Economics 0455/21 May/June 2022: question paper and mark scheme

Mark scheme

1(a) Calculate the number of births in Cyprus in 2019. 1 12 240 (1) 1(b) Identify two indicators of living standards. 2 Do not reward GDP GDP per head / per capita (1). HDI (1). Life expectancy / healthy people (1). Proportion of people in primary sector (1). Level of education / qualifications (1). 1(c) State why the global market for grapes was in disequilibrium 2 in 2019. Bad weather / failure of the grape harvest (1) there was a shortage (1) which means demand exceeded supply (1). 1(d) Explain two reasons why more well-educated workers tend to 4 One mark for each of two reasons identified and one work past retirement age than less-educated workers. mark for each explanation. Logical explanation which might include: Well-paid / good work benefits (1) which provides an incentive to work for longer / high job satisfaction / enter workforce late (1). Healthy (1) and so more able to work for longer / remain productive (1). Work in jobs which do not require physical strength / less tiring (1) older workers tend to be less strong / allows them to continue working as long as remain fit (1). 1(e) Analyse how a rise in a country’s retirement age is likely to 4 affect its government’s budget. Coherent analysis which might include: A rise in the retirement age / less people retired will reduce the cost of pensions (1) may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1). More people in work will increase incomes / businesses expand production (1) raise direct tax revenue (1) spending will increase (1) raise indirect tax revenue (1). 1(f) Analyse the relationship between inflation rates and current 5 Do not accept current account balance is high or low. account balances. Answers need to refer to size of surplus or deficit. Coherent analysis which might include: Simply using data without explanation is description rather than analysis. Overview: Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1). Supporting evidence−max of 2 marks Mongolia has the highest inflation rate (1) and the largest current account deficit (1) Mongolia / Kenya / Nepal have the highest inflation rates (1) all have a current account deficit (1). Iceland / Slovenia have a low rate of inflation (1) but have a current balance of payments surplus (1) Exception: Cyprus lowest inflation rate (1) but a current account deficit / 3rd highest current account deficit (1). Comments: Most of the table shows the expected relationship. (1) Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1) 1(g) Discuss whether or not, after 2019, Cyprus’s production 6 Apply this example to all questions with the possibility curve (PPC) is to shift to the right. command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which may include: Each point may be credited only once, on either side of an argument, but separate development as to Quantity / quality of resources may have increased (1) retirement how/why the outcome may differ is rewarded. age may have increased (1) people living longer (1) so labour force is likely to have increased (1). Generic example Marks Investment may have increased (1) due to low interest rates (1) Tax revenue may decrease 1 more capital goods would increase productive capacity (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. Quantity and quality of resources may have decreased (1) land Tax revenue may increase because 0 quality is decreasing (1) which will reduce the productivity of land incomes may be higher i.e., reverse of a (1). previous argument. Tax revenue may increase because of a 1 Entrepreneurs may emigrate (1) reducing the supply of enterprise different reason i.e., not the reverse of a / skilled workers (1). previous argument e.g., government spending on subsidies may stimulate the Birth rate is falling (1) size of workforce may fall in future (1) economy more than spending on education. Covid−19 may have reduced productivity (1). For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (1). 1(h) Discuss whether or not adopting capital-intensive production 6 will benefit consumers. Award up to 4 marks for logical reasons why it might, which may include: It may reduce costs of production / more efficient / may result in economies of scale (1) lower costs may reduce prices (1). It may avoid disruption to supply (1) as no industrial action / strikes (1). It may be quicker / faster (1) to respond to changes in consumer demand (1) It may raise quality (1) as absence of human error (1). Award up to 4 marks for logical reasons why it might not, which may include: Products may be standardised / lack variety (1) individual wants may not be met (1). Capital equipment may break down / costly to maintain (1) causing delays in production (1). Initial high cost of capital equipment (1) may push up prices (1).

Mark scheme

2(a) Define foreign exchange rate. 2 The price / value of a currency (1) in terms of another currency / currencies (1). 2(b) Explain two reasons why the value of a country’s exports 4 One mark for each of two reasons identified and one may be greater than the value of its imports. mark for each explanation. Logical explanation which might include: Price of exports may be lower than price of other countries’ products (1) due to e.g., devaluation / depreciation / weaker currency / higher productivity / lower inflation (1). Quality of exports may be higher than the quality of other countries’ products (1) due to e.g., more investment / better education / specialisation (1). Incomes abroad may have increased (1) enabling foreigners to buy more of the country’s products (1). Protective measures (1) restrict imports / subsidise domestic firms or exports (1). May have high value exports e.g., oil (1) with high (global) demand (1). Recession / low demand at home (1) results in fewer imports / encourages firms to export (1). 2(c) Analyse how an increase in income tax can affect a country’s 6 inflation rate. One mark for a simple explanation that an increase in income tax can reduce the rate of inflation Coherent analysis which might include: An increase in income tax will reduce disposable income / purchasing power (1) this may reduce consumer spending (1) lower total demand (1) this may encourage firms to reduce prices / reduce price rises (1) lower demand-pull inflation (1). Increase in income tax may encourage workers to press for wage rises (1) increase costs of production (1) cause cost-push inflation (1). Income tax revenue can be used to provide e.g., subsidies to certain goods and services (1) reducing prices (1). 2(d) Discuss whether or not governments should aim for a high 8 rate of economic growth. Level Description Marks 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 economic growth can raise incomes clear and logical analysis to higher incomes can raise living standards evaluate economic issues and economic growth can reduce unemployment situations. One side of the economic growth can increase tax revenue allowing the argument may have more depth government to spend more on e.g., education. than the other, but overall, both sides of the argument are Why it should not: considered and developed. There may deplete non-renewable resources which can reduce is thoughtful evaluation of future growth economic concepts, terminology, may result in pollution information and / or data may put other demands on workers who may have to appropriate to the question. The work long hours discussion may also point out the may lead to a deficit on current account of the balance of possible uncertainties of alternative payment decisions and outcomes. may result in greater inequality risk of inflation 2 A reasoned discussion which 3−5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 2(d) 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) Identify two influences on what products a person buys. 2 Accept any reasonable example. Two from e.g.: Price (1) income (1) tastes / habit / culture (1) advertising (1) availability (1) social media / influencers (1) quality (1) government regulations/ laws (1) age (1). 3(b) Explain two ways a government could decrease the 4 One mark for each of two ways identified and one consumption of demerit goods. mark for each explanation. Logical explanation which might include: Impose an (indirect) tax / tariff on goods (1) raise the price (1). Provide information (1) about harmful effects (1). Ban / regulate (1) to stop or reduce the availability of the product (1). Set minimum price above market price (1) raise prices (1). Import quota (1) restricts availability for purchase (1). 3(c) Analyse why workers may join a trade union. 6 Award no marks for examples of industrial action Coherent analysis which might include: Understanding of role of trade union (1) to gain greater bargaining power (1) through industrial action (1) to negotiate with employers (1) for higher wages (1) better working conditions / health & safety (1) fringe benefits (1). To represent them (1) in disputes with employers (1) e.g., to protect their rights (1) against unfair dismissal / discrimination (1) increase job security (1) compensation for work injuries (1). To gain greater influence on the government (1) to e.g., increase a national minimum wage (1) increase job opportunities (1). Unions may provide services to members (1) training courses (1) improving health and safety (1) benefits e.g. discounts at gyms (1) financial and legal advice (1). 3(d) Discuss whether or not tertiary sector workers are paid more 8 than primary sector workers. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6−8 accurately examines both Why they might be: sides of the economic may be more skilled / qualified argument, making use of may be more productive economic information and tertiary products may have higher value added clear and logical analysis to tertiary products may have higher demand, so industries evaluate economic issues and may have greater ability to pay higher wages. situations. One side of the argument may have more Why they might not be: depth than the other, but may be less likely to belong to a trade union overall, both sides of the some workers may be in lower paid jobs e.g., cleaners argument are considered and some tertiary sector firms / occupations may be declining developed. There is thoughtful some may be less experienced evaluation of economic some may not be in promoted posts concepts, terminology, primary sector products may have higher value added information and / or data e.g., oil appropriate to the question. primary sector workers in a developed country may be The discussion may also point paid more than tertiary workers in an undeveloped out the possible uncertainties country. of alternative decisions and primary jobs may be more dangerous e.g., mining outcomes. 3(d) Level Description Marks 2 A reasoned discussion which 3−5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at 1−2 using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content. Note: accept approach that discusses why primary sector workers may be better paid. Define privatisation. 2 Award 1 mark for an understanding of the private sector Privatisation is the sale of state-owned / public sector firms / public sector assets (1) to the private sector / investors / Accept change / movement / turned from public to individuals (1). private sector

Mark scheme

4(d) Explain the difference between absolute and relative poverty. 4 No mark for stating those in relative poverty can meet their basic needs but not their wants. Logical explanation which might include: Absolute poverty is a lack of basic necessities (1) e.g., food, clothing or housing / e.g. $1.90 a day (1). Relative poverty is being poor in comparison to other people (in their country) (1) example of a measure such as less than 60 of average income / not able to participate fully in normal activities in their country (1). 4(d) Analyse how specialisation can benefit firms. 6 Maximum of one mark for any number of examples of economies of scale. Coherent analysis which might include: Note that some students only write about division of Understanding of specialisation of a firm / workers become skilled labour which is not the question but some of the at producing a particular product (1) lower cost of production (1) features also apply to specialisation of firms. gain a good reputation / high quality of good or service (1) increase demand (1) increase output (1) raise revenue (1) increase profit (1). May enable firms to gain advantage of economies of scale (1) example (1) become (internationally) competitive (1). Easier to mechanise / improve technology (1) speeds up / faster production / become more efficient (1).

Mark scheme

5(a) Identify the reward to labour and the reward to land. 2 Wages (1) rent (1). 5(b) Explain how an increase in a worker’s income can affect their 4 No marks for causes of higher income. mobility of labour. Logical explanation which might include: An increase in income will enable a worker to spend more on their education (1) increasing occupational mobility (1). Higher income will make housing more affordable (1) increasing geographical mobility (1). Higher income will make high-tech products more affordable (1) enabling a worker to be better informed (1) increasing both occupational and geographical mobility (1). Higher incomes may discourage a worker from changing jobs / may be content with current job (1) may be satisfied with income level (1) reducing geographical and occupational mobility (1). Higher incomes make it easier to afford car / use public transport (1) increases geographical mobility (1). 5(c) Analyse, using a demand and supply diagram, how a greater 6 Note awareness of the health benefits of eating fruit will affect the market for fruit. Coherent analysis which might include: Up to 4 marks for 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 E1 and E2 (1). Up to 2 marks for written analysis which might include: Greater awareness of health benefits will encourage more people to eat / demand fruit (1) Raise price / raise quantity traded (1). Note: Axes do not have to be labelled price of fruit and quantity of fruit to get mark. No marks for stating price changes from P1 to P2 or quantity changes from Q1 to Q2. To get first mark in written analysis they must refer to fruit. 5(d) Discuss whether or not a market economic system benefits 8 an economy. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6−8 accurately examines both Why it might: sides of the economic profit incentive and competition may increase efficiency argument, making use of wage differentials may encourage effort economic information and price may be low and quality high clear and logical analysis to country’s products may be internationally competitive evaluate economic issues and economic growth may be high situations. One side of the consumer choice may be high argument may have more consumer sovereignty may be high depth than the other, but overall, both sides of the Why it might not: argument are considered and risk of market failure developed. There is thoughtful public goods will not be provided evaluation of economic demerit goods are overconsumed and merit goods and concepts, terminology, under-consumed information and / or data problem of pollution and other external costs appropriate to the question. unemployment may be high as lack of co-ordination The discussion may also point some countries may lack the support structures e.g., out the possible uncertainties legal system to enforce property rights to allow market of alternative decisions and forces to work efficiently. outcomes. monopolies can be created 5(d) Level Description Marks 2 A reasoned discussion which 3−5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at 1−2 using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.