Economics 0455/21 May/June 2023: question paper and mark scheme

Mark scheme

1(a) Calculate Australia’s unemployment rate in 2021. 1 0.56 / 14 × 100 4% Allow 4 without percentage 1(b) Identify two substitutes for coal. 2 Two from: gas offshore wind / wind power solar power / panels 1(c) Explain one economy of scale that could benefit a coal- 2 One mark for the economy of scale identified and one mark mining firm. for an explanation. Managerial / labour economy (1) employing specialist workers e.g. mining engineers (1). Technical economy (1) employing efficient / technologically advanced equipment e.g. drones (1). External economy of scale (1) example e.g. skilled labour force (1). 1(d) Explain two influences on the price elasticity of supply 4 One mark each for each of two influences identified and one of coal. mark each for each of two explanations. Storage time (1) expensive to store so inelastic supply (1). Construction of new mine / production time (1) takes a long time, so inelastic supply (1). Stocks (1) may make supply elastic (1). 1(e) Draw a demand and supply diagram to show how 4 setting a maximum price below the equilibrium price will affect a market. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Demand and supply curves correctly labelled (1). Price line set below the equilibrium (1). Demand shown as greater than supply (1) e.g. has the two dotted lines downwards (it does not have to be labelled Qs and Qd). Note: Accept unlabelled price line / line drawn only to demand curve. Accept shortage if correctly identified on the diagram. Do not accept demand greater than supply if demand and supply curves are incorrectly drawn 1(f) Analyse whether large coal-producing countries are 5 Responses do not have to be in the format suggested but likely to be net exporters of coal. they should address the expected / normal outcome, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected outcome: Large coal producing countries may have a surplus to sell / may have grown their production in order to sell abroad (1) most of the evidence supports this relationship (1) Supporting evidence: Five of the seven countries consume less coal than they produce (1) calculation e.g. US could have exported 11 million tonnes / Australia could have exported 394 million tonnes or simply the difference (1). Analysis: Countries that produce more coal than they consume may benefit from economies of scale / can export because their prices are low (1). Exceptions: China or India are an exception (1) as they consumed more coal than they produced (1). Analysis: they may have been net importers (1) since had used up stocks of coal / need more energy as a developing country (1) may not be able to export coal if world demand for coal is low / countries may both import and export coal (1). 1(g) Discuss whether or not an increase in the size of its 6 Apply this example to all questions with the command coal industry will benefit the Australian economy. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which Each point may be credited only once, on either side of an may include: argument, but separate development as to how/why the may increase GDP / economic growth (1) increasing outcome may differ is rewarded. living standards / raise incomes / reduce poverty (1) may reduce unemployment (1) structural unemployment Generic example Mark (1) may improve current account position / have a surplus Tax revenue may decrease … 1 (1) as Australia seems to be a net exporter of coal (1) may increase tax revenue (1) increasing government’s … because of reason e.g. incomes may be lower. 1 ability to spend (1) economies of scale (1) result in lower prices for Tax revenue may increase because incomes may 0 households and industries (1). be higher i.e. reverse of a previous argument. Award up to 4 marks for logical reasons why it might not, Tax revenue may increase because of a different 1 which may include: reason i.e. not the reverse of a previous argument may increase pollution (1) lowering living standards / e.g. government spending on subsidies may cause health issues (1) reduce tourism / negative stimulate the economy more than spending on impact on current account (1) education. other forms of power may not be developed (1) example (1) some workers may leave other jobs (1) these jobs may have better working conditions (1) coal mining is a relatively dangerous industry (1) so life expectancy may be reduced / creates chronic illnesses / workers unable to work (1). Global demand for coal may fall (1) impact upon Australia e.g. unsold stock (1). May rapidly deplete stocks (1) leading to lower exports (1) and less employment (1). 1(h) Discuss whether or not Australia is likely to have a 6 budget deficit in 2026. Award up to 4 marks for logical reasons why it might, which may include: unemployment is forecast to increase (1) so there may be more government spending on unemployment benefits (1) less income tax revenue (1) there may be more government spending on retraining unemployed workers (1) some of the rise in population may result in more government spending (1) e.g. on pensions / healthcare / education (up to 2 marks) budget deficit in previous years (1) would mean interest would have to be paid on the debt that has built up (1). Award up to 4 marks for logical reasons why it might not, which may include: population and the labour force are forecast to increase (1) so there may be more taxpayers / fewer claiming benefits (1) tax revenue may rise (1) due to higher profits / higher tax rates (1) GDP is forecast to increase (1) more people in work (1) which would be likely to increase direct and indirect tax revenue (1) state support for industries may fall (1) may have been high in 2021 due to Covid-19 (1).

Mark scheme

2(a) Identify two functions of money. 2 Note: a description of the function, without the term, gets a mark e.g. money can be used to buy and sell products, may Two from: be used to trade. Medium of exchange Unit of account / measure of value Nothing for characteristics of money. Store of value Standard of deferred payments If more than two functions are given, consider the first three. 2(b) Explain how improved education may affect the demand 4 Only accept demand for cigarettes may increase if linked to for cigarettes and for fresh fruit. higher income (resulting from improved education). Logical explanation which might include: One mark for each of two reasons identified and one for It may reduce demand for cigarettes (1) people may be each of two explanations. better informed about harmful effects / cigarettes are a demerit good (1). It may increase demand for fresh fruit (1) people may be better informed about beneficial effects / fresh fruit is a merit good / may gain better paid jobs and so able to afford fresh food (1). 2(c) Analyse the causes of an increase in a government’s tax 6 revenue. Coherent analysis which might include: Tax revenue is government income / part of government fiscal policy (1) which can be spent on government objectives e.g. education (1) Increase in employment (1) increase in income (1) More convenient (1) easier to pay (1) and collect the tax (1) higher income tax revenue (1) Increase in spending (1) higher indirect tax revenue (1) Increase in profits (1) higher corporation tax (1) Increase in population (1) more people to pay taxes (1) Change in tax rates (1) higher tax rates can increase revenue without a change in income / spending / profits (1) lower tax rates may reduce tax avoidance / evasion (1) increase incentives (1) Greater efficiency in tax collection (1) reduction in corruption / simpler forms (1) Wider tax base (1) more products / more people taxed (1) Increase in imports (1) higher revenue from tariffs (1). 2(d) Discuss whether or not an increase in unemployment 8 Level Description Marks benefit payments would reduce poverty. 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 raise incomes of those on low incomes to evaluate economic issues and may enable them to buy more basic necessities situations. One side of the argument may may reduce absolute poverty have more depth than the other, but may increase total demand overall, both sides of the argument are higher total demand may reduce unemployment considered and developed. There is thoughtful evaluation of economic Also enable them to seek education / become more concepts, terminology, information and / or employable data appropriate to the question. The discussion may also point out the possible Why it might not: uncertainties of alternative decisions and may be a disincentive to find employment outcomes. people may become dependent on benefits will not help all those on low incomes e.g. the retired 2 A reasoned discussion which makes use of 3–5 and the sick economic information and clear analysis to may not reduce relative poverty evaluate economic issues and situations. some of the unemployed may not claim benefits The answer may lack some depth and opportunity cost – government could spend on e.g. development may be one-sided. There is education which might be more effective. relevant use of economic concepts, terminology, information and data Size of unemployment benefit may be small and may be appropriate to the question. less than inflation 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Mark scheme

3(a) Identify two reasons why death rates may vary between 2 Do not accept differences in population size as these affect countries. number rather than rate. Two from differences in: If more than two reasons are given, consider the first three. income / standard of living healthcare education nutrition lifestyles / suicide rates average age spread of Covid / infectious diseases war / conflict natural disasters air pollution / water pollution conditions of work level of crime 3(b) Explain two causes of an increase in the size of a 4 One mark each for each of two causes identified and one country’s labour force. mark each for each of two explanations. Logical explanation which might include: Change in the birth rate (1) rise will mean more people of working age in the long run / fall will enable more parents to be in the labour force (1). Immigration (1) many immigrants are of working age (1). Rise in retirement age (1) people will work for longer (1). Fall in school leaving age (1) people will be in education for a shorter period (1). Fall in the death rate / rise in life expectancy (1) fewer people dying before reaching retirement age (1). Changes in social culture (1) allowing more women to work (1). Increase in size of population of working age (1) reason (1). Rise in wage levels (1) attracts people to re-enter the labour market (1). 3(c) Analyse how an increase in labour productivity in a 6 country can increase a surplus on the current account of its balance of payments. Coherent analysis which might include: Output per worker (hour) increases (1) may reduce average cost of production (1) lower prices (1) may increase the quality of exports (1). These changes may increase international competitiveness of exports / make exports cheaper (1) demand for exports may increase (1) export revenue may rise (1). Higher relative prices of imports (1) lower relative quality of imports (1) these changes may decrease international competitiveness of imports (1) demand for imports may decrease (1) import expenditure may fall (1). Output increases (1) allowing more exports (1) and less imports (1). 3(d) Discuss why some countries may experience lower 8 Level Description Marks inflation in the future and some may not. 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 might: information and clear and logical analysis advances in technology may reduce costs of production to evaluate economic issues and increases in education and healthcare could raise situations. One side of the argument may labour productivity have more depth than the other, but globalisation may increase international competition overall, both sides of the argument are trade union power may fall, lowering wage increases considered and developed. There is successful government policy measures e.g. reducing thoughtful evaluation of economic demand concepts, terminology, information and / or data appropriate to the question. The discussion may also point out the possible Why some might not: uncertainties of alternative decisions and consumers may become optimistic and spend more outcomes. governments may increase their spending the rate of interest may fall 2 A reasoned discussion which makes use of 3–5 total demand may increase economic information and clear analysis to raw materials may run out evaluate economic issues and situations. rising cost of energy and rising food prices. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Mark scheme

4(a) Identify two influences on which country a person 2 If more than two influences are given, consider the first decides to work in. three. Two from: wages / GDP per head working conditions job opportunities / job security qualifications required family ties language spoken immigration restrictions personal safety/ freedom from persecution living standards / cost of living better welfare / healthcare / education provision 4(b) Explain, with examples, the difference between a merit 4 One mark each for each of two differences identified and good and a public good. one mark each for each of two examples Logical explanation which might include: A merit good e.g. education / fruit (1) is beneficial / is under- consumed / people unaware of benefits / so underproduced without government intervention / government encourage consumption (1). A public good e.g. defence / streetlighting / police / sea defences / roads (1) would not be produced by the private sector / needs to be financed by the government/ non-rival/ non-excludable (1). 4(c) Analyse how an increase in government spending could 6 MAX of three marks for just identifying areas of government increase life expectancy. spending Coherent analysis which might include increased MAX of three marks for analysis of any single area of government spending on: spending. Healthcare (1) could raise quality / accessibility of healthcare One item analysed well MAX 4 marks. (1). Education (1) may result in people leading healthier lives (1) more exercise (1) better nutrition (1). Benefits (1) may increase access to basic necessities / reduce poverty (1). Green energy (1) may reduce pollution (1). Infrastructure (1) could reduce traffic accidents (1) reduce traffic congestion (1) reduce stress (1). Police (1) reduces deaths through crime (1). Increased government spending (in total) (1) may increase employment / raise income / raise standards of living (1). 4(d) Discuss whether or not a rise in a country’s foreign 8 Level Description Marks exchange rate would benefit its economy. 3 A reasoned discussion which accurately 6–8 In assessing each answer, use the table opposite. examines both sides of the economic argument, making use of economic Why it might: information and clear and logical analysis reduce price of imports to evaluate economic issues and this could lower inflation as raw material costs may fall situations. One side of the argument may and more competitive pressure for firms to keep price have more depth than the other, but rises low overall, both sides of the argument are enables a country to buy more imports for any given considered and developed. There is quantity of exports thoughtful evaluation of economic could reduce a current account surplus which may concepts, terminology, information and/or enable more products to be consumed. data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and Why it might not: outcomes. increase the price of exports this could reduce exports and export revenue 2 A reasoned discussion which makes use of 3–5 economic growth could fall economic information and clear analysis to unemployment could rise evaluate economic issues and situations. could increase a current account deficit. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be awarded for no 0 creditable content.

Mark scheme

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