Economics 0455/23 May/June 2024: question paper and mark scheme

Mark scheme

1(a) Calculate the percentage contribution of Jakarta to 1 Accept without the percentage sign. Indonesia’s GDP in 2021. 27.3%, 27.27%, 27.2%, 27% 1(b) Identify two examples of external costs ignored by the 2 free market. air pollution (1) rising sea levels/floods (1) disease / mosquitoes (1) climate change (1) 1(c) Explain how real GDP per head can be an indicator of 2 Accept answers based on either higher or lower GDP per living standards. head. Real GDP per head has been adjusted for population / inflation / takes account of the cost of living (1). Low real GDP per head leads to a fall in living standards (1) because lower GDP per head would mean lower income / real GDP per head is average income (1) reducing consumption / material wellbeing / influencing how much people can spend / whether they can buy basic necessities (1). 1(d) Explain two ways climate change can lead to a fall in the 4 One mark each for each of two ways identified and one Human Development Index (HDI) of Indonesia. mark for each of two explanations. Logical explanation which might include: Accept an explanation combining two different ways, e.g. increase in diseases reducing education levels. Schools have been flooded (1) reducing education levels / mean years of schooling / expected years of schooling (1). Floods have led to an increase in diseases (transmitted through water and mosquitoes which breed in water) (1) reducing health level / life expectancy / increasing death rate (1). Farmland has been submerged, (cutting off a vital source of income of many farmers) / roads have been destroyed (1) reducing income levels / GNI per capita / GDP per capita / living standards (1). 1(e) Draw a production possibility curve (PPC) diagram to 4 show the impact of climate change on an economy such as Indonesia. PPC diagram: Axes correctly with different outputs (1). Initial curve drawn as a curve/line sloping downward to the axes (1). New curve drawn as a curve/line sloping downward to the axes (1). Shift to the left indicated by arrow(s) or letters or numbers e.g. PPC1 to PPC2 (1). 1(f) Analyse the relationship between GDP and government 5 Responses do not have to be in the format suggested but spending on the environment. 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: direct relationship / move in the same direction (1) higher GDP may lead to higher government spending on the environment / higher government spending on the environment may increase GDP (1). Supporting evidence: Japan has highest GDP and highest spending on environment (1) France has second highest GDP and second highest spending on environment (1) Thailand has lowest GDP and lowest spending on environment (1). Analysis: Higher GDP may create more pollution, therefore countries have more to spend on environment / high government spending on the environment can reduce pollution/climate change (1). Higher tax revenue / more education and so more concern for the environment / a cleaner environment can raise productivity (1). Higher GDP therefore more developed and can spend more on other objectives such as protection of the environment (1). Exception: Switzerland/Indonesia (1) Switzerland has lower GDP than Indonesia but higher expenditure on environment/ Indonesia has higher GDP and lower expenditure on environment than Switzerland (1). Analysis of the exception: These countries may be facing different pressures on government spending e.g. higher level of poverty (1). 1(g) Discuss whether or not internal migration benefits an 6 Apply this example to all questions with the command economy such as Indonesia. word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Award up to 4 marks for logical reasons why it might, which may include: Accept the reverse argument, (e.g. for Q1g internal higher production of different crops (1) more income / migration may be to a less polluted area) but recognise that higher living standards (for farmers) (1) each point may be credited only once, on either side of an less pressure on government resources / natural argument, but separate development as to how/why the resources (1) e.g., less overcrowding (1) less spending outcome may differ is rewarded. on healthcare if people move away from areas of flooding/ mosquitoes (1) Generic example mark labour force may increase in some areas (1) moving from low productivity areas to high productivity areas(1) Tax revenue may decrease… 1 increasing output (1) housing may be cheaper / more available in some areas ...because of reason e.g. incomes may be 1 (1) reducing cost of living for workers (1) lower. migration may be to high wage areas (1) boosting total demand (1) Tax revenue may increase because incomes 0 fewer resources may be wasted (1) if migration is to an may be higher i.e. reverse of a previous area where they are under-used e.g. schools, hospitals argument. (1). Tax revenue may increase because of a 1 Award up to 4 marks for logical reasons why it might not, different reason i.e. not the reverse of a which may include: previous argument e.g. government spending as workers migrate, it could also lead to the collapse of on subsidies may stimulate the economy more entire communities (1) without workers (1) less demand than spending on education. for goods and services in the area (1) increased inequality between more mobile labour and less mobile labour (1) as some workers who cannot move will not be able to find jobs (1) and gain higher income (1) more pressure on government resources in areas they move to (1) more overcrowding in those areas / housing shortages (1) external costs (1) more pollution / congestion (1). 1(h) Discuss whether or not relocating the capital city from 6 Jakarta will benefit the Indonesian economy. Award up to 4 marks for logical reasons why it might, which may include: the new city will provide new job opportunities (1) decreasing unemployment in Indonesia (1) increasing incomes / economic growth (1) reduce inequality between the different regions of Indonesia (1) reducing social dissatisfaction / increase standards of living of everyone in Indonesia (1) better environment as new city is carbon-neutral / less pollution (1) reduced external costs (1) better health for population of Indonesia (1) higher productivity (1) fewer floods that require expenditure to repair the damage (1) foreign investors may be more willing to relocate to Indonesia (1). Award up to 4 marks for logical reasons why it might not, which may include: cost of the move may be too high (1) opportunity cost in terms of other areas of government spending (1) e.g. education / healthcare in other regions (1) could result in higher taxes / government budget deficit (1) the relocation is expected to benefit only a small number of people who already have the financial capital / connection to the government (1) inequality could rise (1) people may be reluctant to leave Jakarta (1) causing the resources invested in the new city to be wasted (1).

Mark scheme

2(a) Define secondary sector using an example apart from 2 Accept covers manufacturing / production of goods. construction. The sector covering construction and manufacturing / the sector that processes raw materials (1) e.g. car manufacturing (1). 2(b) Explain two key resource allocation decisions. 4 One mark each for each of two decisions identified and one mark for each of two explanations. Logical explanation which might include: Accept answers based on resource allocation decisions what to produce (1) a decision on what types of made by firms e.g. demand for a firm's products. products that an economy needs to produce e.g. capital goods vs consumer goods / necessities vs luxuries (1) how to produce (1) seeking the most efficient methods / where the methods to produce the goods and services needs to be decided / capital-intensive vs labour- intensive (1) for whom to produce (1) for those who can pay for the goods and services / for the target market / sector of the economy for whom the goods should be produced / those who need it vs those who want it (1). 2(c) Analyse why workers may want to migrate to another 6 Accept internal and external migration. area. Maximum of 3 marks for identifying reasons. Coherent analysis which might include: to gain higher incomes (1) as there are more / better jobs opportunities available in another area / more opportunities to use skills (1) since there are more employers / economic activity (1) to have better living standards (1) better public amenities (1) such as better health and education facilities (1) to move from areas with housing shortages (1) for cheaper / better housing (1) to move from areas where prices / cost of living is high (1) move to area with lower taxes (1) increase purchasing power / living standards (1) to have better working conditions (1) more job security (1) to be closer to friends / family (1) who have migrated previously (1) to escape wars / high crime (1) more security (1) to avoid losing lives / lives of family members (1) to gain more freedom (1) fewer laws / restrictive regulations (1) climate change (1) original area no longer habitable / cannot plant crops (1) relocate to areas where there are better soil / fewer floods / fewer natural disasters / less pollution (1). 2(d) Discuss whether or not a government should introduce 8 Level Description Marks a maximum price on housing. 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 reduces price of housing / makes housing more logical analysis to evaluate economic affordable issues and situations. One side of the to control (cost-push) inflation argument may have more depth than to improve labour mobility / increase labour force the other, but overall both sides of the available argument are considered and ensures everyone has shelter, a basic necessity developed. There is thoughtful leaves enough money to buy other needs and wants, evaluation of economic concepts, increasing living standards terminology, information and/or data less inequality / reduces relative poverty. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative discourages firms from supplying housing / reduces decisions and outcomes. profits may reduce housing quality if firms wish to maintain 2 A reasoned discussion which makes 3–5 profit levels use of economic information and clear shortage of housing if maximum price is below the analysis to evaluate economic issues equilibrium and situations. The answer may lack no effect if maximum price is set above the equilibrium some depth and development may be price one-sided. There is relevant use of creation of informal markets at higher prices – lower economic concepts, terminology, standards information and data appropriate to maximum prices might still be too high and unaffordable the question. the maximum price introduced may not take location 1 There is a simple attempt at using 1–2 into account. economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.

Mark scheme

3(a) Identify two pairs of products, not in the gaming 2 Accept any relevant pairs of products: 1 mark for each pair. industry, which are substitutes. tea and coffee (1) Netflix and Disney streaming services (1) iPhones and Android Phones (1) glasses and contact lenses (1) 3(b) Explain two reasons why a firm’s revenue may increase. 4 One mark each for each of two reasons identified and one mark for each of two explanations. Logical explanation which might include: higher demand (1) due to e.g. increase in income / Do not award for decreased costs or increased profits. successful advertising / change in taste / fashion (1) change in price of the product (1) if demand is inelastic (1) a rise in price will cause a rise in revenue (1) / if demand is elastic (1) a fall in price will cause a rise in revenue (1) increased market power / market share / monopoly (1) price of substitutes increased / fewer substitutes available (1) demand shifted to this product (1) price of complements decreased (1) raising demand for the complement (1) higher incomes of consumers (1) increasing affordability to buy the product (1) firm selling higher quality product (1) more consumers want to buy the product (1) government subsidy received (1) extra source of revenue (1). 3(c) Analyse two economic consequences of having a large 6 proportion of the population aged under 16. Coherent analysis which might include: requirement for substantial spending on education (1) opportunity cost for other spending (1) e.g. healthcare / infrastructure / any examples of other spending (1) high demand for teachers (1) high dependency ratio (1) few income earners and many dependents (1) reduced tax revenues (1) lower living standards (1) income has to be shared between many people (1) low levels of economic activity (1) young population not in the labour force / not working (1) lack of experienced workers (1) less productivity (1) smaller GDP / lower economic growth (1) greater demand for items consumed by children e.g. toys (1) smaller demand for items consumed by adults e.g. cars (1) future economic growth potential high (1) when young reach adulthood they enter the labour force (1) increasing the supply of labour (1) lowering labour costs (1) encouraging investments (1). 3(d) Discuss whether or not it would benefit the economy if a 8 Level Description Marks government imposed regulations on video game use by young people. 3 A reasoned discussion which 6–8 accurately examines both sides of the In assessing each answer, use the table opposite. economic argument, making use of economic information and clear and Why it might: logical analysis to evaluate economic government can ban a product or limit the quantity issues and situations. One side of the allowed to be bought, decreasing demand for the argument may have more depth than product the other, but overall both sides of the government can impose age limits on certain products argument are considered and government can ensure the product produced doesn’t developed. There is thoughtful create too many external costs e.g. violent crime evaluation of economic concepts, improve educational achievement, skills of worker, terminology, information and/or data higher output appropriate to the question. The improve health, reduce healthcare costs discussion may also point out the reduce consumption of a demerit good i.e. violent video possible uncertainties of alternative games. decisions and outcomes. Why it might not: 2 A reasoned discussion which makes 3–5 policing might not be effective use of economic information and clear unofficial / illegal markets could be formed, government analysis to evaluate economic issues spending required to police them and situations. The answer may lack opportunity cost, spending on e.g. healthcare instead of some depth and development may be policing one-sided. There is relevant use of could increase unemployment in the video gaming economic concepts, terminology, industry information and data appropriate to could reduce GDP / economic growth if the industry is the question. significant could reduce tax revenue if games are subject to tax 1 There is a simple attempt at using 1–2 economic definitions and terminology. video games can be creative, giving participants skills Some reference may be made to could reduce exports and worsen the current account economic theory, with occasional balance. understanding. 3(d) Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.

Mark scheme

4(a) Define a trade in goods deficit. 2 Expenditure on imports (of goods) exceeds revenue from exports (of goods) (2). Imports exceed exports (1). 4(b) Explain two ways firms can be classified. 4 One mark each for each of two ways identified and one mark for each of two explanations. Logical explanation which might include: By stage (1): primary / secondary / tertiary (1) according to the product produced (1). By sector (1) private sector / public sector (1) according to who owns the firm (1). By size (1) according to amount of output produced / number of workers employed (1). By location (1) MNC or domestically-based (1) according to whether operates in more than one country (1). By level of competition (1) may be a monopoly or competitive firm (1). By use of factors of production (1) capital intensive or labour intensive (1). 4(c) Analyse why a government may protect its country’s 6 industries from foreign competition. Coherent analysis which might include: To improve / stop decline of the balance of payments (1) by increasing exports / reducing imports (1) increasing economic growth (1). To protect infant (sunrise) industries (1) allow growth in order to take advantage of economies of scale (1) charge lower prices (1). To protect declining (sunset) industries (1) allow industries to decline gradually (1) unable to replace workers leaving / retiring (1) to protect jobs / avoid rising unemployment (1). To protect strategic industries (1) to ensure supply of e.g. food (1) not disrupted by e.g. economic sanctions (1). To protect industries from unfair competition (1) e.g. dumping (1) government subsidies (1). 4(d) Discuss whether or not a government should increase 8 Level Description Marks its spending on healthcare. 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 should: economic information and clear and to prevent illness / the spread of diseases / reduce logical analysis to evaluate economic death rates issues and situations. One side of the may improve productivity argument may have more depth than healthcare may be under-consumed the other, but overall both sides of the healthcare is a merit good argument are considered and the poor may not be able to afford healthcare developed. There is thoughtful may increase life expectancy evaluation of economic concepts, may increase employment in healthcare terminology, information and/or data may boost total (aggregate) demand / economic growth appropriate to the question. The may reduce unemployment discussion may also point out the may increase government tax revenues. possible uncertainties of alternative decisions and outcomes. Why it should not: increased cost of healthcare may cause a budget deficit 2 A reasoned discussion which makes 3–5 may have to raise taxes use of economic information and clear increased spending may cause inflation analysis to evaluate economic issues and situations. The answer may lack opportunity cost e.g. spending on education some depth and development may be private sector provision may be more efficient one-sided. There is relevant use of doesn't guarantee higher quality healthcare. 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. 4(d) Level Description Marks 0 A mark of zero should be awarded for 0 no creditable content.

Mark scheme

5(a) Identify two benefits of a horizontal merger. 2 Higher revenue not accepted. economies of scale / lower costs lower prices (for consumers) sharing of each firm's strengths more capital available market power / higher prices higher quality more efficient use of resources higher profit international competitiveness 5(b) Explain two possible external benefits of vaccines. 4 Logical explanation which might include: healthier overall population (1) reduced risk for others to become infected / for those who have been vaccinated to spread the disease to the rest of the population (1) improved HDI (1) life expectancy is part of a country's HDI (1) reduced long term spending on healthcare (1) freeing funds for other areas (1) healthier labour force (1) higher productivity / higher output / lower prices (1) more jobs to the community near the vaccine production site (1) higher incomes / lower unemployment (1) increased medical research and development/ innovation (1) helps other fields in medicine and science (1). 5(c) Analyse potential reasons why a merged firm may fail. 6 Coherent analysis which might include: diseconomies of scale (1) higher long run (average) cost as output increases (1) decreasing profits (1) lack of coordination (1) difficult to coordinate between the different departments in a larger company (1) may require additional managers / processes (1) lack of control (1) difficult to ensure everyone in a large company is working towards the same goal (1) increased absences / slacking-off (1) lack of cooperation / disagreements (1) no sense of belonging and personal connections (1) and therefore workers may not want to work with each other (1) lack of synergy (1) different parts of the merged companies can’t work well with each other (1) don’t have the same philosophy / management styles (1) reduced competition may increase complacency / reduce efficiency / innovation (1) lower quality (1) reduce demand (1) other possible reasons for failure, not directly related to merger, e.g. fall in demand (1) supply chain difficulties (1). 5(d) Discuss whether or not investment is beneficial to an 8 Level Description Marks 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 improves productivity / technological innovation logical analysis to evaluate economic creates jobs – decreasing unemployment issues and situations. One side of the consumers may benefit if investment reduces prices, argument may have more depth than improves quality of products the other, but overall both sided of the increases total demand and output of the economy – argument are considered and economic growth developed. There is thoughtful improves quality of education evaluation of economic concepts, improves quality of health terminology, information and/or data if FDI, it provides funds not available in home country. appropriate to the question. The discussion may also point out the Why it might not: possible uncertainties of alternative if financed by borrowing, affected by interest rate decisions and outcomes. changes creates inflation in short run 2 A reasoned discussion which makes 3–5 increases pollution – external cost use of economic information and clear if foreign investment – overdependence on foreign analysis to evaluate economic issues parties and situations. The answer may lack increased inequality some depth and development may be increased unemployment if capital goods act as a one-sided. There is relevant use of substitute for labour economic concepts, terminology, information and data appropriate to opportunity cost in the form of fewer consumer goods in the question. the short run. 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.