Economics 0455/22 May/June 2023: question paper and mark scheme

Mark scheme

1(a) Calculate the number of people who were living in 1 poverty in Guyana in 2020. 276 500 (1). 1(b) Identify two causes of the decrease in the output of 2 If more than two causes given, consider the first three. sugar in 2020. Bad weather (1) falling (global) demand (1). 1(c) Explain how economic growth is measured. 2 If more than two ways given, consider the first three. Real (1) GDP / national / country’s output / income / Not accepting GDP per head for GDP. expenditure (1). 1(d) Explain two reasons why labour mobility may increase 4 One mark each for each of two reasons identified and one in Guyana in the future. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. Increased government spending on education / improved education (1) improved skills / productivity / occupational mobility (1). Improved / cheaper rail travel / increased spending on infrastructure / improved infrastructure (1) easier to work further away / increased ability to work in other areas / increased geographical mobility (1). Increased government spending on the internet (1) people learn new skills / gain information about job opportunities / increase occupational mobility (1). May be net immigration (1) migrants may be skilled / may be more willing to move to different areas of the country (1). 1(e) Draw a demand and supply diagram to show the effect 4 of a decrease in the price of rail transport on the market for car transport. Demand and supply diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). Demand curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). 1(f) Analyse the relationship between GDP per head and 5 Responses do not have to be in the format suggested but internet access. they should address the expected / normal relationship, offer supporting evidence of that, highlight any exceptions to that, Coherent analysis which might include: and analyse the overall data. Expected relationship: In terms of supporting evidence: no marks for just Direct / positive (1) the higher the GDP per head, the higher description of the figures e.g. Brazil had a GDP per head of the internet access (1) $8717and 72% of the population with internet access / Eritrea had a GDP per head of $643 and 2% of population Supporting evidence: with internet access. France had a GDP of $40 494 and 83% Up to two marks of the population with internet access etc. E.g. Iceland with the highest GDP per head had the highest % of the population with internet access In terms of supporting evidence one mark maximum for an Eritrea with the lowest GDP per head had the least internet indirect comparison e.g. Iceland had a GDP per head of access $66 945 and 99% population with internet access whereas in France with the second highest GDP per head has the Zambia with a GDP per head of $1,305, only 29% of the second highest % of population with internet access population had access to the internet. Analysis of expected relationship: Higher GDP per head increases household’s ability to pay for internet access / higher internet access may increase productivity/efficiency / increase job opportunities (1) higher GDP per head increases tax revenue, some of which can be spent on the provision of internet access / higher productivity/efficiency could increase wages (1). Exception: Guyana / Morocco (1) Guyana had a higher GDP per head but low internet access (1). Analysis of exception: Internet access is determined by other influences e.g. education levels (1). 1(g) Discuss whether or not the discovery of oil is likely to 6 3rd bullet point: increase in government spending should be increase living standards in Guyana. linked to a form of spending that could increase living standards. Award up to 4 marks for logical reasons why it might, which may include: Apply this example to all questions with the command increase exports (1) increase economic growth / higher word DISCUSS national output (1) and raise incomes / increase GDP (1g, 1h, 2d, 3d, 4d and 5d) per head (1) increase purchasing power / able to buy more goods and services / able to buy basic necessities Each point may be credited only once, on either side of an (1) could reduce poverty (1) argument, but separate development as to how/why the create jobs / reduce unemployment / increase outcome may differ is rewarded. employment (1) discourage emigration / encourage immigration (1). Generic example Mark raise tax revenue (1) allowing the government to spend more on e.g. education and healthcare (1) MNCs may Tax revenue may decrease … 1 spend on e.g. improving infrastructure / training (1). ... because of reason e.g. incomes may be lower. 1 Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may increase because incomes may 0 may create pollution (1) create external costs / damage be higher i.e. reverse of a previous argument. the environment (1) which will harm people’s health / reduce life expectancy (1) Tax revenue may increase because of a different 1 may be poor working conditions in the industry (1) reason i.e. not the reverse of a previous argument affecting health of workers (1) e.g. government spending on subsidies may the foreign MNC may send much of the profit back to its stimulate the economy more than spending on country (1) it may drive domestic oil firms out of education. business (1) may deplete the country’s oil reserves (1) the foreign MNC may employ workers from its own country (1) global demand for oil may fall /may be overdependence on oil / other countries may impose trade restrictions on oil. (1) 1(h) Discuss whether or not Guyana would benefit from an 6 increase in the size of its population. Award up to 4 marks for logical reasons why it might, which may include: population is below the optimum level / move to the optimum level (1), could make better use of resources (1) if rise due to immigration (1) may bring in new ideas / new production methods / new skills / new technology (1) an increase in the size of the labour force (1) if the number of people of working age increases (1) rise in tax revenue (1) allowing the government to spend more on e.g. education and healthcare (1) consumer expenditure may increase (1) total (aggregate) demand may increase (1) output could increase / cause economic growth / increase productive potential (1) dependency ratio could fall (1) Award up to 4 marks for logical reasons why it might not, which may include: larger population could result in pollution / congestion / overcrowding (1) damage the environment / increase external costs (1) if rise due to fall in death rate or rise in the birth rate / increase in young / old population (1), the dependency ratio will increase (1) some of the extra population may be unemployed (1) 1(h) pressure may be put on e.g. housing / welfare payments 6 (1) increasing need for government expenditure (1) there may be inflation (1) population may increase to the extent that there is overpopulation (1) resources may be depleted (more quickly) (1).

Mark scheme

2(a) Identify two influences, other than price, on a 2 If more than two influences given, consider the first three. customer’s choice of bank. Not accepting brand loyalty. Two from: services provided Accept whether the bank offers Islamic banking. amount willing to lend size of bank Also accept interest on its own. online facilities location interest paid or charged where family banks advertising green investments community involvement reputation confidence in the bank / reliability / safety relationship with staff whether foreign currency can be exchanged 2(b) Explain two reasons why a merger may result in higher 4 One mark each for each of two reasons identified and one prices for consumers. mark each for each of two explanations. Logical explanation which might include: If more than two reasons given, consider the first three. More market power / less competition / monopoly power / may become a monopoly (1) can raise price as consumers Can accept higher cost if linked to diseconomies of scale or will not be able to switch to other firms / demand may carrying out the merger. become more inelastic / can control price / become a price Not accepting the idea of higher costs because the firm will maker (1). be larger (idea of higher total costs). May experience diseconomies of scale / example of a diseconomy of scale that may be experienced (1) raise prices due to higher (average) costs (1). Carrying out the merger may be expensive (1) price raised to cover the cost of e.g. retraining staff / making some staff redundant (1). 2(c) Analyse how an increase in bank lending can benefit an 6 economy. Coherent analysis which might include: It could increase consumer expenditure (1) increase total demand (1) raise employment /reduce unemployment (1) reduce deflation (1). It could increase investment / increase spending on capital goods (1) benefit from advances in technology / innovation / better quality capital goods (1) increase productivity (1) raise the quality of products (1) lower price (1) increase exports (1) lower imports (1) improve the current account balance (1) cause economic growth / increase GDP / increase output / encourage firms to expand / new firms to set up (1). May enable the people to improve skills / to set up small business / buy basic necessities / reduce poverty (1). Lend to firms in financial difficulties (1) stop them going out of business (1). 2(d) Discuss whether or not a market economy allocates 8 Level Description Marks resources in the best possible way. 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 price moves to reflect changes in demand and supply to evaluate economic issues and resources move from products falling in demand situations. One side of the argument may towards those rising in demand have more depth than the other, but profit incentive for firms to produce what consumers overall, both sides of the argument are demand / consumer sovereignty considered and developed. There is competition results in efficiency which drives down costs thoughtful evaluation of economic and prices concepts, terminology, information and/or data appropriate to the question. The changes in wages move labour to those jobs most in discussion may also point out the possible demand uncertainties of alternative decisions and outcomes. Why it might not: merit goods are under-consumed so not enough 2 A reasoned discussion which makes use of 3–5 resources are devoted to their production economic information and clear analysis to demerit goods are overconsumed so too many evaluate economic issues and situations. resources are devoted to their production The answer may lack some depth and no resources are devoted to public goods as there is no development may be one-sided. There is incentive to produce them relevant use of economic concepts, there may be factor immobility terminology, information and data monopolies may restrict output appropriate to the question. external costs and benefits will not be taken into 1 There is a simple attempt at using 1–2 account when deciding on the allocation of resources. 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 objectives of private sector firms. 2 Reward but do not expect profit satisficing, revenue maximisation, sales maximisation. Two from: profit (maximisation) Allow social welfare. growth / high sales greater market share / market dominance If more than two objectives given, consider the first three. survival improving the environment 3(b) Explain one reason why the quantity of land may 4 One mark for identifying one reason why the quantity of land increase and one reason why the quality of land may may increase and one mark for explaining that reason. increase. One mark for identifying one reason why the quality of land Logical explanation which might include: may increase and one mark for explaining that reason. Quantity of land Reclamation (1) creating land from the sea (1). Reduction in overfishing / hunting (1) restoring stocks of fish / wildlife (1). Reduction in flooding (1) avoiding soil erosion (1). Discovery of new natural resources (1) e.g. of oil (1). Quality of land Use of fertilisers (1) raising productivity / efficiency / fertility of land (1). Reduction in pollution (1) preventing damage / diseases (1). Good weather (1) raising productivity efficiency / fertility of land (1). Better equipment / more advanced technology (1) raising productivity efficiency / fertility of land (1). 3(c) Analyse how an increase in investment may affect 6 Credit fall in unemployment / rise in unemployment only unemployment. once (1). Coherent analysis which might include: Reference to cyclical / structural / technological Spending on capital goods (1) will increase total demand (1) (unemployment) can be given an additional mark in each firms may expand their output / new firms may set up / case if linked to a relevant point. economic growth may occur (1) (may need more workers) to work with the capital equipment / demand for labour may increase / need more workers / increase job opportunities (1) this can reduce cyclical (1) unemployment (1). Investment in education / training/ healthcare / research and development (1) can raise productivity / skills (1) increase mobility (1) reduce structural unemployment (1). Investment in infrastructure (1) increase geographical mobility (1) reduce structural unemployment (1). It could cause unemployment (1) as capital goods may replace workers / production may become more capital- intensive / demand for workers may decrease (1) capital goods can be a substitute for labour (1) cause technological unemployment (1). 3(d) Discuss whether or not a government should try to 8 Level Description Marks prevent a rise in unemployment. 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 increase output / economic growth to evaluate economic issues and increase tax revenue situations. One side of the argument may reduce spending on unemployment benefit have more depth than the other, but reduce living standards / poverty overall, both sides of the argument are considered and developed. There is Why it should not: thoughtful evaluation of economic unemployment may be low concepts, terminology, information and/or data appropriate to the question. The reduction in unemployment may cause inflation discussion may also point out the possible the resulting higher incomes may cause a current uncertainties of alternative decisions and account deficit outcomes. unemployment can create flexibility opportunity cost of government policy measures 2 A reasoned discussion which makes use of 3–5 a government may have other objectives. 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 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 reasons why a government may set an 2 If more than two reasons given, consider the first three. NMW. Two from: to raise wages to reduce poverty / raise living standards reduce income inequality to correct market failure / ensure fair wages / prevent exploitation of workers to encourage job seeking / reduce unemployment reduce emigration 4(b) Explain two causes of an increase in the value of a 4 Causes may be linked here in different ways. country’s floating foreign exchange rate. Also allow explanation of two causes of an increase in demand for the currency or two causes of a decrease in Logical explanation which might include: supply of the currency. Increase in demand for the currency (1) rise in exports / Credit higher demand mark only once and lower supply exports exceeding imports / current account surplus (1) due mark only once. to higher incomes abroad (1) lower inflation / deflation / lower prices for exports (1) better quality (1). Increase in foreign investment in the country (1). Higher rate of interest (1) attracts hot money flows (1). Speculation (1) that the currency will rise in value (1). Decrease in supply of the currency (1) fall in imports / fall in current account deficit (1) fall in incomes at home (1) lower inflation / higher prices of imports / fall in quality of imports (1). The country’s firms reducing investment in other countries (1) Lower rate of interest in other countries (1) reduce hot money going out of the country (1). Speculation (1) that other currencies will fall in value (1). 4(c) Analyse how an increase in the price of milk may affect 6 the revenue earned by milk producers and soft drinks producers. Coherent analysis which might include: Demand for milk is likely to fall / contraction in demand (1) The effect on the revenue of milk producers will depend on price elasticity of demand (1) if demand is elastic, revenue will fall (1) as demand will fall by a greater percentage than the rise in price (1) if demand is inelastic, or demand is constant, revenue will increase (1) as demand will fall by a smaller percentage than the rise in price (1). Demand for soft drinks is likely to increase (1) the revenue of soft drinks producers is likely to rise (1) as soft drinks are a substitute / alternative to milk (1). 4(d) Discuss whether or not small firms are more likely to go 8 Level Description Marks out of business than large firms. 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 they might: information and clear and logical analysis may have high average costs to evaluate economic issues and less able to take advantage of economies of scale situations. One side of the argument may may be less likely to get a loan from commercial banks have more depth than the other, but may have less retained profits overall, both sides of the argument are may be new, testing out whether there is demand, considered and developed. There is inexperienced entrepreneurs thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The Why they might not: discussion may also point out the possible less likely to experience diseconomies of scale uncertainties of alternative decisions and may receive financial assistance from the government outcomes. may have customer loyalty may be more flexible 2 A reasoned discussion which makes use of 3–5 may be a monopoly in a niche / specialist market. 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 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 the opportunity cost of households spending 2 their income and the opportunity cost of Chinese firms exporting goods and services. Saving (1) selling the products at home / consuming the products (1). 5(b) Explain two reasons why some top sportspeople have 4 Reasons may be linked in different ways. high earnings. Also allow explanation of two reasons for high demand or two reasons for low supply. Logical explanation which might include: Reward but do not expect high mrp of labour and derived High demand / inelastic demand for top sportspeople (1) demand for labour. large crowds watch top sportspeople / events (1) top sports events can be sold to TV firms for large fees (1) high merchandise sales / sponsorship deals / high gate receipts / can generate high profits for firms (1). Low supply / inelastic supply of sportspeople / lack of substitutes (1) high bargaining power (1) top sports people are skilled / talented (1) it may take years of training (1) high level of experience (1) some sports are dangerous (1). 5(c) Analyse the reasons for imposing tariffs on imports. 6 Coherent analysis which might include: To improve the current account balance (1) make imports more expensive (1) reduce demand for imports / increase net exports (1) increase total demand (1). To protect domestic industries / infant industries / sunrise industries (1) protect sunset / declining industries (1) protect strategic industries (1) to increase economic growth (1) reduce unemployment / increase employment (1) encourage people to switch from buying imports to buying domestically produced products (1). To raise revenue (1) which the government can spend on e.g. education / reduce a budget deficit (1). To discourage the imports of harmful products / demerit goods (1) example (1). To prevent dumping / unfair competition (1) the selling of products at less than cost price / the selling of products produced by child labour (1). To retaliate (1) against another country’s tariffs (1). To prevent a fall in the exchange rate (1) to prevent switch from domestic to foreign currency (1). 5(d) Discuss whether or not a country with a high economic 8 Level Description Marks growth rate will have a deficit on the current account of its 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 incomes will rise and consumers may buy more imports situations. One side of the argument may firms may switch products from foreign markets to the have more depth than the other, but growing home market overall, both sided of the argument are firms may import more raw materials and capital goods considered and developed. There is the country may experience inflation which may reduce thoughtful evaluation of economic its international price competitiveness concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible Why it might not: uncertainties of alternative decisions and the economic growth may be export-led outcomes. economic growth may encourage more investment, this could raise the quality of domestically produced 2 A reasoned discussion which makes use of 3–5 products and lower their prices economic information and clear analysis to higher tax revenue may result in improvements in evaluate economic issues and situations. education and healthcare which could increase The answer may lack some depth and productivity development may be one-sided. There is the country may impose trade restrictions / reduce relevant use of economic concepts, exchange rate. 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.