate may rise (1) increasing export prices / lowering import prices (1). Farmers may import e.g. more machinery (1). There may be adverse weather conditions / disease (1) which reduces quality / quality may remain poor (1). There may be import restrictions / increase in import restrictions imposed by other countries (1). 1(h) Discuss whether or not the US government should 6 A minimum price diagram without explanation can get a impose a minimum price on chocolate. maximum of 2 marks. These marks may be the equivalent of a combination of two of higher price, demand extending, Award up to 4 marks for logical reasons why it should, supply extending or a surplus being created. which may include: It will raise price (1) reduce demand / demand contracts / quantity demand falls / consumption falls. (1) reduce obesity (1). Social cost of eating chocolate may exceed social benefit (1) due to external costs (1) example e.g. cost on health service / may reduce need for government spending on healthcare (1) overconsumption of chocolate (1) move market closer to where social benefit equals social cost (1) increase welfare (1). May raise health of the population / eating chocolate may be unhealthy (1) raise labour productivity (1). There may be information failure (1) some chocolate is a demerit good (1). Award up to 4 marks for logical reasons why it should not, which may include: Poor may not be able to afford chocolate (1) regressive measure (1). Not everyone overweight / some may consume chocolate in quantities that are not harmful (1) may cause demand to switch to other high sugar products / discriminate against other high sugar products (1). It will encourage supply to extend (1) a surplus may develop (1). There may be an illegal market in chocolate (1). There may be a cost to the government (1) it may have to pay to monitor that the price is being charged (1) lower tax revenue from chocolate (1) may be an increase in unemployment (1). 1(h) Demand may be inelastic (1) resulting in a relatively small fall in demand / chocolate may be addictive (1). It depends on how high the minimum price is (1) may have no effect if set below the market equilibrium (1).

This question in 0987/22 Oct/Nov 2022

5 In Greece, rich households spend more than the average household. The amount of spending in an economy influences whether its production point is on or inside its production possibility curve (PPC). In 2020, household spending in Greece fell. This affected some firms’ plans to merge. It also increased unemployment. More than half of those unemployed in Greece had been unemployed for more than a year. (a) Identify two reasons why rich households spend more than the average household. [2] (b) Explain the significance of a production point inside a PPC and a production point on its PPC. [4] (c) Analyse why someone who has been unemployed for more than a year may not get another job. [6] (d) Discuss whether or not a government should encourage firms to merge. [8]

20 marks

Mark scheme: 5(a) Identify two reasons why rich households spend more than the average household. Two from:  higher incomes  find it easier to borrow  more confidence  more savings / more wealth  high cost of luxury goods and services  maintaining / showing status  rich households may choose to have large families 2 If more than two reasons are given, consider the first three. 5(b) Explain the significance of a production point inside a PPC and a production point on its PPC. Logical explanation which might include: A point inside a PPC means output is lower than potentially achievable (1) there are unemployed resources / there is inefficient use of resources (1). A point on a PPC means output is at its maximum (1) all resources are employed / full employment / there is efficient use of resources (1). A production point shows a combination of goods produced (1) example e.g. X capital goods and Y consumer goods (1). 4 One mark each for each of two significances identified and one mark each for each of two explanations. Question Answer Marks Guidance 5(c) Analyse why someone who has been unemployed for more than a year may not get another job. Coherent analysis which might include: May lose skills (1) qualifications may become out of date (1) may experience ill-health (1) lack of recent job experience (1) high cost of retraining (1) may become less attractive to employers (1). Skills may be outdated (1) industry in decline (1) will need retraining (1). Economy could be in recession (1) with high number of people unemployed and few vacancies (1). May lose confidence / become discouraged / depressed (1) put less effort into finding another job (1). Unemployed workers may be occupationally immobile (1) geographically immobile (1). Unemployment/welfare benefits may be high (1) may be above low wages / maybe sufficient to live on (1). May face discrimination (1) on grounds of e.g. age (1). May retire (1) and leave the labour force (1). 6 Question Answer Marks Guidance 5(d) Discuss whether or not a government should encourage firms to merge. In assessing each answer, use the table opposite. Why it should:  may result in economies of scale  lower average costs of production  lower prices for consumers  raise quality of products  increase international competitiveness and improve current account  improved performance may increase profits and corporation tax Why it should not:  may result in diseconomies of scale  may increase monopoly power / reduce competition  raise prices  may reduce innovation  rationalisation may result in some workers losing their jobs  should be left to market forces to decide. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0987/21 May/June 2023

2 In 2020, the largest Thai commercial bank merged with a smaller commercial Thai bank. It was expected that the merger would affect the price charged for bank services and the amount that would be lent. Thai commercial banks operate in the private sector. A growing private sector can move an economy towards a market economic system. (a) Identify two influences, other than price, on a customer’s choice of bank. [2] (b) Explain two reasons why a merger may result in higher prices for consumers. [4] (c) Analyse how an increase in bank lending can benefit an economy. [6] (d) Discuss whether or not a market economy allocates resources in the best possible way. [8]

20 marks

Mark scheme: 2(a) Identify two influences, other than price, on a customer’s choice of bank. Two from:  services provided  amount willing to lend  size of bank  online facilities  location  interest paid or charged  where family banks  advertising  green investments  community involvement  reputation  confidence in the bank / reliability / safety  relationship with staff  whether foreign currency can be exchanged 2 If more than two influences given, consider the first three. Not accepting brand loyalty. Accept whether the bank offers Islamic banking. Also accept interest on its own. 2(b) Explain two reasons why a merger may result in higher prices for consumers. Logical explanation which might include: More market power / less competition / monopoly power / may become a monopoly (1) can raise price as consumers will not be able to switch to other firms / demand may become more inelastic / can control price / become a price maker (1). May experience diseconomies of scale / example of a diseconomy of scale that may be experienced (1) raise prices due to higher (average) costs (1). Carrying out the merger may be expensive (1) price raised to cover the cost of e.g. retraining staff / making some staff redundant (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. If more than two reasons given, consider the first three. Can accept higher cost if linked to diseconomies of scale or carrying out the merger. Not accepting the idea of higher costs because the firm will be larger (idea of higher total costs). Question Answer Marks Guidance 2(c) Analyse how an increase in bank lending can benefit an economy. Coherent analysis which might include: It could increase consumer expenditure (1) increase total demand (1) raise employment /reduce unemployment (1) reduce deflation (1). It could increase investment / increase spending on capital goods (1) benefit from advances in technology / innovation / better quality capital goods (1) increase productivity (1) raise the quality of products (1) lower price (1) increase exports (1) lower imports (1) improve the current account balance (1) cause economic growth / increase GDP / increase output / encourage firms to expand / new firms to set up (1). May enable the people to improve skills / to set up small business / buy basic necessities / reduce poverty (1). Lend to firms in financial difficulties (1) stop them going out of business (1). 6 Question Answer Marks Guidance 2(d) Discuss whether or not a market economy allocates resources in the best possible way. In assessing each answer, use the table opposite. Why it might:  price moves to reflect changes in demand and supply  resources move from products falling in demand towards those rising in demand  profit incentive for firms to produce what consumers demand / consumer sovereignty  competition results in efficiency which drives down costs and prices  changes in wages move labour to those jobs most in demand Why it might not:  merit goods are under-consumed so not enough resources are devoted to their production  demerit goods are overconsumed so too many resources are devoted to their production  no resources are devoted to public goods as there is no incentive to produce them  there may be factor immobility  monopolies may restrict output  external costs and benefits will not be taken into account when deciding on the allocation of 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 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 0987/22 May/June 2023

4 In 2020, Australia had a high national minimum wage (NMW). The NMW is received by some people who work on Australian dairy farms. Australia produces milk and soft drinks. Milk is purchased by some people as an alternative to soft drinks. Some dairy farms and some small firms went out of business in 2020. The year saw an increase in the value of the country’s floating foreign exchange rate. (a) Identify two reasons why a government may set an NMW. [2] (b) Explain two causes of an increase in the value of a country’s floating foreign exchange rate. [4] (c) Analyse how an increase in the price of milk may affect the revenue earned by milk producers and soft drinks producers. [6] (d) Discuss whether or not small firms are more likely to go out of business than large firms. [8]

20 marks

Mark scheme: 4(a) Identify two reasons why a government may set an NMW. Two from:  to raise wages  to reduce poverty / raise living standards  reduce income inequality  to correct market failure / ensure fair wages / prevent exploitation of workers  to encourage job seeking / reduce unemployment  reduce emigration 2 If more than two reasons given, consider the first three. 4(b) Explain two causes of an increase in the value of a country’s floating foreign exchange rate. Logical explanation which might include: Increase in demand for the currency (1) rise in exports / exports exceeding imports / current account surplus (1) due to higher incomes abroad (1) lower inflation / deflation / lower prices for exports (1) better quality (1). Increase in foreign investment in the country (1). Higher rate of interest (1) attracts hot money flows (1). Speculation (1) that the currency will rise in value (1). Decrease in supply of the currency (1) fall in imports / fall in current account deficit (1) fall in incomes at home (1) lower inflation / higher prices of imports / fall in quality of imports (1). The country’s firms reducing investment in other countries (1) Lower rate of interest in other countries (1) reduce hot money going out of the country (1). Speculation (1) that other currencies will fall in value (1). 4 Causes may be linked here in different ways. Also allow explanation of two causes of an increase in demand for the currency or two causes of a decrease in supply of the currency. Credit higher demand mark only once and lower supply mark only once. Question Answer Marks Guidance 4(c) Analyse how an increase in the price of milk may affect the revenue earned by milk producers and soft drinks producers. Coherent analysis which might include: Demand for milk is likely to fall / contraction in demand (1) The effect on the revenue of milk producers will depend on price elasticity of demand (1) if demand is elastic, revenue will fall (1) as demand will fall by a greater percentage than the rise in price (1) if demand is inelastic, or demand is constant, revenue will increase (1) as demand will fall by a smaller percentage than the rise in price (1). Demand for soft drinks is likely to increase (1) the revenue of soft drinks producers is likely to rise (1) as soft drinks are a substitute / alternative to milk (1). 6 Question Answer Marks Guidance 4(d) Discuss whether or not small firms are more likely to go out of business than large firms. In assessing each answer, use the table opposite. Why they might:  may have high average costs  less able to take advantage of economies of scale  may be less likely to get a loan from commercial banks  may have less retained profits  may be new, testing out whether there is demand, inexperienced entrepreneurs Why they might not:  less likely to experience diseconomies of scale  may receive financial assistance from the government  may have customer loyalty  may be more flexible  may be a monopoly in a niche / specialist market. 8 Level Description Marks 3 A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall, both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 2 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 1 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 0 A mark of zero should be awarded for no creditable content. 0

This question in 0987/22 May/June 2023

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

30 marks

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

This question in 0987/21 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 0987/21 May/June 2024

2 In 2020, wages paid to Mexican workers, including those in the primary sector, fell. This fall contributed to a 9% rise in poverty in the country. In the same year, many small and medium-sized firms closed down. The country also suffered from traffic congestion. Its capital, Mexico City, is the world’s most congested city. (a) Identify two possible opportunity costs of producing primary sector products. [2] (b) Explain two policy measures which may reduce poverty. [4] (c) Analyse how the closure of firms may harm consumers. [6] (d) Discuss whether or not a government should encourage people to walk to school and work. [8]

20 marks

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

This question in 0987/22 May/June 2024

1 (a) Calculate the percentage of the Jordanian labour force employed in the secondary sector. [1] (b) Identify two components of the current account of Jordan’s balance of payments. [2] (c) Explain the main type of unemployment experienced by Jordan in 2020. [2] (d) Explain two advantages the Jordanian economy may gain from the mergers between its tourism firms. [4] (e) Analyse the relationship between birth rate and average age. [4] (f) Analyse, using a demand and supply diagram, how an increase in population size will affect the market for clothing. [5] (g) Discuss whether or not the Jordanian government should spend more on renewable energy. [6] (h) Discuss whether or not the Jordanian central bank should have raised the rate of interest in 2021. [6]

30 marks

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

This question in 0987/22 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 0987/21 May/June 2025

2 The world’s four largest accountancy firms experienced a decline in demand for their services at the start of 2023. One cause of this lower demand was a decline in mergers in other industries, including the chocolate industry. Three of the accountancy firms reduced the number of new workers they hired and the other accountancy firm announced job losses. The ability of workers to gain new jobs is influenced by their mobility. (a) Identify two advantages a firm may gain from merging with another firm. [2] (b) Explain two disadvantages workers may experience as a result of losing their jobs. [4] (c) Analyse the advantages of an increase in labour mobility. [6] (d) Discuss whether or not the demand for chocolate is likely to be price elastic. [8]

20 marks

Mark scheme: 2(a) Identify two advantages a firm may gain from merging 2 If more than two advantages given, consider the first three. with another firm. Two from: • reduce competition / increase market power / increase market share / may become a monopoly / become a price maker / higher barriers to entry • gain economies of scale / reduce (average) cost / increased efficiency / higher productivity • gain control over outlets • gain control over raw materials • rationalisation • greater profit / revenue • new ideas / access to improved technology • spread risks • more resources / more labour / more capital / more enterprise / more land • higher demand / more sales / larger size of firm • gain consumer data 2(b) Explain two disadvantages workers may experience as 4 One mark each for each of two reasons identified and one a result of losing their jobs. mark each for each of two explanations. Logical explanation which might include: Loss of income (1) resulting in lower living standards / lower If more than two reasons given, consider the first three. quality of life / poverty / inability to buy necessities / lower purchasing power / lower spending / lower consumption / Reward ‘making it more difficult to get another job’ only lower spending on a particular good or services e.g. once. education/healthcare/housing/holidays (1). Loss of skills (1) may need to gain new skills / as miss out on training / make it more difficult to get another job / lower paid job / reduced mobility of labour (1). May be more likely to get into debt (1) harder to repay any past loans (1). Harder to get a loan (1) banks may not expect them to be able to repay loan (1). Loss of fringe benefits (1) example e.g. health insurance / home (1). Less attractive to future employers / bad reputation (1) make it more difficult to get another job (1). Mental health problems / stress / illness / divorce (1) loss of self-esteem / loss of self-confidence / making it more difficult to get another job / reduced life expectancy / due to difficulty/time to find another job (1). May have to sell possessions (1) to gain money / to meet bills (1). Demotivation (1) give up looking for work / become a discouraged worker / become voluntarily unemployed (1). Reduced ability to save (1) reduced ability to cope with unexpected events / to finance e.g. education / healthcare / retirement (1). 2(c) Analyse the advantages of an increase in labour 6 Reward but do not expect reference to reduce labour market mobility. failure. Coherent analysis which might include: • An increase in the ability of workers to change jobs / provide more choice of jobs (1) occupational mobility of labour (1) improve skills / productivity / experience by changing jobs (1). • An increase in the ability of workers to move from one area to another (1) geographical mobility of labour (1) move to a more pleasant area (1). • Can reduce structural / regional / frictional (1) unemployment (1) enable workers to get new jobs more quickly / reduce long term unemployment (1) may enable some workers to find higher paid jobs / gain higher wages / reduce poverty / higher standard of living / better working conditions (1) raise tax revenue / reduce government spending on benefits (1). • It can reduce labour shortages (1) reduce costs / cost- push inflation (1) increase output / increase GDP / cause economic growth (1). • It can enable firms to respond more quickly/more fully to changes in consumer demand / increase flexibility / change in size (1) reduce surpluses and shortages of products (1). 2(d) Discuss whether or not the demand for chocolate is 8 Level Description Marks likely to be price elastic. 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 have substitutes analysis to evaluate economic issues • may be seen as a luxury and situations. One side of the argument • PED of particular brands will be more elastic than may have more depth than the other, but demand for chocolate as a whole overall both sides of the argument are • the longer the time period, the easier it will be for considered and developed. There is consumers to change their spending patterns. thoughtful evaluation of economic concepts, terminology, information Why it might not: and/or data appropriate to the question. • may be addictive The discussion may also point out the • may be seen as a necessity possible uncertainties of alternative • may take up a small % of income. decisions and outcomes. 2 A reasoned discussion which makes use 3–5 of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

This question in 0987/22 May/June 2025