Economics 0455/22 February/March 2021: question paper and mark scheme

Mark scheme

1(a) Calculate the number of Germans aged over 65 in 2017. 1 Accept 17.8 m and 18 m. 17.82m / 17 820 000 (1). 1(b) Identify two measures of living standards. 2 If more than two are given, consider the first two. Two from: • GDP per head / average income • HDI • quality of education / education 1(c) Explain one cause of globalisation. 2 One mark for the cause identified and one mark for the explanation. 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). 1(d) Explain two advantages of an increase in the 4 One mark each for each of two advantages identified and one occupational mobility of labour. mark each for each of two explanations. Logical explanation which might include: Do not credit ‘more skilled’ more than once. 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). 1(e) Analyse why the price of German luxury cars may have 4 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). 1(f) Analyse whether the strength of German trade unions 5 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). 1(g) Discuss whether or not an ageing labour force will 6 Apply this example to all questions with the command reduce productivity. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for why it might: Each point may be credited only once, on either side of an • May discourage investment (1) workers will have argument, but separate development as to how/why the less capital equipment to work with (1). outcome may differ is rewarded. • Older workers may find it more difficult to adapt to new technology (1) may resist change (1) there may Generic example Mark not be the time to train them (1) may be less mobile (1). Tax revenue may decrease… 1 • Older workers may be less fit (1) less able to do manual work (1) may have time off sick (1) may have ...because of reason e.g. incomes may be lower. 1 less energy / get tired (1) work slower (1). Tax revenue may increase because incomes may 0 Award up to 4 marks for why it might not: be higher i.e. reverse of a previous argument. • May encourage investment because of shortage of workers / desire to rely less on labour / help workers Tax revenue may increase because of a different 1 (1). reason i.e. not the reverse of a previous argument • Older workers may have more experience (1) built e.g. government spending on subsidies may up more skills / qualifications (1) may need less stimulate the economy more than spending on training / have received more training (1) may train education. 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). 1(h) Discuss whether or not immigration will increase a 6 Increase in the size of the labour force linked to why it might. 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).

Mark scheme

2(a) Define economic growth. 2 Allow one mark for higher income / average income / GDP per head. An increase in the country’s / economy’s output (2). An increase in real (1) GDP (1) over time (1). An increase in output (1). An increase in a country’s / economy’s productive capacity (2). An increase in productive potential (1). 2(b) Explain the possible opportunity cost to India of 4 exporting more textiles. Logical explanation which might include: Opportunity cost is the (next) best alternative (1) forgone (1). Textiles that have been exported might have been sold on the home market (1) may have increased choice (1) lowered price (1). Resources may have been moved to producing the textile exports / resources used to produce textiles could have been used to produce other products (1) output / exports of other products may have been reduced (1) these products may provide more revenue / lose revenue from not exporting these products (1). 2(c) Analyse how higher government spending could 6 A maximum of 3 marks for a list-like approach. increase economic growth. Coherent analysis which might include: Higher government spending can increase total (aggregate) demand / government spending is a component of GDP (1). Higher government spending on education and training / healthcare / infrastructure (1) can raise productivity / skills / efficiency / quality of labour (1) attract MNCs (1) increase productive potential (1) lower costs of production (1) increase employment / reduce unemployment (1) lower prices (1) increase output (1) increase exports (1). Government spending on benefits (1) will increase purchasing power of the poor (1) raising consumer expenditure (1). Increased government subsidies (1) could reduce costs of production (1) increase investment (1) increase profits (1) provide an incentive for firms to produce more (1). 2(d) Discuss whether or not a government can reduce 8 unemployment without increasing inflation. Level Description Marks 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 • workers who have been unemployed for some time to evaluate economic issues and may accept jobs without a rise in wages situations. One side of the argument may • government spending on education and training may have more depth than the other, but increase both total (aggregate) demand and total overall both sides of the argument are (aggregate) supply / may reduce costs of production considered and developed. There is • government subsidies may encourage firms to thoughtful evaluation of economic produce more and take on more workers and lower concepts, terminology, information and/or prices data appropriate to the question. The • tax revenue may be raised to finance any increase in discussion may also point out the government spending possible uncertainties of alternative • government may reduce trade union power which decisions and outcomes. could encourage employers to take on more workers 2 A reasoned discussion which makes use 3–5 Why it might not: of economic information and clear • may increase total (aggregate) demand causing analysis to evaluate economic issues demand-pull inflation and situations. The answer may lack • inflation more likely to occur if economy is initially some depth and development may be close to full employment one-sided. There is relevant use of • may increase wages and costs of production, economic concepts, terminology, causing cost-push inflation information and data appropriate to the • cuts in taxes may not lead to higher consumer question. expenditure and investment if there is a lack of confidence • government may instruct central bank to lower foreign exchange rate which could increase price of imports 2(d) Example of L3 Answer Yes, a government can reduce unemployment without Level Description Marks increasing inflation. If the government spends money on 1 There is a simple attempt at using 1–2 training and education more people would be skilled enough economic definitions and terminology. to do jobs and firms would hire more people due to the return Some reference may be made to from greater productivity. This would also increase the economic theory, with occasional productive potential of the economy as it would enable firms understanding. to produce more goods per worker. Hence unemployment could reduce without inflation as it would be accompanied 0 A mark of zero should be awarded for no 0 with an increase in the productive potential of the economy creditable content. and greater output. Also, if there is spare capacity in the economy due to under-utilisation of resources, the increased income due to lower unemployment would not lead to inflation as there would be room for better, more efficient utilisation of resources. Hence a rise in the price level can be avoided by greater productive potential. However, if the economy is operating close to full capacity, a reduction in unemployment could cause inflation if the rise in income and the money supply rise is greater than the increase in productive potential, Government spending to reduce unemployment might cause a much greater rise in total demand. This could lead to demand-pull inflation. It may also lead to cost-push inflation if the unemployment rate is so low firms have to compete for workers leading to a wage- price spiral. Workers tend to take up a greater proportion of costs of firms. Hence scarcity of workers could cause the costs of firms to greatly increase and so the total supply would reduce leading to cost-push inflation. 2(d) Example of an L2 answer Yes, the government can reduce unemployment without increasing inflation by using supply-side policy measure. This includes providing education and training to workers. Due to this the efficiency of workers who will be able to produce better quality goods in large amount reducing the average costs to the firm. This will also help in reducing the selling price or keeping it the same which might not cause inflation. Although if using measures like expansionary fiscal or monetary policy will raise the demand for workers, offering them higher wages could add to firms’ average cost hence selling price might increase, causing inflation. Also, by using supply-side policy measure the improved skills and productivity will want them to charge higher wages to hire them. This will increase the average cost and the selling price of the firm, causing inflation. Example of an L1 answer Yes government can reduce unemployment without increasing inflation by attracting more MNCs. By keeping policies such as this, the amount of people you have to employ is increased. By providing subsidy of jobs, providing financial help to firms which are in a loss so that they can reduce the chances of increasing the rate of inflation when employing more workers.

Mark scheme

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

Mark scheme

4(a) Identify two qualities of a good tax. 2 Two from: • certainty / easy to understand / people know how much to pay • convenience / easy to pay • economy / cheap to collect • efficiency / not harm performance of markets • equity / fair / based on ability to pay • flexibility / easy to change 4(b) Explain two reasons why governments tax cigarettes. 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Logical explanation which might include: To raise revenue (1) demand for cigarettes is price-inelastic / smoking is addictive / to spend on e.g. education (1). To discourage consumption / to discourage production (1) they are a demerit good / cigarettes are more harmful than smokers realise / they cause health problems (1). To reduce external costs / they create external costs (1) impose a cost on third parties / cause pollution / health problems for non-smokers (1). To improve the current account position (1) cigarettes may be imported (1). 4(c) Analyse how a central bank could reduce inflation. 6 Accept but do not expect reference to increasing reserve / liquidity ratio (1). Coherent analysis which might include: A central bank could use contractionary monetary policy (1). Maximum of 3 marks for a list-like approach. A central bank could increase the rate of interest (1) increase saving (1) reduce borrowing (1) reduce consumer expenditure (1) reduce total (aggregate) demand (1) reduce demand-pull inflation (1). A central bank could reduce the money supply (1) print less money / sell government bonds (1) restrict bank lending (1) fewer loans may reduce investment (1) reduce consumer expenditure (1). Raising the exchange rate (1) may reduce the price of imports (1) lowering cost-push inflation (1). One effect of a lower interest rate might be to lower costs of production (1) reduce cost-push inflation (1). 4(d) Discuss whether or not an increase in government 8 subsidies will reduce a deficit on the current account of Level Description Marks the 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 analysis Why it might: to evaluate economic issues and • reduce costs of production situations. One side of the argument may • lower prices, making products more internationally have more depth than the other, but competitive overall both sides of the argument are • export revenue may rise considered and developed. There is • import expenditure may fall thoughtful evaluation of economic concepts, terminology, information and/or Why it might not: data appropriate to the question. The • firms may not lower prices discussion may also point out the • firms may be encouraged to be inefficient possible uncertainties of alternative • demand for exports may not rise if quality is poor decisions and outcomes. • demand for exports and imports may be price- inelastic 2 A reasoned discussion which makes use 3–5 • other countries may retaliate by imposing trade of economic information and clear restrictions / giving subsidies analysis to evaluate economic issues • subsidies to consumers can increase demand for and situations. The answer may lack imports and divert exports to the home market some depth and development may be • subsidies to producers may increase demand for one-sided. There is relevant use of imports of raw materials and capital goods economic concepts, terminology, information and data appropriate to the Example of an L3 answer question. An increase in government subsidies would reduce a deficit in the current account of the balance of payments as domestic firms could use the subsidy to lower the price of its goods, improve quality and hence make its products more internationally competitive. This would increase exports of the country’s products. It would also reduce imports as citizens would substitute the imported products with the more competitive domestically made goods. 4(d) The increased government subsidies may also allow firms to make more profits and households to save more. The profits Level Description Marks and extra savings may be invested abroad. This would 1 There is a simple attempt at using 1–2 increase the primary income on return on investments would economic definitions and terminology. come from abroad back to the home country. This would also Some reference may be made to reduce a current account deficit. economic theory, with occasional On the other hand, government subsidies may not reduce the understanding. current account deficit if domestic industries become dependent on them and don’t actually improve their methods 0 A mark of zero should be awarded for no 0 of production and lower costs. This would not make their creditable content. products more internationally competitive and demand for exports would not increase. It may not also improve the deficit in the short run if firms use the subsidies to import raw materials and capital goods from abroad. However, on the long run it would lead to better products and lower pricing, making the products of domestic firms more internationally competitive. Example of an L2 answer Current account deficit means import expenditure is more than export revenue. This happens when export prices are higher than import prices. Providing subsidies to producers can cause them to lower prices and export more. It can also increase firms’ confidence and they may invest more. However, sometimes subsidy may increase imports. A subsidy may make firms more inefficient and produce lower quality products. The subsidy may also be given to firms making products not in demand and so the firms will not have the potential to grow. Example of an L1 answer Government subsidy refers to an incentive provided by the government to producers. Governments can reduce deficit on the current account of the balance of payments by increasing the total supply, it will also result in an increase in GDP and promote economic growth.

Mark scheme

5(a) Define a mixed economic system. 2 One with a public / government sector (1) and a private sector / use of market forces (1) One which makes use of the price mechanism (1) and government directives (1). 5(b) Explain the difference between a point inside a PPC and 4 Maximum of 2 marks for point inside and a maximum of 2 a point outside a PPC marks for point outside. Logical explanation which might include: A point inside indicates unemployed resources (1) inefficient use of resources / wasted resources (1) output is below potential output (1) an attainable point (1). A point outside is unattainable (1) not enough resources / beyond productive potential / only achievable with more resources / only achievable with better quality resources / not achievable with current resources / will be possible with future economic growth (1). 5(c) Analyse why an actor may decide to become a teacher. 6 Maximum of 3 marks for a list-like approach. Coherent analysis which might include: Wage rate may be higher (1) enable more goods and services to be purchased (1) higher living standards (1) demand for teachers may increase (1). Greater job security (1) actors often experience frictional/casual unemployment (1). More sociable/convenient working hours (1) may fit in more with having children (1) teachers may also enjoy longer holidays (1). Working conditions may be better (1) may be a safer environment (1) may have better pensions (1). May find they are better qualified / suited to be a teacher (1) more likely to be successful in the career (1). May gain more job satisfaction (1) enjoy helping children learn (1). 5(d) Discuss whether all monopolies have low costs of 8 production. Level Description Marks 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 some have: information and clear and logical analysis • may earn high profits and so may have incentive to to evaluate economic issues and reinvest situations. One side of the argument may • may be small e.g. a local monopoly / low total costs have more depth than the other, but • may be large and so may experience economies of overall both sides of the argument are scale considered and developed. There is • state-owned monopolies may be subsidised thoughtful evaluation of economic concepts, terminology, information and/or Why some do not: data appropriate to the question. The • lack of competition may reduce pressure to keep discussion may also point out the costs low possible uncertainties of alternative • may be small so do not benefit from economies of decisions and outcomes. scale • may be large so experience diseconomies of scale / 2 A reasoned discussion which makes use 3–5 high average costs of economic information and clear • may be producing in a country with a high inflation analysis to evaluate economic issues rate and situations. The answer may lack some depth and development may be Example of an L3 answer one-sided. There is relevant use of Monopolies are firms that dominate the market for a particular economic concepts, terminology, product. They supply 100% of the market and usually there information and data appropriate to the are no substitutes to the product it supplies. There is no question. competition for a monopoly. A monopoly may not have a low cost of production as it may allocate resources inefficiently. Monopolies do have any competition as they may simply produce low quality products and earn large profits without working hard to lower costs of production. 5(d) A monopoly will usually require a large scale of production to operate and may soon grow too large and face diseconomies Level Description Marks of scale. It may have supply constraints pushing up the cost 1 There is a simple attempt at using 1–2 of production. It may be subject to labour diseconomies as economic definitions and terminology. the workers feel alienated in such a large enterprise leading Some reference may be made to to extra cost of labour disputes. All this could promote economic theory, with occasional increased costs of production. Furthermore, governments understanding. may implement regulations that the monopoly must rigidly follow increasing the cost of production at each step. 0 A mark of zero should be awarded for no 0 However, monopolies may be able to maintain a low cost of creditable content. production as it grows. It can benefit from economies of scale. The advertising cost will be spread over a large base, lowering costs. Banks will provide loans easily due to available collateral and suppliers will also reduce costs as they can deliver bulk orders lowering their transport costs. These internal economies of scale help monopolies keep low costs of production. Monopolies may invent new production methods, technologies and invest in R & D to keep their costs low to compete with international firms. They may also try to be efficient if there are high fines or high taxes in the economy. Example of L2 answer Monopolies might have low cost of production since the benefit from greater economies of scale such as purchasing economies which means buying in bulk and receiving discounts from the supplier. Another economies of scale could be technical economies which is investing with more capital goods, increasing the productive capacity and reducing average cost. 5(d) Although having higher economies of scale, there may be diseconomies of scale like managerial diseconomies, which means firms having problems in management of the company, which means firms having problems in management of the company, this will reduce productivity and hence increasing cost of production. Another diseconomy could be communication problems which might occur between the entrepreneur, the workers and the managers. Example of an L1 answer Monopolies are single firms where they don’t have any other competitors. They might lose money often because it is very tough job to run a monopoly company. They could have low cost of production because if they produce more the price might be the same but if the consumers doesn’t want the products would go to waste.