Economics 0455/21 May/June 2021: question paper and mark scheme

Mark scheme

1(a) Calculate the value of Nigeria’s exports of goods in 2017. 1 $ is not essential. $43.1bn 1(b) Identify two examples of capital goods. 2 Two from: • [delivery] vehicles • machines • [office] equipment 1(c) Explain whether Nigeria had a budget deficit or a budget 2 surplus in 2017. • budget deficit (1) • government spending exceeded tax revenue (1) • government spending was $19.5bn and tax revenue was $12.9bn (1) 1(d) Explain how government spending on training may 4 increase tax revenue in the long run. Logical explanation which might include: • Training may increase skills of workers (1) raise productivity (1) raise wages / incomes (1) increase job opportunities / employment / reduce unemployment (1) increase income tax revenue (1). • Higher wages may increase spending / demand (1) increase indirect tax revenue (1). • A more productive labour force may reduce costs of production (1) raise profits (1) increase corporation tax revenue (1). 1(e) Analyse how living standards in Nigeria compare with 4 the living standards in Ethiopia in 2017. Coherent analysis which might include: • Nigeria’s higher GDP per head (income) (1) suggests Nigerians may have been able to enjoy more goods and services (1). • Nigeria has a lower life expectancy (1) suggesting poorer healthcare (1). • Nigeria has a higher average number of years spent at school (1) suggesting the labour force may be more educated (1). • Nigeria has a higher percentage of underweight five-year olds (1) suggesting poor nutrition / income inequality (1). • Overall comment: Nigeria’s income per head and average years spent at school suggests a higher living standard but life expectancy and percentage of five years underweight suggests a lower living standard (1). 1(f) Analyse how a government could encourage firms to 5 increase their investment. Coherent analysis which might include: • Reduce the rate of interest (1) making it cheaper to borrow (1) encouraging borrowing as consumer spending is likely to rise (1). • Lower corporation tax (1) increasing the funds available to invest (1) increasing the incentive to invest as return from investment would rise (1). • Create greater economic certainty / confidence (1) by e.g. keeping inflation low and stable / not changing government spending and taxation frequently (1) making it easier for firms to plan / it can take time to get a return from investment (1). • Provide subsidies/grants/loans (1) decreasing cost of investments (1) encouraging MNCs (1). • Raise tariffs (1) increasing demand for home produced goods (1). • Less government regulation/policies (1) reduces costs for firms (1) more willing to invest (1). 1(g) Discuss whether or not an increase in Nigeria’s 6 Apply this example to all questions with the command population will benefit its economy. word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Award up to 4 marks for why it might: • Fall in death rate (1) may indicate improved healthcare Each point may be credited only once, on either side of an (1). argument, but separate development as to how/why the • Total (aggregate) demand will increase (1) may enable outcome may differ is rewarded. existing firms to expand / increase output (1) new firms to set up (1) attract MNCs (1). Generic example Mark • Labour force may increase (1) causing total (aggregate) supply to increase / raise productive capacity (1) Tax revenue may decrease… 1 increase output / GDP (1). • May move country towards optimum population (1) if ...because of reason e.g. incomes may be 1 there are unused resources (1). lower. • Net immigration will increase labour force (1) and reduce dependency ratio (1) Tax revenue may increase because 0 • More tax revenue (1) can be spent on improving e.g., incomes may be higher i.e. reverse of a public services (1). previous argument. Award up to 4 marks for why it might not: Tax revenue may increase because of a 1 • Birth rate is rising (1) will increase dependency (1) different reason i.e. not the reverse of a resources which may have increased economic growth previous argument e.g. government may have to be devoted to rearing the children (1). spending on subsidies may stimulate the • Labour force may fall in the short run (1) to look after the economy more than spending on education. children (1). • Pressure will be put on the environment (1) there may be more pollution (1) causing overcrowding / poor health (1). • If food output cannot be increased (1) may be more malnourishment/famine / poverty (1) more food is required / food may have to be imported (1) food prices may increase (1). 1(g) • Population is rising but age structure may be changing (1) as there is net emigration of young people (1) may result in reduction in labour force (1). • [Opportunity] cost for government (1) which has to spend on health/education rather than infrastructure (1). • Increase in output to meet demand (1) results in faster usage of resources in country (1) and shortages (1). 1(h) Discuss whether or not an increase in Nigeria’s import 6 tariff on rice would increase the output of Nigerian rice. Award up to 4 marks for why it might: • A higher tariff may raise the price of imported rice (1) may reduce demand for / consumption of imported rice (1) may cause Nigerians to demand more home- produced rice as it is cheaper (1) effect would be greater, the greater the elasticity of demand for the import of rice (1) may enable Nigerian rice farmers to raise their price / make more profit (1). • A tariff may raise government tax revenue (1) some of this could be used to subsidise Nigerian rice farmers / modernise farming methods and so raise productivity (1). Award up to 4 marks for why it might not: • Nigerian farmers are less productive than Asian competitors (1) have high(er) costs of production (1) Nigerian price may still be higher even with the higher import tariff (1). • The supply of Nigerian rice may be price-inelastic (1) so even if Nigerian farmers could sell their rice for more, they may have difficulties adjusting supply (1). • More Nigerian rice will not be sold if quality is poor (1) consumers my prefer the varieties of rice produced in other countries (1) other countries retaliate by imposing higher tariffs (1) current account surplus may be reduced (1). • Increase in import tariffs may be small (1) making little difference to import prices and consumption (1). • Not enough resources/ factors of production e.g., farmers (1) to produce more rice in Nigeria (1).

Mark scheme

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

Mark scheme

3(a) Define cyclical unemployment. 2 Nothing for a fall in demand for a product. • Workers without jobs (1) • due to a lack or fall in total (aggregate) demand (1) • more people unemployed than there are job vacancies (1) • in a recession / economic downturn (1). 3(b) Explain two ways a firm could increase the productivity 4 One mark each for each of two ways identified and one of its workers. mark each for each of two explanations. Logical explanation which might include: • Raise wages / performance related pay / commissions (1) increase motivation of workers (1). • Provide training (1) increase workers’ skills / efficiency (1). • Division of labour by firm (1) enables greater specialisation (1) • Buy capital goods / invest (1) workers will be working with better equipment (1). • Reduce working hours (1) workers may feel fresher / more alert (1). • Improve working conditions (1) reduce stress (1). • Subsidise workers’ healthcare (1) making them fitter / fewer days lost through illness (1). • Working from home (1) reduce stress from travelling (1). 3(c) Analyse the advantages of a low rate of inflation. 6 ‘Increasing employment / lowering unemployment’ can only be credited once. Coherent analysis which might include: • Low inflation means prices are still rising (1) but not a high rate (1). • May stop purchasing power being reduced too much / wages may keep pace with inflation (1). • May increase international price competitiveness (1) as may be below the inflation rate of other countries (1) increasing exports (1) reducing imports (1) improving the current account position (1). • May create greater certainty / stability (1) as costs may not be rising significantly (1) encouraging firms / MNCs to invest (1) increasing output / GDP (1) increasing employment / lowering unemployment (1). • May encourage saving (1) as real value may be maintained (1) provide funds for investment (1). • It may raise profit (1) if demand-pull (1) encouraging firms to expand (1) increasing employment / lowering unemployment (1). • May stop a random redistribution of income (1) protecting savers (1). • Low menu costs (1) reduce pressure on firms’ costs of production (1). 3(d) Discuss whether or not a fall in a country’s 8 Level Description Marks unemployment rate will reduce poverty in that country. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and • increase the income of those who gain jobs clear and logical analysis to • absolute poverty may be reduced with more people being evaluate economic issues and able to buy basic necessities situations. One side of the • tax revenue may rise argument may have more depth • the government could spend more on benefits for the than the other, but overall both poor sides of the argument are • the government could spend more on education, considered and developed. There reducing future poverty is thoughtful evaluation of economic concepts, terminology, Why it might not: information and/or data appropriate • jobs may be part-time, low-paid, at national minimum to the question. The discussion wage may also point out the possible • jobs may be seasonal uncertainties of alternative • relative poverty may increase if extra jobs are gained by decisions and outcomes. the well-paid • the unemployment rate may fall but unemployment may 2 A reasoned discussion which 3–5 rise if there are more people in the labour force makes use of economic information • may be more retired people living in poverty and clear analysis to evaluate • sick and disabled people may not be able to get out of economic issues and situations. poverty The answer may lack some depth • unemployment is only one of a number of factors and development may be one- affecting poverty sided. There is relevant use of • absolute poverty may remain economic concepts, terminology, information and data appropriate to the question. 3(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 0 for no creditable content.

Mark scheme

4(a) Define the labour force. 2 • Those who are economically active (2). • Those willing (1) and able to (work) (1). • The employed (1) and the unemployed (1). 4(b) Explain two causes of an ageing population. 4 One mark each for each of two causes identified and one mark each for each of two explanations. Logical explanation which might include: • A fall in the death rate / increase in life expectancy (1) resulting from better healthcare / better nutrition / higher income / better lifestyles (1). • A fall in the birth rate (1) resulting from higher cost of raising children / fall in child benefit / increase in women working / increase in use of family planning / fall in infant mortality / reduction in need for children to support parents due to provision of state pensions or healthcare (1). • Rise in net emigration of mainly young-aged people (1) resulting from higher incomes abroad / increase in job opportunities abroad (1). 4(c) Analyse how a fall in the value of a country’s foreign 6 exchange rate could reduce a deficit on the current account of its balance of payments. Coherent analysis which might include: • Foreign exchange rate is the price / value of one currency in terms of another currency or currencies (1) a fall in the value of a foreign exchange rate means that the domestic currency buys less foreign currency / depreciates (1). • A fall will reduce price of exports (1) raise demand for exports (1) increase export revenue (1) money flows into country which will reduce Balance of Payments deficit (1) if demand is elastic (1). • Increase price of imports (1) reduce demand for imports (1) reduce import expenditure (1) reduces the money flows out of the country which reduces the Balance of Payments deficit (1) if demand is elastic (1). 4(d) Discuss whether or not an economy will benefit from an 8 Level Description Marks increase in consumer expenditure. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it might: use of economic information and clear and logical analysis to • may increase total (aggregate) demand which may evaluate economic issues and encourage firms to expand situations. One side of the • cause economic growth argument may have more depth • reducing cyclical unemployment than the other, but overall both • raise tax revenue enabling the government to spend sides of the argument are more on education and healthcare considered and developed. There • eliminate / reduce deflation is thoughtful evaluation of • raise inflation to the inflation target rate economic concepts, terminology, information and/or data appropriate Why it might not: to the question. The discussion may also point out the possible • may cause demand-pull inflation especially if economy is uncertainties of alternative at full capacity decisions and outcomes. • may increase spending on imports • may divert exports to the home market 2 A reasoned discussion which 3–5 • may cause a deficit on the current account of the balance makes use of economic information of payments and clear analysis to evaluate • may reduce long run economic growth as resources may economic issues and situations. be diverted away from producing capital goods The answer may lack some depth • may increase the consumption of demerit goods and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 4(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.

Mark scheme

5(a) Identify two industries, other than agriculture, that 2 operate in the primary sector. Two from e.g.: Mining, fishing, forestry, oil extraction 5(b) Explain two possible disadvantages to an economy of a 4 One mark each for each of two disadvantages identified fall in its agricultural output. and one mark each for each of two explanations. Logical explanation which might include: • Shortage of food / famine (1) may have to import more food (1) export less food (1) worsen the current account position (1). • Price of food may rise (1) may increase poverty / might worsen health (1). • Less food production (1) unemployment may increase (1) if lack of labour mobility / structural unemployment (1). • May result in migration from rural to urban areas (1) putting pressure on resources in urban areas (1). • Economic growth / GDP will fall (1) if lower agricultural output is not offset by rise in output of secondary and tertiary sectors (1). 5(c) Analyse how a central bank could avoid deflation. 6 • Deflation is a fall in the price level (1). • The central bank could lower the rate of interest (1) reduce return from saving (1) encourage borrowing (1) encourage a rise in consumer expenditure (1) encouraging firms to raise their prices (1). • It could increase the money supply (1) increasing bank lending (1) increasing investment (1). • Expansionary monetary policy (1) increases total (aggregate) demand (1) causing prices to rise (1). 5(d) Discuss whether or not a firm should have growth as its 8 Level Description Marks main objective. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making Why it should: use of economic information and • may increase market share clear and logical analysis to • may increase market power evaluate economic issues and • may increase profits / keep shareholders happy situations. One side of the • may enable the firm to take greater advantage of argument may have more depth economies of scale than the other, but overall both • may increase pay and job security of managers / sides of the argument are directors considered and developed. There • may make it more difficult for another firm to take it over is thoughtful evaluation of as will involve a greater cost economic concepts, terminology, information and/or data appropriate Why it might not: to the question. The discussion • if demand is falling, survival may be a more appropriate may also point out the possible main objective uncertainties of alternative • if demand is limited e.g. a niche market, growth may be decisions and outcomes. an unlikely objective • profit maximisation as an objective, if successful, will 2 A reasoned discussion which 3–5 provide the funds for growth in the longer run makes use of economic information • state-owned enterprise may have social welfare as an and clear analysis to evaluate objective economic issues and situations. • growth may result in diseconomies of scale The answer may lack some depth • growth may put pressure on workers which could lower and development may be one- productivity / result in higher labour turnover sided. There is relevant use of • may make it more attractive for a firm to take it over economic concepts, terminology, information and data appropriate to the question. 5(d) Level Description Marks 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded 0 for no creditable content.