Economics 0455/22 May/June 2024: question paper and mark scheme

Mark scheme

1(a) Calculate Tunisia’s balance on the current account of its 1 Accept –2.4bn. balance of payments. Also accept –6.8 or –6.9 billion TND. –$2.4bn 1(b) Identify two qualities of a good tax that the Tunisian 2 If more than 2 qualities are given, consider the first 3. government aimed to achieve. Efficiency / efficient / the tax should improve market performance / reduce market failure (1). Economical / economy / the tax should raise more in revenue than it costs to collect it (1). 1(c) Explain one reason why the Tunisian government 2 One mark for a reason identified and one mark for an regulates the price of flour and milk. explanation. Reduce poverty (1) flour and milk are basic necessities /essential products / people may be able to buy enough basic necessities / make them affordable / keep price relatively low (1). Or Prevent monopoly firms exploiting their market power (1) stop the firms raising price to a high level (1). 1(d) Explain two ways the Tunisian government tried to 4 One mark for each of two ways identified and one mark for reduce frictional unemployment. each of two explanations. Logical explanation which might include: If more than 2 ways are given, consider the first 3. Increased the labour market information available to workers and employers (1) so workers would be more aware of job vacancies / skills and qualifications required / employers more aware of those seeking jobs / may enable workers to move more quickly/easily between jobs / reduce search time / increase mobility of workers (1). Did not raise unemployment benefit (in line with inflation) (1) so, the purchasing power of unemployment benefit would fall / increase the incentive to work (1). 1(e) Analyse the relationship between the change in 4 Responses do not have to be in the format suggested but Tunisia’s average wage and the inflation rate. they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, Relationship (up to 2 marks) and analyse the overall data. Direct relationship / positive relationship (1) as change in the average wage increases so does the inflation rate / if Note: average wage did not fall. change in average wage / rise in average wage falls so does the inflation rate / both fall and rose together / same trend (1). Evidence (up to 3 marks) 2016 – 2017 / 2018 both the average wage / change in average wage and inflation rate rose (1). Between 2014 – 2018, the average wage rose more rapidly than the inflation rate (1) real wages would have increased between 2014 – 2018 (1). Between 2018 – 2020 / in 2019 – 2020, the inflation rate was higher than the rise in the average wage (1) real wages would have fallen (1). Between 2014 – 2015/2016 / 2018 – 2019/2020 both the change in average wage and inflation rate fell (1). 2018 had the highest rise in the average wage and the highest inflation (1). 2016 had the lowest increase in the inflation rate but not the lowest increase in the average wage / 2020 had the lowest increase in the average wage but not the lowest inflation rate (1). Over the whole period the inflation rate rose while the increase in the average wage fell (1). Explanation (up to 2 marks) A rise in the average wage may increase costs of production / cause cost push inflation / a higher inflation rate will encourage workers to press for a wage rise (1). A rise in the average wage may increase disposable income / consumer expenditure / total demand / cause demand-pull inflation (1). 1(f) Analyse, using a demand and supply diagram, how an 5 Note: higher price needs to be linked to higher costs of increase in wage costs would affect the market for production/higher costs/higher wage costs. shoes. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply 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). Written analysis: An increase in wage costs would increase costs of production which may raise price (1). 1(g) Discuss whether or not the Tunisian government should 6 Apply this example to all questions with the command continue to subsidise electricity production. 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 reduce costs of producing electricity (1) increase supply argument, but separate development as to how/why the of electricity (1) lower price of electricity (1) make outcome may differ is rewarded. electricity more affordable / reduce poverty (1) lower costs of firms that use electricity (1) which may Generic example Mark encourage them to expand / attract MNCs / increase output / increase GDP / cause economic growth (1) Tax revenue may decrease… 1 increase employment / lower unemployment (1) reduce inflation / firms lower prices (1) make Tunisia’s ...because of reason e.g. incomes may be 1 products more internationally competitive / increase lower. exports / lower imports / improve the current account balance (1) Tax revenue may increase because 0 may reduce pollution / external costs (1) if subsidising incomes may be higher i.e. reverse of a green sources of energy (1). previous argument. Award up to 4 marks for logical reasons why it might not, Tax revenue may increase because of a 1 which may include: different reason i.e. not the reverse of a electricity firms may rely on the subsidy (1) may not previous argument e.g. government keep costs low / become inefficient (1) may not pass on spending on subsidies may stimulate the the subsidy in the form of lower price (1) economy more than spending on education. opportunity cost (1) government could spend money on e.g. healthcare (1) may result in a budget deficit / increase in taxes (1) may cause pollution / external costs (1) if e.g. coal powered / deplete non-renewable resources (1). 1(h) Discuss whether or not a rise in the value of the 6 Note: lower total demand may be credited on either side but Tunisian dinar would benefit the Tunisian economy. only once. Award up to 4 marks for logical reasons why it might, which Note: the generic advice above in terms of MNCs. One may include: mark for attract or discourage MNCs. Another mark could be may reduce inflation (1) imports would be cheaper (1) gained by explaining why they may be attracted and another enable households to buy more imports / higher mark for explaining why they may be discouraged. purchasing power (1) more choice (1) may lower price of some raw materials and/or capital goods (1) increase competitive pressure on domestic firms (1) lower costs of production (1) lower total (aggregate) demand (1) which may reduce demand-pull inflation (1) may be taken as an indicator of a strong economy / increase confidence (1) encourage investment / attract MNCs (1) if demand for exports is price inelastic, export revenue may rise (1). Award up to 4 marks for logical reasons why it might not, which may include: higher export prices / may reduce exports / export revenue (1) lower price of imports (1) may increase imports / import expenditure (1) reduce international competitiveness (1) increase the deficit / reduce surplus on the current account of Tunisia’s balance of payments (1) lower net exports may reduce GDP / economic growth (1) which may increase unemployment / reduce employment (1) may discourage MNCs / investment (1) because of higher cost of setting up in the country (1).

Mark scheme

2(a) Identify two possible opportunity costs of producing 2 If more than 2 are given, consider the first 3. primary sector products. Secondary sector products / capital goods / manufactured goods (1) tertiary sector products / services (1) Wildlife habitats/quality of the ecosystem (1) 2(b) Explain two policy measures which may reduce poverty. 4 One mark each for each of two policy measures identified and one mark for each of two explanations. Logical explanation which might include: If more than 2 policy measures are given, consider the first Introduce / increase minimum wage (1) help low-paid 3. workers / raise income of low-paid workers (1). Provide state benefits (1) e.g. unemployment benefit can Explanation marks e.g. reduce unemployment can be given enable those who have lost their jobs to purchase basic without identification of policy measure as a candidate may necessities (1). write e.g. use a policy measure that will reduce Reduce indirect taxation (1) tax on goods and services tends unemployment. to fall more heavily on the poor (1). Provide education / training (1) increase earning potential / income / employment opportunities (1). Job creation schemes / increase jobs in the public sector (1) e.g. expanding state-owned firms / increase employment / raise incomes / Subsidising private sector firms (1) lower prices (1). Reduction in interest rate / expansionary monetary policy (1) encouraging firms to expand / take on more workers (1). Increase in government spending (1) increase employment opportunities (1). Reduce direct taxation / expansionary fiscal policy (1) which may encourage firms to expand and take on more workers / increase disposable income (of the poor) (1). Progressive taxes (1) reduce relative poverty (1). Provide job information (1) reduce frictional unemployment (1). Introduce a maximum price (1) to make necessities more affordable (1). 2(c) Analyse how the closure of firms may harm consumers. 6 Focus should be on consumers. Coherent analysis which might include: One mark in total for higher price. May reduce competition (1) increase monopoly power / market share (1) may result in higher prices (1) may not innovate / spend on R&D / become inefficient / complacent (1) lower quality (1) slower to respond to changes in consumer demand (1). May mean that consumers have to travel further to purchase products (1) may take time to find alternatives (1) there may be a reduction in the range of products available / less choice / less variety (1) lower quantity / it may not be possible to buy some products (1). May reduce consumer confidence (1) lowering quality of life / reduce consumer welfare / living standards (1). May reduce external economies of scale (1) example (1) raise average cost (1) which may raise price (1). 2(d) Discuss whether or not a government should encourage 8 Level Description Marks people to walk to school and work. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and may make people healthier logical analysis to evaluate economic may raise productivity issues and situations. One side of the may reduce healthcare costs argument may have more depth than may reduce pollution and traffic congestion the other, but overall both sides of the may be less need for car parking space. argument are considered and developed. There is thoughtful Why it might not: evaluation of economic concepts, may not be safe terminology, information and/or data may make people late appropriate to the question. The may increase stress and lower productivity discussion may also point out the may reduce demand for bus and train use possible uncertainties of alternative may cause some bus and train drivers to lose their jobs decisions and outcomes. may restrict job choice due to distance from home. 2 A reasoned discussion which makes 3–5 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 using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 2(d) Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.

Mark scheme

3(a) Identify the difference between microeconomics and 2 macroeconomics. Microeconomics is concerned with individual markets / individual decisions / individual firms / households (1). Macroeconomics is concerned with the whole economy (1). 3(b) Explain how less education can reduce a person’s 4 lifetime earnings. Logical explanation which might include: May reduce qualifications (1) lower mobility (1) reduce chance of gaining employment / increase chance of experiencing unemployment (1) may lack information on job vacancies (1) may be more likely to work in the primary sector / do manual work (1). May reduce skills / adult literacy (1) lower productivity (1) reduce chance of gaining promotion (1). May have less bargaining power / less aware or less able to enforce labour market rights e.g. to a minimum wage (1) as easier to replace (1) lower demand for them / higher supply (1). May reduce understanding about the benefits of good nutrition / good healthcare (1) experience more time off work / shorter life expectancy (1). May have large families (1) be out of the labour force for some time (1). May lack financial awareness / lower savings (1) reduce ability to buy equipment e.g. a computer that could increase earnings (1). 3(c) Analyse how the introduction of a minimum wage could 6 One mark in total for increase unemployment and / or affect unemployment. increase employment. Coherent analysis which might include: One mark for reduce output and / or increase output. A minimum wage is the lowest amount that an employer can Supply exceeding demand for labour / surplus supply of pay a worker / price (wage) floor (1). Its introduction may labour may be shown on a diagram. result in the supply of labour exceeding demand for labour / surplus of labour (1) resulting in higher unemployment (1). Award but do not expect a reference to lower real wage Firms may have to pay higher wages / wages may increase unemployment. (1) may want to cut costs of production / higher wages may increase their costs of production (1) this may reduce their profits (1) reduce output (1) they may fire some of their workers / increase unemployment (1) replace workers with machines / capital goods (1). Higher pay may increase productivity (1) increase total demand (1) which may encourage firms to increase output (1) take on more workers / increase employment (1) reduce cyclical unemployment (1). May increase the incentive to work (1) reduce frictional unemployment (1). If the minimum wage is set below the equilibrium level it will have no effect (1). 3(d) Discuss whether or not an economy with a high inflation 8 Level Description Marks rate will have a low economic growth rate. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and may make the country’s products less internationally logical analysis to evaluate economic competitive issues and situations. One side of the lower exports and increase imports argument may have more depth than reduce total demand the other, but overall both sides of the may discourage investment argument are considered and if caused by increases in costs of production (cost-push developed. There is thoughtful inflation may reduce output) evaluation of economic concepts, hyperinflation may result in a collapse in the economic terminology, information and / or data system. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative may be caused by increases in total demand / demand- decisions and outcomes. pull inflation which may encourage higher output / GDP may increase tax revenue which could be spent on e.g. 2 A reasoned discussion which makes 3–5 education which could increase the economic growth use of economic information and clear rate in the long run analysis to evaluate economic issues may reduce the real cost of borrowing which may and situations. The answer may lack increase consumer spending and investment some depth and development may be may be lower than rival countries’ inflation rates. 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. 3(d) Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.

Mark scheme

4(a) Identify two reasons why tax revenue is likely to fall 2 If more than 2 reasons are given, consider the first 3. during a recession. Two from: lower spending / lower demand lower incomes / lower wages / higher unemployment / lower employment lower profits lower tax rates lower imports fewer tax payers lower output lower revenue 4(b) Explain two characteristics of money. 4 One mark each for each of two characteristics identified and one mark for each of two explanations. Logical explanation which might include: If more than 2 characteristics are given, consider the first 3. Generally acceptable (1) people willing to accept it as a payment / reward / in settlement of a debt (1). Accepting ‘breakable’ for ‘divisible’. Portable (1) easy to carry (1). Recognisable (1) easy to see it is the country’s currency (1). Explanation marks e.g. maintain value or accept as a Durable (1) will last some time / can be saved (1). payment can be given without identification up to a Limited in supply (1) so maintains value (1). maximum of 2 marks. Divisible (1) there should be units of different value (1). Homogeneous / uniform (1) people not preferring e.g. one note of a certain value other another note of the same value (1). 4(c) Analyse the advantages an economy may gain from 6 No marks for general benefits of emigration. having some of its people working in other countries. Coherent analysis which might include: The workers may send money home to (support) their families staying at home (1) reduce poverty / raise living standards (1). Will improve the current account position of the balance of payments / bring in foreign currency (1) secondary income (1). The workers may receive training (1) gain skills (1) ideas / knowledge / awareness of new technology (1) experience (1) higher productivity / efficiency (1) which they can bring back to the country (1) increase quality of output (1). Start their own firms in the country when they return (1) increase output / economic growth / increase GDP (1). May reduce unemployment (1) if lack of jobs at home (1) and so may reduce government spending on unemployment benefits / may reduce government spending on dependents (1). 4(d) Discuss whether or not consumers would benefit from 8 Focus should be on consumers and not workers. firms buying new capital equipment. Level Description Marks In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8 Why they might: accurately examines both sides of the may embody new technology economic argument, making use of more innovation / new products economic information and clear and may increase efficiency / lower costs of production logical analysis to evaluate economic may lower prices issues and situations. One side of the may reduce mistakes argument may have more depth than increase quality of output the other, but overall both sides of the may increase output and so availability. argument are considered and developed. There is thoughtful Why they might not: evaluation of economic concepts, may raise prices in the short run to cover the cost of the terminology, information and/or data purchase appropriate to the question. The may reduce quality / output in the short run as workers discussion may also point out the get used to the new capital equipment possible uncertainties of alternative firms may switch from producing consumer to capital decisions and outcomes. goods products may become more standardised. 2 A reasoned discussion which makes 3–5 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. 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 for 0 no creditable content.

Mark scheme

5(a) Identify two free goods. 2 BOD on ‘sun’, trees (not wood), wild flowers, wild fruit. Not accepting fish or stone. Two from e.g.: air / oxygen sunlight water wind 5(b) Explain two influences on demand for factors of 4 One mark each for each of two influences identified and one production. mark for each of two explanations. Logical explanation which might include: If more than 2 influences are given, consider the first 3. Demand for the product produced / total demand / economic activity (1) rise in demand for the product/products will be Accept price and / or demand on its own but looking for price likely to increase demand for the factor/factors of production of a complement or price of a substitute not just complement / derived demand (1). or substitute. Price of the factor itself (1) lower price will be likely to result in higher demand (1). Price of substitute factors of production (1) e.g. may demand more labour if price of capital rises (1). Price of complementary factors of production (1) e.g. if labour is used with capital, a fall in the price of capital may increase demand for labour (1). Productivity (1) higher productivity will be likely to increase demand (1). Quality / advances in technology / changes in standards of education and training (1) higher quality will increase demand (1). Occupational mobility (1) the more occupationally mobile, the higher demand will tend to be (1). Method of production (1) switch from labour-intensive production will increase demand for capital goods (1). 5(c) Analyse the effect of an increase in demand for football 6 Changes in demand may be shown in the written answer or shirts on demand for football shorts and demand for on diagrams. basketball shirts. Coherent analysis which might include: Demand for football shorts is likely to increase (1) football shirts and shorts are complements (1) bought to be used together / bought to complete the set (1). Demand for basketball shirts is likely to fall (1) basketball shirts and football shirts may be substitutes (1) consumers may switch between them (1). 5(d) Discuss whether or not an increase in government 8 Level Description Marks spending on housing would benefit an economy. 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic argument, making use of Why it might: economic information and clear and may increase total demand logical analysis to evaluate economic may increase output / GDP issues and situations. One side of the may increase employment / reduce unemployment argument may have more depth than may lower the price of housing the other, but overall both sided of the may increase living standards argument are considered and may reduce homelessness developed. There is thoughtful may reduce poverty. evaluation of economic concepts, terminology, information and/or data Why it might not: appropriate to the question. The will have an opportunity cost discussion may also point out the may increase taxes possible uncertainties of alternative quality of housing may be low decisions and outcomes. private sector may provide better housing may be external costs during the construction. 2 A reasoned discussion which makes 3–5 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 using 1–2 economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 5(d) Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.