Economics 0455/21 October/November 2021: question paper and mark scheme

Mark scheme

1(a) Calculate, in $, the total exports of Laos to China in 2017. 1 Accept 1.18 or 1.2 billion. 1.1832 billion / 1 183 200 000. 1(b) Identify two roles of commercial banks. 2 Accept loan / lending Helps local entrepreneurs to borrow money (1). Encourages households to save / enables households to save (1). 1(c) Explain how access to seaports may benefit an economy. 2 Enables an economy to take full advantage of international trade / take greater advantage of international trading opportunities (1) enables immigration of skilled workers (1) Can export and import goods (1) goods can be transported more cheaply (than by rail or air / over longer distances) / may encourage specialisation (1) increases consumer choice (1). May encourage investment (1) attract MNCs (1) create economic growth (1) 1(d) Explain two benefits of the free market reforms introduced by the 4 One mark each for each of two benefits identified government of Laos. and one mark each for each of two explanations. The free market reforms have enabled Laos to sell their abundant raw Accept improved infrastructure. materials internationally (1) increases export revenue / improves current account balance / creates employment / encourages firms to expand / increases GDP (1). Encourages foreign investment (1) may lower costs of production / increases total demand / improves current account balance / creates employment / increase tax revenue (1). 1(e) Analyse the impact of improved education on the economy of 4 Laos. Increased adult literacy rate (1) better skills/qualifications (1) increase productivity (1) / increase productive capacity / total supply (1) increase demand for labour (1) reduce unemployment / raise employment (1) raise wages (1) reduce poverty (1). More attractive for entrepreneurs / new businesses / investment (1) increase output / GDP (1) leading to higher living standards (1). Improvements in technology (1) due to workers having higher IT skills (1) Increase the consumption of merit goods / decrease the consumption of demerit goods (1) 1(f) Analyse the relationship between a country’s Ease of Doing 5 Business ranking and its GDP per head. Expected relationship: Positive / direct (1) if ease of doing business (EDB) rank is high, GDP per capita is high (1). Supporting evidence: Singapore has the highest EDB rank and GDP per capita is highest (1) Timor-Leste has the lowest EDB rank and GDP per capita is the lowest (1). Exception: Brunei / Malaysia (1) has lower EDB rank than Malaysia but higher GDP per head (1). Alternatively South Korea / Brunei (1) Brunel has lower EDB rank but higher GDP per head (1). Analysis: The greater the ease of doing business, the more investment there is likely to be (1) higher investment is likely to increase GDP (1). 1(g) Discuss whether or not strict rules and regulations benefit an 6 Apply this example to all questions with the economy. command word Discuss (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)) Award up to 4 marks for logical reasons why they might, which could include: Each point may be credited only once, on either side of an argument, but separate development • Environmental rules (1) e.g. cap on carbon emission, tax on as to how/why the outcome may differ is polluting industries (1) reduce market failure (1) reduce external rewarded. costs (1) e.g. could decrease pollution / protect natural resources (1) less health problems for the society (1) better standards of Generic example mark living (1). • Anti-competition rules (1) e.g. restrictions on monopoly power (1) Tax revenue may decrease… 1 improved consumer choice / lower prices / better quality (1) foreign companies will not dominate the market (1) opportunities ...because of reason e.g. incomes 1 for domestic firms to develop (1) increased future economic may be lower. growth (1). • Restrictions on imports (1) may protect domestic industries / allow Tax revenue may increase 0 growth of domestic industries (1). because incomes may be higher • Bans e.g. prohibiting smoking in public places (1) may reduce i.e. reverse of a previous market failure / reduce external costs (1). argument. • Labour market legislation (1) protecting workers’ rights (1). Tax revenue may increase 1 Award up to 4 marks for logical reasons why they might not, which because of a different reason i.e. could include: not the reverse of a previous argument e.g. government • Strict regulation discourages business (1) Laos ranks one of the spending on subsidies may lowest in the World Bank’s Ease of Doing Business index (1) lack stimulate the economy more than of investment / MNCs discouraged (1) lower productivity (1) lack spending on education. of competition (1) lack of employment opportunities (1) decreased total demand (1) decreased economic growth / lower GDP (1) lower standards of living (1). 1(g) • Bureaucracy / red tape increases the time and effort of doing business (1) increases cost of production (1) lowers profit (1). • Rules and regulations may lack clarity (1) causing them to be implemented incorrectly (1) • Takes time for the government to administer rules and regulations (1) opportunity cost of government spending (1). • Import restrictions reduce competition (1) may result in higher prices (1) lower quality (1) 1(h) Discuss whether or not a slowdown of China’s economy will be 6 harmful to the economy of Laos. Award up to 4 marks for logical reasons why it might, which might include: • China is Laos’s largest trading partner / 58% of Laos’s exports are sold to China (1) China slowing down will lead to less demand for Laos’s exports (1) less export revenue / worsen current account (1) less total demand (1) less economic growth (1) may not be able to buy more, irreplaceable imports (1). • China is the largest source of foreign investment into Laos (1) less foreign investments will lead to less job creation (1) less employment / higher unemployment (1) lower standards of living (1). Award up to 4 marks for logical reasons why it might not, which might include: • Reduce dependence on China (1) find new markets and investors (1) other countries’ economies could be expanding (1) which could generate more exports (1) and jobs (1). • May lead to fewer environmental problems (1) less pollution (1) higher standard of living (1). • Domestic investors and firms could fill the gap (1) more employment (1) higher GDP (1).

Mark scheme

2(a) Define redistribution of income. 2 Transfer of income from some individuals (1) to others (1). Tax taken from the rich (1) is spent on the poor (1). Progressive / regressive taxation (1) 2(b) Explain two reasons why governments redistribute income. 4 One mark each for each of two reasons identified and one mark each for each of two explanations. Logical explanation which might include: • Reduce poverty (1) higher purchasing power (1) afford basic necessities (1) e.g. healthcare / education / proper housing (1). • Reduction in poverty reduces social problems / waste of resources (1) as poverty may create e.g. poor health / reduce productivity (1). • To promote equity / greater equality of income (1) reducing the gap between rich and poor (1) • To increase incentives if redistribute from poor to rich (1) may increase effort / enterprise (1) 2(c) Analyse the economic effects of a reduction in a country’s export 6 of services. Coherent analysis which might include: As export of services decreases, total exports will decrease (1) total demand decreases (1) less inflation (1) lower economic growth / lower GDP (1). Less export of services, less demand for service workers (1) less job opportunities / higher unemployment (1). Higher current account deficit / less current account surplus (1) reduces ability to buy imports (1) lower standards of living (1). 2(d) Discuss whether or not supply-side policy measures encourage 8 firms to operate in an economy. Level Description Marks 3 A reasoned discussion which 6–8 In assessing each answer, use the table opposite. accurately examines both sides of the economic Why they might encourage firms: argument, making use of • Makes it easier to hire and fire workers might lower costs of economic information and employing workers to firms. clear and logical analysis to • Better skills could increase productivity. evaluate economic issues • Encouraging more workers into the labour market could increase and situations. the supply of workers. • Reduction in trade union power can reduce cost / make it easier One side of the argument to start a business. may have more depth than • Lower direct taxes will encourage more firms to start up. the other, but overall both • Deregulation will reduce barriers to operate in an economy. sides of the argument are • Privatisation will allow private firms to invest in the economy. considered and developed. • Subsidies will give firms an incentive to stay in the country. There is thoughtful evaluation Why they might not encourage firms: of economic concepts, terminology, information • Less job security could decrease productivity, increasing cost of and/or data appropriate to the production for firms. question. The discussion may • Costs of hiring workers might still be lower elsewhere. also point out the possible • Supply side measures (e.g. labour market reforms) may take a uncertainties of alternative long time before the effects on the economy are apparent decisions and outcomes. • Lower direct taxes may reduce the government’s ability to spend on education / training which will increase firms’ cost of production • Deregulation may enable other firms to engage in unfair practices • There may be a fear that subsidies might be withdrawn and if there is a fall in demand MNCs will not want to stay in the country anyway • Other governments may be giving larger subsidies 2(d) Level Description Marks 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at 1–2 using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Mark scheme

3(a) Define finite resource. 2 No mark for an example A resource is an aid to production (1) which is limited in supply (1) it cannot be replaced over time / fast enough / will run out (1) to keep pace with consumption (1). 3(b) Explain the difference between private and external benefits. 4 Maximum 3 marks for only explaining 1 type of benefit. Logical explanation which might include: Private benefits are enjoyed by the producer (1) and consumer (1) first and second parties (1) of a product, example e.g. revenue for the producer / satisfaction for the consumer (1). External benefits are enjoyed by a third party (1) not directly involved in the production (1) or consumption process (1) example (1) 3(c) Analyse, using a demand and supply diagram, the effects on the 6 world price of oil of the discovery of new reserves of oil. (6) Up to 4 marks for the 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 right (1). Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the equilibrium points E1 and E2 (1). Up to 2 marks for written comments: Discovery of new oil will enable an increase in supply (1) price will be lower (1). 3(d) Discuss whether or not the fall in the price of a product is a 8 Level Description Marks disadvantage to an economy. 3 A reasoned discussion which 6–8 accurately examines both In assessing each answer, use the table opposite. sides of the economic argument, making use of Why it might be a disadvantage: economic information and clear and logical analysis to • It depends on size of fall in price and elasticity of demand for the evaluate economic issues product and situations. • It depends upon the importance of the product to the economy / how dependent on it One side of the argument • If demand is price inelastic, decrease in total revenue e.g. basic may have more depth than items / necessity, cannot cover the costs, firms may go out of the other, but overall both business, less employment opportunities sided of the argument are • Less profits, discourages investment, reduces economic growth considered and developed. • Less export revenue, may increase current account deficit • Fall in price may be due to cheaper imports, domestic firms lose There is thoughtful evaluation out. of economic concepts, • The product may be a demerit good which previously was terminology, information overconsumed. and/or data appropriate to the • If the product is part of a deflationary situation, there could be question. The discussion may recession / unemployment also point out the possible uncertainties of alternative decisions and outcomes. 3(d) Why it might not be a disadvantage: Level Description Marks 2 A reasoned discussion which 3–5 • Depends on size of fall and whether it is short or long term makes use of economic • If demand is elastic, increase in total revenue e.g. luxury goods / information and clear many substitutes analysis to evaluate • Increase choices and affordability of product – better living economic issues and standards situations. The answer may • Fall in the price of a raw material may lower cost of production, lack some depth and reducing inflation and increasing economic growth development may be one- • The product may be a merit good which previously was under- sided. There is relevant use consumed of economic concepts, • It may make a basic necessity more affordable – low income terminology, information and groups may be better off data appropriate to the • It may be the result of an increase in productivity / a government question. subsidy 1 There is a simple attempt at u 1–2 • It may make the product more internationally competitive, sing economic definitions and improving the current account position. terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Mark scheme

4(a) Define total revenue. 2 No mark for producing their products Total amount of money earned by firms (1) for selling their products (1). Price times quantity (2), P × Q (2) Total costs plus profit (2). 4(b) Explain two causes of inflation. 4 One mark each for each of two causes identified and one mark each for each of two explanations. Logical explanation which might include: Demand-pull inflation (1) increase in total demand (1) e.g. increase in Full marks may be awarded for a detailed consumption / increase in investment / government spending / net explanation of two causes of one type of inflation. exports (1) e.g. cut in income tax / decrease interest rate / increase employment / increase in the money supply (1). Cost-push inflation (1) increase in costs of production (1) e.g. increase in wages / raw material cost / profit margin / tariffs (1) e.g. wages may rise more than productivity / fall in exchange rate would increase raw material costs (1). 4(c) Analyse how an increase in interest rate could reduce total 6 demand in an economy. Coherent analysis which might include: Increase in interest rate will lead to an increase in the cost of borrowing (1) there will be less borrowing (1) less consumption / spending (1) less investments (1) An increase in interest rate will lead to an increase in the returns from savings (1) there will be more savings (1) less consumption / less spending (1) An increase in interest rate may attract an inflow of money from other countries into the country’s banks (1) leading to an appreciation of the currency (1) leading to increase in price of exports / decrease in price of imports (1) increase exports / decrease imports (1) decrease net exports (1) 4(d) Discuss whether or not an appreciation of a country’s domestic 8 Level Description Marks currency will have negative effects on its economy. 3 A reasoned discussion which 6–8 accurately examines both In assessing each answer, use the table opposite. sides of the economic argument, making use of Why appreciation will have a negative impact: economic information and clear and logical analysis to • Price of exports will be higher – decrease export revenue. evaluate economic issues • Price of imports will be lower – increase import spending. and situations. • Decrease demand for domestic products – decrease demand for labour. One side of the argument • Decrease current account surplus / increase current account may have more depth than deficit. the other, but overall both • Lower economic growth. sided of the argument are considered and developed. Why appreciation will not have a negative impact: There is thoughtful evaluation • Price of imports cheaper – increase affordability of imports – of economic concepts, increase standards of living. terminology, information • Price of imported raw materials / machinery lower – lower cost of and/or data appropriate to the production – lower final price. question. The discussion may • PED for exports and imports might be inelastic. also point out the possible uncertainties of alternative • May encourage foreign investment as there may be increased decisions and outcomes. confidence in the country’s future economic prospects 4(d) Level Description Marks 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at u 1–2 sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.

Mark scheme

5(a) Define market disequilibrium. 2 When quantity demanded does not equal quantity supplied (2). When there are shortages (1) or surpluses (1) of a product. 5(b) Explain the difference between labour-intensive and capital- 4 intensive industries Logical explanation which might include: Labour-intensive industries rely more on human labour (1) i.e. workers (1) low-cost labour may be available (1) example of industry (1) Capital-intensive industries rely more on capital (1) i.e. machines (1) capital more efficient / cheaper than labour (1) example of industry 5(c) Analyse how trade unions could increase economic 6 development. Coherent analysis which might include: Trade unions could help engage in collective bargaining on wages (1) higher wages (1) leads to higher purchasing power of workers (1). May increase motivation of workers (1) increase output (1). Better working hours (1) improved working conditions (1) protect workers’ rights (1) better health and safety (1) more job security (1) leads to higher standards of living (1) higher life expectancy (1). Increased productivity / efficiency of workers (1) decreases cost of production (1) decrease final price of goods and services produced in the country (1) increase competitiveness (1) higher output / economic growth (1). May help with training (1) raise quality of output (1). 5(d) Discuss whether or not high government spending can help a 8 Level Description Marks government achieve its macroeconomic aims. 3 A reasoned discussion which 6–8 accurately examines both In assessing each answer, use the table opposite. sides of the economic argument, making use of Why high government spending can help a government achieve its economic information and macroeconomic aims: clear and logical analysis to evaluate economic issues • economic growth – increase total demand and situations. • full employment/low unemployment – increase demand for workers through more government infrastructure projects One side of the argument • government spending on education may raise workers’ skills and may have more depth than so lower unemployment the other, but overall both • balance of payments stability – through subsidies for producers sided of the argument are • redistribution of income – through spending on social welfare. considered and developed. Why high government spending cannot help a government achieve its There is thoughtful evaluation macroeconomic aims: of economic concepts, terminology, information • increased total demand could lead to increase demand-pull and/or data appropriate to the inflation question. The discussion may • too much government spending could lead to less private also point out the possible investments uncertainties of alternative • overreliance of government subsidies could lead to complacency decisions and outcomes. • high spending on social welfare could discourage the unemployed from trying to find jobs • may be accompanied by higher taxes which could be a disincentive to effort and enterprise • may increase budget deficit which could reduce confidence in the economy. 5(d) Level Description Marks 2 A reasoned discussion which 3–5 makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 1 There is a simple attempt at u 1–2 sing economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 0 A mark of zero should be 0 awarded for no creditable content.