Economics 0455/22 February/March 2022: question paper and mark scheme

Mark scheme

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

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

Mark scheme

3(a) Define diseconomies of scale. 2 Higher average costs of production (1) as a result of a larger scale of production / growing too large / internal diseconomies of scale affect a firm whereas external diseconomies of scale affect an industry (1). 3(b) Explain two reasons why a high-income household may borrow more 4 One mark for each of two reasons identified than a low-income household. and one mark for each explanation. Logical explanation which might include: Note: the focus here is on households not Banks may be more willing to lend to them (1) more confident of being firms. repaid (1). Banks may charge a low interest rate (1) as a high-income household may Nothing for just high-income households spend borrow a larger amount (1). more. High-income households may be more confident of being able to repay the loan / able to repay the loan quickly (1) may expect income to rise / have greater job security (1). High-income households may have significant wealth / assets (1) able to offer collateral (1). High-income households may borrow for a big-ticket items/luxuries (1) e.g. to buy an expensive house, expensive car, to pay for children’s education / to increase/maintain status / living standards (1). 3(c) Analyse, using a diagram, the effect of an increase in output on 6 Do not reward a demand/supply/demand and average fixed cost (AFC) and total fixed cost (TFC). supply or PPC diagram. Up to 4 marks for the diagram: Axes correctly labelled: costs and output (1) TFC horizontal line (1). AFC downward sloping (1). Curves correctly labelled: TFC / FC and AFC (1). Up to 2 marks for coherent written analysis which might include: A higher output will have no effect on total fixed cost / fixed costs do not change with output in the short run / fixed costs have to be paid even when output is zero (1). Average fixed cost will fall with output / as the same cost figure is divided by a higher output / AFC is TFC divided by output (1). 3(d) Discuss whether or not the introduction of a national minimum wage 8 Level Description Marks will reduce poverty. 3 A reasoned discussion 6–8 In assessing each answer, use the table opposite. which accurately Why it might: examines both sides of • low-paid workers may be better paid the economic • higher income may enable people to buy basic necessities argument, making use • reduce absolute poverty of economic • pay gap between high-income and low-income workers may be information and clear reduced, lower relative poverty and logical analysis to • higher pay may increase spending, creating more jobs and income evaluate economic • higher tax revenue may enable the government to spend more on issues and situations. reducing poverty One side of the • higher wages may increase productivity which could encourage firms argument may have to hire more workers. more depth than the other, but overall both Why it might not: sides of the argument • may be set below current low pay and so have no effect are considered and • may result in some workers losing their jobs developed. There is • unemployed will have lower income thoughtful evaluation of • may discourage MNCs operating in the country economic concepts, • does not help people who are poor because of age, unemployment or terminology, sickness information and/or data • may result in inflation, leaving purchasing power/real wages appropriate to the unchanged. question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 3(d) Level Description Marks 2 A reasoned discussion 3–5 which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should 0 be awarded for no creditable content.

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4(a) Identify two reasons why immigration may increase. 2 Accept e.g. higher income on its own. If mention e.g. lower income must link to other Two from: countries /abroad. • higher income / better living standards (in the country) / lower income abroad • more job opportunities (in the country) / fewer job opportunities abroad • better working conditions (in the country) / worse working conditions abroad • better education (in the country) / worse education abroad • better healthcare (in the country) / worse health care abroad • lower cost of living / higher cost of living abroad • lower taxes / higher taxes abroad • lower immigration controls • wars / famine / political unrest / natural disasters abroad. 4(b) Explain two consequences of unemployment. 4 One mark for each of two consequences identified and one mark for each explanation. Logical explanation which might include: Lower output / lower GDP / lower economic growth / producing below full capacity (1) inefficient use of resources / unused resources / lower exports (1). Lower income / lower wages / lower GDP per head (1) causing a rise in poverty / reduction in ability to buy basic necessities / fall in living standards / lower development (1). Lower total (aggregate) demand (1) lower inflation / deflation (1). Lower tax revenue (1) from (direct and indirect taxes) due to lower income / reduction in government spending (1). Increased government spending on unemployment benefits (1) opportunity cost / spending less on e.g. healthcare (1). Reduction in household spending on education / healthcare (1) reduce living standards / life expectancy (1). Unemployed workers may lose skills / become out of date with new technology (1) make it more difficult to gain employment (1). Unemployed workers may experience depression / low self-worth (1) worsen health (1). Possibility of a rise in crime (1) government may have to spend more on reducing crime / crime lowers people’s quality of life (1). 4(c) Analyse why more women may join a country’s labour force. 6 Coherent analysis which might include: Rise in pay (1) better job opportunities (1) due to a fall in discrimination (1) change in social attitudes (1). Improvements in education for girls (1) more female graduates / higher literacy (1) higher productivity / skills (1) higher demand for women workers (1). Rise in tertiary sector employment (1) higher proportion of women employed in the tertiary sector (1). Fall in birth rate (1) reduction in dependents / dependency ratio (1) rise in availability of childcare (1) making it easier to combine work and parenthood (1). Increase in population size (1) more women available to seek work (1). Reduction in male workers (1) due to e.g. emigration of male workers (1). Rise in part-time employment / increase in holidays / rise in flexible hours / increase in opportunity to work from home (1) allowing women to combine work with bringing up a family (1). More women may need / want to support their families financially (1) due to e.g. rise in cost of living / male workers losing their jobs / increase in divorce 1). May be government measures to encourage women to join the labour force (1). Rise in job security (1) improvement in working conditions / fringe benefits (1). 4(d) Discuss whether or not a government should encourage an increase 8 Level Description Marks in saving. 3 A reasoned discussion 6–8 In assessing each answer, use the table opposite. which accurately examines both sides of Why it should: the economic • will reduce spending which can reduce demand-pull inflation argument, making use • lower spending may reduce imports, improving the current account of economic balance information and clear • will provide finance for investment and logical analysis to • will provide a ‘safety net’ for households and firms evaluate economic • may be used to finance children’s education and/or family’s healthcare issues and situations. • may provide income when retired. One side of the argument may have Why it should not: more depth than the • may result in a recession other, but overall both • will reduce total demand which can decrease economic growth sides of the argument • may cause (cyclical) unemployment are considered and • incomes may be too low for people to be able to save developed. There is • may reduce tax revenue from indirect taxes. 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. 4(d) Level Description Marks 2 A reasoned discussion 3–5 which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should 0 be awarded for no creditable content.

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5(a) Define the economic problem. 2 Finite/limited resources (1) unlimited/infinite wants (1). Wants exceeding resources (2). Scarcity (1). 5(b) Explain whether land is mobile. 4 Logical explanation which might include: Most land is geographically immobile (1) fixed in one place / cannot move from one place to another place (1). Some forms of land e.g. wildlife can be moved from one place to another (1). Land is occupationally mobile (1) capable of changing its use / e.g. land can be used for farming or housing (1). 5(c) Analyse the causes of a shift to the right in the supply curve of 6 Note: no marks for a diagram. chocolate. Coherent analysis which might include: A shift to the right of the supply curve means that more will be supplied at each and every price / supply has increased due to a non-price factor/influence (1). Lower costs of production (1) due to any cause (other than tax or subsidy) e.g. lower wages / higher productivity / lower transport costs (1). Subsidy (1) providing an additional income / effectively lowering costs / providing a financial incentive (1). Advances in technology (1) increasing output per unit of resource / increase efficiency / raise productivity of capital (1) Good harvest of cocoa / raw material (1) perhaps due to improvement in weather conditions / improvements in fertilisers (1) reducing price of raw material (1) increasing supply of raw material (1). Lower tax on chocolate / lower indirect tax / lower corporate tax (1) making it more profitable to produce (1). Fall in price/rise in cost of production/ fall in profitability of another product produced by chocolate firms (1) encouraging the switch of some resources to chocolate production (1). 5(d) Discuss whether or not consumers would benefit from a firm 8 Level Description Marks becoming a monopoly. 3 A reasoned discussion 6–8 In assessing each answer, use the table opposite. which accurately examines both sides of Why they might: the economic • a monopoly may have lower average costs of production due to argument, making use economies of scale of economic • lower costs of production may result in lower prices information and clear • a monopoly may have larger profits which can be spent on R&D and logical analysis to • higher R&D can improve the quality of the product evaluate economic • may be a state-owned monopoly which seeks to increase social issues and situations. welfare. One side of the argument may have Why they might not: more depth than the • monopoly may use market power to increase price other, but overall both • lack of competition may reduce pressure to improve quality sides of the argument • consumers will have less choice are considered and • there may be a lack of availability if the monopoly restricts supply to developed. There is drive up price thoughtful evaluation of • a monopoly may have higher average costs due to diseconomies of economic concepts, scale. terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 5(d) Level Description Marks 2 A reasoned discussion 3–5 which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple 1–2 attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should 0 be awarded for no creditable content.