IGCSE Economics Structured Question

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IGCSE Economics Structured Question

Chapter 1 The nature of the economic problem .......................................... 17
1. What is meant by the ‘economic problem’? [2] .......................................................................................................... 17
2. Why can the economic problem never be solved? [2] ................................................................................................ 17
Chapter 2 Factors of production ................................................................. 17

3. Describe two ways in which land is different from labour. [4] ................................................................................... 17
4. What is the difference between labour and enterprise? [4] ......................................................................................... 17

1
5. Identify the two human factors of production. ............................................................................................................ 17
6. Identify two risks that entrepreneurs have to bear. [2] ................................................................................................ 17
7. Explain, giving examples, two factors of production used in the tourism industry. [4] .............................................. 17
Chapter 3 Opportunity cost ......................................................................... 17

8. Define opportunity cost [2] ......................................................................................................................................... 17
9. Explain why scarcity gives rise to an ‘opportunity cost’. [4] ...................................................................................... 17
10. Why may less wheat be the opportunity cost of producing more milk? [2] ................................................................ 18
11. Explain the connection between opportunity cost and the purchase of shares. [4] ..................................................... 18
12. Explain why the concept of opportunity cost is important in deciding how to allocate resources. [4] ....................... 18
13. Analyse the possible opportunity costs of an increase in government spending on higher education services. [6] .... 18
14. Explain the significance of opportunity cost for a government when making its spending decisions. [4].................. 18
15. Explain why farmers should consider opportunity cost when deciding how to use their factors of production. [4]... 18
16. Explain two different opportunity costs that may be involved in a person becoming a sole proprietor [4] ................ 18
Chapter 4 Production Possibility Curve ..................................................... 19

17. What is meant by a production possibility curve? [2] ................................................................................................. 19
18. Using a production possibility curve diagram, analyse the effect on an economy’s output when there is a change from full
employment to unemployment. [6] ............................................................................................................................. 19
19. Using a production possibility curve diagram, explain how it can show the concept of opportunity cost. [6] ........... 19
20. Using a production possibility curve diagram, analyse the effect of a decrease in unemployment on an economy’s output. [6]
19
21. Analyse, using a production possibility curve diagram, the effect of moving factors of production from producing cigarettes
to producing other products. [6] .................................................................................................................................. 20
22. Using a production possibility curve diagram, explain why choices have to be made to make as to how to allocate resources.
20
23. Analyse, using a production possibility curve diagram, how an increase in labour productivity will affect an economy. [6]
20
24. Analyse, using a production possibility curve diagram, how the discovery of new oil reserves would affect an economy. [6]
20
25. Using a production possibility curve diagram, analyse the effect of a decrease in the supply of labour and enterprise on an
economy. [6] ............................................................................................................................................................... 21
26. Analyse, using a production possibility curve, the effect of advances in technology. [6] ........................................... 21
27. Analyse, using a production possibility curve diagram, what effect net immigration is likely to have on an economy. [6] 22
28. Explain two economic concepts shown by a production possibility curve diagram. [4]............................................. 22
2
Chapter 6 The role of Markets in allocating resource ................................ 22
Chapter 13 Market Economic System ......................................................... 22
Chapter 15 Mixed Economic System ........................................................... 22

29. Define ‘mixed economy’. [2] ...................................................................................................................................... 22
30. Analyse how the price mechanism influences the allocation of resources in a market economy. [6] ......................... 22
31. Explain how resources are allocated in a market system. [4]...................................................................................... 23
32. Analyse how resources are allocated in a mixed economy. [6] ................................................................................... 23
33. Discuss whether the advantages of a market economy are greater than its disadvantages. [8] ................................... 23
34. Discuss whether or not a market system benefits consumer. [8] ................................................................................. 23
35. Discuss whether or not an increase in the role of the private sector will benefit an economy.[8]............................... 24
Chapter 14 Market Failure ......................................................................... 24

36. Define ‘market failure’. [2] ......................................................................................................................................... 24
37. Why is pollution an example of market failure? ......................................................................................................... 24
38. Using examples, distinguish between a private cost and an external cost. [4] ............................................................ 24
39. Explain the difference between private costs and social costs. [4] ............................................................................. 25
40. Analyse why the social benefits of education are greater than the private benefits. [6] ............................................. 25
41. Analyse why the social costs of oil extraction may be greater than the private costs. [6] .......................................... 25
42. Explain how international travel may create external costs. [4] ................................................................................. 25
43. Analyse the social benefits of giving vaccinations. [6] ............................................................................................... 25
44. Explain why, in a market economy, some goods and services are over-consumed and some under-consumed. [6] ... 25
45. Analyse the causes of market failure. [6] .................................................................................................................... 26
46. Analyse three reasons why a market system could fail. [6]/ Explain why market failure occurs. [4]......................... 26
47. Explain how government regulation may reduce market failure. [4] .......................................................................... 26
48. Analyse how a government could promote the purchase of bicycles. [6] ................................................................... 26
49. Discuss whether governments should discourage car use. [8]2017 ............................................................................ 26
50. Discuss whether the social benefits of building flood defences will exceed the social costs involved. [8] ................ 27
51. Discuss whether healthcare should be provided by the public sector or private sector. [8] ........................................ 27
52. Discuss whether governments should regulate the coal industries of their countries. [5] ........................................... 27
Chapter 7-10 Demand & Supply ................................................................. 28

53. Define ‘demand’. [2] ................................................................................................................................................... 28
54. Define ‘equilibrium price’. ......................................................................................................................................... 28
55. Describe what determines ‘equilibrium price’. [2] ..................................................................................................... 28 3
56. Define a substitute and give an example. [2] .............................................................................................................. 28
57. Giving an example, define ‘complements’. [2] ........................................................................................................... 28
58. Explain two causes of a shift of a demand curve to the left. [4] ................................................................................. 28
59. Explain three likely causes of increase in demand for bicycles. [6]............................................................................ 28
60. Explain two reasons why the supply curve of a product may shift to the right. [4] .................................................... 29
61. Explain three reasons why the supply of bananas may decrease. [6] .......................................................................... 29
62. Analyse why a country could have lower production costs for a particular good than another country. [5]............... 29
63. Explain what impact an imbalance between supply and demand is likely to have on price and the quantity traded. 30
64. Using a demand and supply diagram, analyse the effect of removing an indirect tax on the market for the product. 30
65. Using a demand and supply diagram, analyse the effect of a rise in the price of coffee on the market for tea. [6] .... 30
66. Analyse how advances in technology can affect demand and supply. [6]................................................................... 31
67. Analyse, using a demand and supply diagram, the effect of an increase in income on the market for ice cream. [5] 31
68. Using a demand and supply diagram, analyse the likely effect of an increase in advertising on the equilibrium price and
equilibrium quantity of a product in a market. [6] ...................................................................................................... 31
69. Using a demand and supply diagram, analyse the effect on the market for petrol if a subsidy on petrol is removed. 32
70. Analyse why the price of a product may be higher in the USA than China. [6] J/21/2017 ......................................... 32
71. Analyse the effect on the market for food of an increase in population combined with a prolonged period of bad weather. [6]
32
72. Analyse why a commercial bank may prefer to sell its services in foreign countries rather than its home country. [5]
21/May/June/2018....................................................................................................................................................... 33
73. Discuss whether the price of food is likely to increase in the future. [8] .................................................................... 33
Chapter 11-12 PED & PES ......................................................................... 33

74. What is meant by a price elasticity of demand of – 2.5? [2] ....................................................................................... 33
75. Describe the concept of price elasticity of demand. [4] .............................................................................................. 34
76. Define ‘price-inelastic demand’. [2] ........................................................................................................................... 34
77. Define ‘price elasticity of supply’. [2] ........................................................................................................................ 34

78. Analyse why demand for a product may become more elastic over time. [6] ............................................................ 34
79. Analyse why demand for a product may become more price-elastic. [6] ................................................................... 34
80. Analyse why demand for a luxury holiday may be price-elastic. [5] .......................................................................... 34
81. Analyse why the demand for a product may be more price elastic in one country than in another country. [6] ......... 35
82. Explain two reasons why the supply of a product may be price inelastic. [4] May/June 2015 ................................... 35
83. Analyse why price elasticity of supply can differ between products. [6] May/June 2017 .......................................... 35
84. Analyse how information on price elasticity of demand for its product can influence a firm’s pricing decisions. [6] 35
85. Analyse how price elasticity of demand for a product influences the revenue a firm receives.[6] ............................. 35
4
86. Analyse what effect a fall in price may have on a farmer’s profit. [6] ........................................................................ 36
87. Discuss the extent to which price elasticity of demand is of use to a business. [8] .................................................... 36
88. Discuss to what extent time is the main influence on the price elasticity of supply. [6] ............................................. 36
Chapter 16 Money and Banking ................................................................. 37

89. Define ‘medium of exchange’. [2] .............................................................................................................................. 37
90. Define a ‘standard for deferred payments’. [2] ........................................................................................................... 37
91. Define ‘Central Bank’. [2] .......................................................................................................................................... 37
92. Explain why an item has to be generally acceptable and divisible for it to carry out the functions of money. [4] ..... 37
93. Explain two functions of money. [4] ........................................................................................................................... 37
94. Explain why cash (notes and coins) is money. [4] ...................................................................................................... 37
95. Explain how money helps specialisation and trade to occur. [4] ................................................................................ 37
96. Define commercial bank. [2] 22/MJ/2018 .................................................................................................................. 37
97. Explain two ways in which a central bank differs from a commercial bank. [4] ........................................................ 37
98. Explain two functions of a commercial bank. [4] ....................................................................................................... 38
99. Analyse the role that commercial banks can perform in an economy. [6] .................................................................. 38
100. Explain two reasons why firms may find it difficult to obtain loans from commercial banks. [4] ............................. 38
101. Describe two functions of a central bank. [4] ............................................................................................................. 38
102. Analyse the importance of a central bank in an economy. [7] .................................................................................... 39
103. Discuss whether a central bank should lend to commercial banks which get into financial difficulties. [8] .............. 39
104. What is sold on a stock exchange? [2] ........................................................................................................................ 39
105. Explain two functions of a stock exchange. [4] .......................................................................................................... 39
106. Explain how a stock exchange could encourage economic growth.[4] ....................................................................... 40
Chapter 17 Households ............................................................................... 40

107. Describe two influences on the amount people spend. [4] .......................................................................................... 40
108. Explain two reasons why the rich spend more in total than the poor. [4] ................................................................... 40
109. Explain two reasons why people may spend most of their income. [4] ...................................................................... 40
110. Explain two reasons why borrowing may decrease. [4] .............................................................................................. 40
111. Analyse how a central bank might reduce household borrowing. [6] ....................................................................... 41
112. Analyse why households and firms may borrow more during times of rapid economic growth. [6] ......................... 41
113. Identify two influences on the amount people save. [2].............................................................................................. 41
114. Analyse how the spending, saving and borrowing patterns of young workers may differ from those of older workers. [6] 41
115. Analyse how the spending pattern of high paid workers is likely to differ from the spending pattern of low paid workers. [4]
42
116. Discuss whether the rate of interest is the only influence on a person’s decision to borrow money from a bank.[10]42 5
117. Discuss whether the poor are more likely to borrow than the rich. [8] ....................................................................... 42
Chapter 18 Workers .................................................................................... 43

118. Identify two wage factors that workers take into account when deciding on their occupation. [2] ............................ 42
119. Identify two factors that affect an individual’s choice of occupation. [2] ................................................................... 43
120. Explain two reasons why someone may be prepared to work for a low wage. [4] ..................................................... 43
121. Discuss whether a rise in the wages paid by an industry will encourage more people to work in that industry. [8]... 43
122. Analyse why the wages of workers in a particular occupation may fall. [6]............................................................... 44
123. Analyse why Premier League footballers receive very high wages. [6] ..................................................................... 44
124. Explain why university graduates usually earn more than people who have not gone to university [4]..................... 44
125. Explain two reasons why agricultural workers may be paid less than manufacturing workers.[4]............................. 44
126. Discuss whether a company will have to raise wage rates to attract more workers. [6] ............................................. 44
127. Explain two reasons why workers specialising can reduce the average cost of production. [4] ................................. 45
128. Explain two disadvantages that workers may experience from specialising. [4] ........................................................ 45
129. Analyse why engaging in division of labour may increase a firm’s costs of production. [6]...................................... 45
130. Discuss whether workers benefit from specialising. [8] ............................................................................................. 45
Chapter 19 Trade Union ............................................................................. 46

131. Define a ‘trade union’. ................................................................................................................................................ 46
132. Describe what is meant by a trade union. [4] .............................................................................................................. 46
133. Identify two aims of a trade union. [2] ........................................................................................................................ 46
134. Explain two influences on the strength of a trade union. [4]....................................................................................... 46
135. Explain the likely impact of trade unions on the welfare of their members. [4] ......................................................... 47
136. Identify two reasons why workers go on strike. [2] .................................................................................................... 47
137. Analyse why a trade union may oppose a rise in working hours. [6] March/2018 ..................................................... 47
138. Explain why governments may discourage strikes. [4] ............................................................................................... 47

139. Discuss whether membership of a trade union will always be beneficial for a worker. [6] ........................................ 47
140. Discuss whether a firm will benefit from encouraging its workers to join a trade union. [8] ..................................... 48
141. Discuss whether an economy would benefit from an increase in the strength of its trade unions. [8] ........................ 48
142. Analyse three reasons why trade union membership may decrease in a country. [6] ................................................. 48
143. Discuss whether the activities of trade unions are likely to increase or decrease a country’s economic growth rate. 49
144. Discuss whether or not increasing the strength of trade unions will benefit an economy. [8] .................................... 49
145. Discuss whether a worker should always be encouraged to join a trade union. [10] 2013 ......................................... 49
146. Discuss whether a rise in the wages a firm pays would reduce its profits. [8] ............................................................ 50
6
Chapter 20 Firms-Classification of firms ................................................... 50
147. Explain two influences on the size of firms. [4] ......................................................................................................... 50
148. Define ‘private limited company’. [2] ........................................................................................................................ 50
149. Identify two features of a sole proprietor. [2].............................................................................................................. 51
150. Describe the advantages and disadvantages of a sole proprietor business organisation. [4] ....................................... 51
151. Analyse the advantages of being a sole trader. [6] ...................................................................................................... 51
152. Distinguish between a sole proprietor and a partnership. [4] ...................................................................................... 51
153. Describe two features of a partnership. [4] ................................................................................................................. 51
154. Describe two characteristics of a co-operative. [4] ..................................................................................................... 51
155. Explain why a partnership might become a private limited company. [5] .................................................................. 52
156. Explain two advantages a business organisation may gain from becoming a public limited company. [4] ................ 52
157. Explain two reasons why a decision might be taken to change a private limited company into a public limited company. [4]
52
Chapter 20 Firms-Growth of firms ............................................................. 52

158. Define ‘horizontal integration’. [2] ............................................................................................................................. 52
159. Define ‘conglomerate integration’ [2] ......................................................................................................................... 52
160. Using examples, distinguish between vertical, horizontal and conglomerate integration. [5] .................................... 53
161. Explain two advantages that firms may gain from a horizontal merger. [4] ............................................................... 53
162. Discuss whether consumers benefit from horizontal mergers. [8] .............................................................................. 53
163. Discuss whether a merger between two shipbuilding firms will improve the quality of ships built. [5] 2016 ........... 53
164. Discuss whether a merger between two large firms in the same industry will increase the price of the product. [8] . 53
165. Discuss whether or not commercial banks in Morocco would benefit from further mergers. [6] ............................... 54
166. Analyse the advantages of vertical integration. [4] ..................................................................................................... 54
Chapter 20 Firms-Economies of Scale........................................................ 54

167. Define economies of scale. [2] .................................................................................................................................... 54
168. Analyse how an increase in the size of a firm can increase its profit. [6] ................................................................... 54
169. Discuss whether the average cost of production always decreases when a firm increases the total output that it produces. [8]
54
170. Discuss whether larger firms or smaller firms may benefit consumers more [8] ........................................................ 55
171. Discuss whether small firms can compete successfully against large firms. [8] ......................................................... 55
172. Discuss whether it is likely that the majority of small firms in an economy will remain small. [6] ........................... 56
173. Analyse three advantages of small firms. [6] .............................................................................................................. 56
174. Discuss the advantages and disadvantages of small firms. [8].................................................................................... 57
175. Discuss whether people would prefer to buy a product from a small firm or a large firm. [8] ................................... 57 7
176. Discuss whether the growth of a commercial bank will benefit its customers. [6] 2016 ............................................ 57
177. Discuss whether a large firm will always have lower average costs of production than a small one. [8] ................... 58
178. Analyse the economies of scale from which a farm may benefit. [6] ......................................................................... 58
179. Explain two types of internal economy of scale that a growing bank can enjoy. [4] .................................................. 58
180. Analyse two internal diseconomies of scale that a large firm may experience. [6] .................................................... 59
Chapter 21 Firms and Production .............................................................. 59

181. Define ‘capital-intensive’. [2] ..................................................................................................................................... 59
182. Explain two influences on what factors of production a firm uses. [4] ....................................................................... 59
183. Explain two reasons why a firm may decide to use more labour and less capital in producing its products. [4] ....... 59
184. Analyse what determines a firm’s demand for capital goods. [6] ............................................................................... 59
Chapter 22 Firms, cost, revenue and objective ........................................... 60

185. Define ‘average costs’. [2] .......................................................................................................................................... 60
186. Explain the difference between average fixed cost and average variable cost. [4] ..................................................... 60
187. Explain why fixed costs are high in the aircraft-making industry. [4] ........................................................................ 60
188. Explain how a fall in output will affect average fixed cost and average total cost. [4] ............................................... 60
189. Analyse what effect an increase in output will have on fixed, variable and average costs. [6]................................... 60
190. Analyse how an increase in the size of farms may affect the cost of producing food.[6] ........................................... 60
191. Explain the different goals that state-owned commercial banks and privately-owned commercial banks may have . 61
192. Explain TWO reasons why a firm may NOT aim to earn maximum profit. [4] ......................................................... 61
193. Explain the different goals that such a business organisation might have. [5] ............................................................ 61
194. Explain why the growth of a firm as a goal may lead to profit maximisation in the long term. [4]............................ 61
195. Analyse how a firm could reduce its output and increase total profit. [6] .................................................................. 61
196. Analyse why private sector banks may earn higher profits than public sector banks. [6] J/2017/21 .......................... 62
197. Discuss whether growth is the main goal of most firms. [6] ....................................................................................... 62
Chapter 23 Market structure ....................................................................... 62

198. Define ‘perfect competition’. [2] ................................................................................................................................ 62
199. Explain two characteristics of perfect competition. [4] .............................................................................................. 62
200. Analyse why price may be higher and output lower in a monopoly than in a more competitive market. [6] ............. 63
201. Explain three ways in which a monopoly differs from perfect competition. [6] ......................................................... 63
202. Explain why firms in a perfectly competitive market are price-takers........................................................................ 63
203. Distinguish between a firm that is a price taker and one that is a price maker. [4] ..................................................... 63
204. Explain two advantages a firm may gain from being a monopoly. [4] ....................................................................... 64 8
205. Analyse how a monopoly could benefit consumers. [6] ............................................................................................. 64
206. Discuss whether a monopoly is always in the best interest of consumers. [7] ............................................................ 64
207. Discuss whether a monopoly is always in the public interest. [10]............................................................................. 64
208. Discuss whether or not removing a firm’s monopoly power will benefit consumers. [8] ........................................... 65
209. Discuss whether pricing and output policies in perfect competition are more favourable to the consumer than those in
monopoly. [10] ............................................................................................................................................................ 65
210. Discuss whether selling a state monopoly, such as Pemex, to the private sector would benefit consumers in Mexico. [6] 65
211. Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly competitive market. [8]66
Chapter 24 The role of Government............................................................ 66
Chapter 25 Macroeconomics Aims of Government..................................... 66

212. Identify two government economic aims. [2] ............................................................................................................. 66
213. What is meant by ‘redistribution of income’? [2] ....................................................................................................... 66
214. Analyse why it may be difficult for an economy to have both low unemployment and low inflation at the same time. [6] 66
215. Analyse the effect of a decrease in resources on government economic aims. [6] ..................................................... 67
Chapter 26 Fiscal policy ............................................................................. 67

216. Explain why governments impose taxes. [4] .............................................................................................................. 67
217. Define ‘an indirect tax’. [2]......................................................................................................................................... 67
218. Define progressive tax. [2] .......................................................................................................................................... 67
219. Define ‘regressive tax’. [2] ......................................................................................................................................... 67
220. Giving an example, define ‘a sales tax’. [2] ................................................................................................................ 68
221. Explain the difference between direct and indirect taxes. [4] ..................................................................................... 68
222. Using a demand and supply diagram, analyze the effect of removing an indirect tax on the market for the product . 68
223. Explain how people’s spending could be affected by changes in both direct and indirect taxes. [6] .......................... 68
224. Explain how a cut in the rate of corporation tax could result in an increase in tax revenue. [4] ................................. 68
225. Discuss whether a government should impose indirect taxes only on products with inelastic demand. [6] ............... 68
226. Explain two reasons why tax revenue may fall. [4] .................................................................................................... 69
227. Explain two reasons why an increase in unemployment may reduce tax revenue. [4] ............................................... 69
228. Discuss whether a government should spend more than it raises in taxation. [8] ....................................................... 69
229. Explain how fiscal policy can be used to support the development of a country such as Oman. [6] 2013 ................. 69
Chapter 27 Monetary policy ....................................................................... 70

230. What is meant by ‘monetary policy’? [2].................................................................................................................... 70 9
231. Discuss whether monetary policy measures can increase economic growth. [8] ........................................................ 70
Chapter 28 Supply-side Policy .................................................................... 70

232. Explain TWO supply-side policy measures. [4] ......................................................................................................... 70
233. Analyse how supply-side policy measures could increase productivity. [6] ............................................................... 71
234. Analyse how two supply-side policy measures could improve the performance of an airline industry. [6] ............... 71
235. Discuss whether it is always possible for a country to have low unemployment and low inflation at the same time. 71
236. Discuss whether or not government policy measures to reduce unemployment will cause inflation. [8] ................... 71
237. Discuss the impact of supply-side policy measures on government expenditure and on government revenue.[8] ..... 72
Chapter 29 Economic Growth..................................................................... 72

238. Define ‘Gross Domestic Product’. [2] ........................................................................................................................ 72
239. Define ‘Economic Growth’ [3] ................................................................................................................................... 72
240. Explain two causes of economic growth. [4] .............................................................................................................. 72
241. Explain how a rise in the retirement age may increase a country’s economic growth rate. [4] .................................. 73
242. Analyze the possible effects of an increase in bank lending on economic growth. [6] ............................................... 73
243. Discuss whether an increase in bank lending will benefit an economy. [8] J/2017/21 ............................................... 73
244. Explain two reasons why governments aim for economic growth.............................................................................. 73
245. Discuss the extent to which economic growth is advantageous for a country. [6] ...................................................... 74
246. Discuss whether the wages of all workers will increase during a period of economic growth. [8] ............................ 74
247. Analyse how a global recession could affect demand for sea transport. [5] ............................................................... 75
248. Explain two benefits that an economy may gain as a result of the discovery of oil on its land. [4]............................ 75
Chapter 30 Employment and Unemployment.............................................. 75

249. Define ‘unemployment’. [2] ....................................................................................................................................... 75
250. Analyse how the pattern of employment within an economy tends to change as the country develops. [6] .............. 75
251. Explain what the difference between the rate of unemployment and the level of unemployment is. [2] .................... 75
252. Distinguish between frictional and cyclical unemployment. [4] ................................................................................. 75
253. Describe two types of unemployment. [4] .................................................................................................................. 76
254. Explain two reasons why someone may be of working-age but not in the labour force. [4] ...................................... 76
255. Analyse two reasons why unemployment may increase. [6] ...................................................................................... 76
256. Analyse the causes of unemployment. [6] .................................................................................................................. 76
257. Identify two problems that prevent a worker finding employment. [2] J/2017/22 ...................................................... 77
258. Analyse how an increase in the rate of interest could increase unemployment. [6] .................................................... 77
259. Analyse why a fall in the inflation rate may reduce a country’s unemployment rate. [6] ........................................... 77
10
260. Analyse how a reduction in government spending on education could cause unemployment. [6] ............................. 77
261. Discuss whether a cut in taxes will reduce unemployment. [6] .................................................................................. 77
262. Discuss whether an increase in the rate of a sales tax will cause unemployment. [6]................................................. 78
263. Explain why governments aim for low unemployment. [6] ........................................................................................ 78
264. Discuss whether a reduction in a country’s unemployment rate will always benefit an economy. [8] ....................... 79
265. Explain two costs of long-term unemployment to those who are unemployed. [4] .................................................... 79
266. Discuss whether unemployment always harms an economy. [8] ................................................................................ 79
267. Discuss whether a country would benefit from having full employment. [8] ............................................................. 80
268. Analyse how a fall in unemployment can increase tax revenue. [6] ........................................................................... 80
269. Identify two ways in which a high rate of unemployment may affect firms. [2] ........................................................ 80
270. Analyse why an increase in unemployment might cause an increase in government spending. [5] ........................... 80
271. Discuss whether low unemployment in a country will encourage multinational companies (MNCs) to set up there. 81
272. Discuss whether government policy measures can reduce unemployment. [8] .......................................................... 81
273. Analyse three ways a government could reduce the rate of unemployment in a country. [6] ..................................... 81
Chapter 31 Inflation and Deflation ............................................................. 82

274. Identify TWO price indices. [2] .................................................................................................................................. 82
275. Define ‘a weighted price index’. [2] ........................................................................................................................... 82
276. Explain how a consumer prices index is constructed. [5] ........................................................................................... 82
277. Define ‘deflation’. [2] ................................................................................................................................................. 82
278. Define ‘inflation’. [2] .................................................................................................................................................. 82
279. Distinguish between demand-pull and cost-push inflation. [4] ................................................................................... 82
280. What is meant by an inflation rate increasing? [2]...................................................................................................... 82
281. Explain what is meant by a fall in the rate of inflation. [2] ......................................................................................... 82
282. Discuss whether a decrease in government spending will reduce inflation. [8] .......................................................... 82
283. Analyse why a reduction in the rate of interest may cause inflation. [6] .................................................................... 83
284. Analyse how a fall in unemployment may increase inflation. [6] ............................................................................... 83
285. Discuss whether an increase in taxes will reduce inflation. [8] .................................................................................. 83
286. Explain two reasons why governments aim for low and stable inflation. [4] ............................................................. 83
287. Discuss whether inflation harms everyone in an economy. [9] ................................................................................... 84
288. Discuss whether a low inflation rate always benefits an economy. [8] ....................................................................... 84
289. Discuss whether there could be a conflict between the government aims of low inflation and low unemployment. [6]85
290. Explain two causes of deflation. [4] ............................................................................................................................ 85
291. Discuss whether a cut in the rate of interest would end deflation. [8] ........................................................................ 85
Chapter 32 Living Standards ...................................................................... 86 11
292. Define the ‘Human Development Index’. [2] ............................................................................................................. 86
293. Define ‘GDP per head’. [2] ......................................................................................................................................... 86
294. Explain two measures of living standards. [4] ............................................................................................................ 86
295. Explain two causes of an increase in living standards. [4] .......................................................................................... 86
296. Analyze the effects of a rise in unemployment on living standards in a country. [6].................................................. 86
297. Explain two reasons why more educated people tend to live longer than less educated people.[4] ........................... 86
298. Analyse how an increase in labour productivity can increase living standards. [6] .................................................... 87
299. Discuss whether a reduction in government spending on education will reduce living standards.[8] ........................ 87
300. Discuss whether living standards are always lower in developing countries than in developed countries. [8]........... 87
301. Discuss whether living standards are likely to be higher in a mixed economy or a market economy. [8] .................. 88
302. Analyze why a country may have a high HDI value [6] ............................................................................................. 88
303. Analyze three ways in which a country’s HDI value could increase. [6] .................................................................... 88
304. Discuss whether GDP per head is the best way to compare living standards in different countries. [10] ................... 89
305. Discuss whether people in countries with a high HDI always enjoy a high standard of living. [5] ............................ 89
306. Discuss whether the Human Development Index (HDI) is the best way of comparing the standard of living in different
countries. [10] ............................................................................................................................................................. 89
307. Discuss whether the Human Development Index is a perfect measure to compare living standards in different countries. [6]
90
308. Discuss whether the Human Development Index is a good measure of living standards. [5]..................................... 90
309. Explain why people in countries with a higher GDP per head have a longer life expectancy than people in countries with a
lower GDP per head. [2] ............................................................................................................................................. 90
310. Discuss whether rapid economic growth always increases living standards. [8] ........................................................ 91
311. Analyze how subsidies given to farmers could raise living standards. [6].................................................................. 91
312. Discuss whether producing more food will increase living standards. [8] .................................................................. 91
313. Discuss whether or not a reduction in unemployment always increases living standards. [8] .................................... 92
Chapter 33 Poverty ..................................................................................... 92

314. Describe what is meant by relative poverty. [4] .......................................................................................................... 92
315. Explain what is meant by ‘absolute poverty’. [2] ....................................................................................................... 92
316. Distinguish between relative poverty and absolute poverty.[2] .................................................................................. 92
317. Discuss whether a fall in the unemployment rate will reduce poverty. [5] ................................................................. 92
318. Discuss whether a decrease in unemployment will always reduce poverty. [5] .......................................................... 93
319. Discuss whether an increase in a country’s GDP will reduce poverty in that country. [5] .......................................... 93
320. Discuss whether increasing government spending will reduce poverty. [8] ............................................................... 94
321. Analyse how a reduction in the rate of interest could reduce poverty. [6] .................................................................. 94
12
322. Discuss whether fiscal policy measures will reduce poverty. [8] ................................................................................ 94
323. Discuss whether providing loans to the poor will reduce poverty. [8] ........................................................................ 95
324. Explain two ways a government could redistribute income from the rich to the poor. [4] ......................................... 95
325. Discuss whether government policies can always reduce poverty in a developing country. [8] ................................. 95
326. Analyse why the elimination of absolute poverty would not solve the economic problem.[6] .................................. 96
327. Discuss whether increased spending on education will always reduce absolute poverty. [8] ..................................... 96
Chapter 34 Population ................................................................................ 96

328. Define ‘birth rate’. [2] ................................................................................................................................................. 96
329. Define ‘death rate’. [2] ................................................................................................................................................ 96
330. Define net immigration. .............................................................................................................................................. 96
331. Describe how the birth rate differs from the fertility rate. [4] ..................................................................................... 97
332. Identify two influences on the size of a country’s population. [2] .............................................................................. 97
333. Describe three possible causes of the growth of a country’s population. [6] .............................................................. 97
334. Analyse what may cause an increase in a country’s labour force. [6] ......................................................................... 97
335. Explain two causes of a high birth rate. [4]................................................................................................................. 97
336. Explain two causes of a fall in a country’s death rate. [4]........................................................................................... 98
337. Explain what is meant when a country is described as being over-populated or underpopulated. [5] ...................... 98
338. Analyse how an increase in average incomes may influence a country’s population size. [6] ................................... 98
339. Discuss whether an economy will benefit from having a younger labour force. [8]................................................... 98
340. Analyse why people may migrate to a country with a high unemployment rate. [6] .................................................. 99
341. Discuss whether a fall in a country’s death rate will always result in an increase in its population size [5] ............... 99
342. Discuss whether a fall in the birth rate will benefit an economy. [5] .......................................................................... 99
343. Discuss whether or not a rise in the birth rate will benefit an economy. [8] ............................................................. 100
344. Discuss whether a government should be concerned about a fall in the country’s population size. [10].................. 100
345. Discuss whether an increase in a country’s labour force will increase income per head. [8].................................... 101
346. Discuss whether a country will benefit from the emigration of some of its people. [8]............................................ 101
347. Explain what is meant by an ageing population. [2] ................................................................................................. 101
348. Identify two causes of an ageing population. [2] ...................................................................................................... 101
349. Discuss whether the government of a country with an ageing population should raise the retirement age. [8]........ 101
350. Discuss whether an ageing population benefits an economy. [8] .............................................................................. 102
351. Discuss whether or not a government should be worried about an increase in the proportion of its population aged over 65.
[8] .............................................................................................................................................................................. 102
352. Explain how the rate of population growth may differ between a developed country and a developing country[4] 103
353. Discuss to what extent an ageing population is a serious economic problem. [8] .................................................... 103
354. Explain why the rate of population growth in some countries is greater than in others. [5] ..................................... 103 13
355. Discuss whether an ageing population is always a problem for an economy. [6] ..................................................... 103
356. Discuss whether the Bulgarian Government should try to reverse the decline in the country’s population size. [6] 104
357. Discuss the effectiveness of possible government policy measures to reduce the growth of population. [8] ........... 104
358. Discuss whether population growth is likely to exceed the growth of food production in the future. [8] ................ 105
359. Discuss whether countries with high population growth have high economic growth. [6]....................................... 105
360. Discuss whether having a relatively small population is an advantage or a disadvantage for an economy. [8] ........ 106
361. Discuss whether or not net emigration will reduce poverty in a country. [8]............................................................ 106
Chapter 35 Difference in economic development between countries........ 106

362. Identify four characteristics of a developed country. [4]........................................................................................... 106
363. Describe three features of a developing country. [6]................................................................................................. 107
364. Explain two characteristics of a rapidly developing economy. [4]............................................................................ 107
365. Discuss whether developed countries are likely to attract more foreign investment than developing countries. [8] 108
Chapter 36 International specialization ................................................... 108

366. Explain two advantages of countries specialising. [4] .............................................................................................. 108
367. Describe the benefits and disadvantages of specialisation at a regional level. [6] .................................................... 108
368. Analyse why countries specialise and trade. [5] ....................................................................................................... 109
Chapter 37 Free trade and protection....................................................... 109

369. Explain what is meant by free trade. [4] ................................................................................................................... 109
370. Define ‘trade protection’. .......................................................................................................................................... 109
371. Analyse three ways in which international trade differs from internal trade. [6] ...................................................... 109
372. Analyse how a tariff can be used as a method of trade protection. [4] ..................................................................... 110
373. Describe how a tariff could reduce imports [4] ......................................................................................................... 110
374. Distinguish between quotas and exchange controls as methods of trade protection. [4] .......................................... 110
375. Explain how two methods of trade protection may reduce imports. [4] ................................................................... 110
376. Analyse how free trade can reduce firms’ costs of production. [6] ........................................................................... 110
377. Analyse how a country could reduce its reliance on imports.[6] .............................................................................. 110
378. Discuss whether an economy will always benefit from an increase in international trade. [10]............................... 111
379. Discuss whether engaging in free trade will always benefit an economy. [10] ......................................................... 111
380. Discuss whether a reduction in a country’s trade protection will improve its economic performance. [8] ............... 111
381. Discuss whether trade protection should always be preferred to free trade. [6]........................................................ 112
382. Discuss whether a country which engages in free trade is likely to have a higher economic growth rate than one which uses
trade protection. [8] ................................................................................................................................................... 112
383. Discuss whether a government should use trade protection to reduce a current account deficit. [6] ........................ 113 14
384. Discuss whether a government should protect infant industries. [6]......................................................................... 113
385. Discuss whether the protection of a declining and inefficient industry in a country can ever be justified. [6] ......... 113
386. Discuss whether a declining industry should be protected by the government. [5] .................................................. 114
387. Explain two benefits that a country may gain from the presence of a foreign multinational company. [4] .............. 114
388. Discuss whether an economy would benefit from a foreign producer setting up in the country. [8] ........................ 114
389. Discuss whether a country’s economy would be harmed if multinational companies moved out. [8]...................... 115
390. Discuss whether the establishment of a multinational company in a country will always be beneficial for all the workers it
employs. [8] .............................................................................................................................................................. 115
391. Discuss whether engaging in free trade increases living standards in a country. [6] ................................................ 116
392. Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP per head. [8] 116
Chapter 38 Foreign Exchange rate ........................................................... 117

393. Define ‘exchange rate’. [2] ....................................................................................................................................... 117
394. What is meant by a ‘depreciation’ of a currency? [2] ............................................................................................... 117
395. Define ‘devaluation’. [2] ........................................................................................................................................... 117
396. Explain the difference between a fixed exchange rate and a floating exchange rate. [4] .......................................... 117
397. Explain two benefits of a floating exchange rate system. [4].................................................................................... 117
398. Analyse why a country’s exchange rate may rise in value. [6] ................................................................................. 117
399. Analyse the causes of an increase in a country’s exchange rate. [6] ......................................................................... 117
400. Explain two reasons why an economy may have a high foreign exchange rate. [4] ................................................. 118
401. Discuss whether an increase in exports will increase the exchange rate. [8] ............................................................ 118
402. Analyse how an appreciation of the exchange rate may reduce the country’s inflation rate. [6] .............................. 118
403. Explain how a depreciation of a currency can cause a rise in the inflation rate of a country. [4] ............................. 118
404. Analyse how a fall in the rate of interest may affect a country’s exchange rate. [6] ................................................. 118
405. Discuss whether a fall in the international value of its currency will always benefit an economy. [8] ..................... 119
406. Discuss whether a firm would benefit from a fall in its country’s exchange rate. [5] ............................................... 119
407. Discuss whether a government should devalue the country’s exchange rate. [8] ..................................................... 119
408. Discuss whether a rise in a country’s exchange rate will reduce its international competitiveness. [6].................... 120
Chapter 39 Current Account of Balance of Payment ................................ 120

409. Define ‘balance of payments. [2] .............................................................................................................................. 120
410. Describe what is meant by a current account surplus. [4] ......................................................................................... 120
411. Analyse how a fall in the value of a currency may increase a current account surplus on the balance of payments. 120
412. Analyse what can cause a surplus in the current account of the balance of payments. [8] ....................................... 121
413. Discuss whether a rise in income tax will reduce a current account deficit. [8] ....................................................... 121 15
414. Discuss whether a rise in demand for copper would cause Chile to experience a current account surplus. [8] ........ 121
415. Explain two effects of a country having a surplus on the current account of its balance of payments. [4] ............... 122
416. Discuss whether a government should always be concerned about a growing current account deficit. [10] ............ 122
417. Discuss whether a reduction in its imports will always benefit an economy. [8] ...................................................... 122
418. Discuss whether a rise in China’s Gross Domestic Product is likely to reduce Lesotho’s current account deficit. [6]123
419. Explain two disadvantages of a decrease in a country’s export revenue. [4] ............................................................ 123
420. Discuss whether improving the quality of coffee that a country produces will result in a surplus on the current account of its
balance of payments. [8] ........................................................................................................................................... 123
421. Discuss whether or not a reduction in a current account deficit on the balance of payments will benefit an economy. [8] 124
422. Explain how a country could have a trade in goods surplus but a deficit on the current account on the balance of payments.
[4] .............................................................................................................................................................................. 124
423. Analyse why the depreciation of its currency’s exchange rate may lead to a reduction in a country’s current account deficit.
[6] .............................................................................................................................................................................. 124
424. Explain two consequences of a current account deficit. [4] ...................................................................................... 125
425. Discuss whether a current account surplus is always to be regarded as desirable. [8] .............................................. 125
426. Discuss whether a government should try to reduce a surplus on the current account of its country’s balance of payments. [6]
125
427. Discuss whether an increase in the quality of a country’s factors of production will always increase its exports[7] 125
Discuss Questions ..................................................................................... 126

428. Discuss the economic arguments for and against providing free hospital treatment to patients. [6] J/2017/22 ........ 126
429. Discuss whether a government should increase or decrease taxes to reduce inflation.[10] ...................................... 127
430. Discuss whether the building of houses should be subsidised. [8]............................................................................ 127
431. Discuss whether graduates should pay the full cost of their university education. [8].............................................. 128
432. Discuss whether a country would benefit from devoting more resources to producing capital goods. [8] ............... 128
433. Discuss whether or not a government should encourage people to save more. [5] ................................................... 128
434. Discuss whether the government of a country should reduce the pensions it pays to retired people. [8] ................. 129
435. Discuss whether a government should increase taxes on food. [8] ........................................................................... 129
436. Discuss whether Botswana should mine all its diamonds and sell them as quickly as possible. [5] ......................... 129
437. Discuss whether an increase in spending on capital goods will help to achieve the aims of government policies. 130
438. Discuss whether other policies, apart from monetary policy, might be more successful in raising the rate of economic growth
in Pakistan. [6] .......................................................................................................................................................... 130
439. Discuss whether an economy will benefit from recruiting workers from other countries. [8] 2017 ......................... 131
440. Discuss whether an increase in the rate of a sales tax will cause unemployment. [6]............................................... 131
441. Discuss whether an increase in the rate of a sales tax would benefit an economy. [8] ............................................. 132
442. Discuss the economic arguments for and against a government raising the school-leaving age. [8] J/2017/22 ....... 132 16
Chapter 1 The nature of the economic problem

1. What is meant by the ‘economic problem’? [2]
unlimited/infinite wants(1) exceeding limited/finite resources (1)
or 1 mark for limited resources or scarcity.
2. Why can the economic problem never be solved? [2]

• The economic problem is scarcity（1）
• Wants are infinite/unlimited (1) whilst resources are finite/limited (1).
• Want exceed resources as wants grows faster than resources (1)
17
Chapter 2 Factors of production

3. Describe two ways in which land is different from labour. [4]
Land is a natural resource (1) whilst labour is human resources/workers (1).
The payment for land is rent (1) whilst the payment for labour is wages (1).
4. What is the difference between labour and enterprise? [4]

• labour is human/effort/workers’ services [1] whilst enterprise is the ability and willingness to bear uncertain risks
and organise other factors of production [1].
• the reward for labour is wages [1], whereas the reward for enterprise is profit [1]
• enterprise tends to be more geographically or occupationally mobile than labour [2].
5. Identify the two human factors of production.

• Labour (1) entrepreneur/enterprise (1).
6. Identify two risks that entrepreneurs have to bear. [2]

• a rival bringing out a better product [1]
• demand decreasing due to falling incomes [1]
• costs rising. [1]
• risk of failure / losses / bankruptcy [1]
7. Explain, giving examples, two factors of production used in the tourism industry. [4]
• Labour which is human effort (1) e.g. tourist guides (1).
• Land which is natural resources (1) e.g. beaches (1).
• Capital which is human‐made goods and services used in production (1) e.g. hotels (1)
• Enterprise which is risk bearing and decision making (1) e.g. may be undertaken by the owner of a hotel (1).
Chapter 3 Opportunity cost

8. Define opportunity cost [2]
Opportunity cost is the (next) best alternative (1) forgone (1)
9. Explain why scarcity gives rise to an ‘opportunity cost’. [4]

‘Scarcity’ means finite/limited resources (1) to satisfy the unlimited wants (1). This gives rise to the need to make a
choice (1). This choice will involve an opportunity cost in terms of the (next) best alternative that is foregone (1)
10. Why may less wheat be the opportunity cost of producing more milk? [2]
• Opportunity cost is the cost of the (next) best alternative foregone (1).
• Land / resources used for growing wheat may be used to keep cows (1) reducing the amount of wheat that can be
produced (1).
11. Explain the connection between opportunity cost and the purchase of shares. [4]
The (next) best alternative (1) forgone/sacrificed (1).
Instead of buying shares people may buy something else (1) example of what the money may be used for instead
e.g. putting money in a bank/buying other goods and services (1).
12. Explain why the concept of opportunity cost is important in deciding how to allocate resources. [4]
18
Opportunity cost is the (next) best alternative (1) forgone (1) in deciding to use resources to produce one product (1)
not able to produce another product (1) example (1) have to use resources to produce products in high demand (1)
in the most efficient way (1).
13. Analyse the possible opportunity costs of an increase in government spending on higher education
services. [6]
 Opportunity cost is the (next) best alternative forgone (1).
 An increase in government spending on higher education would leave less funds available to spend on
alternatives (1) e.g. healthcare/defence (2) effect of a fall in government spending on e.g. healthcare/defence
(2).
 An increase in government spending on higher education may result in higher taxation burden (1) this would
leave households and firms with less income (1) creating an opportunity cost for taxpayers (1) fall in disposable
income (1) lower purchasing power (1).
 Opportunity cost may be lower in the long run (1) increase in spending on education may raise
productivity/output (1) increase government revenue (1) more to spend on alternatives (1).
14. Explain the significance of opportunity cost for a government when making its spending decisions.
[4]
 Opportunity cost– best alternative (1) forgone (1).
 If a government changes its spending on one area (1) it will have an impact on how much it can spend on
another area/areas (1).
 A government has limited tax revenue (1) and limited ability to borrow (1).
 A country has limited resources (1) and so if more resources are devoted to one area, less can be devoted to
another area
15. Explain why farmers should consider opportunity cost when deciding how to use their factors of
production. [4]
 Opportunity cost – best alternative [1] forgone [1].
 If factors of production are scarce resources [1] and if used to produce one type of product they cannot be used
to produce another type of product [1] e.g. If land is used to grow wheat [1] it cannot be used to grow barley
[1].
Maximum of 3 marks if no reference to farmers.
16. Explain two different opportunity costs that may be involved in a person becoming a sole proprietor
[4]
• Opportunity cost is the (next) best alternative foregone (1).
• A person may be giving up the opportunity to do a job (1) and earn a wage (1).
• A person may give up the opportunity to enter higher education (1) and so possibly higher future earnings (1).
• A person may give up the opportunity to be involved in another type of business organisation (1) e.g. a public
limited company (1).
Chapter 4 Production Possibility Curve

17. What is meant by a production possibility curve? [2]
• A curve that shows the maximum output of two types of products / combination of two products (1) that can be
made with existing resources/technology (1) it shows opportunity cost (1)
19
18. Using a production possibility curve diagram, analyse the effect on an economy’s output when there
is a change from full employment to unemployment. [6]
Up to 4 marks for diagram:

Axes correctly labelled (1)
Curve/straight downward sloping line drawn to the axes (1)
A production point on the one curve (1)
A production point inside the one curve (1).
Up to 2 marks for written explanation:
Full employment would mean an economy making maximum use of resources (1) making as much output as
possible/efficient use of resources (1) unemployment means output is below potential (1) inefficient use of
resources (1) output will fall (1).
19. Using a production possibility curve diagram, explain how it can show the concept of opportunity
cost. [6]
Diagram Up to 3 marks:
• correct labelling of both axes (1)
• correct shape of curve (straight line or curve) (1)
• two points showing movement along curve/movement along axes (1)
• opportunity cost, with full employment of resources, must be on the PPC
(1)
Explanation Up to 3 marks:
• PPC shows all possible combinations of the production of two goods (1)
• shows more of one product can be made only if less of another product
is made (1) as a result of switching resources (1)
• shows if all resources are used to make one product, no units of the
other product can be made (1)
20. Using a production possibility curve diagram, analyse the effect of a decrease in unemployment on
an economy’s output. [6]
Up to 4 marks for the diagram:

• axis correctly labelled in terms of two different products or types of products
(1)
• the curve or downward sloping line drawn to axes (1)
• a production point inside the PPC (1)
• a production point on or moving closer to the frontier (1).
Up to 3 marks for written comments:
• unemployed resources mean an economy is producing inside the PPC (1)
• a decrease in unemployment means more resources are being used (1)
20
• greater/more efficient use of resources increases output (1).
21. Analyse, using a production possibility curve diagram, the effect of moving factors of production
from producing cigarettes to producing other products. [6]
Consumer
goods Up to 3 marks for the diagram:

Axes correctly labelled (1).
Curve / downward-sloping straight line drawn to the axes (1).
Movement along curve from cigarettes to other products (1) shown by
an
arrow on the curve or by change in combinations.
Capital Goods
Up to 2 marks for explanation:
Opportunity cost of producing more other products / devoting more resources to other products (1) means
producing fewer cigarettes (1).
22. Using a production possibility curve diagram, explain why choices have to be made to make as to
how to allocate resources.
23. Analyse, using a production possibility curve diagram, how an increase in labour productivity will
affect an economy. [6]
Axes correctly labelled (1).

• Original production possibility curve / straight downward sloping line drawn to
the axes (1).
• New PPC (1).
• Indication of shift to the right – arrow or labelling (1).
An increase in labour productivity increases the quality of labour (1) increases maximum output (1) increases
productive potential / cause economic growth (1).
24. Analyse, using a production possibility curve diagram, how the discovery of new oil reserves would
affect an economy. [6]

• 1 mark for axes correctly labelled
• 1 mark for original curve/straight downward sloping
line drawn to the axes.
• 1 mark for new production possibility curve
• 1 mark for indicating curve will shift to the right –
either by arrows or labels.
Up to 2 mark for explanation:
21
A discovery of new oil reserves will increase productive potential / capacity / be able to produce more (1) results in
economic growth (1)
25. Using a production possibility curve diagram, analyse the effect of a decrease in the supply of labour
and enterprise on an economy. [6]

1 mark for axes correctly labelled in terms of two different products or
types of products.
1 mark for the original curve or downward sloping line.
1 mark for showing the curve or line shifting to the left.
Up to two marks for written comments:
1 mark for fewer resources shifts the PPC to the left.
1 mark for fewer resources reduces the ability of an economy to produce both products/reduces productive
potential/reduces GDP
26. Analyse, using a production possibility curve, the effect of advances in technology. [6]

• axes correctly labelled in terms of two different products or types of
products (1)
• the curve or downward sloping line drawn to the axes (1)
• the curve shifting out to the right (1).
• advances in technology increase the quality of capital goods (1)
• higher quality capital equipment increases productive capacity/the maximum quantity of products that can be
produced (1)
• increased productive capacity results in (potential) economic growth (1)
• may affect the output of the two products differently (1) slope may change (1).
27. Analyse, using a production possibility curve diagram, what effect net immigration is likely to have
on an economy. [6]
22
Up to 2 marks for written analysis:
• net immigration will increase resources/labour (1)
• more resources will increase productive potential/enable countries to produce more (1)
28. Explain two economic concepts shown by a production possibility curve diagram. [4]
• opportunity cost (1) The curve shows that if more of one type of product is produced, less of another product can
be made (1)
• scarcity/economic problem/unlimited wants and limited resources (1) The curve shows that there is a limit to the
amount that can be produced with existing resources/maximum output of two products (1)
• efficiency/full employment (1) Any point on the curve is efficient/any point inside the curve is inefficient (1)
• economic growth/the difference between actual and potential economic growth (1) Economic growth is shown by a
shift to the right of the curve/actual growth is shown by a movement towards the curve and potential growth by
a shift to the right (1)
• specialisation (1) The curve shows the maximum amount of a product that can be produced if all resources are
devoted to one good (1)
Chapter 6 The role of Markets in allocating resource

Chapter 13 Market Economic System
Chapter 15 Mixed Economic System
29. Define ‘mixed economy’. [2]
• an economy with a private sector (1) and a public sector (1) Or a mix of both free market (1) and planned
economies (1)
• resources allocated by both the price mechanism (1) and government decisions(1) Or consumers and government
deciding what is produced (1)
• some prices determined by market forces (1) and some by directives/the government (1)
30. Analyse how the price mechanism influences the allocation of resources in a market economy. [6]
• An increase in demand (1) will increase price (1) this will provide a profit motive (1) to supply more of the
product (1) resources will move away from less popular products to more popular products (1).
• Makes use of demand and supply (1) consumers decides what is produced/consumer sovereignty (1).
• Will encourage firms to use the most cost‐efficient methods of production (1) e.g. will use labour intensive
method of production (1) if ready supply of labour (1).
• An increase in supply (1) will reduce price (1) this will lead to a rise in quantity demanded (1) resulting in more
resources being devoted to the product (1).
31. Explain how resources are allocated in a market system. [4]

• market forces (supply and demand) influence the allocation of resources (1) through the price mechanism (1)
• a rise in demand for a good or service (1) will increase price (1) this will provide a profit incentive (1) encourages
firms to produce what consumers demand (1) encouraging more resources to be allocated to producing it (1)
• resources are privately owned in a market system (1) with little/no government influence (1)
32. Analyse how resources are allocated in a mixed economy. [6]

A mixed economy consists of resource allocation by both public and private sectors (1)
23
Up to 3 marks for analysis of the role of the public sector:
• Government production of goods which private sector is unable/unwilling to do (1) Government sets prices
(1)
• Government influencing prices through taxes and subsidies (1)
• Government laws and regulations to protect public (1)
• Government redistributing incomes (1)
Up to 3 marks for analysis of the role of the private sector:
• Role of price mechanism (1) responding to changes in demand and supply (1) signaled by price changes (1)
• resources moving to making products in increasing demand (1) away from products falling in demand (1)
profit incentive (1) creating an efficient use of resources (1)
• Those earning the highest income (1) have the greatest purchasing power (1) differences in income provide
incentives (1)
33. Discuss whether the advantages of a market economy are greater than its disadvantages. [8]
Up to 5 marks for the advantages:
• consumer sovereignty (1) consumers determine what goods and services to be produced (1) producers
produce what consumers want (1)
• may be more choice (1) consumer can choose which firm to buy from and choose which products to buy
(1) people can decide who to work for (1)
• More efficient allocation of resources (1) due to competition (1) profit incentive (1) lower cost(1) lower
prices (1) higher quality (1) ability to earn high wages (1)
Up to 5 marks for the disadvantages:
• may be inequality of income (1) the rich can increase their earning potential through saving/receiving a
better education (1) some vulnerable groups, e.g. the sick may find it difficult to earn an income (1)
• private sector monopolies may develop (1) these may charge high prices (1) reduce quality (1) restrict
choice (1)
• decisions will be based on private costs and benefits (1) existence of external costs and benefits (1) can
cause inefficient choices (1)
• certain beneficial products (merit goods) (1) may be under‐consumed and so under‐produced (1)
• certain harmful products (demerit goods) (1) may be over‐consumed (1) and so over‐produced (1)
• some products (public goods) (1) may not be produced (1) difficult to stop non‐buyers(free rider)
consuming the product (1)
• advertising can distort choice (1) producers can influence what consumers want to buy (1)
34. Discuss whether or not a market system benefits consumer. [8]

Up to 4 marks for why it might:
• In theory there will be consumer sovereignty (1) with firms being responsive to consumer demand (1).
• The price mechanism allocates resources automatically / profit motive provides an incentive to respond
to consumer demand (1) avoiding delays in responding to changes in demand (1).
• There may be a high level of competition (1) keeping price low (1) increasing efficiency (1) keeping
quality high (1) providing choice (1).
Up to 4 marks for why it might not:
• Those with low incomes will lack purchasing power (1) the market will not produce what they want (1).
• Monopolies may develop (1) driving up price (1) reducing quality (1).
• Consumers may not always be fully informed (1) e.g. cigarettes (harmful / demerit goods) may be
overconsumed (1) e.g. healthcare (beneficial / merit goods) under consumed (1) there may be external
costs (1) market failure may occur (1).
• Some consumers may find too much choice confusing (1) advertising can distort consumer choice (1).
24
35. Discuss whether or not an increase in the role of the private sector will benefit an economy.[8]
Up to 5 marks for the benefits:
• The profit incentive (1) will result in countries taking advantage of specialisation (1), making better use of scarce
resources (1) and in doing so increasing total output (1).
• May be an increase in competition (1) lowering price (1) raising quality (1).
• More efficient allocation of resources (1) lower production costs (1) the price mechanism means there are no
shortages or surpluses (1) with high consumer sovereignty (1).
Up to 5 marks for the drawbacks:
• Poverty could increase (1) as a result of rising inequality (1) and some individuals being unable to access the
gains of the market economic system because they are out of work / on low incomes (1)
• Higher prices (1) private companies could exploit market power e.g. monopoly (1)
• Goods with external benefits (merit goods) e.g. healthcare may be under‐provided (1) goods with external costs
(demerit goods) may be over‐provided e.g. tobacco.
• Market failure occurs (1) as externalities are not considered by the market mechanism (1) example (1)
Chapter 14 Market Failure

36. Define ‘market failure’. [2]
• Where the market forces of demand and supply (1) do not achieve efficiency (1)
• When social costs are greater than social benefits (1) example of external cost e.g. monopoly or external benefit
e.g. merit or public goods (1)
37. Why is pollution an example of market failure?[2]

It is external cost (1) on a third party (1) not taken into account by the market (1) will cause social costs to exceed
private costs (1) may result in the inefficient use of resources (1).
38. Using examples, distinguish between a private cost and an external cost. [4]
Two marks for the distinction, and two marks for the examples
 private cost is the cost to the consumer or producer (1) e.g. the cost of borrowing, building a factory, purchasing
machinery and the cost of labour and raw materials (1), whereas …
 external cost is a harmful effect/e.g. pollution, congestion (1), to a third party/people not involved in consuming
or producing a product (1) Or:
 External cost is social cost minus private cost (1) so will include costs such as pollution, congestion (1).
39. Explain the difference between private costs and social costs. [4]
Up to 2 marks for private costs:
• Private costs are costs borne by those consuming the product (1) producing the product (1) example of such a cost
(1) Social costs – external costs (1).
Up to 2 marks for social costs:
• Social costs are private costs plus external costs (2) total costs to society/total cost (1)
40. Analyse why the social benefits of education are greater than the private benefits. [6]
• Social benefits are private benefits plus external benefits (1)
• Private benefits include self‐fulfilment (1) increased job opportunities (1) higher income/standard of living (1)
better health (1)
• Education also provides external benefits (1) higher output/GDP/economic growth (1) better quality output (1)
25
improved literacy (1) more skilled workers (1) improved productivity (1) more tax revenue (1)
41. Analyse why the social costs of oil extraction may be greater than the private costs. [6]
• Private costs are the costs directly involved in producing and consuming the products (定义)(1) e.g. cost of
operating an oil rig（举例） (1).
• Social costs are private costs plus external costs（关系） (1) social cost is the cost of an activity to a society (定
义)(1).
• External costs are likely to exist (1) firms will not take these into account (1) e.g. air pollution, water pollution,
reduction in fertility of nearby land （举例）(maximum 2 marks for relevant examples).
42. Explain how international travel may create external costs. [4]
• External costs are harmful effects (1) imposed on third parties 定义(1) social costs minus private costs 关系 (1)
• examples of external costs caused by international travel e.g. air pollution, noise pollution, visual pollution,
congestion, damage to wildlife and damage to the health of those not travelling, Planes burning fuel creating
carbon dioxide（举例）(up to 2 marks)
43. Analyse the social benefits of giving vaccinations. [6]

• Social benefits are private benefits plus external benefits（关系） (1) the total benefits of an activity to society
（定义）(1)
• Vaccinations provide private benefits to consumer (1) reduce the chances of people developing illness (1)
increase their quality of life（举例） (1).
• Vaccinations provide private benefits as income to the pharmaceutical industry (1) and employment / income to
workers in the pharmaceutical industry （举例）(1)
• Vaccinations provide external benefits (1) reduce the risk of the spread of disease (1) reduce the burden on the
healthcare system (1) increase output (1) avoids a fall in the labour force （举例）(1)
Accept answers which consider the avoidance of external costs up to a maximum of 4.
44. Explain why, in a market economy, some goods and services are over-consumed and some under-
consumed. [6]
• Resources are allocated through a price mechanism without any government intervention (1) with the market
price reflecting demand and supply.
• Demerit goods (goods that have external costs) are over‐consumed (1) will have a relatively low market price (1)
(compared to if there was government intervention)/consumers will not fully appreciate their harmful effects
and so there will be over‐consumption (1), e.g. Tobacco or alcohol (1).
• Merit goods (goods that have external benefits) are under‐consumed (1), will have a relatively high market price
(1) (compared to if there was government intervention)/consumers will not fully appreciate their beneficial
effects and so there will be under‐consumption (1), e.g. Education or health care (1).
• A monopoly may restrict output (1) pushing up the price (1) reducing the amount people can consume (1).
• Private sector firms will have no incentive (1) to provide public goods (1) so these will not be consumed (1)
45. Analyse the causes of market failure. [6]

• Market failure arises when markets are inefficient/right products are not produced in the right quantities (1)
• Abuse of market power (1) monopoly (1) may result in output being restricted (1) high price charged (1) low
quality (1)
• Decisions based on private costs and benefits/failure to take into account external costs (negative externalities)
and external benefits (1) results in under‐consumption and under‐consumption of merit goods (1) leading to over‐
production and over‐production of demerit goods(1)
• Lack of information (1) causes consumers and producers to make inefficient choices (1) harmful products may be
26
over‐consumed (1) beneficial products may be under‐consumed (1)
• Lack of public goods (1) private sectors will not have incentive to make products that they cannot charge for (1) It
is not possible to exclude non‐payer (free rider) from taking advantage of the benefits of products such as
defense.
46. Analyse three reasons why a market system could fail. [6]/ Explain why market failure occurs. [4]
答案同上一题
47. Explain how government regulation may reduce market failure. [4]
• Regulation involves rules and laws (1).
• Firms may be banned (1) from producing products that create external costs (1) example such as water pollution
(1).
• Firms may be fined (1) if they create external costs (1) example e.g. air pollution (1).
• Consumers may be banned from consuming products that create external costs (1) or where there are high private
costs (1) some of which people are unaware of (1) example e.g. cigarettes (1)
• Consumption of some products that have external benefits (1) and/or high private benefits (1) some of which
people are unaware of (1) may be made compulsory (1) e.g. primary school education (1).
48. Analyse how a government could promote the purchase of bicycles. [6]
The government could do the following:
• Subsidise bicycle producers (1) reducing production costs (1) lowering price (1) improving quality (1) making them
more affordable (1)
• Subsidise bicycle consumers (1) increasing their purchasing power (1)
• Reduce the tax on bicycles (1) encouraging bicycle purchases (1)
• Introduce/increase the number of cycle lanes (1) making it safer/faster to cycle (1)
• Tax/raise the price of other forms of transport (1) e.g. bus travel, cars (1) which are substitutes (1) discouraging
their consumption (1)
• Advertising/campaigns/educate people about the health benefits of cycling (1) make bicycles more
fashionable/attractive to consumers (1)
49. Discuss whether governments should discourage car use. [8]2017

Up to 5 marks for why they should:
• Cars may cause external costs (1) e.g. pollution (1) cause global warming (1) damaging people’s health (1)
reducing living standards (1) damaging local economies, e.g. tourism (1)
• May cause congestion (1) increasing firms’ costs of production (1) lowering output (1)
• May cause accidents (1) resulting in increased healthcare costs/costs to society (1)
Up to 5 marks for why they should not:
• Car industry employs large numbers (1) may reduce the output/revenue from cars (1) reducing
GDP/economic growth (1) and causing unemployment in the car industry (1) increasing benefit costs to
government (1) reducing government tax receipts (1).
• Advances in technology may make cars cleaner (1) car use does not cause congestion in all countries (1)
• Difficult to estimate the correct amount of car use (1) may result in under‐consumption (1)
50. Discuss whether the social benefits of building flood defences will exceed the social costs involved.
[8]
Up to 5 marks for a discussion of why social benefits maybe greater:
• Social benefits are private benefits plus external benefits (1).
• Explain private benefits (1) e.g. greater employment, greater revenue for firms, protection of homes /
27
reduction in high risk of flooding (up to 3)
• Explain external benefits (1) e.g. increase in house prices in the area, greater tourism, reduced cost to
emergency services and benefit payments (up to 3)
Up to 5 marks for why social costs maybe greater:
• Social costs are private costs and external costs (1).
• Explain private costs (1) e.g. cost of land, raw material labour and buildings, may only be a low risk of
flooding (up to 3)
• Explain external costs (1) e.g. pollution, destruction of wildlife habitats, opportunity cost of resources (up to
3).
51. Discuss whether healthcare should be provided by the public sector or private sector. [8]
Up to 5 marks for why it should be provided by the public sector:
• If left to market forces it will be under‐consumed (1) people do not appreciate the full benefits to
themselves of healthcare (1).
• Healthcare provides significant external benefits (1) a healthy labour force (1) will be more productive (1).
Healthcare is a basic service (1) which the poor may not be able to afford (1).
• Consumers may not be adequately informed about the cost of healthcare (1) may be charged high prices by
the private sector (1).
• Profit motive of private sector (1) keeps prices higher (1)
Up to 5 marks for why it should be provided by the private sector:
• The private sector will have a profit motive (1) to produce what consumers want/to be more responsive to
changes in consumer demand (1).
• The private sector will have competition (1) an incentive to keep costs low (1) improve quality (1) cut out
unnecessary waste (1).
• Some forms of medical treatment are cosmetic (1) more of a luxury/not a necessity (1).
• Government expenditure on healthcare involves an opportunity cost (1) tax revenue could be used for
other purposes (1).
• The public sector may be too bureaucratic / inefficient (1)
52. Discuss whether governments should regulate the coal industries of their countries. [5]
Up to 3 marks for why they should:
• Control of negative externalities (1) harmful effects on third parties (1) e.g. regulations on air pollution or
noise pollution (1)
• To ensure regular fuel supplies (1) by having output targets (1)
• Consumer protection (1) price controls (1) through maximum and/or minimum prices (1)
• Worker protection (1) regulation of working conditions/safety in coal industry (1)
• Control of any monopoly power (1) preventing price being driven up (1).
Up to 3 marks for why they should not:
• Regulation may be difficult to enforce (1) expensive to enforce/uses up resources (1) difficult to determine
who has caused the pollution (1) coal industry not the only pollution source (1)
• May reduce coal industry output (1) reducing GDP economic growth (1) creating unemployment (1)
reducing coal exports (1) may reduce government tax revenue (1)
• May add to firms’ costs (1) increasing coal prices (1) causing cost‐push inflation (1)
• May discourage investment in the coal industry (1) raising production costs (1) increasing prices (1)
28
Chapter 7-10 Demand & Supply

53. Define ‘demand’. [2]
• the willingness (1) and ability to buy a product (1)
54. Define ‘equilibrium price’.[2]

The price where demand and supply are equal (2).
Market clearing price (1) which ensures no surplus or shortage (1).
Note: award 2 marks for correctly drawn diagram.
55. Describe what determines ‘equilibrium price’. [2]

2 marks for: demand and supply/market forces.
Or 1 mark for demand OR supply.
56. Define a substitute and give an example. [2]

A rival product / a product that can be used instead of another (1) e.g. bus travel and car travel / oranges and apples
(1).
57. Giving an example, define ‘complements’. [2]

Two products that are used / consumed together (1) as demand for one product increases, demand for the other
product increases (1) e.g. laptops and printers or coffee and milk (1).
58. Explain two causes of a shift of a demand curve to the left. [4]
• decrease in the price of a substitute (1) if a substitute becomes cheaper people will switch to it (1)
• increase in the price of a complement (1) if a complement becomes more expensive, people will buy less of it and
the product which goes with it (1)
• decrease in income (1) lower income will reduce people’s ability to buy the product (1)
• decrease in population (1) lower population will reduce the number of people buying the product (1)
• change in tastes (away from the product)/less advertising (1) the product may become less popular (1)
59. Explain three likely causes of increase in demand for bicycles. [6]
1 mark each for three causes identified, 1 mark each for three explanations e.g.:
• rise/fall in income (may be regarded as a normal or an inferior good) (1) with higher incomes, people are more
able to buy bicycles (1)
• rise in the price of other forms of transport (1) cycling is a substitute for bus travel (1)
• a greater desire to be fit/tastes (1) cycling is used both for transport and for leisure (1)
• rise in population size (1) a larger population will mean there are more people to buy bicycles (1)
• a successful advertising campaign (1)a successful advertising campaign will persuade more people to buy bicycles.
(1)
Note: accept any valid reason which would shift the demand curve for bicycles to the right but do not accept a
change in price or a change in supply of bicycles.
60. Explain two reasons why the supply curve of a product may shift to the right. [4]
• government subsidy (1) a government subsidy will reduce costs of production/provides an incentive to produce
more (1)
• falls in costs of production (1) a fall in costs of production means that firms can produce more at the same price (1)
• advances in technology (1) advances in technology lower costs of production (1)
29
• reduction in indirect tax (1) reduction in indirect tax lowers costs of production (1)
• changes in the price of other products produced. (1) if the price of one product firms produce falls, they may move
resources to this product. (1)
• good weather (1) good weather can increase the supply of agricultural products (1)
• seasonal factors (1) when a crop is in season, the supply increases (1)
• increased use of pesticides/fertilisers/capital equipment (e.g. tractors) (1) pesticides/fertilisers/more capital
increase crop yields (1)
61. Explain three reasons why the supply of bananas may decrease. [6]
Up to 3 marks for identification. Up to 3 marks for explanation.
• a period of bad weather/natural disasters (1) a period of bad weather/natural disaster would decrease the crop
• a rise in the costs of production (1) an increase in, for example, wages paid to farm workers which would make it
more expensive to produce the product
• a government tax (1) a government tax provides a disincentive to firms to produce more
• removal of a subsidy (1) the removal of a subsidy will result in less being produced
• expectations of a change in the market affecting planting bananas (1) expectations of a change in the market could
encourage an increase or decrease in supply
• change in profitability of other crops (1) change in profitability could either increase supply (if profits rose) or a
decrease in supply (if profits fell)
• availability of land (1) more land available would increase supply and vice versa
Note: accept any reason which would shift the supply curve for bananas to the left but do not accept a change in
price or a change in demand for bananas.
62. Analyse why a country could have lower production costs for a particular good than another
country. [5]
• It may have a more educated/skilled labour force (1) higher productivity/greater efficiency (1) lower wastage (1).
• It may have more capital goods (1) may use more advanced technology (1) lower capital costs (1).
• Its firms may be producing on a larger scale (1) taking greater advantages of economies of scale (1) example (1).
• The government may subsidise the product (1) or tax the product less (1).
• It may specialise in the product (1).
• It may have easier access to raw materials / natural resources (1) and so raw materials/natural resources may be
cheaper (1).
• It may have a large supply of labour (1) with low wage rates (1).
• It may have low transport costs (1) due to good infrastructure (1).
• It may have a more favourable climate (1).
• It may have a lower inflation rate than other countries (1).
• It may have lower minimum wage (1) lowering wages cost (1).
• It may have weaker trade unions (1) reducing bargaining power (1).
• It may have a stronger currency (1) causing lower cost of importing raw materials (1).
63. Explain what impact an imbalance between supply and demand is likely to have on price and the
quantity traded. [4]
• if supply exceeds demand (1), there will be a surplus (1)
• the equilibrium position in the market will change (1)
• price will fall/be driven down (1)
• the quantity traded will rise (1)
30
• if demand exceeds supply (1) there will be a shortage (1)

• the equilibrium position in the market will change (1)
• price will rise/be driven up (1)
• the quantity traded will rise (1)
64. Using a demand and supply diagram, analyse the effect of removing an indirect tax on the market
for the product. [6]

• axes correctly labelled – price and quantity or P and Q (1)
• demand and supply curves correctly labelled (1)
• supply curve shifted to the right (1)
• correct equilibriums identified either by a line drawn to both axes or
equilibrium points clearly identified e.g. E and E1 (1).
• removing an indirect tax effectively reduces costs of production (1)
• A greater supply will lower price (1).
65. Using a demand and supply diagram, analyse the effect of a rise in the price of coffee on the market
for tea. [6]

• demand curve shifted to the right (1)
• correct equilibriums identified either by lines drawn to both axes or
equilibrium points identified e.g. E and E1 (1)
• tea and coffee are substitutes (1)
• if the price of a substitute / coffee rises, consumers will switch to rival products / tea (1)
31
• the higher demand for tea will raise the price of tea (1).
66. Analyse how advances in technology can affect demand and supply. [6]
• Advances in technology reduce costs of production (1) increases the speed of production (1) increases supply (1)
lower price (1) increases quality/efficiency/reduces waste (1) lower price causes an extension in demand (1)
• Advances in technology create new products and newer versions of products (1) higher demand will increase price
(1) higher prices will cause supply to extend (1)
• Advances in technology decreases demand for some products (1) examp le (1)
• Advances in technology may reduce demand for labour (1) as machines may replace workers (1) example (1)
• Advances in technology may enable firms to extract raw materials more easily (1) increasing the supply of raw
materials (1) example (1)
67. Analyse, using a demand and supply diagram, the effect of an increase in income on the market for
ice cream. [5]
Up to 4 marks for a diagram:

• demand and supply curves correctly labelled, S (1)
• demand curve D 1 shifted to the right D 2 (1)
• correct equilibriums identified either by lines drawn to both axes or
equilibrium prices clearly identified e.g. E 1 and E 2 (1)

1 mark for written analysis:
• an increase in income increases purchasing power (1)
• people buy more ice cream when they have more money/income (1)
• price will rise due to a higher demand
68. Using a demand and supply diagram, analyse the likely effect of an increase in advertising on the
equilibrium price and equilibrium quantity of a product in a market. [6]
Diagram:
• correct labelling of axes (1)
• shift of demand curve to the right (1)
• increase in equilibrium price (1)
• increase in equilibrium quantity (1)
Analysis:
• advertising may encourage people to buy more/switch from buying rival products/ become aware and start buying
32
the product (1)
• effect of an increase in advertising on equilibrium price (1)
• effect of an increase in advertising on equilibrium quantity (1)
69. Using a demand and supply diagram, analyse the effect on the market for petrol if a subsidy on
petrol is removed. [6]

• axis correctly labelled – price and quantity or P and Q (1).
• demand and supply curves are correctly labelled (1).
• Supply curve shifts to the left (1).
• Correct equilibriums identified either by lines drawn to both axes or
equilibrium points clearly identified as E and E1 (1).
• removing a subsidy effectively increases costs of production (1).
• a decrease in supply will increase the price of petrol (1).
70. Analyse why the price of a product may be higher in the USA than China. [6] J/21/2017
• Demand may be higher in the USA (1) due to e.g. higher incomes (1)
• The product may be advertised more in the USA (1) the product may have fewer substitutes in the USA (1)
• Difference in markets (1) monopoly in USA (1) lower output/higher prices (1) greater competition in China (1)
greater output and lower prices (1)
• Good may be imported from china (1) higher transportation costs raises price (1)
• Supply may be lower in the USA (1) due to e.g. higher costs of production (1)
• The tax on the product may be higher in the USA (1)
• The Chinese government may subsidise the product (1)
• Demand may be more inelastic in USA (1) hence producers can charge higher price (1)
• Diseconomies of scale in the USA (1) lead to higher average costs and higher prices(1) economies of scale in China
(1) lead lower average costs and lower prices (1)
71. Analyse the effect on the market for food of an increase in population combined with a prolonged
period of bad weather. [6]
There will be more people to buy food (1) demand would increase – written or shown by a shift to the right of a
demand curve (1).
Bad weather will reduce crop yields (1) supply will decrease – written or shown by a shift to the left of the supply
curve (1).
Price will increase (1) but the effect on quantity is unclear (1) – can both be shown by change in equilibrium price
and quantity on a diagram.
72. Analyse why a commercial bank may prefer to sell its services in foreign countries rather than its
home country. [5] 21/May/June/2018
• It may make more profit (1) demand for banking services may be higher (1) demand may be falling in home
country but rising abroad (1) due to e.g. higher incomes/larger population (1) less competition (1).
• Costs of production may be lower abroad/efficiency higher (1) due to e.g. lower rents/lower wages (1).
• There may be a greater availability of skilled labour abroad (1) due to better education (1).
33
• Foreign governments may provide subsidies (1) have lower rates of tax (1).
• Unfavourable domestic policies (1) e.g. restrictions on the money supply (1) limits the bank’s ability to make
profits domestically (1).
• Selling services abroad may help to reduce risks (1).
73. Discuss whether the price of food is likely to increase in the future. [8
Up to 6 marks for reasons why it might:
• rise in population size [1] leading to higher demand [1].
• rise in incomes [1] resulting in higher demand [1].
• land becoming scarce [1] reducing food supplies [1].
• fall in food supply [1] due to, e.g. weather conditions/natural resources [1].
• food markets may become monopolies [1] which charge higher prices [1].
• costs of food production rise [1] such as increased wages [1].
• rise in demand for biofuels [1] and so a reduction in resources to produce food [1].
Up to 6 marks for reasons why it might not:
• advances in technology [1] leading to higher supply [1].
• more efficient use of resources [1] increasing supply [1].
• fall in the cost of factors of production (e.g. seeds, tractors) [1] leading to increased supply [1].
• reduction in households wasting food [1] reducing demand [1].
• reduction in crop losses due to vermin [1] reducing demand [1].
• good weather conditions/absence of natural disasters [1] increasing supply [1].
• increased competition in agriculture [1] pushing prices lower [1].
Up to 4 marks for why there may be variations in the future price of different types of food:
Up to 2 marks for why changes in demand may vary:
changes in tastes may occur [1], e.g. demand for meat may increase/fall [1]
changes in population size may vary [1]
health reports may discourage/encourage consumption of certain food products [1].
Up to 2 marks for why changes in supply may vary:
some foods can be stored more easily [1]
some are more resistant to disease [1]
some may be subsidised [1] but this is not always passed on to the consumer [1].
Chapter 11-12 PED & PES

74. What is meant by a price elasticity of demand of – 2.5? [2]
It means that a 1% rise in price (1) would cause a 2.5% fall in demand (1).
It means demand is elastic (1) a change in price results in a greater percentage change in demand (1).
75. Describe the concept of price elasticity of demand. [4]

Up to 2 marks for definition:
the responsiveness of demand to a change in price/the percentage change in quantity demanded of a product
divided by the percentage change in its price (2) how price affects demand/change in demand divided by
change in price (1)
Up to 2 marks for further development:
elastic demand has a value greater than 1 (1) inelastic demand has a value less than 1 (1)
PED varies from perfectly elastic to perfectly inelastic (1) PED varies along the length of the demand curve (1)
34
76. Define ‘price-inelastic demand’. [2]
When demand changes by a smaller percentage (1) than the change in price (1) when PED is less than 1 (1).
77. Define ‘price elasticity of supply’. [2]

2 marks for either a measure of the responsiveness of supply to a change in price.
Or 1 mark for price influences supply.
Or 2 marks for the formula: percentage change in quantity supplied ÷ percentage change in price.
78. Analyse why demand for a product may become more elastic over time. [6]
• More substitutes may be available for the product (1) due to more firms/more competition/more
innovation/improved versions (1) which means people are more willing to switch to and from the product (1)
• The product may be seen to be more of a luxury (1) and less of a necessity (1)
• The product may become less addictive (1) addictive products have price inelastic demand (1)
• It may become easier to postpone purchasing the product (1) so a rise in price may result in more consumers
delaying its purchase (1)
• The product may take up a higher proportion of income (1) change in price would become more significant (1)
• Demand will become more price sensitive as the price of complements rises (1) as the two products combined
become less affordable (1)
• Demand becomes more price sensitive the higher the price (1) as the product becomes less affordable (1)
79. Analyse why demand for a product may become more price-elastic. [6]
• there may be closer substitutes (1) making people more willing to switch between products (1)
• the product may become less of a necessity/more of a luxury (1) this would mean a change in price would have
more impact on demand (1)
• the product may be taking up a larger proportion of people’s income (1) this would mean that a change in the
price would be more noticeable (1)
• the product has become less addictive (1) this would mean that people will become more willing to alter their
demand (1)
• it may become easier to postpone buying the product (1) this would mean that a rise in the price of the product
would cause a greater percentage fall in demand (1)
• a longer time period (1) gives people more time to find substitutes (1)
• the price may rise (1) as products more expensive, people become more sensitive to price changes (1)
Note: maximum of 3 marks for a static approach e.g. luxuries, and products with a high number of substitutes, and
products whose purchase would take up a large proportion of income would be likely to have elastic demand.
80. Analyse why demand for a luxury holiday may be price-elastic. [5]
• Price‐elastic means a percentage change in price creates a greater percentage change in demand (1).
• A luxury holiday may have a substitute (1) in the form of another holiday (1) a rise in price will make substitutes
relatively cheaper (1) demand will be more elastic the closer the substitute (1).
• Taking a luxury holiday can be postponed/does not have to be purchased (1) it is not a necessity (1).
• The purchase of a luxury holiday takes up a large proportion of people’s income (1) this would make the change
in price more noticeable/more significant (1) a fall in price may make it affordable to many more people (1).
81. Analyse why the demand for a product may be more price elastic in one country than in another
country. [6]
1 mark for bringing out the meaning of PED or elastic demand – defined or implied.
• differences in the closeness of substitutes [1] availability of close substitutes will make demand elastic [1]
• differences in the proportion of income spent on the product [1] the higher the proportion, the more elastic
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demand will be [1]
note: also accept average income may vary in the two countries with demand being more inelastic in the richer
country
• differences in what are considered to be luxuries and what are considered to be necessities [1] if the product is
considered to be a luxury, demand is likely to be elastic [1]
• differences in the price [1] demand will be more elastic if the higher the price [1].
Note: a maximum of 3 marks for identification of reasons.
82. Explain two reasons why the supply of a product may be price inelastic. [4] May/June 2015
• long production period (1) this will make it difficult to adjust supply quickly (1)
• inability to store the product (1) this means goods cannot be taken out of storage to meet higher demand (1)
• if there is a shortage of the raw material (1) it will be difficult to supply more in response to a rise in
demand/price (1)
• time period under consideration (1) supply is more inelastic in the short run (1)
83. Analyse why price elasticity of supply can differ between products. [6] May/June 2017
• Products which can be produced quickly (1) will have elastic supply (1)
• Products which can be stored/non‐perishable (1) will have elastic supply (1)
• Products which are made with raw materials in short supply (1) will have inelastic supply (1)
• Products made by firms with spare capacity/mobile resources/have a low cost of altering production/low cost of
attracting resources into the industry (1) may have elastic supply (1)
84. Analyse how information on price elasticity of demand for its product can influence a firm’s pricing
decisions. [6]
• If a firm knows that demand for its products is price‐elastic (1) it will know a fall in price will cause a rise in
revenue (and vice versa) / percentage price change causes a bigger percentage change in demand (1). It will also
know that its products probably have close substitutes (1).
• If it knows demand for its products is price‐inelastic (1) it will know a rise in price will cause a rise in total
revenue / percentage change in price is greater than percentage change in demand (1). It will also know its
products probably do not have close substitutes (1).
• If it knows that demand for its products have unit price elasticity of demand (1) it will know that its revenue will
not change if it changes price (1).
85. Analyse how price elasticity of demand for a product influences the revenue a firm receives.[6]
• Formula or definition of PED (1).
• If demand is elastic, a rise in price will cause a fall in revenue (1) because the quantity demanded will fall by
more than the rise in price (1) in percentage terms (1) example of type of product with elastic demand e.g. a
luxury (1).
• If demand is inelastic, a rise in price will cause a rise in revenue (1) because the quantity demanded will fall by
less than the rise in price (1) in percentage terms (1) example of a product with inelastic demand e.g. one
without a substitute (1).
• If demand is perfectly inelastic, a rise in price will cause an equally proportionate rise in revenue (1) because
the quantity demanded will not change (1).
• If demand is perfectly elastic, a rise in price will cause revenue to fall to zero (1) because people will stop
buying the product (1).
• If demand is unitary, a rise in price will leave total revenue unchanged (1) as the proportionate change in
quantity demanded and price will be the same (1).
Accept as reasons why demand may be price elastic, availability of substitutes and why demand may be price
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inelastic, lack of substitutes.
86. Analyse what effect a fall in price may have on a farmer’s profit. [6]
• a fall in price will increase the quantity of a farmer's product demanded.
• if demand is elastic [1] demand will increase proportionately more than the fall in price [1] a fall in price will
raise revenue [1] to produce more to take advantage of higher demand, total cost will rise [1] profit will increase
if revenue rises by more than costs [1] to increase output, a farmer must have spare resources [1].
• if demand is inelastic [1] demand will fall proportionately less than the fall in price [1] a fall in price will reduce
revenue [1] lower revenue will reduce profits if costs remain unchanged [1].
• profit is revenue minus costs.
87. Discuss the extent to which price elasticity of demand is of use to a business. [8]
Up to 5 marks for why it might be useful:
• a business can appreciate how demand for its products will be influenced by a change in price (1)
• if PED is elastic, a fall/rise in price will cause a greater percentage rise/fall in demand (1) leading to an
increase/fall in revenue (1)
• if PED is inelastic, a rise/fall in price will cause a smaller percentage fall/rise in demand (1) leading to an
increase/fall in revenue (1)
• elastic PED may indicate that the business faces close substitutes for its products (1)
• inelastic demand may indicate the business has considerable market power (1)
Up to 5 marks for why it might not be useful:
• PES should also be considered (1) e.g. demand may be elastic but may not be able to take advantage of a
lower price, if PES is inelastic (1)
• In practice, it is difficult to determine PED (1) it may change over time (1)
• price is only one of a number of influences on demand (1) changes in the prices of other products (1) and
income (1) can be significant
88. Discuss to what extent time is the main influence on the price elasticity of supply. [6]
Up to 4 marks for why it might be the main influence:
• at a particular moment in time, it may be very difficult (or impossible) to increase supply (1) supply may be
relatively inelastic (1)
• the longer the period of time, the more responsive supply is likely to be to a price change (1) relatively
elastic (1)
Up to 4 marks for discussion of other possible influences:
• the ease with which a product can be stored (1) the easier it is to store the product, the more elastic the
supply will be (1)
• the availability of factors of production (1), e.g. supply may be inelastic in periods of full employment (1)
• the cost of adjusting supply (1), e.g. it is cheaper to adjust the supply of pens than the supply of ships (1)
Chapter 16 Money and Banking

89. Define ‘medium of exchange’. [2]
A form of money (1) that is used to buy and sell products (1) generally acceptable (1)
90. Define a ‘standard for deferred payments’. [2]

A function of money that enables people to borrow (1) pay back at a later date (1) and to lend (1).
The function of money that enables a price/interest rate to be set on the amount a borrower will pay (1) that a
37
lender will earn (1).
91. Define ‘Central Bank’. [2]

A government owned bank (1) acts as bank to government (1) acts as bank to commercial banks (1) operates
monetary policy (1) lender of last resort (1) sets inflation target(s)/sets rate of interest (1).
92. Explain why an item has to be generally acceptable and divisible for it to carry out the functions of
money. [4]
• to act as a medium of exchange or carry out any other functions of money (1), people have to be willing to
accept the item as payment (1).
• to be able to make payments of differing amounts and to be able to give change (1), it must be possible for this
to be divided into different values (1).
93. Explain two functions of money. [4]

• medium of exchange (1) money can be used to trade products/generally acceptable in buying and selling (1)
• store of value (1) money can be saved/used in the future (1)
• unit of account/measure of value (1) money can be used to compare the value of different products (1)
• standard for deferred payments (1) money can allow people to borrow and lend (1)
94. Explain why cash (notes and coins) is money. [4]

• cash is money as it carries out the functions of money (1)
• cash acts as a medium of exchange (1) generally accepted as payment for products (1)
• cash acts as a store of value (1) people can save their cash in order to use it in the future (1)
• cash acts as a unit of account/measure of value (1) price of products is expressed in terms of the cash needed to
purchase them (1)
95. Explain how money helps specialisation and trade to occur. [4]
• If workers and firms specialise they have to sell what they produce (1) to get the products they want/to buy other
products (1)
• Money helps trade as it avoids the need for barter (1) overcomes the double coincidence of wants (1)
• Any functions of money e.g. medium of exchange or store of value (max 2)
96. Define commercial bank. [2] 22/MJ/2018

A financial institution (1) that offers services to people/households/firms (1) examples of services (1) that is profit
orientated (1) (usually) in the private sector (1).
97. Explain two ways in which a central bank differs from a commercial bank. [4]
• it is one of the functions of a central bank to issue notes and coins (1) a commercial bank is usually not allowed to
issue notes and coins (1)
• the customers of the central bank are commercial banks and the government (1) people and firms are the
customers of commercial banks
• the central bank implements monetary policy (1) commercial banks are affected by monetary policy (1)
• the central bank is government owned (1) commercial banks are usually in the private sector (1)
98. Explain two functions of a commercial bank. [4]

1 mark each for each of two functions identified, 1 mark each for each of two explanations given, e.g.:
• accepting deposits/allow people to save (1) customers can open current accounts or deposit accounts/earn
interest on savings (1)
• lending (1) customers can borrow money to e.g. purchase a home/pay interest on loans. (1)
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• allowing customers to make payments (1) customers can make payments through e.g. direct debits (1)
• providing a range of other financial services e.g. insurance (1) customers may be able to get e.g. a guarantee of
compensation for theft from a bank. (1)
• customers may keep e.g. documents at the bank. (1)
99. Analyse the role that commercial banks can perform in an economy. [6]
Provision of:
• current accounts (1) allows customers to make and receive payments/money transmission services (1) e.g. by
cheque, direct debits, debit cards (1)
• deposit/savings accounts (1) interest paid to savers (1)
• loans (1) interest charged on the full amount of the loan (1) may be used for a variety of purposes e.g. to buy a car
(1) mortgages to buy a house (1)
• overdrafts (1) interest charged on the amount borrowed (1) may be authorised or unauthorised (1)
• foreign currency/travellers’ cheques (1) used by people visiting other countries (1)
• financial advice (1) e.g. on purchase of shares (1)
• safe deposit facilities (1) e.g. to keep important documents (1)
• by lending money they can increase total consumer spending (1) in the economy and total investment by firms (1).
A list‐like approach can gain no more than 3 marks
100. Explain two reasons why firms may find it difficult to obtain loans from commercial banks. [4]
• Banks may be concerned that firms may not be able to repay the loan (1) may not expect to make a profit (1).
• The firms may not be able to offer collateral (1) due to lack of wealth (1) firms have low‐credit rating (1).
• Small/new firms may be less well‐known to banks (1) may be regarded as a greater risk (1)
• The firms may already have debts (1) banks may not want to increase them (1).
• The economy may be deteriorating / in recession (1) so banks may avoid risks (1).
• Banks may not have sufficient funds to lend (1) may not have attracted household savings (1).
• The central bank may be trying to reduce bank lending (1) e.g. by raising the rate of interest (1).
• Interest rates may be too high (1) making repayment terms too expensive (1).
• The central bank may be trying to reduce bank lending (1) e.g. by imposing limits on loans (1)
101. Describe two functions of a central bank. [4]

1 mark each for two functions identified, 1 mark each for two descriptions e.g.:
• issuing bank notes (1) The central bank is responsible for printing notes and destroying notes which are no
longer suitable for circulation (1)
• banker to the government (1) operates an account for the government which enables it to receive revenue
and make payments (1)
• lender of last resort (1) will lend to commercial banks that find themselves in difficulty (1)
• implementing monetary policy (1) changes interest rates to control the exchange rate(1)may adjust exchange
rate to influence e.g. the current account position. (1)
• managing the national debt (1) issues government securities and pays interest on those securities(1)
• banker to commercial banks (1) commercial banks’ accounts at the central bank enable them to make and
receive payments between each other and to withdraw money (1)
102. Analyse the importance of a central bank in an economy. [7]

 operates monetary policy (1), issues notes and coins/controls the money supply (1), sets interest rates (1), seeks
to maintain price stability/control inflation (1), influencing saving/spending (1), controlling total demand (1),
keeping inflation low is important in terms of e.g. maintaining competitiveness (1).
39
 regulates the banking sector (1), seeks to ensure commercial banks will pursue sound policies (1), acts as a
lender of last resort (1) to prevent banks going out of business (1), a strong banking sector is important for e.g.
promoting investment (1).
 acts as banker to the commercial banks (1), commercial banks can hold accounts at the central bank (1), these
can be used to draw out cash when needed and to settle debts with other banks (1).
 acts as banker to the government (1), operates accounts which receive government tax revenue and from which
the government can make payments (1), manages the national debt (1) by issuing government securities/bonds
(1), paying interest on government securities (1).
103. Discuss whether a central bank should lend to commercial banks which get into financial
difficulties. [8] 23/Nov/2017
Up to 5 marks for why it should:
 A central bank is a lender of last resort (1) one of its functions is to lend to commercial banks when they
cannot borrow elsewhere (1) example of another function (1).
 If a central bank does not lend, the commercial banks may collapse (1) holders of bank accounts will lose
money (1) they may get into difficulties (1) there may be a ‘run’ on other banks (1) with people
withdrawing their money (1) putting other banks at risk (1).
 Fewer banks would reduce the funds for firms to borrow (1) investment would be reduced (1) economic
growth would decline (1) makes it more difficult for commercial banks to carry out their function (1)
example of another function (1).
Up to 5 marks for why it should not:
 May encourage banks to take risks (1) lend to creditworthy customers (1) they may think they are too big
to fail (1).
 It would involve an opportunity cost (1) could use funds to lend to new, expanding banks (1)
104. What is sold on a stock exchange? [2]

Shares/stocks (1) in public limited companies (1) government bonds/securities (1).
105. Explain two functions of a stock exchange. [4]

• provides a market for the sale and/or purchase of shares (1) enabling firms to raise finance (1)
• allows members of the public to own part of a company (1) which may enable them to influence the behaviour of
the company (1)
• provides a market for the sale of government securities (1) enabling governments to raise finance/borrow (1)
• enables firms to grow (1) by merging or taking over other firms (1)
• channels savings (1) for financial investment (1)
• acts as a source of information on share prices (1) enabling transactions to be carried out more effectively (1)
• protects buyers of shares/supervises brokers (1) as listed firms have to meet set standards and provide
information (1)
106. Explain how a stock exchange could encourage economic growth.[4]

• A stock exchange enables firms to raise finance by issuing shares (1) by providing a market for shares / enables
shares to be bought and sold (1) finance allows firms to invest (1) which increases their ability to produce more
(1).
• A stock exchange helps firms merge (1) enabling firms to take greater advantage of economies of scale (1)
reducing costs of production (1) increasing international competitiveness (1) capturing more market share (1).
• If stock exchange is doing well (1) wealth/dividends may rise (1) causing higher spending (1).
• Allows sales of government bonds/securities (1) money raised can be spent on e.g. infrastructure (1).
40
Chapter 17 Households
107. Describe two influences on the amount people spend. [4]
• income(1) people with higher income have a greater ability to spend(1)
• confidence(1) people are likely to spend more if they are confident about the future(1)
• wealth(1) an increase in the value of people’s wealth increases the ability to spend(1)
• interest rate(1) a rise in the rate of interest is likely to reduce spending as borrowing will be more expensive and
borrowing will be cheaper.(1)
108. Explain two reasons why the rich spend more in total than the poor. [4]
• greater income (1) means the rich have more purchasing power (1)
• greater wealth/savings (1) which generates income to spend/ e.g. interest, dividends, capital gains (1)
• greater ability to borrow (1) because banks are more willing to lend to the rich/the rich have more collateral (1)
• more confidence (1) because the rich may expect that their purchasing power will continue to be high (1)
109. Explain two reasons why people may spend most of their income. [4]
• low income (1) buying basic necessities may take up most of the income of the poor (1)
• low interest rate (1) low interest rate would mean it is not financially rewarding to save (1)
• may be confident about the future (1) if people expect higher income in the future, they may start spending more
now(1)
• may be a lack of sound financial institutions in the country (1) a lack of sound financial institutions in the country
may mean that people may not have the ability or willingness to save(1)
• tax rates (1) high tax rates may mean low disposable income and so people have to spend a high proportion to buy
necessities/cut in tax rates may allow people to spend a higher proportion of total income(1)
• high cost of living/inflation/fear of inflation/ low prices (1) high cost of living/inflation would mean people would
have to spend more to purchase products or fear of inflation may encourage people to spend more now or low
prices may encourage people to spend more(1)
110. Explain two reasons why borrowing may decrease. [4]

• a rise in the rate of interest (1) will increase the cost of borrowing (1)
• a reduction in the availability of loans (1) will make it more difficult to borrow (1)
• a rise in income (1) may reduce the need to borrow (1)
• an increase in the state provision of health care/education (1) may mean that people do not have to borrow to
cover health care/education expenses (1)
• a reduction in the price of expensive items e.g. houses, cars (1) may mean that people can buy the items without
borrowing (1)
• a reduction in confidence about the future (1) may mean that people will be afraid they will not be able to repay
loans (1)
• a change in age structure (1) the young may borrow more than those of middle age (1)
• a change in social attitudes (1) it may become less acceptable to borrow (1)
• an increase in government subsidies to firms (1) may reduce the need for firms to borrow from banks (1)
111. Analyse how a central bank might reduce household borrowing. [6] 22/Oct/2016
• It might increase the rate of interest (1) this would increase the cost of borrowing (1) this may discourage
households from buying items/encourage saving (1) that would require them to take out a loan (1).
• It might impose restrictions on the amount that banks can lend (1) these may limit the size of a loan a
household can get (1) or increase the conditions that have to be met before a loan is given (1).
41
• It might reduce the money supply (1) which may reduce spending (1) and so may reduce demand for loans (1).
112. Analyse why households and firms may borrow more during times of rapid economic growth. [6]
• Households may borrow more because they are more optimistic about the future (1) they may expect their
income will continue to rise (1) which will make it easier to repay loans (1).
• Unemployment is likely to be lower (1) banks are more likely to lend to those in work (1) those in work may offer
banks greater security for loans (1) and have more assets (1)
• Firms will be producing more (1) will borrow to expand production (1) will be more confident in their ability to
repay (1).
113. Identify two influences on the amount people save. [2]

One mark each for two influences:
• (disposable) income
• wealth
• rate of interest
• expectations of future price rises/falls
• proportion of household income spent
• confidence
• tax incentives
• strength of financial institutions
• age structure of the population
• extent of social provision e.g. state pensions
• social attitudes
114. Analyse how the spending, saving and borrowing patterns of young workers may differ from those of
older workers. [6]
• Young workers may spend more as they may not have a family to save for (1) old workers may spend a smaller
proportion of their income (1) as they may be paid more and so can afford to save (1).
• Young workers may save more to e.g. purchase a house (or other valid reason) (1) older workers may already have
sufficient savings (1).
• Younger workers may spend more on high tech products (1) older workers more on healthcare (1)
• Young workers may save less as they do not have sufficient income (1) older workers may save more as they are
preparing for retirement (1).
• Young workers may borrow more because they may be buying a car/house (1).
• Young workers may borrow less because banks may be more reluctant to lend to young workers/young workers
may have less collateral/job security (1)
115. Analyse how the spending pattern of high paid workers is likely to differ from the spending pattern
of low paid workers. [4]
1 mark for high paid workers are likely to spend more in total.
1 mark for high paid workers are likely to spend a lower proportion of their income.
1 mark for high paid workers are likely to spend a higher proportion of their income on luxuries/spend more on
luxuries.
1 mark for high paid workers are likely to spend a lower proportion of their income on necessities/less on necessities
116. Discuss whether the rate of interest is the only influence on a person’s decision to borrow money
from a bank. [10] 2013
Up to 7 marks for the importance of the rate of interest:
• the rate of interest is the price (1) of borrowing money (1) reward for lending (1)
42
• a fall in the rate of interest will reduce the cost of loans/overdrafts (1) encouraging a rise in borrowing (1)
• a rise in the rate of interest will increase the cost of loans/overdrafts (1) encouraging a fall in borrowing (1)
• a person may take into account not only the current but also the expected future interest rate (1) less likely to
borrow if the rate of interest is expected to rise (1) central banks change the interest rate to influence
borrowing (1) e.g. to reduce the inflation rate it will raise the rate of interest (1)
Up to 7 marks for other influences on a decision to borrow money:
• the ability to repay loans/overdrafts (1) those with high income (1) or who are wealthy (1) are more likely to
be able to repay
• the need for the loan/overdraft (1) e.g. someone in financial difficulty may need to seek a loan/overdraft (1)
• the availability of loans/overdrafts (1) a bank will not be willing to lend to someone it thinks will not be able to
repay (1)
• future inflation (1) this may reduce the real cost of the loan/overdraft (1)
• confidence (1) a person may be more willing to borrow if she/he thinks her/his job is secure/income will rise
(1)
• advertising by banks of the borrowing facilities that are available (1) increase awareness of the opportunities
(1)
• social attitudes to borrowing money (1) a person may be reluctant to get into debt (1)
• in some countries banks are not allowed to charge interest (1) some religions prohibit usury (1)
117. Discuss whether the poor are more likely to borrow than the rich. [8]
Up to 5 marks for why they might:
• lower income (1) may mean the poor have to borrow to buy basic necessities (1)
• the poor may be more inclined to get into debt (1) so may borrow to cover debt repayments (1)
• the poor may have to borrow to cover medical costs (1)
• the poor may have to borrow to educate their children (1)
• the poor are more likely to need to borrow for large purchases e.g. furniture (1)
• the poor are less likely to have savings to enable purchases (1)
• as a proportion of income the poor may borrow more (even if they do not in absolute terms) (1)
Up to 5 marks for why they might not:
• banks may be reluctant to lend to them (1) because they are worried they will not be repaid (1)
• banks may charge a higher interest rate (1) to those who they think may be a high risk (1)
• the poor may lack the ability/confidence they will be able to repay loans (1) as they may not expect their
incomes to rise (1)
• the poor may be reluctant to borrow because of previous bad experience of being in debt (1)
• it depends on whether the poverty is absolute or relative (1)
• the poor are less likely to have a bank account / access to borrowing (1)
Note: accept an answer based on why the rich may borrow more, but not if the same points are also covered in
reverse.
Chapter 18 Workers
118. Identify two wage factors that workers take into account when deciding on their occupation. [2]
1 mark each for each of two wage factors:
• wage rate/pay/income
• bonuses
• overtime payments
• commission
43
119. Identify two factors that affect an individual’s choice of occupation. [2]
Any two from:
• wages/earnings
• job satisfaction
• working conditions
• working hours
• holidays
• job security
• pensions
• fringe benefits
• chances of promotion
• skills possessed
• length/nature of training
120. Explain two reasons why someone may be prepared to work for a low wage. [4]
1 mark for each of two reasons identified, 1 mark for each of two explanations:
• job security(1) job security may be a key objective during a time of high unemployment(1)
• job satisfaction(1) a number of people accept low wages if they find a job rewarding/have a vocation(1)
• hope of promotion (1) a worker may be prepared to work for low wages if s/he expects higher pay in the future(1)
• good working conditions(1) a worker may prefer good working conditions to high wages(1)
• fringe benefits(1) fringe benefits (e.g. company car) may compensate for low wages(1)
• lack of skills/qualifications(1) lack of skills/qualifications may mean workers have no option but to work for low
wages(1)
• unemployment in the economy/lack of demand for labour. (1) few jobs available means supply of labour exceeds
demand, forcing wages down. (1)
121. Discuss whether a rise in the wages paid by an industry will encourage more people to work in that
industry. [8]
Up to 5 marks for why more people may be encouraged:
• higher wages enable workers to enjoy more goods and services (1) increase living standards (1)
• higher wages enable people to borrow more (1) banks are more likely to lend to high earners (1)
• higher wages will enable workers to save more (1) increase ability to, e.g. finance children’s
education/provide for retirement (1)
• higher wages may motivate some workers to work in the industry/wages are a key influence (1) increase
workers’ self esteem (1)
• workers will be encouraged to switch from other industries (1) to undertake training to work in the industry
(1) to gain the necessary qualifications to work in the industry (1)
Up to 5 marks for why people may not be encouraged:
• wages may still be below those in other industries (1)
• earnings may be higher in other industries (1) because of, e.g. higher bonuses or overtime payments (1)
• workers may not be aware of the wage rise (1)
• workers may lack the appropriate skills/qualifications (1)
• workers take into account other factors/non‐pecuniary factors (1)
• may not work in that industry in that industry if, e.g. working hours are longer, holidays are shorter, worse
working conditions, less chance of promotion, lower pensions, fewer fringe benefits, less job security, less
job satisfaction, industry is based some distance away (maximum of 3 marks for reasons identified).
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122. Analyse why the wages of workers in a particular occupation may fall. [6]
 Demand for the workers may fall (1) reasons e.g. demand for the good or service they provide falls/productivity
falls/replaced by capital equipment / technological advances / obsolete skills (up to 2) this may be shown on a
diagram (1).
 Supply of the workers may increase (1) this may be shown on a diagram (1) reasons e.g. immigration/rise in
retirement age/increased participation of women in the labour force (up to 2).
 Trade union power may fall (1) due to e.g. fall in membership (1) bargaining strength may decline (1).
123. Analyse why Premier League footballers receive very high wages. [6]
 High demand (1) due to high demand for the services of footballers (1) many people want to atch football
matches in stadiums (1) on television (1).
 Football clubs receive high incomes (1) compete for players (1).
 Low supply (1) have to be skilled (1) not many possess the skills (1).
 Premier League players may have strong bargaining power (1) through strong professional organisation/trade
union/agents (1).
 To compensate for negative aspects of the job (1) e.g. risk of personal injury (1) other relevant example (1).
124. Explain why university graduates usually earn more than people who have not gone to university
[4]
125. Explain two reasons why agricultural workers may be paid less than manufacturing workers.[4]
1 mark each for each of two reasons identified:
• may be in less demand
• may be in higher supply
• may have less bargaining power
• may benefit less from government policies
1 mark each for each of two explanations given:
• may be in less demand as less productive/product they produce can be sold for less/replaced by capital good
e.g. tractors
• may be in higher supply as work may require fewer qualifications/less skill
• may have less bargaining power as they may not belong to a trade union
• may not be covered by minimum wage legislation
126. Discuss whether a company will have to raise wage rates to attract more workers. [6]
• wages are a key influence on people’s choice of where to work (1)
• there may be a shortage of workers (1)
• companies compete for workers (1)
• to attract workers from other companies, wages may have to be raised (1)
• higher wages could attract workers from a long distance away who otherwise would not be able to afford the
transport costs (1)
• unemployment may be high (1) so the offer of a job may be sufficient to attract workers (1)
• the company may already be paying more than other companies (1) so again just the offer of jobs may be
sufficient (1)
• the company can offer non‐wage (non‐pecuniary) benefits/fringe benefits (1) e.g. better promotion chances,
longer holidays, good pensions, job security (up to 2 marks)
45
127. Explain two reasons why workers specialising can reduce the average cost of production. [4]
• Workers can specialise in what they are best at (1) increasing productivity/efficiency (1).
• Workers can be trained more quickly (1) cost of training reduced/do not have to be trained in every task (1).
• Less time needs to be taken in moving between tasks (1) more time focused on production (1).
• Less equipment is needed (1) cutting the amount of capital needed (1).
• It may be easier to mechanise the process (1) increase productivity (1).
• Increased efficiency/higher quality production (1) reduces wastage (1)
128. Explain two disadvantages that workers may experience from specialising. [4]
• risk may not find another job easily (1) workers may not find it easy to transfer their skills to another job should
they lose their jobs / risk of long term unemployment (1)
• not finding where key strengths lie (1) concentrating on a particular task may mean that workers do not find out
what they are best at (1)
• limited skills (1)
• boredom (1) performing the same task each day can become tedious (1)
• demotivation (1) workers may feel less appreciated (1)
• increased risk of being replaced by machines (1) breaking down a process into its separate parts may make it
easier to mechanise (1)
• disruption caused by absent fellow workers. (1) may have to cover for absent colleagues / example of impact on
the workers. (1)
129. Analyse why engaging in division of labour may increase a firm’s costs of production. [6]
• division of labour involves workers specialising in particular tasks (1)
• workers may become bored (1) they may make mistakes (1) products may have to be rejected (1) productivity may
fall (1)
• there may be a high turnover of workers (1) this will increase the cost of hiring workers (1)
• workers may not be employed on tasks they are best at (1) this will mean productivity will be below potential (1)
• if key workers are sick or leave (1) it may be difficult to cover for their absence (1) this can disrupt the production
process (1)
• more specialised workers may demand higher wages (1) increasing labour costs (1)
130. Discuss whether workers benefit from specialising. [8]

• their specialism may be in high demand (1) leading to good employment opportunities (1) high wages (1)
• specialisation allows workers to develop their skills (1) increasing their productivity/efficiency (1) which
enables employers to pay them more (1) for the value of their extra output (1)
• enable workers to concentrate on areas they most enjoy (1) e.g. history lecturers specialising in particular
periods of history (1)
• specialised jobs may be less demanding (1) may need less training (1)
• demand for specialism may decrease (1) leading to unemployment (1) may be difficult to get another job
(1) specialists have low occupational mobility (1)
• doing the same task may be boring (1) reducing the quality of life (1)
• may not find out what other talents they have (1)
• alienation reduces productivity (1) reducing the amount firms are able to pay workers (1)
• specialist tasks can depend heavily on other workers (1) if those workers perform badly then productivity
falls (1) and wages may fall (1)
• time has to be spent acquiring specialist skills (opportunity cost) (1) this time could have been spent
46
earning money (1)
Chapter 19 Trade Union

131. Define a ‘trade union’. [2]
An association/body/group/organisation (1) which represents its members/workers by protecting workers’
rights/seeks to improve workers’ pay and/or working conditions (1).
132. Describe what is meant by a trade union. [4]

Candidates could refer to:
• an association of workers (1)
• it engages in collective wage/salary bargaining with employers (1)
• protects and promotes other interests of its members e.g. in relation to working conditions, health and safety (1)
• will often negotiate with governments on behalf of workers (1)
• may promote training for its members (1)
• may provide help for unemployed members (1)
• may provide other benefit schemes for its members (1)
133. Identify two aims of a trade union. [2]

1 mark each for each of two aims identified:
• higher wages
• increased job security
• better working conditions
• provision of benefits
• lobbying the government
• reduction in discrimination
134. Explain two influences on the strength of a trade union. [4]

 Level of economic activity/unemployment rate (1) if there is high income economic growth/low unemployment
demand for workers is likely to be high (1).
 Size of membership/proportion of workers who are members (1) affects funds available/makes it more difficult
to replace workers (1).
 Level of skills/qualifications of workers (1) more skilled workers are harder to replace (1).
 If elasticity of demand for workers is elastic (1) trade unions unlikely to be successful in raising wages (1).
 If wages are a small proportion of total costs (1) unions have greater bargaining strength (1).
 If an essential industry /example (1) unions more likely to be successful because important that industry/service
is not interrupted by industrial action (1).
 Government legislation (1) the more restrictions placed on trade unions, the less power they will have (1).
 Quality of the leadership (1) skilful leaders are likely to be effective negotiators (1).
135. Explain the likely impact of trade unions on the welfare of their members. [4]
 Increase or maintain wages of members (1) increase or maintain material standard of living (1).
 Improve or maintain working conditions (1) e.g. improved safety / less stress (1).
 Protect workers’ rights (1) e.g. working hours / sick pay / paternity leave (1).
 Protect jobs (1) reduce risk of unemployment (1).
 Provide training (1) helping employees find better jobs / better paid jobs (1)
47
136. Identify two reasons why workers go on strike. [2]
1 mark for each of two reasons identified e.g.:
• to gain higher wages / to resist wage cuts
• to improve working conditions
• to resist job losses.
137. Analyse why a trade union may oppose a rise in working hours. [6] March/2018
• A rise in working hours may reduce working conditions/quality of the job (1) working more hours may result in
workers being more stressed/less healthy/having more accidents (1) reduce less leisure time/trade unions
usually seek to increase workers’ leisure time (1).
• A rise in working hours may mean that firms need fewer workers (1) increasing unemployment (1) reducing
trade union membership (1).
• Workers may not be compensated by higher wages (1)
138. Explain why governments may discourage strikes. [4]

• increase firms’ costs of production (1) and lose international competitiveness (1)
• strikes disrupt output/service provision (1) this may result in customers being lost (1)
• may cause unemployment (1) leading to higher spending on welfare benefits (1)
• lower output will reduce tax revenue (1) and so reduce the government’s ability to spend (1)
• lower output/incomes/GDP (1) and therefore lower living standards (1)
• may reduce exports (1) and so harm the balance of payments position (1)
• may discourage FDI (1) and job opportunities (1)
如果罢工成功，就会增加生产成本，导致产品丧失国际竞争力，即使没有成功，罢工也会扰乱生产，导致客户需要的产品没有办法生产出来，从而导
致客户的流失，没有客户，企业可能会就不需要生产那么多产品甚至可能会倒闭，那就会导致失业，减少税收收入同时增加政府额负担（失业补
贴）
。对于国家而言，减少产出，降低人们生活质量，产出的减少还会导致出口的减少，增加国际收支平衡赤字。最后，如果政府不抵制罢工，工会
力量就会比较强大，也就代表着这个国家工资水平较高，吓跑跨国公司，从而减少工作机会
139. Discuss whether membership of a trade union will always be beneficial for a worker. [6]
Up to 4 marks for benefits of membership of a trade union for a worker:
 better basic pay/overtime (1), a union will bargain collectively for pay/overtime (1), a union will have
more power than one individual worker (1), a union can use threat of industrial action to support wage
demands (1).
 better working conditions (1), e.g. better working hours/better health and safety/sick pay/pensions (1),
resulting from negotiation from trade unions (1), a union will have more power than one individual
worker (1), a union can use threat of industrial action to support improved working conditions (1).
Up to 4 marks for disadvantages of membership of a trade union for a worker:
 worker will have to pay a fee to be a member (1), which reduces their take‐ home pay/spending power
(1).
 union might bring workers out on strike (1), leading to them losing potential earnings (1), and the firm
may take retaliatory action, e.g. loss of benefits/restricted promotion/redundancy (1).
 prolonged strike action could force a firm to go out of business (1), leading to unemployment of workers
(1), and so lower living standards of former workers (1).
 union might be closely linked with a particular political party (1), which some workers may not choose to
vote for (1).
140. Discuss whether a firm will benefit from encouraging its workers to join a trade union. [8]
Up to 6 marks for possible benefits:
 may encourage more workers to apply for jobs (1), as they may expect better working conditions/job
48
security (1).
 reduces costs of negotiating with workers (1) as negotiations can take place with one organisation rather
than possibly many individual workers (1).
 provides a channel of communication (1), so information on, e.g. new working practices can be spread
more quickly (1).
 may promote training (1), increasing labour productivity (1) and so lower costs of production (1).
 may reduce conflict (1) as workers’ discontents can be taken to management and possibly resolved (1).
Up to 6 marks for why it may not benefit:
 may push up wages (1), as the union can use its power to bid up wage rates for its members (1). This will
increase the firm’s costs of production (1) and reduce the firm’s competitiveness.
 may reduce flexibility (1) as a union may insist that its members only undertake the tasks in their job
descriptions (1) and are not to work outside the standard hours (1).
 may take industrial action (1), e.g. a strike will disrupt production (1) and lose customers/reduce
revenue/profits (1).
Maximum of 4 marks for a list or list‐like response.
141. Discuss whether an economy would benefit from an increase in the strength of its trade unions. [8]
 Stronger trade unions may achieve higher wages (1) this could increase living standards (1) enabling
workers to afford e.g. better healthcare (1) improve training / skills of workers (1) motivate workers (1).
 Stronger trade unions may improve working conditions (1) prevent workers being discriminated against (1)
this may increase labour productivity (1) can make exports more competitive (1) improving balance of
payments (1) which can increase economic growth (1).
 Stronger trade unions may increase communication between workers and employers (1) may help promote
training (1) reduce cost of negotiations / making negotiations more effective (1).
 Stronger trade unions may raise firms’ costs of production (1) higher costs of production can reduce firms’
profits (1) cause wage/price spiral (1) resulting in a fall in output (1) increase in unemployment (1) causing
cost push inflation (1).
 Stronger trade unions may increase industrial action (1) will disrupt firms’ production (1) result in a fall in
orders (1) fall in investor confidence (1).
 Stronger trade unions may restrict the ability of firms to change their output (1) reducing their
responsiveness to changes in market conditions (1)
142. Analyse three reasons why trade union membership may decrease in a country. [6]
• trade union subscriptions may increase (1) making it more expensive for people to join a trade union (1)
• government legislation may reduce the power of trade unions (1) this would make membership less valuable (1)
• less efficient trade unions/decline in strength (1) workers would expect less advantages from joining a trade
union(1)
• firms’ discouragement/employers may be reluctant to employ members of trade unions (1) this may make people
reluctant to join as it would reduce their employment opportunities
• high unemployment may mean that there are fewer people in employment to belong to trade unions (1) it will
weaken the power of trade unions (1)
• in a boom period/high level of economic activity (1) workers may gain wage rises/better working conditions
without belonging to a trade union (1)
• workers may be satisfied with pay and conditions (1) may not agree with actions of trade union (1)
• government action to improve the pay and/or conditions of workers e.g. introduction of national minimum wage
(1) reduces the need for collective bargaining (1)
49
143. Discuss whether the activities of trade unions are likely to increase or decrease a country’s economic
growth rate. [8]
Up to 5 marks for why they are likely to increase it:
• Trade unions may cut firms’ costs of production (1) by reducing the time and effort involved in negotiating
with workers (1) lower costs can increase profits (1) higher profits can encourage expansion (1).
• Trade unions may push up wages (1) boosting total (aggregate) demand in the economy (1)
• Trade unions may help with training and education systems (1) such schemes may raise productivity (1)
higher productivity can cut costs of production (1) and increase productive potential (1).
• By promoting workers’ rights (1) trade unions may increase the motivation of workers / workers may gain
more job satisfaction (1) which will raise productivity (1).
Up to 5 marks for why they are likely to decrease it:
• Trade unions may push up wages (1) higher wages will increase firms’ costs of production (1) this may
encourage them to cut production (1).
• Trade unions may engage in industrial action (1) e.g. strikes (1) this will disrupt production (1) sales may be
lost (1).
• The presence of trade unions may discourage MNCs setting up in the country (1) MNCs contribute to
economic growth (1).
144. Discuss whether or not increasing the strength of trade unions will benefit an economy. [8]
• May raise the wages of workers (1) may reduce poverty (1) may increase labour productivity (1) through
increasing worker morale/motivation (1).
• May provide worker training (1) increasing skills/productivity (1).
• May counterbalance the power of employers (1) protecting the rights of workers (1).
• Stronger bargaining power with employers (1) may improve working conditions of workers (1) increase
health and safety (1).
• May lead to more industrial disputes (1) e.g. strikes/go slows (1) reduce output (1) may discourage
investment/discourage MNCs (1) which would damage long run economic growth (1).
• May cause inflation (1) by raising labour costs (1) make products less internationally competitive (1)
increasing a current account deficit/reducing a current account surplus (1).
• Higher wage costs could reduce profits (1) raise unemployment (1).
145. Discuss whether a worker should always be encouraged to join a trade union. [10] 2013
Up to 7 marks for why should be encouraged:
• a trade union will provide a worker with more collective strength (1) this could be helpful in negotiating
wage rises (1) improvements in worker conditions (1)
• a trade union may provide a member with a range of other benefits (1), e.g. training/subsidised part‐time
education courses (1) in some countries trade unions provide members with unemployment benefits (1)
• a trade union may influence a government (1), e.g. to increase a minimum wage which workers can benefit
from (1)
Up to 7 marks for why should not be encouraged:
• the trade union(s) in a particular industry may not be very powerful (1) especially if membership is low (1)
and finance is limited (1)
• the cost of membership may be expensive (1)
• there may be difficulties in being a trade union member in some countries/some governments discourage
trade union membership (1)
• industrial action can be disruptive (1) a worker may not receive an income while on strike(1) a worker may
50
lose her/his job as a result of industrial action (1)
146. Discuss whether a rise in the wages a firm pays would reduce its profits. [8]
• higher wages will mean a higher wage bill (1) if output does not increase by more than wages, labour、
costs per unit will increase (1) costs of production will increase (1) profit is revenue minus costs (1) with
higher costs and the same revenue, profit will fall (1)
• paying higher wages may prevent strikes (1) this can reduce costs of production (1)
• higher wages may motivate workers (1) this can increase productivity (1) reduce costs of production (1)
• higher wages may make it easier to recruit workers (1) this can reduce costs of production (1)
• higher wages may make it easier to recruit skilled workers (1) this will raise productivity (1) reduce costs of
production (1)
• other costs may be falling (1) e.g. rent, corporation tax (1)
• demand for the firm’s products may be increasing (1) this will raise revenue (1)
• higher wages may be paid to a smaller labour force (1) reducing the wage bill (1)

Chapter 20 Firms-Classification of firms

147. Explain two influences on the size of firms. [4]
• size of market (1) the higher the demand for the product, the larger the firm is likely to be（1）
• availability of finance/capital (1) firms that can borrow, sell shares or have high profits are able to expand
• type of business organisation (1) a MNC will be larger than e.g. a sole trader（1）
• age of firms (1) older firms tend to be larger than younger firms
• skills of entrepreneurs (1) firms run by skillful entrepreneurs are likely to be larger than those run by less skillful
entrepreneurs(1)
• Preference of entrepreneurs. (1) entrepreneurs may want the firm to remain small to keep control / may want it
to be large to e.g. gain economies of scale.
• influence of government policies (1) a government may run large state‐owned enterprises/operate restrictions on
mergers (1)
148. Define ‘private limited company’. [2]

• in the private sector (1)
• sells shares/is a joint stock company (1)
• the shares are not (usually) traded on a stock exchange (1) only sold to known individuals (1)
• has limited liability (1)
• the owners/shareholders vote for a board of directors (1)
149. Identify two features of a sole proprietor. [2]

• a business owned by one person (1)
• has unlimited liability (1)
• lack of continuity (1)
• takes all of the profits/bears all of the risks/losses alone (1)
150. Describe the advantages and disadvantages of a sole proprietor business organisation. [4]
Up to 2 marks for advantages:
51
• owner is in complete control/takes all the important decisions (1)
• quick to make decisions/flexible (1)
• easy to set up/low start up costs/no complicated paperwork (1)
• all profits go to the sole trader (1)
• personal contact with customers/workers (1)
Up to 2 marks for disadvantages:
• owner does not have the legal protection of limited liability/the debt is unlimited (1)
• owner may have to work long hours (1)
• expansion can be very difficult due to lack of finance (1)
• lack of continuity (1)
• success may be limited by lack of skills of owner/poor health of owner (1)
151. Analyse the advantages of being a sole trader. [6]

• Flexible / can respond quickly to changes in demand (1) as one person makes all the decisions (1).
• Easy to set up (1) limited finance / limited paperwork needed (1).
• Can provide a personal service (1) get to know customers personally (1).
• Profit incentive (1) owner will get all the profits (1).
• Sole trader has total control (1) can decide e.g. hours of work, holidays (1)
• May have good relationships with staff (1) less industrial disputes (1).
152. Distinguish between a sole proprietor and a partnership. [4]

One mark for each characteristic and one mark for the comparison:
Sole proprietor is ownership by one person (1), whereas partnerships involve a number of owners (1).
Sole proprietor receives all the profits (1), whereas partnership divides profits between partners (1).
Sole proprietor has complete control (1), whereas in partnership control is shared between partners (1).
Difficult for sole proprietor to raise finance (1), but in a partnership it is easier to raise finance from partners (1).
Maximum of two marks if no comparisons are made.
153. Describe two features of a partnership. [4]

• unlimited liability (although limited liability can sometimes operate) (1) so that the amount owners can lose is not
restricted to money they have put into the business (1)
• unincorporated (1) partners share profits/losses (1)
• a relatively low maximum number e.g. 20 (1) restricts the business size (1)
• partners may specialise (1) so there is a sharing of skills/expertise (1)
1 mark for a basic description of each feature and 1 mark for a development of the description
154. Describe two characteristics of a co-operative. [4]

1 mark each for two characteristics, 1 mark each of two descriptions:
• jointly owned by their members (could be workers or customers)/members are shareholders (1) co‐operatives may
be owned by a number of groups, e.g. workers, consumers (1)
• they exist for the mutual benefit of the members (1) profits can be distributed to consumers on the basis of how
much they spend (1)
• members share profits (1) farming co‐operatives may benefit from buying and selling in bulk (1)
• each member has a vote (1) voting is not based on size of shares held (1)
• have limited liability (1) members can only lose their investment in the co‐operative society (1)
155. Explain why a partnership might become a private limited company. [5]
• to benefit from limited liability (1) so that the amount that owners can lose is restricted to the amount they have
52
put into the business (1)
• to expand by issuing shares (1) this raises more capital (1) allows the firm to expand its output (1)
• a private limited company usually has a higher maximum number of owners (1) and so will be able to benefit from
economies of scale (1) example (1)
• to have a board of directors (1) which appoints a managing director who takes responsibility for running the
business (1)
156. Explain two advantages a business organisation may gain from becoming a public limited company.
[4]
1 mark each for each of two advantages identified, 1 mark each for each of two explanations given:
• relatively easy to raise finance (1) able to sell shares on the stock exchange / limited liability may attract
shareholders / banks may be more willing to lend (1)
• likely to be relatively large (1) the ability to raise finance can allow firms to expand/take advantage of economies of
scale (1)
• sustainability (1) not dependent on current owners for survival of firm (1)
• take advantage of limited liability. (1) owners can only lose the value of their shares. (1)
157. Explain two reasons why a decision might be taken to change a private limited company into a
public limited company. [4]
• the ability to raise more finance by selling shares on a stock exchange/to the general public (1). This would
enable a firm to finance expansion; this is different to a private limited company which cannot sell shares on a
stock exchange (1).
• some public limited companies are listed on the stock exchange/several stock exchanges around the world (1)
and this would enable them to raise funds from a large number of sources/become better known (1).
• there is no maximum number of shareholders in a public limited company (1); a private limited company is likely
to have a lower maximum number of shareholders, which limits the potential for growth (1), necessary to get
other shareholders’ permission to sell shares in a private limited company (1).

Chapter 20 Firms-Growth of firms

158. Define ‘horizontal integration’. [2]
A merger/takeover between firms (1) producing the same product at the same stage of production. (1)
159. Define ‘conglomerate integration’ [2]

A merger (1) between firms producing different products (1).
160. Using examples, distinguish between vertical, horizontal and conglomerate integration. [5]
• Up to 2 marks: vertical integration is the merger or takeover between two firms producing at different stages of
production in the same industry (1) e.g. a tea company taking over a tea plantation (1), or forward vertical
integration, forwards towards consumers, e.g. a factory taking over a supermarket/ a tyre producer and a car
manufacturer (1).
• Horizontal integration is the merger or takeover between two firms producing in the same industry and at same
stage of production (1), e.g. two banks (1).
• conglomerate integration is the merger or takeover between different areas of activity to spread interests and
risks over different industries (1), e.g. the Indian company Tata which produces motor vehicles and tea (1).
161. Explain two advantages that firms may gain from a horizontal merger. [4]]
53
1 mark each for each of two advantages identified, 1 mark each for each of two explanations:
• able to take advantage of economies of scale (1) larger firms may be able to reduce average costs/become more
efficient/increase productivity (1)
• increased market share/market power (1) a direct competitor is eliminated (1)
• rationalisation (1) savings may be made by e.g. operating only one warehouse (1)
• exchange ideas/technology (1) increase innovation/better quality (1)
162. Discuss whether consumers benefit from horizontal mergers. [8]

• A horizontal merger is a merger between two firms at the same stage of production producing the same product
(1).
• They may enable the firms to take greater advantage of economies of scale (1) example (1) this will reduce
average cost of production (1) this may lower prices to consumers (1).
• They may enable the firms to earn more profit (1) which they can spend on research and development (1)
increasing innovation (1) raising the quality of the product (1).
• They may result in the firms experiencing diseconomies of scale (1) example (1) this will increase average cost
of production (1) this may raise prices to consumers (1).
• The firms may gain greater market share (1) move it closer to monopoly (1) this may result in higher prices (1).
163. Discuss whether a merger between two shipbuilding firms will improve the quality of ships built. [5]
2016
164. Discuss whether a merger between two large firms in the same industry will increase the price of the
product. [8]
• Increase in size firm / reduction in competition (1) the firms may be able to raise price as consumers may
have no alternative / dominate the market (1). The firm may become a monopoly (1) becoming a price
maker (1).
• Firm becomes too large (1) may experience diseconomies of scale (1) example (1) increases average cost of
production (1) and passes on higher costs in higher prices (1).
• Firms may produce higher quality products (1) as a result of increased spending on research and
development/new technology (1) so demand for the products may be higher (1).
• The firm may experience economies of scale (1) example (1) lowering average cost of production (1)
example (1) and lowers prices without affecting profits (1).
• The firm may still face considerable competition in the industry (1) other mergers may have taken
place/may still be a high number of firms in the industry (1).
• The firm may not be seeking to maximise profits (1) may be trying to increase the share of the market (1)
may do this by keeping price relatively low (1).
• Government may intervene (1) and limit price increases (1).
165. Discuss whether or not commercial banks in Morocco would benefit from further mergers. [6]
 The merger would give the banks / firms more market power (1) a relatively quick way to grow (1) may be
able to raise price (1) without losing too many customers (1).
 It could be a horizontal merger (1) which may enable greater advantage to be taken of economies of scale
(1) example (1) lower (average) costs (1) lower prices / increased demand (1) higher profit (1).
54
 The reduction in competition may make the banks / firms complacent (1) may not try to keep costs down
(1).
 The firms may experience diseconomies of scale (1) example (1) higher (average) costs (1) higher prices /
reduced demand (1) lower profit (1).
 Costs of integrating firms such as redundancies/loss of morale (1).
 Large firms may lose customers due to lack of personal touch (1).
166. Analyse the advantages of vertical integration. [4]

1 mark for a definition of vertical integration/for a distinction between backwards integration and forwards
integration.
• ensures supply of raw materials at a reasonable price/reduces the chain of production “cuts out the middle
man” (1) as the firm can directly provide raw materials for manufacture (1).
• may restrict access of competitors to raw materials (1) which may make their prices higher or restrict their
output (1).
• ensures outlets for products (1), which ensures products get to market (1).
• ensures products are well displayed and promoted (1) which can increase demand (1).
• may enable economies of scale to be gained (1), relevant example, e.g. financial economies.

Chapter 20 Firms-Economies of Scale

167. Define economies of scale. [2]
A fall in average costs (1) resulting from an increase in output/scale of production (1).
168. Analyse how an increase in the size of a firm can increase its profit. [6]
• the increase in size may have resulted from the firm selling more products/increasing output (1) if revenue rises by
more than costs, profit will increase (1)
• a larger firm may be able to take greater advantage of economies of scale (1) fall in average costs (1) e.g. buying,
managerial, technical, risk bearing (2)
• a firm may have grown in size by merging/taking over rival firms (1) this will give it greater market power (1)
allowing it to push up price (1)
169. Discuss whether the average cost of production always decreases when a firm increases the total
output that it produces. [8]
• The firm may experience economies of scale (1) total cost will rise by less than total output (long run
average cost may fall as output increases) (1).
• The firm may experience buying/purchasing economies of scale (1) may be offered a discount price when
buying raw materials in bulk (1).
• The firm may experience technical economies of scale (1) larger, more cost efficient technological
equipment may be purchased to produce a higher output (1).
• The firm may experience managerial economies of scale (1) specialist staff may be employed when
output is high (1)
• The firm may experience financial economies of scale (1) as output increases, it may be able to borrow
more cheaply / or sell its shares at a lower price (1)
• The firm may experience R & D economies of scale (1) the R & D expenditure can be spread over a higher
output (1).
• The industry may also be growing in size (1) enabling advantage to be taken of external economies of
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scale (1).
• The firm may experience diseconomies of scale (1) total cost may rise by more than total output (long
run average cost may increase as output increases) (1).
• The firm may experience diseconomies of scale (1) this may make the firm slower to respond to changing
market conditions / more difficult to keep costs down (1).
• The firm may experience communication problems (1) ideas may not be communicated or may be
misunderstood (1).
• The firm may experience poor industrial relations (1) e.g. strikes may increase costs of production (1).
• External diseconomies of scale may occur (1) e.g. pushing up the costs of production (1).
Allow up to 2 marks for a correctly labelled average cost diagram which shows economies and diseconomies of scale
as an alternative to describing average costs rising / falling as output increases
170. Discuss whether larger firms or smaller firms may benefit consumers more [8]
Up to 5 marks for why larger firms might:
• They may be able to benefit from economies of scale (1) example/s of economies of scale (1) lower
average costs (1) lower prices for consumers (1).
• They may have more funds to invest (1) increase innovation / research (1) improve the quality of
products (1).
• Large firms may offer greater variety to consumers (1).
Up to 5 marks for why larger firms might not:
• They may experience diseconomies of scale (1) example/s of diseconomies of scale (1) higher average
costs (1) higher prices for consumers (1).
• They may provide less of a personal service (1) they may be less responsive to changes in consumer
demand (1) as may be less in touch with consumers (1).
• A larger firm may be a monopolist (1) can restrict output and charge a higher price (1) lack innovation (1).
• Smaller firm may have monopoly power (1) in a niche market (1).
171. Discuss whether small firms can compete successfully against large firms. [8]
• May provide a personal service (1) operate in a niche market (1) may be more in touch with consumers (1)
may be more adaptable/flexible in response to changes in consumer demand (1)
• May be subsidised by the government (1) which would reduce costs of production (1) allowing small firms
to charge lower prices (1)
• May be operating in an industry where economies of scale are not significant (1) or there are diseconomies
of scale (1) raising average cost (1) example (max 2)
• May be able to take advantage of external economies of scale (1) reducing average cost (1) example (max
2)
• Large firms may benefit from economies of scale (1) enjoy lower average costs (1) example (max 2)
• Large firms may take over small firms (1) may drive small firms out of business by charging lower prices (1)
• Large firms may have more market power (1) use barriers to entry (1) drive firms out of the industry by e.g.
using predatory pricing (1)
• Large firms may be better known (1) have brand loyalty (1)
• Large firms may have more finance (1) which may enable them to purchase more efficient
capital/machinery/technology (1) spend more on advertising (1)
172. Discuss whether it is likely that the majority of small firms in an economy will remain small. [6]
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Up to 4 marks for stating that it is likely that the majority of small firms in an economy will remain small:
• the small size of a market (1) will keep the level of demand low, so that firms will necessarily need to be
small (1).
• small firms can provide components for larger businesses (1), such as in the car industry, where small
firms can be more flexible (1).
• the owners may prefer to run a small firm (1) because they fear they do not have the expertise to run a
large firm and do not wish to share decision‐making (1).
• some firms specialise in different forms of personal services (1) and it is much better if this personal
attention to detail is dealt with by a small firm (1).
• it may be difficult for a small firm to raise the necessary funds (1) to finance expansion (1).
• small firms may receive support by the government (1), firms may be dependent on subsidies etc. (1).
• to avoid diseconomies of scale (1), wishing to keep average costs of production low/examples (1).
Up to 4 marks for stating that it is unlikely that the majority of small firms in an economy will remain small:
• small firms may benefit from becoming larger (1), such as benefiting from such economies of scale as
technical and administrative economies (1).
• if a small firm grew very large and became a multinational company, it could benefit from lower costs (1)
in different parts of the world (1).
• it might make sense if there was just one firm in a market to avoid wasteful competition and duplication
(1), such as with the existence of a natural monopoly (1).
• the market may be extremely large (1), meaning that a large firm might benefit from marketing
economies of scale (1).
• if there are mergers and acquisitions, this will enable larger firms to be created (1) and smaller firms will
then be squeezed out (1).
173. Analyse three advantages of small firms. [6]

• flexible (1) can adjust quickly to changes in market conditions as fewer people to consult (1)
• better communication with workforce (1) because of simple structure of firm (1)
• can provide a more personalised service (1) more contact with consumers so can meet specific needs (1)
• can specialise in niche markets (1) demand for particular products/types of products may be low and a large firm
may not cater for such a small market (1)
• may have low transport costs (1) located close to customers (1)
• may receive government subsidises (1) to encourage new firms/because they generate jobs (1)
• may be charged a lower rate of tax (e.g. corporation tax) (1) reducing the firm’s costs (1)
• easy to set up (1) initially not much capital may be involved in the form of e.g. factory buildings (1)
• less likelihood of trade unions (1) wage costs will be lower (1)
174. Discuss the advantages and disadvantages of small firms. [8]

Up to 5 marks for advantages:
• Able to provide a personal / specialised service (1) meet individual requirements / produce unique goods
(1).
• May be quick to respond to changes in consumer demand (1) as owner can make decisions without
consulting anyone (1) has greater flexibility than bigger firms (1).
• More personal contact with staff (1) staff more motivated (1) higher productivity (1).
• Easy to set up (1) Able to cater for a small market (1) demand for the product may be low (1).
• May be able to cater for a local market (1) has greater knowledge of local market (1) low transport costs
(1).
• May receive subsidies from the government (1) making it easier to compete with bigger firms (1).
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Up to 5 marks for disadvantages:
• May be too small to take advantage of economies of scale (1) example (1) as a result prices are higher than
larger firms (1) cannot compete on prices / profit margins are lower (1).
• May have some difficulty raising finance (1) may not be able to sell shares (1) banks may be reluctant to
lend to them (1).
• Some small businesses may be sole proprietors and so may have unlimited liability (1) may risk losing
personal wealth (1).
• May lack a range of ideas (1) which may reduce innovation (1) may lack variety of goods compared to large
firms (1).
• Small firms may not be well‐known (1) and so may find it difficult to attract consumers (1).
• Small firms may find it difficult to attract specialist staff (1) less ability to pay high wages (1) less
opportunities for promotion (1).
175. Discuss whether people would prefer to buy a product from a small firm or a large firm. [8]
Up to 5 marks for why they might prefer to buy from a small firm:
• May be flexible (1) quick to respond to changes in consumer demand (1) as do not have to consult others
(1).
• May provide a personal service (1) can get to consumers and their requirements (1) adapt to particular
requirements (1).
• May be specialised (1) produce high quality products (1).
• Small firms may receive government subsidies (1) enabling them to keep price low / quality high (1).
• Unlikely to experience diseconomies of scale (1) example (1).
Up to 5 marks for why they might prefer to buy from a large firm:
• Lower prices (1) due to lower costs (1) because of economies of scale (1) example (1).
• Better known brands (1) due to advertising (1).
• Wider variety (1) better quality (1) better after sales (1) due to more funds to invest (1).
176. Discuss whether the growth of a commercial bank will benefit its customers. [6] 2016
• Growth of commercial banks may enable them to take greater advantage of economies of scale (1) example
(1) lower average cost of production (1) this may result in lower prices/ lower the interest it charges
borrowers (1).
• Growth of commercial banks may increase their profits (1) this may enable them to spend more on research
and development (1) innovate (1) e.g. online banking (1) improve quality of services (1) provide a greater
range of services (1).
• Growth of commercial banks may reduce their chance of them going out of business (1) possibly greater
security for their customers’ savings (1)
• a larger bank may open more branches (1) have longer opening hours (1)
• a larger commercial bank may have more market power/may have become a monopoly (1) it may have grown
by eliminating competition (1) this may result in it charging higher interest to borrowers/increase price (1)
lower interest rate it pays to savers (1) lower the quality of its services (1)
• a larger commercial bank may experience diseconomies of scale (1) example (1) this will raise costs of
production (1) this may lead the bank to increase interest rate charged to borrowers/price (1) lower the
interest rate it pays savers (1) reduce quality of services (1)
177. Discuss whether a large firm will always have lower average costs of production than a small one.
[8]
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• May be able to take advantage of economies of scale (1) purchasing/buying economies – receiving
discounts from buying in bulk (1)
• technical – using large scale capital equipment (1)
• managerial – employing specialists (1)
• selling – e.g. lower transport costs (1)
• financial – borrowing at lower interest rates (1)
• research and development – running a department to develop new products (1)
• Large firms spread fixed costs over high output, reducing AFC (1)
• Large firms may have access to cheap labour abroad (1)
• May experience diseconomies of scale (1) raising average cost (1)
• problems managing the firms (1) poor communication (1)
• poor industrial relations (1)
• involve an opportunity cost (1)
• may have to switch resources from producing consumer goods (1)
• lower living standards in the short run (1)
• Large firms are less likely to receive government support (1) in the form of a subsidy (1)
• Large firms may pay higher rates of tax (1) adding to average costs (1) corporation tax is progressive (1)
178. Analyse the economies of scale from which a farm may benefit. [6]
Buying (purchasing) economies (1) e.g. buying seed in bulk at reduced price (1).
Technical economies (1) using up to date / efficient equipment e.g. combine harvesters (1).
Managerial economies (1) employing specialist workers e.g. farm managers (1).
Financial economies (1) borrowing at a lower rate of interest/finding it easier to obtain a loan (1).
Risk bearing economies (1) a farm may grow a variety of crops (1).
179. Explain two types of internal economy of scale that a growing bank can enjoy. [4]
1 mark each for two types identified e.g.:
• managerial
• financial
• technical
• risk bearing.
1 mark each for explanations of the two types identified linked to banking e.g.
• a larger bank may be able to employ specialist workers such as accountants
• a larger bank may be able to sell its shares more easily and/or borrow more easily from other banks
• a larger bank may be able to use advanced technology and large scale capital equipment
• a larger bank may be able to offer a range of financial services so if one is unsuccessful, it will not have a significant
impact on profits.
180. Analyse two internal diseconomies of scale that a large firm may experience. [6]
• Difficulties controlling/managing the firm/managerial diseconomies (1) there are more layers of management in a
large firm (1) may take longer to make decisions (1).
• Communication problems (1) there are more layers of communication/communication may be indirect (1)
messages may be misinterpreted/take time to reach recipients (1).
• Labour diseconomies (1) Workers may feel less appreciated/have low morale (1) so may become demotivated (1)
which could reduce labour productivity/efficiency (1).
• Poor industrial relations (1) industrial action e.g. strikes may occur (1) due to the time it takes to address workers’
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grievances (1) more people to argue with (1).

Chapter 21 Firms and Production

181. Define ‘capital-intensive’. [2]
• A production method that uses a large proportion of capital (1) relative to labour (1).
182. Explain two influences on what factors of production a firm uses. [4]
• the type of product produced/size of the firm (1) for instance, producing nuclear power is capital‐intensive (1)
• the productivity of factors of production (1) if, for instance, labour becomes more skilled, a firm might become
more labour‐intensive (1)
• the availability of factors of production (1) in some countries there may be a shortage of oil or people of working
age (1)
• the relative cost of factors of production (1) if capital is relatively expensive, labour‐intensive methods of
production may be used (1)
183. Explain two reasons why a firm may decide to use more labour and less capital in producing its
products. [4]
• may be cheaper (1) costs of production may be lower using labour/labour may be more productive (1)
• may want to make hand‐made products (1) each product produced may be tailored to customer’s
requirements/not standardised (1)
• may be subsidised to do so by the government (1) the government may subsidise firms to take on workers in order
to reduce unemployment. (1)
• may be less initial cost (1) high cost of purchasing the capital equipment (1)
• may be more available (1) there may be a shortage of capital goods/it may take time for capital goods to be
produced (1)
• may be more mobile/less specific (1) capital may not be able to switch to producing other products (1)
184. Analyse what determines a firm’s demand for capital goods. [6]
The expected demand for the product produced (1) the higher the output, the more capital goods needed (1).
Advances in technology (1) new capital equipment is likely to be more productive (1).
The price of the capital equipment (1) the cheaper the price, the more capital equipment that is likely to be
bought (1).
The rate of interest (1) firms often borrow to buy capital equipment (1).
The level of profits (1) higher profits increase firms’ willingness and ability to buy capital goods (1).
Corporation taxes (1) lower taxes will increase firms’ willingness and ability to buy capital goods (1).
Government subsidies (1) these provide funds for firms to buy capital goods (1).
Chapter 22 Firms, cost, revenue and objective

185. Define ‘average costs’. [2]
Total cost divided by output (2).
Cost per unit / average fixed cost plus average variable cost (1).
186. Explain the difference between average fixed cost and average variable cost. [4]
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 Average fixed cost is total fixed cost divided by output/fixed cost per unit (1) costs that fall with output/may be
illustrated on a diagram/example of a fixed cost (1).
 Average variable cost is total variable cost divided by output/variable cost per unit (1) costs that may fall or rise
with output/may be illustrated on a diagram/example of a variable cost (1).
187. Explain why fixed costs are high in the aircraft-making industry. [4]
Fixed costs are costs that do not change with output (1).
There is a considerable value of capital equipment used in making aircraft/it is a capital‐intensive industry (1) loans
may have to be taken out to pay for capital equipment (1) interest on loans have to be paid even if no output is
made (1) the equipment may have to be bought/rented (1) rent has to be paid even if no output is made (1).
Aircraft making factories have to be very large (1) high rental costs (1) high business rates (1).
188. Explain how a fall in output will affect average fixed cost and average total cost. [4]
Average total cost = average fixed cost plus average variable cost (1).
A fall in output will increase average fixed cost (1) total fixed cost will be divided by a smaller output (1) example (1).
The effect of a fall in output on average total cost is uncertain (1) it will fall if variable costs fall by more than output
(1) AVC will depend upon whether or not the firm is experiencing economies of scale / diseconomies of scale (1).
189. Analyse what effect an increase in output will have on fixed, variable and average costs. [6]
• fixed costs will remain unchanged (1) these costs do not change with output (in the short run) (1) example of a
fixed cost (1) costs which are still present when output is zero (1)
• variable costs will rise (1) vary with output (1) example of a short run variable cost (1) all costs are variable in the
long run (1)
• effect on average cost is uncertain (1) average cost may fall if economies of scale are experienced (1) average cost
may rise if diseconomies of scale are experienced (1)
190. Analyse how an increase in the size of farms may affect the cost of producing food.[6]
• larger farms may produce higher output (1) this will increase total cost (1)
• larger farms may be able to take advantage of economies of scale (1) examples of economies of scale available to
farmers e.g. buying (purchasing seed in bulk), technical (using e.g. combine harvesters), managerial (specialist
workers e.g. shepherds) up to (2) will lower average costs (1)
• larger farms may experience diseconomies of scale (1) examples e.g. worse labour relations (1) will increase
average costs (1)
• larger farms are likely to have higher fixed and variable costs (1) but their average fixed costs are likely to be lower
(1) as these costs will be spread over a higher output (1) their average variable costs may be lower due to
economies of scale/or higher due to diseconomies of scale (1)
191. Explain the different goals that state-owned commercial banks and privately-owned commercial
banks may have. [4]
Up to 2 marks for goals of state‐owned commercial banks:
• A state‐owned commercial bank may be aiming to provide a reliable service (1) ensure people’s savings are
safe (1).
• A state‐owned commercial bank may be trying to promote government objectives (1) promote economic
growth (1) e.g. lending to new firms (1).
• A state‐owned commercial bank may seek to provide banking services to those who private banks may be
reluctant to have as customers (1) be more willing to lend to the poor (1).
Up to 2 marks for goals of privately‐owned commercial banks:
• A private sector may seek to maximise profits (1) to pay shareholders (1) by increasing the gap between
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revenue and cost (1),
• A private bank may seek to grow (1) to increase market power/share (1) experience economies of scale (1).
• A private bank may try to survive (1) during difficult financial times (1).
• A private sector bank may engage in profit satisficing (1) keeping shareholders happy whilst pursuing some
other objectives (1).
192. Explain TWO reasons why a firm may NOT aim to earn maximum profit. [4]
 A firm may be trying to grow (1) to capture a larger share of the market/to increase pay and status of managers
(1).
 A firm may be trying to maximise sales revenue (1) to make it easier to grow/gain market share (1).
 A firm may be aiming for a reasonable but not maximum profit/profit satisficing (1) in order to pursue other
goals (1). e.g. raising wages to keep workers happy (1).
 A firm may not know what output will maximise profit (1) due to lack of information about costs/demand (1).
 A firm may be trying to survive (1) in difficult situations (1).
 May be in public sector/charity (1) and thus have goals related to social welfare/reducing inequalities (1).
193. Explain the different goals that such a business organisation might have. [5]
• profit maximisation (1) trying to earn as much profit as possible (1)
• profit satisficing (1) keeping shareholders happy whilst pursuing some other goals/no shareholders to satisfy if sole
proprietor (1)
• survival (1) especially during periods of low demand/recession (1)
• sales revenue maximisation (1) can make it easier to raise revenue/sell in bulk (1)
• growth (1) increase pay of managers/increase market power (1)
• ethical/community reputation (1) create a good image which can attract consumers (1)
• providing high quality goods and services (1) to retain customer satisfaction (1)
A list‐like answer can gain no more than 3 marks.
194. Explain why the growth of a firm as a goal may lead to profit maximisation in the long term. [4]
 If a firm grows in size it may be able to take advantage of economies of scale (1) this would reduce average cost
of production (1). If prices are unchanged (1) profits will be higher (1).
 A larger firm may have a larger share of the market / more customers (1) this will increase the firm’s revenue
(1).
 A larger firm may have more market power (1) this may enable it to raise price (1).
195. Analyse how a firm could reduce its output and increase total profit. [6]
 Profit is the difference between revenue and costs (1).
 It may cut its costs (1) by more than revenue (1) by, for example, reducing the number of workers it is employs /
cutting wage rates (1) especially if it is reducing the number of unskilled workers (1).
 It may raise the price it charges (1) if demand is price inelastic (1) revenue may increase even on a smaller
output (1).
 It may stop producing products in declining demand (1) which are less profitable (1).
 Improve quality (1) so a higher price can be charged (1).
 Reducing output may be due to decreasing competition / monopoly (1) allowing the firm to raise its prices /
revenue (1)
196. Analyse why private sector banks may earn higher profits than public sector banks. [6] J/2017/21
• May have different goals (1) private sector banks may aim for profit maximisation (1) while public sector banks
may seek to e.g. provide a service/keep employment high (1).
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• Private sector banks may have lower costs of production (1) due to greater size (economies of scale) or lower
size (less experience of diseconomies of scale (1) or due to more efficient production (1).
• Private sector banks may earn more revenue (1) may be better at attracting consumers through e.g. higher
quality products (1) may respond quicker to changes in consumer demand (1).
197. Discuss whether growth is the main goal of most firms. [6]
Up to 4 marks for why it might be:
• growth may increase revenue (1) enabling a firm to expand overseas and become a multinational company (1)
example(s) of benefits of being an MNC (1)
• growth may reduce competition (1) a firm may grow by merging or taking over another firm (1) will increase
its market power/power to raise price (1)
• growth may reduce a firm’s costs of production (1) as it may enable advantage to be taken of economies of
scale (1) example(s) (1)
• growth can lead to higher profits in the long run (1) as it may lower costs and raise revenue (1) this can keep
shareholders happy (1)
• growth can increase the reward to directors and managers (1) who are key decision makers in the firm’s
business strategy (1)
Up to 4 marks for why it might not be:
• usually assumed profit maximisation is the main goal (1)
• firms may engage in other objectives e.g. profit satisficing (1)
• at difficult times e.g. during a recession (1) survival may be the main goal (1)
• different types of business organisation may have different goals (1) e.g. a public corporation may seek to
provide a public service (1)
• may want to avoid diseconomies of scale (1) example(s) (1)
• there are benefits of staying small (1) example(s) (1)
Chapter 23 Market structure

198. Define ‘perfect competition’. [2]
Very high level of competition (1) firms are price takers (1) many buyers and sellers (1) free entry and exit (1)
homogeneous / same product (1) perfect information (1)
199. Explain two characteristics of perfect competition. [4]

• many buyers and sellers (1) so no one buyer or seller can influence price (1)
• no barriers to entry and exit (1) so any new firm can start producing the product/nothing which makes it difficult
for a firm not currently making the product from starting to make it/no restrictions on firms in the industry
stopping producing the products (1)
• firms are price takers (1) their supply is such a tiny proportion of total supply that changes in it will have no effect
on price (1)
• homogeneous product/all the products are the same (1) so the products of different producers are perfect
substitutes for each other (1)
• perfect information (1) buyers and sellers are fully aware of price and profits earned in the market (1)
• normal profits are made in the long‐run (1) these are just sufficient to keep the firms in the industry (1)
• no advertising (1) due to perfect knowledge/products identical (1)
200. Analyse why price may be higher and output lower in a monopoly than in a more competitive
market. [6]
• a monopoly may restrict output (1) to drive up price (1)
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• monopolies are price makers (1) and can therefore charge high prices if they wish (1)
• there are barriers to enter into a monopoly (1) this causes lack of competitors/substitutes (1) meaning that
consumers have no choice (1) so have to pay the higher price (1)
• a firm in a more competitive market will have less influence on price (1) if they raise price (1) consumers will
switch to rival firms (1)
• firms in (perfectly) competitive markets are price takers (1) and so have no influence on price (1) a firm in a more
competitive market will have less influence on price (1) if they raise price (1) consumers will switch to rival firms
(1)
• firms in (perfectly) competitive markets are price takers (1) and so have no influence on price (1)
• firms in competitive markets have to keep their costs low (1) in order to remain competitive (1)
201. Explain three ways in which a monopoly differs from perfect competition. [6]
1 mark for identifying each of three ways, 1 mark for each of three explanations:
• the number of buyers and sellers in the market/industry(1) many buyers and sellers in perfect competition but
only one seller in monopoly(1)
• whether there is free entry or exit into the market(1) barriers to entry and exit in a monopoly but free entry and
exit in perfect competition(1)
• amount of information firms and consumers possess(1) perfect information in perfect competition but not
monopoly(1)
• influence on price(1) firms in perfect competition are price takers and monopolies are price makers(1)
• products are homogeneous in perfect competition and may not be in monopoly (1) in perfect competition the
products made by the firms are exactly the same(1)
• level of profit earned in the long‐run(1) monopolies make abnormal profits whereas firms in perfect competition
only make abnormal profits in the short run(1)
202. Explain why firms in a perfectly competitive market are price-takers.

• No one firm can change market price/one firm’s output is insufficient to influence price (1) price takers have to
accept the market price (1)
• If one firm raises its price it will lose all of its customers (1) as demand for its products will be perfectly elastic (1)
all the products of the firms in the industry are homogeneous/perfect substitutes for each other (1) price will not
be lowered (1) as the firms will be able to sell any quantity they want at the market price (1)
• Perfect information (1) so no consumer will be willing to pay one firm’s higher price (1)
203. Distinguish between a firm that is a price taker and one that is a price maker. [4]
Price taker:
• this would apply to a firm that is in a perfectly competitive market structure (1) where the price is determined by
market conditions/all firms in the market have to accept this price/one firm’s output is too small to influence price
(1)
Price maker:
• this would apply to a firm that is in a monopoly market structure (1) a monopoly firm is able to use its market
power to determine the price it wishes to charge/a monopoly’s output is the industry’s output (1)
204. Explain two advantages a firm may gain from being a monopoly. [4]
 May be able to charge high prices / price maker (1) due to lack of competition (1) enabling it to earn a high
profit (1).
 May produce at lower costs (1) due to economies of scale / charge lower prices (1).
 May produce high quality products (1) as high profits enable it to invest and innovate (1).
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 May be able to compete with foreign firms (1) gain a wider market / export more (1).
 May have stronger bargaining power with suppliers (1) keeping costs low (1)
205. Analyse how a monopoly could benefit consumers. [6]

• A monopoly may earn high profits (1) this can allow them to invest (1) spend more on R&D (1) raise the quality
of output (1).
• A monopoly may produce on a large scale (1) this may enable it to take advantage of economies of scale (1)
lowering average costs (1) lowering prices (1).
• Provide a unique product (1) not produced by other firms (1).
• Government monopoly (1) may charge lower prices/provide a service (1).
• May charge low prices (for a while) (1) to keep potential competitors out of the market (1).
• Less choice (1) may mean less confusion/time spent (1).
206. Discuss whether a monopoly is always in the best interest of consumers. [7]
• if large, it may enjoy economies of scale (1) this would reduce costs of production (1) which may lower prices
(1)
• supernormal profits could be spent on innovation/research and development (1) raise the quality of products
(1)
• may be more likely to innovate/spend on research and development (1) as know any profits earned can be
protected (1)
• lack of competition could result in higher prices (1) and lack of choice (1)
• output may be lower (1) supply restricted to drive up price (1)
• inefficiency may occur (1) the monopoly may not feel the pressure to keep costs down (1) or respond to
changes in consumer demand (1)
207. Discuss whether a monopoly is always in the public interest. [10]

Up to 7 marks for why a monopoly may be in the public interest:
 avoids wasteful duplication of resources (1), resulting in lower costs (1), lower prices (1), significant in the
case of a natural monopoly (1), e.g. water supply (1).
 a monopoly may be more likely to earn high profits (1), and may invest these (1), in research and
development/advances in technology (1), resulting in new/improved products (1).
 there can be advantages of economies of scale (1), lower costs (1) could lead to lower prices (1).
 a monopoly may seek to innovate (1), in order to keep out potential rivals (1).
 monopolies are more likely to be listed on the stock exchange (1), shareholders will receive dividends from
the profits (1).
Up to 7 marks for why a monopoly may not be in the public interest:
 quantity is likely to be less than in perfect competition (1), because a monopoly is likely to restrict output (1),
and push up the price (1), in order to get high profit (1).
 there could be diseconomies of scale (1), higher costs (1), could lead to higher prices (1).
 because of a lack of competition (1), costs may be higher/may be more inefficient (1), and so prices may be
higher (1).
 a monopoly may be less likely to innovate/invest (1), due to lack of competition (1).
 quality may suffer (1) because of a lack of competitors (1)
Maximum of five marks for a list or list‐like response.
208. Discuss whether or not removing a firm’s monopoly power will benefit consumers. [8]
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• More choice for consumers (1) improved competition (1) will causes prices to fall (1) which will increase
consumers’ real disposable income (1).
• The monopoly may be experiencing diseconomies of scale (1) with high (average) costs of production (1)
• Quality is likely to improve (1) as firms will innovate in order to win customers (1).
• Competition will force firms to be more efficient in order to survive (1). They will look to reduce costs in
order to remain competitive (1) and will invest in research and development to maintain market share (1).
• A monopoly firm can take advantage of economies of scale (1) reducing (average) costs of production (1)
example (1) the removal of monopoly power may increase prices for consumers, reducing their welfare (1)
• Consumers may rely upon the reputation of a monopoly (1) for quality / customer service (1) too much
choice can lead to confusion / inconvenience for consumers (1).
• The firm may be state owned (1) may take into account the full social costs and benefits (1) may have
charged low prices (1) to make products affordable (1).
209. Discuss whether pricing and output policies in perfect competition are more favourable to the
consumer than those in monopoly. [10]
Up to 7 marks for perfect competition more favourable:
• price may be lower (1) due to competitive pressure (1) driven down to a level which just covers costs (1)
• output may be higher (1) as firms will not be restricting output to drive up price (1)
• firms are likely to be responsive to changes in consumers’ demand (1) trying to gain a competitive edge (1)
• firms may innovate (1) perfect knowledge spreads information about new methods/ products (1)
competitive pressure may force firms to innovate (1)
Up to 7 marks for monopoly more favourable:
• monopoly likely to be a larger firm (1) more able to take advantage of economies of scale (1) example/s of
economies of scale (1) lower average costs of production (1) may lead to lower prices (1)
• monopoly may earn supernormal profits (1) these may be used to innovate (1) monopoly may feel safer
innovating knowing that it can protect any resulting supernormal profits (1) innovation can lower prices (1)
improve quality of products (1)
Up to a maximum of 7 marks for a good answer on only one element i.e. pricing or output.
210. Discuss whether selling a state monopoly, such as Pemex, to the private sector would benefit
consumers in Mexico. [6]
• may introduce more competition (1) this may lower prices (1)
• may provide a greater profit incentive (1) this may raise efficiency (1) encourage firms to produce what
consumers want (1) lower costs of production (1)
• may increase investment (1) this could improve the quality of products (1)
• firms knowing they will not be supported by the government (1) may be forced to be more efficient (1)
• may be easier to raise finance (1) can sell shares (1)
• a private sector monopoly may abuse market power (1) may restrict supply (1) raise price (1) reduce quality
(1)
• private sector firms are unlikely to charge prices below cost to help poor consumers (1)
• private sector firms may not take into account external costs and benefits/welfare (1) so they may under or
over‐produce (1)
• the state may have financial resources (1) be able to invest on a larger scale (1).
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211. Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly
competitive market. [8]
• A monopoly can earn higher profits (1) some of the higher profits could be spent on research and
development (1).
• A monopoly knows it can protect any profits it makes (1) due to high barriers to entry and exit (1) this may
encourage it to produce high quality products (1).
• A monopoly may enjoy economies of scale (1) including R & D economy (1).
• A monopoly may lack competitive pressure to produce a good quality product (1) consumers may still buy
the product even it is of a poor quality (1) as they have no choice (1).
• A monopoly may experience diseconomies of scale (1) management problems (1) poor industrial relations
(1) may result in lower quality products (1).
• Note. a candidate may answer the question the other way around, i.e. why the quality may and may not be
higher in a perfectly competitive market.
Chapter 24 The role of Government

Chapter 25 Macroeconomics Aims of Government
212. Identify two government economic aims. [2]
• 1 mark for each of two economic aims identified:
• full employment/low unemployment/high rate of employment
• price stability/low inflation/control inflation
• economic growth
• redistribution of income
• high living standards/low poverty
• balance of payments stability/favourable balance of payments/ reduce deficit or move to a surplus on the current
account of the balance of payments.
213. What is meant by ‘redistribution of income’? [2]

Taking income from one group e.g. from the rich (1) and giving it to another e.g. to the poor (1).
Creating greater equality/reducing inequality/reducing gap between rich and poor (1).
May be achieved by using progressive taxation/state benefits (1).
214. Analyse why it may be difficult for an economy to have both low unemployment and low inflation at
the same time. [6]

• Low unemployment is likely to mean high employment (1) higher incomes (1) high total demand (1) it may be
difficult to meet the higher demand so prices may be pulled up (1) causing demand‐pull inflation (1).
• Low unemployment is likely to increase competition for workers (1) this will push up wages (1) increasing firms’
costs of production (1) causing cost‐push inflation (1).
215. Analyse the effect of a decrease in resources on government economic aims. [6]
• Fewer resources will make it more difficult to achieve economic growth (1) there will be fewer factors of
production to produce goods and services (1) output may fall or rise more slowly (1).
• Fewer resources may increase costs of production (1) supply may fall by more than demand/there may be a
shortage of e.g. raw materials (1) cost‐push inflation may occur (1).
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• Natural disasters (1) can lead to cost push inflation (1) loss of employment (1) government expenditure exceeding
government income (1)
• The current account may move into a deficit/larger deficit (1) as exports may decline (1) while e.g. food may have
to be imported (1).
• Destruction of factories may reduce unemployment opportunities (1) which may increase unemployment (1) but
more workers may be needed to e.g. rebuild factories (1).
Chapter 26 Fiscal policy

216. Explain why governments impose taxes. [4]
这道题可以从 Aims of taxation 的点去答:
• to redistribute income / wealth (1) and reduce the gap between and rich and poor (progressive taxation) (1)
• part of fiscal policy (1) To influence the economic activity e.g. may raise tax to reduce inflation (1).
• raise the price of certain products (1) to discourage their consumption (1)
• (may refer to demerit goods but explicit reference to this term is not required).
• may increase price of imports (1) to improve the balance of payments position (1).
• to raise revenue / collect money for the government (1), to provide finance for government expenditure on e.g.
education (1)
• to pay for government debts (1) so reduce the deficit (1)
Maximum of 2 marks for a list or list-like response
217. Define ‘an indirect tax’. [2]

A tax on spending / goods and services / consumption (1) the burden of the tax can be
moved on to someone else (1)
218. Define progressive tax. [2]

A tax that takes a higher percentage of income of the rich / lower percentage of income of the poor (2).
Falls more heavily on the rich / imposes a higher burden on the rich (1).
A tax which is used to reduce income inequality (1).
219. Define ‘regressive tax’. [2]

A tax that takes a lower percentage of the income of the rich/higher percentage of the income of
the poor (2).
A tax that falls more heavily on the poor (1).
Disadvantages the poor/higher burden on the poor/higher rate for the poor (1).
220. Giving an example, define ‘a sales tax’. [2]

• A tax on spending/an indirect tax/ a tax on goods and services/ a tax on consumers (1)
e.g. VAT, GST, a tax on a specific product e.g. petrol (1).
221. Explain the difference between direct and indirect taxes. [4]
• Direct taxes are taxes on income (1) the burden of the tax cannot be passed on/they are paid directly to the
government by those on whom the taxes are levied/example of a direct tax (1).
• Indirect taxes are taxes on spending (1) the burden or some of the burden can be passed on to
others/example of an indirect tax (1).
222. Using a demand and supply diagram, analyze the effect of removing an indirect tax on the market
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for the product. 6] J/2016/21
• supply curve shifted to the right (1)
• correct equilibriums identified either by a line drawn to both axes or
equilibrium points Clearly identified e.g. E and E1 (1).
• removing an indirect tax effectively reduces costs of production (1)
• A greater supply will lower price (1).
223. Explain how people’s spending could be affected by changes in both direct and indirect taxes. [6]
Up to 4 marks for direct tax:
• increase in income tax would reduce disposable income (1) and so make spending less likely (opposite effect
with a reduction in income tax) (1)
• change in tax bands would affect spending (1), e.g. if lower rate starts at a lower level of income; same applies
if top rate starts at a lower level of income (1)
Up to 4 marks for indirect tax:
• increase in a sales tax (e.g. VAT or GST) would make products more expensive (1) and discourage spending
(opposite effect with a reduction in indirect tax) (1)
• if a sales tax was taken off a product (e.g. zero‐rated) (1) it would make products less expensive and
encourage spending (1)
224. Explain how a cut in the rate of corporation tax could result in an increase in tax revenue. [4]
• A lower tax will increase the profit firms can keep / lower the cost of production (1) encourage them to increase
output (1) increasing employment (1) pay higher wages (1) direct tax revenue would rise (1).
• Spending / consumption may increase (1) more revenue from indirect taxes (1).
225. Discuss whether a government should impose indirect taxes only on products with inelastic demand.
[6]
• imposing taxes on products with inelastic demand will cause price to rise [1] demand will fall by a smaller
percentage [1] and so is a good source of tax revenue [1] higher tax revenue can be spent on e.g. education
and health care [1]
• a significant rise in price may be needed to reduce demand [1] of harmful products [1].
• indirect taxes may be imposed on products to discourage their consumption [1] will be more successful if
demand is price elastic [1] demand will fall by more than the rise in price [1] a government may want to
discourage consumption of demerit goods (not necessary to use the term) [1] also may want to discourage
consumption of imports [1] in practice it may be difficult to estimate PED (1).
• some products with inelastic demand are basic necessities (1) and so imposing indirect taxes on them will
harm the poor (1) indirect taxes are often regressive (1)
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226. Explain two reasons why tax revenue may fall. [4]
• Tax rates may be reduced (1) lowering e.g. VAT rates/income tax rates may be reduced/in the short run reducing
amount that can be earned (1).
• Unemployment may increase (1) reducing income tax revenue/indirect tax revenue (1).
• Firms’ profits may fall (1) lowering corporation tax revenue (1).
• Population may decline (1) there will be fewer tax payers reducing revenue from all tax payers (1).
• Tax evasion may increase (1) people may e.g. not declare income earned (1).
• Income may fall / output may fall (1) reducing income tax revenue (1).
• Consumption may fall (1) reducing indirect tax / VAT / GST revenue (1)
227. Explain two reasons why an increase in unemployment may reduce tax revenue. [4]
• higher unemployment will reduce people’s incomes (1) this will reduce the amount of income tax paid (1)
• higher unemployment will reduce the amount people spend/reduce demand for goods and services (1) this will
reduce indirect tax revenue (1)
• higher unemployment will reduce firms’ revenue (1) this will reduce corporation tax revenue (1)
• the existence of unemployment may encourage government to cut tax rates (1) in an attempt to reduce
unemployment (1)
228. Discuss whether a government should spend more than it raises in taxation. [8]
• If it wants to increase employment (1) increase economic growth (1) government spending more than it raises
in taxation/operating a budget deficit will raise total demand (1) higher demand may encourage an increase
in output (1) higher output may increase economic growth (1) to produce more goods and services, firms may
employ more workers (1).
• If it wants to reduce inflation (1) reduce a current account deficit (1) the government raising more in taxation
than it is spending/operating a budget surplus will lower total demand (1)
• lower demand may reduce demand‐pull inflation (1) lower demand may include lower demand for imports (1)
lower demand may encourage domestic firms to export more (1).
• In the long run a government is likely to want to match government spending and taxation (1).
• Interest which must be paid on a budget deficit (1) is a long‐term burden / a burden for future generations (1)
may lead to higher taxes in future (1)
229. Explain how fiscal policy can be used to support the development of a country such as Oman. [6]
2013
Up to 4 marks for answers dealing with an increase in public spending:
• expenditure on education and training schemes/health care (1) raise labour productivity (1) reduce costs of
production (1) raise the quality of products produced (1) increase demand for products made (1) increase
incomes (1)
• grants and loans to encourage enterprise (1) increase output (1) increase employment (1) increase income (1)
• infrastructure development (1) examples of spending on infrastructure, e.g. road building, hospitals (1) reduce
costs of production (1) increase output (1) increase income (1)
• increase in general government spending (1) increases total (aggregate) demand (1)
Up to 4 marks for answers dealing with a reduction in taxation:
• reduction in taxation (1) raise disposable income (1) increase demand (1) increase output (1) increase
employment (1) increase income (1)
• tax holidays could be given (1) encourage multinationals to locate (1) increase output (1) increase
employment (1) increase income (1)
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• taxes on profits of companies could be reduced (1) encourage investment expenditure (1) increase output (1)
increase employment (1) increase income (1)
Chapter 27 Monetary policy

230. What is meant by ‘monetary policy’? [2]
2 marks for reference to decisions on any two from interest rates, money supply and the exchange rate.
231. Discuss whether monetary policy measures can increase economic growth. [8]
 A cut in interest rates (1) may discourage saving (1) increase borrowing (1) raise consumer spending (1)
raise investment (1) increase total demand (1) increase output (1) higher investment will increase
productive capacity (1).
 A reduction in the value of the exchange rate (1) will lower export prices and raise import prices (1)
increasing demand for domestic products (1) increase output (1).
 An increase in the money supply (1) may stimulate higher spending (1) increasing output (1).
 Lower interest rates may not increase consumer spending and investment if confidence is low (1)
households and firms may not spend extra disposable income if they think that incomes will fall in the
future (1).
 A lower exchange rate will not lead to a rise in export revenue and a fall in import expenditure if demand is
price‐inelastic (1) there is an increase in import restrictions imposed by other countries/fall in incomes
abroad (1).
 An increase in the money supply or other measure may lead to demand‐pull inflation (1) the economy may
not have the resources to produce more goods and services despite the rise in total demand (1).

Chapter 28 Supply-side Policy

232. Explain TWO supply-side policy measures. [4]
• Improvements in education/training (1) to raise skills/labour productivity (1).
• Cutting income tax (1) to encourage the reward for working (1).
• Cutting corporation tax (1) to encourage enterprise/increase investment/lower costs of production (1).
• Privatisation (1) transferring assets from the public to the private sector/to stimulate competition/improve
efficiency (1).
• Deregulation (1) removing rules and restrictions/increase competition/lower costs of production (1).
• Subsidies (1) may reduce costs of production/stimulate output (1).
233. Analyse how supply-side policy measures could increase productivity. [6]
Up to 4 marks for any one policy measure analysed:
• improved education/training (1) may raise workers’ skills (1) increase output per worker hour (1)
• privatisation (1) may increase competitive pressure on firms to keep costs low (1) encourage more investment
(1) increase output per factor hour (1)
• reforming trade unions (1) may reduce restrictive practices (1) this may allow firms to use their workers more
efficiently (1) increase output per worker hour (1)
• cutting corporation tax (1) may increase profit (1) increase investment (1) increase output per factor hour (1)
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• giving subsidies (1) to encourage firms to invest in advanced technology, engage in research and development
and/or train workers (1)
234. Analyse how two supply-side policy measures could improve the performance of an airline industry.
[6]
Up to 4 marks for any one policy measure analysed:
• privatisation (1) may introduce competition (1) increase profit incentive (1) encourage firms to be efficient/reduce
costs (1)
• cut in corporation tax/tax incentives given (1) increase funds available for investment (1) improve technology (1)
raise productivity (1) lower costs of production (1)
• Improved education and training (1) raise skills of workers (1) increasing productivity (1) lower costs of production
(1)
• cut in income tax (1) increase the motivation of workers (1) raise productivity (1) lower costs of production (1)
• deregulation (1) removing laws and rules may reduce firms’ costs (1) enabling them to invest more (1)
• subsidies (1) may encourage firms to invest in advanced technology, engage in research and development and/or
train workers (1) lower costs of production/increase productive capacity (1)
235. Discuss whether it is always possible for a country to have low unemployment and low inflation at
the same time. [8]
• If total supply is increasing (1) as total demand increases (1) output will be high (1) causing low
unemployment without inflation (1).
• Advances in technology/improvements in education (1) raises productivity (1) can lower costs of
production (1) reducing cost‐push inflation (1) and increasing demand for labour (1).
• Low inflation may stimulate firms to raise output (1) take on more workers (1).
• Low unemployment may mean incomes are high (1) total demand may be high (1) causing demand‐pull
inflation (1).
• Low unemployment may result in increased competition for labour (1) this may raise wages (1) increasing
firms’ costs of production (1) causing cost‐push inflation (1).
• Inflation may create a price/wage spiral (1) demand‐pull inflation leading to cost‐push inflation (1)
236. Discuss whether or not government policy measures to reduce unemployment will cause inflation.
[8]
• Increased government spending and/or lower taxes / expansionary fiscal policy (1) lower interest rates
and/or increased money supply / expansionary monetary policy (1) will increase total (aggregate)
demand/spending (1) may reduce cyclical unemployment / more workers may be employed to meet the
higher demand (1) but may cause demand‐pull inflation (1).
• Higher demand may also cause cost‐push inflation (1) as demand for workers rises (1) firms may compete
for workers (1) causing wage rates to rise (1).
• An increase in demand may not push up prices if unemployment is initially high (1) firms will be able to
attract more workers by just offering jobs (1) they will not have to raise wages (1).
• The government may use supply side policy measures to reduce unemployment (1) e.g. improved
education and training/privatisation/deregulation (1) such policy measures may reduce costs (1) may
increase total (aggregate) supply by as much as total (aggregate) demand (1).
• The government may use price controls (1).
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237. Discuss the impact of supply-side policy measures on government expenditure and on government
revenue.[8]
Up to 5 marks for why it might increase government expenditure and decrease tax revenue:
• Policies such as subsidies may be expensive (1) if funded through borrowing government spending on interest
payments will increase (1) gains from supply side policies take a long time to materialise (1) meaning in the
short run there may be no increase in tax revenue (1).
• Cut in income tax (1) may decrease income tax revenue in short run (1).
• Cut in corporation tax (1) may decrease corporation tax revenue in short run (1).
• Privatisation in the long run may reduce government revenue (1) if privatised firms have been profitable (1)
Up to 5 marks for why it might decrease government expenditure and increase tax revenue:
• Supply side policies will increase the productive capacity of the economy (1) which will enable long run
growth to be achieved (1) and more tax revenue from sales of goods and services (1) and from higher income
(1).
• Income tax receipts may increase in the long run if more people are working (1) and corporation tax receipts
may increase is firms are making bigger profits (1).
• Spending on education and training (1) is likely to increase employment (1) reducing spending on welfare
benefits (1) increasing income tax revenue (1).
• Deregulation may not alter government spending and tax revenue in the short run (1) but may increase tax
revenue in the long run if efficiency increases (1).
• Privatisation in the short run may increase government revenue (1) from the sale of shares (1).

Chapter 29 Economic Growth

238. Define ‘Gross Domestic Product’. [2]
Output/total output (1) produced in a country (1)
239. Define ‘Economic Growth’ [3]

3 marks for increase in (real) GDP/country’s output/national income/productive potential over time
2 marks for increase in (real) GDP/country’s output/national income/productive potential
1 mark reference to GDP/country’s output/national income
240. Explain two causes of economic growth. [4]

• improvements in education or other supply‐side policy (1) may raise the quality of resources/this will increase
productive capacity (1)
• advances in technology (1) will increase total demand/productive capacity (1)
• net investment/MNCs entering the country (1) will increase total demand/productive capacity (1)
• increase in net exports (1) will increase total demand (1)
• a consumer boom (1) will increase total demand/which will encourage firms to produce more (1)
• expansionary fiscal or monetary policy (1) may increase total demand/which may make use of previously unused
resources (1)
• increase in size of labour force/employment rate (1) will increase total demand/productive capacity (1)
• fall in unemployment (1) will increase total demand (1)
• discovery of minerals (1) more raw materials will enable firms to produce more (1)
241. Explain how a rise in the retirement age may increase a country’s economic growth rate. [4]
• more people will be in the labour force (1) this will increase potential/long run economic growth (1)
• if the people are employed (1) output will rise (1)
73
• more people will be earning an income (1) this will increase demand (1) higher demand will encourage firms to
increase their output (1)
• it will reduce the cost of pensions (1) enabling the government to spend more on e.g. education which can
promote growth (1)
• there will be more older workers (1) who may be more experienced/skilled and so more productive (1)
242. Analyze the possible effects of an increase in bank lending on economic growth. [6]
• increase in bank lending may increase spending by households (1) the higher demand may encourage firms to
produce more (1) economic growth arises when output increases (1)
• more loans may be given to firms e.g. to start new businesses (1) the bank loans may be used to finance
expenditure on capital goods/more resources (1)
• more investment will raise productive capacity/potential economic growth (1) this will increase total
output/GDP
• more lending can lead to inflation (1) this could damage economic growth (1)
• consumers could borrow to buy more imports (1) reducing economic growth (1)
Note: do not expect, but reward explanation of multiplier effects for up to 2 marks
243. Discuss whether an increase in bank lending will benefit an economy. [8] J/2017/21
• It may enable households to borrow more (1) increasing their spending (1) to increase their living
standards (1) be able to buy housing or other basic necessities (1) educate their children (1) reduce
poverty (1).
• It may enable firms to borrow more to expand output (1) raise employment (1) increase economic growth
(1).
• It may enable firms to buy better capital equipment (1) lower costs of production (1) lower prices (1)
increase exports (1).
• It may increase consumer expenditure/total demand (1) this may cause inflation (1) total demand
exceeding total supply (1) demand‐pull inflation (1).
• Households and firms may spend more on imports (1) increasing a current account deficit (1) and may
result in imported inflation (1).
• It may encourage households to get into debt (1) borrowing more than they can repay (1).
• It may encourage inefficient firms to expand (1) rising costs (1) increasing prices (1).
244. Explain two reasons why governments aim for economic growth.
1 mark each for each of two reasons identified, 1 mark each for each of two explanations given:
• Higher living standards/higher incomes (1) higher living standards as people can enjoy more goods and
services (1)
• higher employment (1) more workers will be needed to produce the higher output (1)
• less government spending on benefits (1) government may be able to spend more on e.g. education and
healthcare (1)
• more tax revenue (1) allowing more spending on e.g. health (1) fewer unemployed workers will reduce the
burden on government expenditure (1)
• more exports (1) current account position will improve if there is the demand for exports (1)
• reduced poverty (1) incomes will rise which may allow more people to enjoy basic necessities (1)
• To attract investment from abroad/MNCs (1) growth means foreign firms have the potential to earn high
revenues/make high profits (1)
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245. Discuss the extent to which economic growth is advantageous for a country. [6]
Up to 4 marks for why it may be advantageous:
• Rising incomes (1) leading to increase in standard of living (1) and higher government tax revenue (1).
Higher government spending on e.g. health, education, infrastructure (1).
• Lower unemployment / more jobs created (1), lower government spending on unemployment benefit
(1), reduction of poverty (1).
• More exports (1) improving the balance of payments position (1)
• More goods and services produced in the economy (1) giving consumers greater choice (1)
Up to 4 marks for why it may be disadvantageous:
• May cause inflation (1), higher incomes lead to greater demand (1) but output may be unable to match
this increased demand (1)
• May be an increase in external costs (1), e.g. more pollution and congestion (1), this may mean economic
growth is unsustainable (1).
• Faster pace of work/change (1) leading to personal costs, e.g. increase in stress and suicide (1).
• If economic growth is achieved by depleting resources (1) this could threaten future economic growth
(1).
• If economic growth is dependent on MNCs (1) this may lead to a number of disadvantages e.g. they may
pull out in future, they may create pollution, repatriate profits, exploit workers (1).
246. Discuss whether the wages of all workers will increase during a period of economic growth. [8]
• output will be increasing (1) this will raise demand for labour (1) putting upwards pressure on wages (1)
• higher demand for labour will reduce unemployment (1) this will increase competition for workers (1) firms
may have to raise wages (1) to attract workers (1) unions will have stronger bargaining power (1)
• higher output will increase the wages paid to workers on piece‐rates (1) pay linked to output (1)
• economic growth may be associated with higher profits/higher revenue (1) increasing firms’ ability to pay
higher wages (1)
• whilst total demand may be increasing (1) demand for certain products/skills may be falling (1) structural
unemployment may lower the bargaining power certain group of workers (1)
• economic growth may arise due to advances in technology/higher investment (1) this may increase the
demand for skilled workers relative to unskilled workers (1) this may reduce the wages of unskilled workers
(1)
• economic growth may be combined with inflation (1) workers’ wages may not rise in line with inflation (1)
• some workers may have long term contracts with set wages (1) it may take time for their wage rates to adjust
(1)
• the supply of some workers may increase by more than others (1)
• economic growth is likely to involve change (1) workers who are geographically or occupationally immobile
may have to stay in low paid jobs (1)
• may just increase employment (1)
247. Analyse how a global recession could affect demand for sea transport. [5]
A global recession means that global output/supply will fall / two or more quarters of negative growth (1).
Fewer goods will be transported/moved (1) less trade/lower imports and exports (1) demand for freight/sea
transport will fall (1).
Incomes will fall (1) spending will fall (1) demand for leisure travel by sea will decrease (1) demand for passenger
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transport will fall (1).
248. Explain two benefits that an economy may gain as a result of the discovery of oil on its land. [4]
1 mark each for each of two benefits identified:
• increase output / income
• increased employment / lower unemployment
• improved current account position / higher exports
• increased tax revenue
1 mark each for each of two explanations given:
• the output of oil will contribute to the country’s GDP / increase economic growth
• better quality of life / standard of living
• jobs will be created extracting/processing the oil
• oil may be exported / less oil imported
• oil may be taxed; higher output and higher incomes will increase tax revenue

Chapter 30 Employment and Unemployment

249. Define ‘unemployment’. [2]
People without jobs (1) who are willing/able to work/who are members of the labour force/economically active (1)
250. Analyse how the pattern of employment within an economy tends to change as the country develops.
[6]
The number/proportion employed in the primary sector tends to decline (1) productivity rises meaning fewer
workers are needed (1).
The number/proportion employed in the secondary sector tends to rise at first (1) and then falls (1).
The number/proportion employed in the tertiary sector increases (1) most workers in developed countries are
employed in tertiary sector (1).
The number/proportion of skilled workers increases (1) as education levels develop (1).
The number/proportion of women employed increases (1) as social attitudes change (1).
The number/proportion of migrant workers may change (1) as income levels rise (1).
251. Explain what the difference between the rate of unemployment and the level of unemployment is. [2]
1 mark for the rate: the percentage of workforce unemployed
1 mark for the level: the number of people unemployed
252. Distinguish between frictional and cyclical unemployment. [4]

Up to 2 marks: frictional unemployment occurs when people are in between jobs/there is a mismatch between the
demand for, and the supply of, labour (1), it tends to be short‐term (1) and there are various types of frictional
unemployment, such as search, casual and seasonal unemployment (1) whereas …
Up to 2 marks: cyclical unemployment is unemployment on a larger scale (1) than frictional unemployment as it is
linked to downturns in the trade cycle (1), it can also be called demand‐deficient unemployment (1) as the level of
aggregate demand is low in the economy, e.g. at a time of a recession (1).
253. Describe two types of unemployment. [4]

Candidates could mention:
• structural (1) arising from the decline of particular industries and occupations (1)
• cyclical/demand‐deficit (1) caused by a lack of total (aggregate) demand (1)
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• regional (1) when industries decline in a particular area (1)
• technological (1) when advances in technology make particular occupations redundant(1)
• frictional (1) when workers are in between jobs (1)
• seasonal (1) when workers cannot find employment at certain times of year (1)
• search (1) when workers do not accept the first job on offer but spend time in pursuit of a good job (1)
• voluntary (1) workers not actively seeking employment (1)
• residual (1) workers who cannot get a job even during a boom period because of a lack of skills or disabilities (1)
• classical (1) when wages are not allowed to fall (1)
254. Explain two reasons why someone may be of working-age but not in the labour force. [4]
• A person may be a homemaker (1) deciding to stay at home to e.g. look after children (1).
• A person may be a student (1) staying in education to improve qualifications/increase employment
prospects/increase earning potential (1).
• A person may have taken early retirement (1) as may not need to work/may be unfit to work (1).
• A person may be sick/disabled (1) and so not able to work (1).
• Some people who have been unemployed for a long time may give up the search for employment and so exit the
labour force (1). These people are sometimes called discouraged workers (1).
• A person may be working in the informal economy (1) not in official figures (1).
255. Analyse two reasons why unemployment may increase. [6]

Up to 4 marks for one reason analysed.
• a fall in total (aggregate demand) (1) will cause firms to reduce their output (1) lower their need for labour (1)
increase cyclical unemployment (1)
• a reduction in the skills/mobility of workers (1) may result in firms being unable or unwilling to employ
workers (1) leading to structural unemployment (1)
• a rise in unemployment benefits (1) may lead to workers taking longer moving between jobs/less willing to
search for work (1) causing an increase in frictional/voluntary unemployment (1)
• an increase in a country’s exchange rate (1) will make exports more expensive and imports cheaper (1) this
will reduce international competitiveness (1) reduce demand for labour in affected industries (1) cause
international/structural unemployment (1)
• a rise in wages above the equilibrium level (1) this may be the result of industrial action/ imposition of a
national minimum wage (1) workers may be replaced by machines (1) firms may reduce the size of their
labour forces in order to cut costs of production (1)
• advances in technology (1) may make certain skills redundant (1) leading to structural unemployment (1)
256. Analyse the causes of unemployment. [6]

• A lack of total demand (1) low output (1) cyclical unemployment (1)
• Lack of skills/qualifications/training (1) resulting in occupational immobility (1)
• A lack of geographical mobility (1) caused by e.g. differences in house prices (1) resulting in regional
unemployment (1)
• Decline of domestic industries (1) resulting in structural unemployment (1)
• Workers being replaced by machines (1) resulting in technological unemployment (1)
• A time delay between workers changing jobs (1) lack of information about job vacancies (1) frictional
unemployment (1)
• High unemployment benefits discouraging people from seeking employment (1) voluntary unemployment (1)
• Demand for labour may fall at certain times of the year (1) resulting in seasonal unemployment (1) example (1)
257. Identify two problems that prevent a worker finding employment. [2] J/2017/22
• lack of information on jobs available
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• lack of vacancies/low demand for labour
• lack of skills/qualifications /experience/occupational mobility
• lack of geographical mobility
• possible age/gender/race/disability discrimination
258. Analyse how an increase in the rate of interest could increase unemployment. [6]
• Rise in the rate of interest may discourage borrowing / increase cost of borrowing (1) increase saving (1)
decrease spending (1) decrease total demand (1) lower demand may decrease output (1) encourage firms to
make workers redundant (1).
• Rise in the rate of interest may increase firms’ costs of production (1) this may encourage firms to reduce their
output (1).
• Rise in the rate of interest may increase the exchange rate (1) higher exchange rate may decrease exports and
increase imports (1) decrease domestic production (1)
259. Analyse why a fall in the inflation rate may reduce a country’s unemployment rate. [6]
• a fall in the inflation rate may make the country’s products more internationally competitive (1)
• purchasing power will be higher than in the case of a higher inflation rate (1)
• demand for the country’s products may increase (1)
• to produce more, a higher number of workers will be employed (1)
• cyclical unemployment may fall (1)
• a lower inflation rate may reduce the growth in wage rates (1) this may encourage firms to take on more
workers (1)
• a lower inflation rate may attract multinational companies to set up in the country (1) this may create new jobs
(1)
• a lower inflation rate may enable a country to have a lower interest rate (1) this would reduce the cost of
borrowing/may encourage investment/encourage more total demand (1)
260. Analyse how a reduction in government spending on education could cause unemployment. [6]
 Lower government spending will reduce total demand (1) reducing output (1) causing firms to cut back on the
number of people they employ (1) causing cyclical unemployment (1).
 Mismatch between demand and supply of skills (1) results in structural unemployment.
 Fewer skilled/less qualified workers (1) less productive (1) making them less attractive to employers (1) less
adaptive to change (1) structural/frictional unemployment may increase (1). Results in fewer teachers/staff in
education (1).
261. Discuss whether a cut in taxes will reduce unemployment. [6]

Up to 4 marks why it might:
 a cut in income tax will increase disposable income [1] this may increase the incentive to work [1] a
greater incentive may reduce voluntary/frictional unemployment [1].
 a cut in corporation tax will increase the profit firms can keep [1] this may encourage firms to expand [1]
and so take on more workers [1].
 a reduction in income tax and indirect taxes will increase purchasing power [1] this may increase demand
[1] and so cyclical unemployment may fall [1].
 firms may not spend extra profits on expansion [1] if they lack confidence [1] that they will sell the extra
output [1].
 consumers may not spend extra income [1] if they lack confidence [1] instead they may save the extra
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income [1].
 tariffs may be cut [1] which may increase imports [1] raise unemployment, at least in the short run [1].
 government spending may fall [1] due to less revenue [1] and as a result cyclical unemployment may stay
unchanged/increase [1]. The impact of tax cut may be offset by other factors.
 higher demand may cause inflation [1] may result in workers pressing for wage rises [1] firms may make
workers redundant to cut costs [1].
 a cut in taxes on firms may encourage firms to use more capital‐intensive methods (1) resulting in lower
demand for labour (1) causing technological unemployment (1)
 frictional and structural unemployment may not fall [1] if unemployed workers are still occupationally
and/or geographically immobile [1].
262. Discuss whether an increase in the rate of a sales tax will cause unemployment. [6]
• It will increase costs of production (1), increase the price of products (1), this may reduce
spending/demand (1), lower spending may reduce output/revenue (1), lower output may reduce demand
for workers (1) to maintain profits, firms may seek to lower costs (1), may achieve this by dismissing
workers (1).
• it will depend on what the government does with the tax revenue (1), if it spends all of it, the level of
demand would be unchanged (may even be higher) (1), spending on education and health care could make
people more employable (1).
• other costs of production may fall (1) leaving the price of products unchanged (1).
• firms may absorb the higher rate (1) leaving the price of products unchanged (1), firms are more likely to
leave the price the same if demand is elastic (1). If demand is inelastic, a rise in price will have less impact
on demand and so on output and employment (1).
263. Explain why governments aim for low unemployment. [6]

• to ensure high output (1), which should mean higher living standards (1).
• to avoid poverty (1) and so reduce poor health/nutrition/low labour productivity (1).
• to avoid a waste of resources (1) as output could potentially be higher (1).
• to keep government spending on unemployment benefit low (1) as spending on benefits incurs an opportunity
cost (1).
• to ensure high tax revenue (1) as employed people earn and spend more than unemployed people in general
(1).
Note: accept answers which explain the government aim for low unemployment because of the cost of
unemployment.
264. Discuss whether a reduction in a country’s unemployment rate will always benefit an economy. [8]
• a reduction in unemployment is likely to increase output [1] higher output should raise living standards [1]
may reduce poverty [1].
• may improve the current account position [1] if the rise in output is due to a rise in exports [1] and exports
rise by more than imports [1].
• lower unemployment may raise tax revenue [1] e.g. from income tax [1] higher tax revenue can enable a
government to spend more on education and health care [1].
• lower unemployment may reduce spending on unemployment benefits [1] money saved may be spent on
other items [1] or reduce tax burden on taxpayer [1].
• will move production point closer to the PPC [1] and reduce inefficiency [1].
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• lower unemployment may cause a shortage of workers [1] this shortage may push up wage rates [1]
higher wages may increase costs of production [1] higher costs can cause cost‐push inflation [1] more
likely to occur if the economy is operating close to full employment [1].
• lower unemployment may increase total (aggregate) demand [1] higher demand may push up prices [1]
causing demand‐pull inflation [1] more likely to occur if the economy is operating close to full employment
[1].
• lower unemployment may increase a current account deficit [1] higher incomes may increase demand for
imports [1] higher demand may divert products from the export to the domestic market [1].
• a reduction in the unemployment rate does not necessarily mean fewer people are unemployed [1]
unemployment may have risen if the labour force has risen [1] by more than employment [1].
Up to 4 marks for a list‐like approach.
Note: accept answers which discuss the possible effects of high unemployment will always harm an economy.
265. Explain two costs of long-term unemployment to those who are unemployed. [4]
1 mark each for each of two costs identified, 1 mark each for each of two explanations given:
• loss of income(1) the unemployed may receive unemployment benefits which are usually lower than wages
or may receive no income/may experience poverty(1)
• reduced ability to get a job(1) will lose out on training by not keeping up with advances in technology(1)
• reduced confidence/self‐worth(1) unemployment reduces confidence which makes it harder for someone
to get another job(1)
• decline in health(1) unemployment can lead to mental health problems/may increase physical illness due to
less nutritious diet and poor housing(1)
• reduced ability to educate children(1)lower income may mean children of the unemployed will receive less
education which will reduce their chances of getting a job(1)
266. Discuss whether unemployment always harms an economy. [8]

• lower output/incomes (1) lower living standards (1) increased poverty (1)
• lower demand (1) from consumers who are now unemployed (1)
• loss of tax revenue (1) lower expenditure on e.g. transport infrastructure (1)
• increased government spending on benefits (1) involves an opportunity cost (1)
• not using factors of production efficiently (1) waste of resources/opportunity cost (1) output below
potential output (1)
• unemployment may be low (1) frictional unemployment is always present (1)
• duration of unemployment may only be short term (1)
• some unemployment provides flexibility (1) enables firms to expand (1)
• may put downward pressure on inflation (1) lower demand (1) workers more reluctant to ask for wage rises
(1)
267. Discuss whether a country would benefit from having full employment. [8]
• efficient use of resources (1) working at full capacity/producing on the production possibility curve (1)
making as much output as possible/increase output (1) high living standards (1) low poverty (1)
• low spending on unemployment benefits (1) high tax revenue (1) government spending on other areas
e.g. healthcare and education can increase (1)
• government policy measures do not have to be used to lower unemployment (1) they can concentrate on
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other areas e.g. a balance on the current account of the balance of payments (1)
• may reduce crime rates (1) lower government spending on e.g. prisons (1)
• productivity may fall (1) the last people employed may not be as skilled (1)
• inflation may occur (1) shortage of workers can raise wages (1) cause cost‐push inflation (1) high incomes
will lead to high demand (1) cause demand‐pull inflation (1)
• firms may find it difficult to expand (1) as hard to recruit extra workers (1) supply constraint (1) rising
demand with a supply constraint may result in more imports (1) worsening the current account position (1)
• resulting high incomes may increase demand for imports (1) which may cause a current account/balance
of payments deficit (1)
• full use of resources may result in environmental damage (1) depletion of natural resources (1)
268. Analyse how a fall in unemployment can increase tax revenue. [6]
A fall in unemployment will increase income (1) more people working and people earning higher wages (1) this will
increase income tax revenue (1).
Spending will increase (1) more products will be purchased (1) which will increase indirect taxes (1) example (1).
Higher spending will increase firms’ revenue (1) this may increase firms’ profits (1) which will increase
corporation/direct tax revenue (1).
269. Identify two ways in which a high rate of unemployment may affect firms. [2]
Low demand for products (1) falling prices / lower revenue (1).
Good supply of workers (1) downward pressure on wages (1).
Trade union action (1) to protect workers’ jobs (1).
270. Analyse why an increase in unemployment might cause an increase in government spending. [5]
• It may increase government spending on unemployment benefits (1) the unemployed may suffer worse health
(1) this may increase government spending on healthcare (1) if crime rises, the government may spend more on
law and order (1).
• To reduce unemployment, the government may adopt expansionary fiscal policy / policy to stimulate the
economy / policy to increase economic growth (1) to increase total demand (1) to create more jobs (1).
• Government may provide subsidies to firms (1) to encourage them to increase output and employment (1).
• Government may spend more on education (1) to increase skills of workers (1) reduce structural
unemployment (1).
• Unemployment may increase poverty (1) leading to more spending on other benefits (1).
• Government may employ more workers in the public sector (1) to reduce unemployment / will increase wage
bill (1).
• Government may spend on infrastructure (1) to raise labour mobility (1).
271. Discuss whether low unemployment in a country will encourage multinational companies (MNCs) to
set up there. [8]
• Low unemployment may indicate a strong economy / economic growth (1) high incomes (1) a high level of
demand (1) may expect to be able to sell a large amount in the country (1) make a high profit (1).
• Low unemployment may mean high tax revenue (1) government spending on education may be high (1)
improving quality of workers (1) spending on infrastructure e.g. roads may be high (1) lower MNCs’ costs
of production (1).
• Production may be capital‐intensive (1) and so labour shortages may not be a significant problem (1).
• Other benefits may be greater than higher labour costs (1) e.g. not having to pay an import tariff (1).
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• There may be difficulty in recruiting workers (1) may be a shortage of skilled workers (1) may increase
trade union power (1) may have to pay high wages (1) which would increase costs (1) lower profits (1).
• Low unemployment may create demand‐pull inflation (1) and cost‐push inflation (1) this may make it
relatively expensive to produce in the country (1).
272. Discuss whether government policy measures can reduce unemployment. [8]
• Cut income tax (1) increase disposable income (1) increase consumer spending (1) raise total demand (1)
increase output (1) create job vacancies (1) reduce cyclical unemployment (1) raise reward from working
(1) reduce voluntary unemployment (1).
• Cut interest rates (1) can increase borrowing (1) reduce saving (1) increase consumer spending (1)
increase total demand (1) increase output (1) create job vacancies (1) reduce cyclical unemployment (1).
• Introduce supply‐side policy measures (1) e.g. education (1) can raise productivity (1) increase labour
productivity (1) reduce structural unemployment (1).
• Direct employment by the government (1).
• Consumers may lack confidence (1) so they will not spend more if income tax or interest rates are reduced
(1).
• Firms may lack confidence (1) so will not expand output (1) and will not take on more workers (1).
• Firms may expand output without taking on more workers (1) due to employing more capital (1) getting
existing workers to work overtime (1).
• Education may be in the wrong areas (1) privatisation may result in firms cutting employment to reduce
costs (1).
• There may be external shocks (1) e.g. a global recession (1) which could offset government policy measures
(1)
273. Analyse three ways a government could reduce the rate of unemployment in a country. [6]
1 mark for identification plus 1 mark for development for any of the following ways
• Raising government expenditure e.g. education/health/infrastructure
• Providing subsidies to firms
• Encouraging MNCs
• Reducing corporation tax/income tax
• Protecting sunset industries/encouraging exports
• Reducing interest rates
• Increasing money supply
• Supply‐side policies e.g. training/education/raising school leaving age
• Reduce unemployment benefits/increase minimum wage
• Changing definition of unemployment
Maximum of 3 marks for a list or list‐like answer
Chapter 31 Inflation and Deflation

274. Identify TWO price indices. [2]
RPI (1) CPI (1)
275. Define ‘a weighted price index’. [2]

A measure of changes in the price level/measure of inflation (1) which takes into account the different proportions
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spent on items in a basket of goods and services (1).
276. Explain how a consumer prices index is constructed. [5]

 Selecting a base year (100) (1)
 Finding out how households spend their money (1) a basket of goods and services selected (1); weights
selected (1) based on proportion of total spending devoted to the items (1)
 Finding out price change (1)
 weights are multiplied by price changes (1)
277. Define ‘deflation’. [2]

A fall (1) in the price level (1)
278. Define ‘inflation’. [2]

A rise (1) in the price level (1)
279. Distinguish between demand-pull and cost-push inflation. [4]

Up to 2 marks: demand‐pull inflation is where the rising level of total (aggregate) demand in an
economy/aggregate demand exceeds aggregate supply (1) pulls up the general level of prices in an economy (1). It
is associated with higher output/GDP/incomes (1) caused by e.g. higher consumer spending (1).
Up to 2 marks: cost‐push inflation is where the costs of production rise (1) such as wages and raw materials (1)
leading firms to increase prices in order to ensure the profitability of the business (1), it may be associated with
falling output/GDP/incomes (1)
Allow, but do not expect, up to 2 marks for an AD/AS diagram which shows the relevant curve shifting and the
effect on the price level.
280. What is meant by an inflation rate increasing? [2]

The price level increasing (1) by a greater percentage/higher rate (1)
281. Explain what is meant by a fall in the rate of inflation. [2]

1 mark for: prices/price level rising.
1 mark for: rising more slowly.
282. Discuss whether a decrease in government spending will reduce inflation. [8]
• lower government spending is contractionary fiscal policy (1) it will reduce demand for goods and services
(aggregate demand) (1)
• lower demand may discourage firms from raising prices (1) reduce demand‐pull inflation (1)
• lower government spending may increase unemployment (1) this could put downward pressure on wages
(1) lower cost‐push inflation (1)
• lower government spending on education and health care (1) may reduce the quality of the labour force (1)
this could lower productivity (1) raise wage costs (1) cause cost‐push inflation (1)
• lower government spending on infrastructure (1) will increase firms’ transport costs (1) causing cost‐push
inflation (1)
• lower government spending may be offset by other causes of inflation (1), e.g. a lower exchange
rate/consumer boom (1)
• reduction in government subsidies to firms (1) will raise costs of production (1) causing cost‐push inflation
(1)
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283. Analyse why a reduction in the rate of interest may cause inflation. [6]
 a lower rate of interest will reduce the cost of borrowing/more will be borrowed. [1]
 a lower rate of interest will reduce the incentive to save/less will be saved. [1]
 consumer expenditure and investment are likely to increase.[1]
 higher spending will increase total (aggregate) demand. [1]
 firms are likely to respond to higher demand by raising prices. [1]
 as demand rises, shortages of resources develop pushing up prices. [1]
 demand‐pull inflation may occur.[1]
284. Analyse how a fall in unemployment may increase inflation. [6]

• A fall in unemployment may increase incomes (1) this may increase consumer spending (1) increasing total
(aggregate) demand (1) causing demand‐pull inflation (1).
• A fall in unemployment may result in a shortage of workers (1) this may raise wages (1) increasing firms’
costs of production (1) causing cost‐push inflation (1)
285. Discuss whether an increase in taxes will reduce inflation. [8]

• Increases in income tax (1) will reduce disposable income (1) spending may fall (1) lower demand will
reduce demand‐pull inflation (1).
• Increases in corporation tax (1) reduces profits firms can keep (1) reduces demand for capital
goods/investment (1).
• Increases in indirect taxes (1) will reduce spending (1) lowering demand‐pull inflation (1)
• Higher indirect taxes and corporation tax (1) increase costs of production / higher prices (1) may cause
cost‐push inflation (1).
• Higher income tax may encourage workers to press for wage rises (1) increasing costs of production (1)
causing cost‐push inflation (1).
• Consumers and firms may respond by reducing saving (1) instead of spending (1).
286. Explain two reasons why governments aim for low and stable inflation. [4]
1 mark each for two reasons identified，1 mark each for two reasons explained:
• to promote investment (1) low and stable inflation creates certainty/makes it easier to plan (1)
• to promote international competitiveness (1) if inflation rate is below that of rival countries, it can increase
exports/reduce imports (1)
• to avoid lenders, workers with low bargaining power and other groups experiencing a fall in purchasing power (1) if
incomes rise by less than inflation, the amount that can be purchased will fall (1)
• to protect savers (1) savers will lose if inflation rate is higher than interest rate (1)
• to prevent people losing confidence in using the currency as money (1) may result in people resorting to
barter/especially if there is hyperinflation (1)
• to prevent inflation causing unemployment. (1) inflation can result in a loss in international
competitiveness/reduce spending on domestic products. (1)
287. Discuss whether inflation harms everyone in an economy. [9]

Up to 6 marks for why it may harm some:
• those workers whose wages rise by less than inflation [1] will experience a fall in purchasing power [1]
consumers are able to buy less [1] people on fixed incomes will lose out [1].
• savers/lenders will lose out [1] if the rate of interest does not rise [1] in line with inflation [1].
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• taxpayers may pay more in tax [1] if tax rates are not adjusted [1] in line with inflation [1].
• exporters may sell fewer products [1] as products will become less price competitive [1].
• firms competing with imports may lose sales [1] if their inflation rate is higher [1]
Up to 6 marks for why some may gain:
• firms may be encouraged to expand [1] as a result of a low and steady rate [1] of demand‐pull inflation [1].
• borrowers may gain [1] borrowers may pay back less in real terms [1].
• some workers may gain [1] if their wages rise by more than inflation/have strong bargaining power [1].
• the government may receive more tax revenue [1] from indirect taxes whose prices have risen [1] or if higher
incomes move people into higher tax brackets [1].
Up to 4 marks for overall comments, e.g.:
• will depend on the rate of inflation [1] higher rate will be more harmful [1] accelerating rate will be more
harmful/cause more uncertainty [1].
• will depend on the cause of inflation [1] cost‐push inflation is more harmful than demand‐pull [1] cost‐push
may be accompanied by a fall in GDP whilst demand‐pull by a rise in GDP [1].
• it will depend on the inflation rate in other countries [1] if lower than other countries will be less harmful/if
higher more harmful [1] prices may still be lower than other rival countries [1].
• it does not affect those who have assets such as land [1] whose value will rise along with inflation [1].
288. Discuss whether a low inflation rate always benefits an economy. [8]
• It may mean that domestic products may become more internationally competitive (1) exports may
increase (1) current account position may improve (1) output may increase (1) employment may increase
(1) resulting in higher economic growth/rise in GDP.
• A low inflation rate which is also stable (1) may create greater confidence (1) may promote
investment/attract MNCs to set up in the country (1) may encourage production (1).
• It will mean menu and shoe leather costs will be low (1) keeping firms’ costs low (1).
• It may benefit savers (1) if the interest rate is above the inflation rate (1).
• It will mean that inflationary noise will not be significant (1) so firms and households can make efficient
choices (1).
• Fiscal drag is unlikely to be a problem (1) people may not be dragged into higher tax brackets (1).
• It may be too low which may discourage production (1).
• There may be a risk of deflation (1) which may discourage consumption (1).
• Less tax revenue for the government (1) to spend on objectives such as better education and healthcare (1)
• It may still be higher than rival countries (1) leading to a current account deficit (1).
• It may harm certain groups including borrowers (1) who had expected debt to fall at a more rapid rate (1).
• To achieve low inflation a government may have used deflationary policy measures (1) which could reduce
output (1) increase unemployment (1).
289. Discuss whether there could be a conflict between the government aims of low inflation and low
unemployment. [6]
Up to 4 marks on the possibility of a conflict:
• a government expansionary policy measure e.g. increases in its expenditure, in order to reduce the rate of
unemployment or, for example, there may be a consumer boom (1), higher total demand (1) and this leads
to a situation of demand‐pull inflation (1).
• a fall in the rate of unemployment, making labour scarcer/trade unions stronger (1), this will push up the
wages of labour (1) and this could contribute to cost‐push inflation (1).
• Note: may alternatively examine how a government contractionary policy measure to reduce inflation or
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other cause of a fall in total demand may affect unemployment.
Up to 4 marks on the possibility that there might not be a conflict:
• supply side measures (1), examples (1) there may be increases in e.g. investment (1) could allow both to be
achieved (1).
• reducing inflation could increase the competitiveness of exports (1) and this could lead to an increase in
employment to supply those exports (1).
• reducing inflation could provide greater certainty (1) which may stimulate investment (1).
Maximum of 3 marks for a list or list‐like answer.
290. Explain two causes of deflation. [4]

1 mark each for each cause identified:
• fall in total demand
• rise in unemployment
• drop in consumer confidence
• drop in business confidence
• an increase in total (aggregate) supply
• fall in costs of production
• advances in technology.
1 mark each for each of two causes explained:
• lower demand may cause firms to reduce their prices in order to attract more consumers
• lower costs of production / advances in technology will enable firms to lower their prices and
maintain/increase profits.
291. Discuss whether a cut in the rate of interest would end deflation. [8]
• A reduction in the rate of interest will reduce the return from saving/discourage saving (1) instead of
saving households may spend (1).
• A lower interest rate will cut the cost of borrowing (1) this may encourage households to take out loans
and spend (1).
• Firms may spend more on capital goods/invest (1) as it will be cheaper to borrow (1) they may expect a
rise in consumer expenditure (1).
• Higher total (aggregate) demand (1) may push up the price level (1).
• Households may be pessimistic about the future/may expect prices to fall further in the future or that a
recession will occur (1) and so may not spend more despite a lower interest rate (1). May choose to repay
past debts (1).
• Firms may be pessimistic about the future/may expect prices to fall in the future (1) and so may not
borrow/ invest more despite a lower interest rate (1).
• The interest rate may initially have been low (1) and so a cut may make little difference (1).
Chapter 32 Living Standards

292. Define the ‘Human Development Index’. [2]
A measure of living standards/quality of life (1) includes income per head, education and life expectancy (two of
these three) (1) calculated by the UN (1).
293. Define ‘GDP per head’. [2]

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Total output/income (1) divided by population (1)
294. Explain two measures of living standards. [4]

1 mark for each of two measures identified, 1 mark for each of two explanations:
• real GDP per head or GDP per head(1) real GDP per head gives a measure of average income and is found by
dividing real GDP by population/gives an indication of material living standards
• human development index or HDI(1) HDI takes into account not only income but also education and life
expectancy(1)
• other relevant composite measures, e.g. MPI(1) Multidimensional Poverty index takes into account, e.g. those
without access to clean water(1)
or ISEW(1) ISEW also considers changes in environmental conditions(1)
• single indicators, e.g. number of doctors per head(1) A high number of doctors per head suggests good health
care..
295. Explain two causes of an increase in living standards. [4]

• rise in income / fall in poverty / fall in unemployment / rise in employment (1) higher incomes will enable people
to buy more goods and services (1)
• improvements in education (1) improvements in education will enable people to earn higher incomes / make
more efficient life choices (1)
• improvements in healthcare (1) improvements in healthcare will increase life expectancy (1)
• increase in leisure time. (1) increase in leisure time will give people the opportunity of follow leisure activities /
suffer less pressure. (1)
296. Analyze the effects of a rise in unemployment on living standards in a country. [6]
 higher unemployment reduces the income of the unemployed (1) the unemployed will not be able to buy
so many goods and services (1)
 unemployment involves an opportunity cost (1) output will be lower than possible (1)
 the unemployed may experience health care problems (1) this would put a burden on health services (1)
 higher unemployment may increase crime (1) crime and the fear of crime lowers the quality of people’s
lives more resources e.g. prisons, have to be devoted to tackling crime which involves an opportunity cost
(1)
 the unemployed may not be able to afford to educate their children (1) less educated people tend to enjoy
a lower quality of life (1)
 spending on unemployment benefits (1) means less money for e.g. hospitals (1)
297. Explain two reasons why more educated people tend to live longer than less educated people.[4]
• educated people tend to have higher incomes (1) can afford a higher standard of living/afford medical care (1)
• educated people tend to be better informed (1) more likely to lead a healthier lifestyle/smoke less/drink less
alcohol (1)
• educated people tend to do less physically demanding/dangerous jobs (1) less likely to be worn out/injured at
work (1)
298. Analyse how an increase in labour productivity can increase living standards. [6]
 Higher productivity will lower costs of production (1) may lower prices (1) enabling people to consume more
goods and services (1) greater supply (1).
 It may increase output (1) raise employment (1) increase incomes (1) greater purchasing power (1) e.g. greater
access to healthcare / education / leisure (1) live longer (1) higher HDI (1).
 Increase in government revenue (1) higher spending on education/healthcare (1).
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299. Discuss whether a reduction in government spending on education will reduce living standards.[8]
• it may reduce the quality/availability of education (1) this could reduce the skills of workers (1) lower
their chances of getting a job (1) getting a well‐paid job (1) reduce income (1) reduce goods and services
people can enjoy (1)
• it may reduce people’s access to knowledge about good nutrition/health care (1) this could increase
illness (1) lower life expectancy (1)
• a less skilled labour force (1) may discourage multinational companies setting up in the country (1) this
could reduce employment opportunities/reduce wages (1) reduce incomes (1) reduce goods and
services people can buy (1)
• a reduction in government spending e.g. education may reduce aggregate demand (1) lower aggregate
demand may reduce output and incomes (1)
• it will reduce the country’s HDI value (1) which is an indicator of living standards
• instead of spending money on education, the government might spend money on e.g. health care (1) a
healthier population can enjoy life more and live longer (1) a healthier labour force may raise
productivity (1) increase wages (1) increase the goods and services people can buy (1) this could increase
the HDI value (1)
• instead of spending money on education, the government might spend money on e.g. infrastructure (1)
better infrastructure can reduce firms’ costs of production (1) make domestic firms more internationally
competitive (1) encourage firms to expand (1) raise employment (1) increase incomes (1) increase the
goods and services people can buy (1)
• a country’s birth rate may be falling (1) so there may be fewer children in education (1) the amount spent
per child may still be rising (1) improving productivity (1) raising wages (1) increasing consumption (1)
• less may be spent but it might be spent more effectively (1) this will raise the quality of education (1)
raise productivity (1) raising employment (1) increasing consumption (1)
300. Discuss whether living standards are always lower in developing countries than in developed
countries. [8]
Up to 5 marks for why they might be:
• Developing countries tend to have lower income per head / greater poverty (1) reducing the goods and
services their people can buy (1).
• Developing countries tend to have higher population growth (1) this can increase the dependency ratio
(1) reducing resources available to e.g. improve housing conditions (1)
• Developing countries tend to have lower life expectancy (1) health care tends to be less readily available
/ lower quality (1).
• Developing countries tend to have a lower standard of education (1) children likely to have fewer years
at school / attend university / gain well paid employment / more productive (1)
• Developing countries tend to have more people employed in the primary sector (1) work in the primary
sector tends to be more physically demanding/lower paid (1).
NOTE: Accept the reverse argument why living standards are always higher in developed countries.
Up to 5 marks for why they might not be:
• Some people in developed countries may experience lower living standards (1) as income may be
unevenly distributed / there is relative poverty (1).
• Working hours may be lower in developing countries (1) which increases leisure time (1).
• The informal economy may be greater in some developing countries (1) meaning that output may be
higher (1).
• Obesity may be more of a problem in developed countries (1) reducing the health of the population (1).
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• Some jobs in the primary sector are well paid (1) e.g. in the oil industry (1)
301. Discuss whether living standards are likely to be higher in a mixed economy or a market economy.
[8] 这个是经济体系的题目。
 A mixed economy has both a private and public sector/a market economy, in theory, has just a private
sector (1).
Up to 5 marks for why they may be higher in a mixed economy:
• The government may protect vulnerable groups (1) e.g. provide pensions for the elderly (1).
• The government may seek to achieve full employment (1) avoiding people having low income due
to being unemployed (1).
• The government may provide health care/education/housing free to consumers (1) ensuring
everyone has access to essential products (1).
• External costs may be reduced by government action (1) there may be less pollution (1).
Note: reward but do not expect: public goods will be provided.
Up to 5 marks for why they may be higher in a market economy:
• People may have more choice (1) firms may provide a range of products (1).
• There will be no rules and regulations (1) reducing what people can consume (1) and what firms can
produce (1).
• Output/incomes may be high (1) quality may be high (1) due to profit motive (1) and competition
(1).
302. Analyze why a country may have a high HDI value [6]
• a good healthcare system/high spending on healthcare (1) high investment in hospitals (1) will increase people’s
life expectancy (1)
• a good education system/high spending on education (1) high income/more schools enabling families to send
their children to school for a number of years (1) positive attitudes to education (1) may lead to higher
mean/expected years of schooling (1)
• a high level of total demand (1) good quality of resources/high productivity (1) sound economic policies (1) can
result in a high GDP per head/high income (1)
Note: no marks for just stating the three components of the HDI – must relate to an increase in HDI.
303. Analyze three ways in which a country’s HDI value could increase. [6]
Better health care (1) increase life expectancy (1).
Increased spending on education (1) would increase mean and expected years of schooling (accept literacy) (1).
Increased employment/economic growth (1) would increase GNI/GDP per head/average income (1).
N.B. max 2 marks for each component of HDI
304. Discuss whether GDP per head is the best way to compare living standards in different countries.
[10]
Up to 5 marks: Advantages of using GDP per head to measure living standards:
• takes into account the value of all that has been produced in a country (1) over a period of time (GDP) (1)
• and the size of the country’s population (1)
• the information is fairly readily available (1)
• it gives an indication of the value of the goods and services available to people (1)
• income/output/expenditure is a key determinate of their living standards (1)
• the information is available on every country (1).
Up to 5 marks: Disadvantages of using GDP per head:
• accounting techniques can vary (1)
• not all income may be declared (1), if there is a significant informal/hidden economy (1)
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• needs to take inflation into account (idea of real, but candidates do not need to refer to that term) (1)
• need to take into account differences in climate (1)
• composition of output may vary, e.g. defence vs. education (1)
• distribution of income may vary a great deal (1), some people in the country may have good living
standards, whilst others have poor living standards (1).
Up to 5 marks: Discussion of possible alternatives, e.g. Human Development Index (HDI) and Human Poverty Index
(HPI)/Multidimensional Poverty Index (MPI)
• recognising that there are other ways to compare living standards (1)
• identification of HDI (1)
• HDI covers more variables than GDP (1)
• composition of HDI (1)
• living standards are influenced by not only income but also quality of life (1), although it’s wider than
GDP it doesn’t cover everything (1)
• examples not covered by HDI including water quality/pollution, number of doctors per head, internet
access, school class size (1)
• for a few countries the HDI figure is unavailable (1).
Maximum of five marks for a list or list‐like response.
305. Discuss whether people in countries with a high HDI always enjoy a high standard of living. [5]
• Indicates high income per head / high purchasing power / high ability to buy goods (1) high life
expectancy / low death rate / good healthcare (1) good education / high literacy (1).
1 mark for a general idea of what the HDI includes.
• May be uneven distribution of income / GDP figure is an average (1) so that not everyone enjoys a high
standard of living / there may still be many poor people (1) unemployment may still be high (1)
healthcare may still be poor for some (1) literacy levels may be high but there may be no suitable jobs
(1).
• There are other influences on living standards (1) working hours may be long (1) working conditions
may be poor (1) there may be high levels of pollution (1).
306. Discuss whether the Human Development Index (HDI) is the best way of comparing the standard of
living in different countries. [10]
Up to 7 marks for why it is:
 it includes GDP per head (1) but goes beyond this (1)
 it takes into account life expectancy (1) this reflects the quality of health care (1)
 it reflects access to education (1) it includes mean and expected years of schooling/adult literacy and
school enrolment (1)
 it divides countries into very high, high, medium and low human development (1) it is measured from 0 to 1
(1)
Up to 7 marks for why it is not:
 it does not take into account all relevant indicators (1) for instance it does not include effects on the
environment (1) which is included in the ISEW measure (1) it does not include infant mortality (1) number
of doctors per head (1) gender inequality (1) political freedom (1) other indicators (1)
 not all countries are included (1) due to a lack of accurate data (1)
307. Discuss whether the Human Development Index is a perfect measure to compare living standards in
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different countries. [6]
Up to 4 marks for arguing that it is a perfect measure:
• It includes GDP per capita (1), it actually uses gross national income at purchasing power parity per capita
(1)
• It includes education (1), this is made up of a mean years of schooling index (years that a 25 year old
person or older has spent in schools) and an expected years of schooling index (years that a 5 year old
child will spend in education in his own life) (1)
• It includes life expectancy (1) (it uses life expectancy at birth index)
• HDI value ranges from 0 to 1, the higher the value the higher the living standard(1)
Up to 4 marks for arguing that it is not a perfect measure:
• Generally arguing that there are many things that it does not include (1)
• Giving examples it does not include effects on the environment (1) gender inequality (1) political
freedom (1) infant mortality (1) number of doctors per head (1) quality of water (1), poverty index (1),
gender empowerment (1) etc.
• Problems with GDP per capita being an average (1) and not reflecting income inequality (1)
308. Discuss whether the Human Development Index is a good measure of living standards. [5]
Up to 3 marks for why it is:
It is a wider measure than GDP per head (1).
It covers three important influences on living standards (1) income, education and health care (1).
Produced by a reputable body (1) the United Nations (1).
Up to 3 marks for why it is not:
It does not take into account all the factors that influence living standards (1) examples, e.g.
distribution of income, environmental factors (up to 2).
The weightings may not reflect the relative contribution of the indicators to living standards (1), e.g. some
might argue life expectancy should be given a greater weighting than GDP per head (1).
Do not expect other measures but reward appropriate ones such as the Multidimensional
Poverty Index which includes more indicators (1), e.g. access to sanitation (1).
309. Explain why people in countries with a higher GDP per head have a longer life expectancy than
people in countries with a lower GDP per head. [2]
• higher income is likely to mean better nutrition (1)
• people will be able to afford more/better quality healthcare (1)
• higher income is likely to mean better housing (1)
• higher income is likely to mean better education (1)
• higher income may raise living standards (1)
• countries with higher incomes may have better sanitation (1)
• higher income may increase government tax revenue (1) and so greater ability to provide good quality
healthcare (1)
Note: any of these points may be developed for the second mark e.g. better healthcare can reduce the illnesses
people experience
310. Discuss whether rapid economic growth always increases living standards. [8]
• Higher income (1) will enable people to enjoy more goods and services (1) may reduce absolute poverty
(1) with people having access to basic necessities (1)
• Likely to increase tax revenue (1) enable the government to spend more on healthcare (1) raise life
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expectancy (1)
• spend more on education (1) raise job prospects (1)
• may spend more on the environment (1) reduce pollution (1)
• There are other influences on living standards (1) example (1)
• Growth may be unevenly distributed (1) not everyone may benefit (1)
• Average living standards may rise but some people may suffer a fall in living standards (1) if income is
unevenly distributed (1) it may not benefit those living in poverty (1)
• The extra products provided e.g. defence (1) may not provide satisfaction to consumers (1)
• Producing more may involve longer working hours (1) reducing leisure hours (1) working longer
hours/working more intensely may increase stress (1) endangering people’s health (1)
• Increases in output may damage the environment (1) e.g. forests being cut down/pollution created (1)
311. Analyze how subsidies given to farmers could raise living standards. [6]
 May increase supply (1) as extra payment received (1) higher supply will reduce price (1) lower price will
make food more affordable (1) food is a basic necessity (1).
 Reduced costs for farmers (1) increase their profits/income (1).
 Subsidies for capital equipment e.g. tractors (1) improve productivity (1) increasing farm outputs / incomes
(1).
 More/better quality food may make the poor healthier (1) increasing their earning capacity (1).
 The poor may be able to spend less on food (1) allowing them to buy other basic necessities (1).
Note: reward increase in supply (1) lower price (1) if shown on a diagram.
312. Discuss whether producing more food will increase living standards. [8]
 Producing more food may lower the price of food (1) due to economies of scale (1) making it more
affordable (1) increasing the availability/quality of food people can consume (1) reducing poverty (1)
increasing life expectancy (1).
 Providing more food may create jobs (1) increase exports / reduce imports (1) increasing output / GDP (1)
increasing incomes / GDP per head (1) allowing people to buy more goods and services (1).
 May lead to over‐consumption of food (1) obesity (1) healthcare problems caused (1).
 Intensive farming methods may create external costs (1) e.g. river pollution arising from fertilizers spread
on the land (1).
 Agricultural jobs may be low skilled (1) low paid (1).
 Those producing more food may lack the appropriate resources to produce it (1) and as a result may
produce low quality food (1) high priced food (1).
 Increased food production may lead to an over‐supply of food (1) with the extra output remaining unsold
(1) may cause diseconomies of scale (1).
 There may be an opportunity cost involved (1) relevant example (1) fewer capital goods may be produced
(1) which could lower potential economic growth (1) and so living standards in the future (1).
 Crops may be destroyed / damaged (1) by climate conditions / disease (1).
313. Discuss whether or not a reduction in unemployment always increases living standards. [8]
 Would be likely to mean an increase in employment (1) increase output/make more goods and services
available (1) raise incomes (1) reduce poverty (1).
 May increase provision of healthcare/expenditure on healthcare (1) increase life expectancy (1).
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 May increase provision of education/expenditure on education (1) increase literacy (1).
 Reduce government spending on unemployment benefits (1) raise tax revenue (1) increase spending on
e.g. pensions (1) which could reduce poverty (1).
 Employment may not rise if e.g. some of the unemployed have emigrated/retired (1). The jobs taken up
may be low skilled (1) low paid (1) have poor working conditions (1)
 The jobs may be dangerous/involve working in an unhealthy atmosphere (1) reducing the health of workers
(1).
 Higher employment may increase external costs (1) e.g. pollution/traffic congestion (1).
 May increase wages (1) causing cost‐push inflation (1).
 May increase demand (1) cause demand‐pull inflation (1).

Chapter 33 Poverty
314. Describe what is meant by relative poverty. [4]
Relative poverty:
• this is where people in a country are generally less well off than others (1) such as in relation to the
quantity/quality of material goods (1) they are not able to participate fully in the normal activities of the country
they live in (1)
• people who are relatively poor in one country (especially a developed country) may be quite well off compared to
the poor in another country (1) (especially a developing country) (1)
315. Explain what is meant by ‘absolute poverty’. [2]

• a situation where certain people do not receive enough income to meet even basic needs (1), such as food and
shelter or may give a numerical value e.g. $1.25 a day (1)
• this can be contrasted with relative poverty where certain people are poor in relation to others, but this does not
necessarily mean that they are poor in absolute terms (1)
316. Distinguish between relative poverty and absolute poverty.[2]

Relative poverty is where people have fewer goods and services/income than others in an economy (1). Absolute
poverty is where people are unable to meet basic needs/living on e.g. less than US $1.25 a day (1).
317. Discuss whether a fall in the unemployment rate will reduce poverty. [5]
• a lower unemployment rate may mean that more people are in work (1)
• more employment may mean higher incomes (1) more people earning may reduce relative poverty (1)
• more people will have access to basic necessities/enjoying more goods and services (1) being able to enjoy
more products may increase living standards (1) access to more goods and services should reduce absolute
poverty (1)
• more people will be able to afford education/health care (1) increasing their earning potential and the
earning potential of their children (1)
• lower unemployment can increase tax revenue/reduce spending on welfare benefits (1) government may
be able to spend more on, e.g. education and health care, which can reduce poverty (1)
• a fall in unemployment may not increase the number of people employed (1) the rate may have fallen
because some of those who were previously unemployed may have retired/emigrated/entered education
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(1)
• a reduction in unemployment may raise the wages of skilled workers more than unskilled workers (1)
increasing relative poverty (1)
• the resulting higher demand may result in inflation (1) wages may rise by less than prices (1) leading to a
fall in real incomes (1) which may increase poverty (1)
• other causes of poverty may increase (1), e.g. increase in sickness/increase in the number of
dependants/reduction in skills (1)
• some people may earn very low wages (1) which may be less than they received in benefits (1)
318. Discuss whether a decrease in unemployment will always reduce poverty. [5]
Lower unemployment may increase incomes (1) higher incomes enable people to buy more basic necessities
(1) more likely to be able to educate children (1) reduce future poverty (1) reducing absolute poverty (1).
Less expenditure by government on benefits (1) enables government to increase spending on
education/healthcare (1) reducing gap between rich and poor (1)
A decrease in unemployment does not necessarily mean a rise in employment/income (1) unemployment
could fall due to e.g. people retiring early (1) or emigrated (1)
Unemployment may fall and relative poverty may increase (1) gap between rich and poor may rise (1).
Income may still be below others (1) relative poverty remains (1) Income may still not be enough to afford
basic necessities (1).
Lower unemployment may increase inflation (1) making it more difficult for some people to buy basic
necessities (1).
Increased employment results in higher tax revenue for the government (1) which enables them to spend on
education/healthcare etc. that support the poor (1).
319. Discuss whether an increase in a country’s GDP will reduce poverty in that country. [5]
 may generate more tax revenue [1] which can be used on spending on benefits [1] or on measures to
reduce poverty in the long run e.g. education and health care [1].
 high GDP may increase average incomes/living standards [1] higher incomes may enable people to spend
more on basic necessities [1] such spending will reduce absolute poverty [1].
 higher output will create jobs [1] this will reduce unemployment [1] with more in work absolute poverty
will fall [1].
 income may be unevenly distributed [1] and so not every one may benefit from higher incomes [1] and so
relative poverty may rise [1] even if absolute poverty falls [1].
 real GDP may not have increased [1] need to adjust for inflation [1].
 (real) GDP per head may not have increased [1] if population has risen by more than GDP [1].
Maximum of 3 marks for a list‐like response.
320. Discuss whether increasing government spending will reduce poverty. [8]
Up to 5 marks for why it may:
• Increased government spending on benefits (1) will enable the poor to purchase basic necessities (1)
• Increased government spending on education (1) will increase skills (1) increasing employment (1) raising
wages (1)
• Increased government spending may increase total demand (1) may raise GDP per head (1)
• Increased government spending on healthcare (1) may keep people healthier (1) increasing their ability to
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earn income (1)
• Increased government spending on infrastructure (1) will create jobs (1) increase income (1)
Up to 5 marks for why it may not:
• Increased government spending may cause inflation (1) reduce ability of poor to purchase basic necessities
(1)
• Increased government spending on benefits may increase reliance on benefits (1) which in the long term
may reduce a person’s earning potential (1)
• Increased government spending may be financed by higher taxation (1) not increasing total demand (1)
• Increased government spending on education may not improve the quality of education (1) may be in
wrong areas (1)
321. Analyse how a reduction in the rate of interest could reduce poverty. [6]
• A lower cost of borrowing (1) may encourage people to take loans (1) increase consumer spending (1)
increase total demand (1) encouraging firms to expand (1)
• It may increase employment (1) raise people’s incomes (1)
• May lower the burden of debt/make it easier to repay loans (1) may enable the poor to borrow (1) to
educate their children (1) set up a business (1) which can provide an income (1).
322. Discuss whether fiscal policy measures will reduce poverty. [8]
• increased government spending on education and healthcare (1) can raise people’s skills (1) increase their
opportunity to gain employment (1) raise earning potential (1) this may be financed by increased taxation
(1)
• increased government spending will add to total demand (1) this will encourage firms to produce more (1)
increasing employment (1)
• increased government spending on benefits (1) can raise the income of some of the poor (1) increase ability
to buy basic necessities (1)
• lower indirect taxes (1) will provide the poor with the opportunity to buy more products (1)
• lower direct taxes (1) may increase consumer expenditure and investment (1) creating job opportunities (1)
increase incentive to work (1)
• government subsidies (1) may lower prices faced by the poor (1) increase output (1) create jobs (1)
• increased government spending and lower taxes may benefit the rich more (1) this will increase relative
poverty (1)
• reduced government spending may lower demand (1) reduce output (1) increase unemployment (1)
• increased taxation may lower demand (1) reduce spending power of the poor (1) may act as a disincentive
to work (1).
• expansionary fiscal policy can cause inflation (1) this can reduce the purchasing power of the poor (1)
323. Discuss whether providing loans to the poor will reduce poverty. [8]
• Loans will enable the poor to buy more basic necessities (1) e.g. housing, food, clothing (1) reduces absolute
poverty (1).
• Loans will enable the poor to spend more on education/training (1) increase their skills (1) increase the chances
of them gaining a job (1) increase wage rate (1) increase education of children (1) reduce poverty in the future
(1).
• Loans will enable the poor to set up small businesses (1) become entrepreneurs (1) receive income/profit (1)
may employ other previously poor people (1) reduce unemployment (1).
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• Loans may enable the poor to spend more on healthcare (1) raising living standards (1).
• Loans may be spent on items that do not increase earning potential (1) e.g. cigarettes (1).
• The poor may get into debt / may be unable to repay the loan (1) lose their collateral/home (1).
• Paying interest (1) may reduce the ability to buy basic necessities (1) high interest rates (1) may be charged to
the poor (1).
• Loans may not be large enough (1) to pay for e.g. education/training (1).
• Loans may not be a long‐term solution to poverty (1) only improving living standards in the short‐term.
324. Explain two ways a government could redistribute income from the rich to the poor. [4]
• using government spending to benefit the poor (1) e.g. providing free healthcare /education for the poor
(1)
• using government spending to generate jobs for the unskilled/introduce a minimum wage (1) make it easier
for people to gain employment/increase earnings of low paid workers (1)
325. Discuss whether government policies can always reduce poverty in a developing country. [8]
Up to 6 marks for the argument that government policies can always reduce poverty in a developing country:
• redistribution of income, e.g. through progressive taxation and through benefits (1), could increase the
incomes of poorer people (1)
• the provision of employment opportunities/employment creation schemes (1), encouraging a higher rate of
economic growth (1)
• an improvement in education provision/increase in literacy rate (1) will help to make people more
employable (1)
• reskilling/retraining measures (1) will make people more employable, increasing their incomes (1)
• provision of subsidies, e.g. on food (1), will help to keep down the cost of living (1)
• subsidised or zero‐cost housing (1) will mean that people will not have to pay very much (or nothing at all)
for housing (1)
• the introduction of minimum wage legislation (1) will ensure that everybody in work is paid a minimum
level of remuneration (1)
Up to 6 marks for the argument that government policies cannot always reduce poverty in a developing country:
• progressive taxation and benefits will still leave a lot of people very poor (1) and more fundamental policies
may be needed, such as very high levels of subsidies (1)
• the reskilling/retraining/education initiatives will have no effect if the level of demand in the economy is so
low (1) that there are no jobs to be applied for (1)
• the effect of the introduction of a minimum wage will ultimately depend on the rate at which it is set (1); if
it is set at too low a rate, the impact will be negligible (1)
• it is less an issue of whether particular policies can have an effect (1); it is linked to the extent of the
policies, i.e. how far‐reaching are they? (1)
• there may be government failure e.g. in form of corruption (1) which prevents funds reaching the poor (1)
326. Analyse why the elimination of absolute poverty would not solve the economic problem.[6]
 Absolute poverty is lack of access to basic necessities (1) example e.g. food/living below a certain income
level e.g. $1.25 (1)
 The economic problem is unlimited wants (1) exceeding finite resources/scarce resources/scarcity (1)
 Even if everyone had access to basic necessities, people would still want more products (1) e.g. better
quality food (1) there would not be enough resources to meet people’s increasing wants (1) relative
poverty will still exist/rich will still be able to spend more than the poor (1)
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 Over time what is considered to be absolute poverty is likely to change (1)
327. Discuss whether increased spending on education will always reduce absolute poverty. [8]
• Education may increase labour productivity (1) this may raise income (1) allowing people to buy more basic
goods and services (1).
• Education may increase people’s skills and qualifications (1) this may reduce unemployment (1) raising
incomes (1).
• Education may reduce the birth rate (1) reducing the dependency ratio (1).
• Education spending creates jobs (1) e.g. teachers, school cleaners (1)
• Education may be of poor quality/be in inappropriate areas (1) and so may not increase productivity (1) and
so not raise employment and income (1).
• The increased spending on education may be on a small proportion of the population (1) the poor may not
benefit (1).
• The increased spending on education may involve an opportunity cost (1) spending on healthcare may be
reduced (1) spending on other areas may be more effective in reducing poverty (1) e.g. housing provision
(1)
• Workers may be better educated (1) but there may still be unemployment if there is a lack of demand in
the economy (1).

Chapter 34 Population
328. Define ‘birth rate’. [2]
• the number of births per 1,000 of the country’s population per year (2)
• the number of births per 1,000 of the country’s population (1)
329. Define ‘death rate’. [2]

The number of deaths per 1,000 of the country’s population per year (2)
The number of deaths per 1,000 of the country’s population (1)
330. Define net immigration.

More people coming to live in the country than leaving the country to live elsewhere (2).
The number of immigrants exceeding emigrants (2).
The difference between immigration and emigration (1).
People coming to live in the country (1).
331. Describe how the birth rate differs from the fertility rate. [4]
Birth rate is the number of births per thousand of the population (1) in a year (1) whilst the fertility rate is the
number of children a woman has (1) on average/over her life time (1).
332. Identify two influences on the size of a country’s population. [2]

1 mark each for each of two influences identified:
• birth rate
• death rate
• migration.
333. Describe three possible causes of the growth of a country’s population. [6]
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Either:
• an increase in the birth rate (1) when the number of births per thousand of the population rises/due to e.g.
a fall in the average age of marriage (1)
• a fall in the death rate (1) when the number of deaths per thousand of the population falls/due to e.g.
improved health care (1)
• a rise in net immigration/immigration (1) where more people come into the country (immigrants) than
leave the country (emigrants)/due to e.g. higher incomes in the country (1)
Or:
• up to 3 causes of an increase in the birth rate (3) each explained (3)
• up to 3 causes of a fall in the death rate (3) each explained (3)
• up to 3 causes of a rise in net immigration (3) each explained (3)
• up to 3 causes of a mixture of a rise in the birth rate/fall in the death rate, rise in net immigration (3) each
explained (3)
Note: 3 marks for a rise in the birth rate, fall in death rate, net immigration/immigration.
1 mark for reference to birth rate, death rate, immigration/migration
334. Analyse what may cause an increase in a country’s labour force. [6]
• Net immigration (1) of people of working‐age (1) will increase the supply of potential workers (1).
• A decrease in the number of people of working‐age who are economically inactive (1) reduction in those who are
students/retired/homemakers/sick and disabled /discouraged workers(1) this may be the result of e.g. a fall in the
school leaving age (1) or rise in the retirement age (1).
• An increase in the size of the population (1) due to a fall in death rate/rise in birth rate/rise in the birth rate some
years before (1).
• An increase in the cost of living (1) may force more family members to work/seek work (1).
335. Explain two causes of a high birth rate. [4]

• a high infant mortality rate (1) people having a high number of children not expecting all of them to live (1)
• a lack of financial support for the elderly (1) people having children to support them in old age (1)
• women marrying at a young age (1) giving them longer time in which to have children (1)
• a young population (1) with a high proportion of people of child bearing age (1)
• a lack of availability/willingness to use contraception (1) resulting in more births than planned (1)
• not many women working (1) not restricting the number of children they have in order to follow a career (1)
• a lack of education (1) reduces knowledge of contraception/cost of bringing up children/ proportion of women
working (1)
• government incentives to have children (1) high state benefits would increase willingness and ability of people to
have children
336. Explain two causes of a fall in a country’s death rate. [4]

• improvements in nutrition (1) will improve the health of the population (1)
• improvements in medical care (1) will enable people to live longer/due to, e.g. better hospitals (1)
• improvements in education (1) may result in more informed choices on, e.g. diet and exercise (1)
• improvements in housing (1) will reduce number of people suffering from a range of illnesses (1)
• improvements in working conditions (1) reduce accidents at work/improve health of workers (1)
• reduction in/end of military conflicts (1) reduce number of casualties (1)
• improvements in sanitation (1) reduce the risk of disease (1)
• improvements in water quality (1) reduce the risk of disease (1)
• people following a healthier lifestyle (1), e.g. giving up smoking (1)
• increase in income (1) people may be able to afford a healthier lifestyle/better living standard (1)
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337. Explain what is meant when a country is described as being over-populated or underpopulated. [5]
• Over‐population occurs when the balance between population and resources is wrong (1) when there are too
many people (1) relative to resources (1) output per head is lower than possible (1) the country would
benefit from either a fall in population (1) or an increase in resources (1) a country could have a large area of
land but may still be regarded as over‐populated if there is a shortage of, e.g. capital (1)
or
• under‐population occurs when the balance between population and resources is wrong (1) when there are
too few people (1) relative to resources (1) output per head is lower than possible (1) the country would
benefit from a rise in population (1) this would enable resources to be used to a greater extent (1) a country
may have a small area of land but may still be regarded as under‐populated if there is, e.g. unused natural
resources (1)
Allow reference to both over‐population or under‐population where comments are not simply a mirror image.
Credit, but do not expect, reference to optimum population. Allow up to 2 marks for a correct diagram and 1 mark
for explanation
338. Analyse how an increase in average incomes may influence a country’s population size. [6]
• there will be more income/resources to support people in old age (1) so there may be less need to have a high
number of children (1).
• there may be greater availability of contraception (1) and greater spending power to buy contraception.
• people may stay in education longer which may increase the cost of having children (1) and may delay the age
at which people have children (1).
• higher income is linked to better health care/nutrition (1) so there may be a fall in infant mortality (1).
• due to better health care and nutrition (1), the death rate may fall (1).
• may encourage immigration (1), due to expectation of higher pay/greater job opportunities/higher living
standards (1).
• higher incomes may encourage some families to have more children (1) as now they can afford it (1).
339. Discuss whether an economy will benefit from having a younger labour force. [8]
• A younger labour force may be more adaptable to new ideas (1) more up to date with advances in
technology (1) received up to date education (1).
• A younger labour force may be occupationally mobile (1) more willing and able to switch jobs (1) enabling
the economy to adjust to changes in demand (1) reducing structural unemployment (1).
• A younger labour force may be more geographically mobile (1) reducing structural unemployment (1).
• A younger labour force may be physically stronger (1) have less health problems (1) be more
productive/efficient (1) be prepared to work longer hours (1) increase output/GDP (1).
• A younger labour force may work for lower wages (1) reduce firms’ costs of production (1).
• A younger labour force may be less experienced (1) not built up skills (1) less productive (1).
• A younger labour force may require more training (1) increasing firms’ costs of production (1).
• A younger labour force may be less reliable and patient than the older population (1) this may reduce
demand for some products (1).
340. Analyse why people may migrate to a country with a high unemployment rate. [6]
• the unemployment rate may still be below that in the countries they are migrating from (1)
• the unemployment rate may be falling whilst it may be rising in their own countries (1)
• there may still be job vacancies in areas that they have skills in (1)
• people may move to set up a firm (1) as wage cost may be lower (1)
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• living conditions (1), e.g. health care/education may be better in the country (1)
• people may be escaping persecution/wars/famines or moving due to family ties (1)
• people may not be aware of the high unemployment rate (1)
• there may be fewer restrictions on migrating to the country than to other countries (1)
• unemployment benefits may be higher in the country (1)
• the people may be rich and not have to work (1) and may be attracted by lower prices in the country (1)
341. Discuss whether a fall in a country’s death rate will always result in an increase in its population size
[5]
• A fall in the death rate may mean people live longer (1) maybe due to improvements in health (1) the birth
rate may now exceed the death rate (1) resulting in an increase in population (1).
• A lower death rate may attract more people to migrate to the country (1) resulting in net immigration (1).
• The death rate may still exceed the birth rate (1) so a fall in the death rate may just reduce the decline in
population size (1).
• The death rate may equal the birth rate (1) and so population size may not change (1).
• The death rate may be less than the birth rate (1) but this may be exceeded by net emigration (1).
• Birth rate may also fall (1) if related to higher standard of living / improved healthcare (1)
342. Discuss whether a fall in the birth rate will benefit an economy. [5]
 may reduce the dependency ratio [1] increase labour force in the short run [1] as fewer adults leave it to
raise children [1].
 reduce need for government spending [1], e.g. education and health [1] resources can be used for other
purposes [1].
 women are taking less time out to have children [1] focusing on work/careers [1] this will increase
output/GDP.
 less overcrowding [1] may raise living standards [1].
 fewer school leavers/graduates in long run [1], therefore less unemployment [1].
 the country may be overpopulated [1] so fewer scarce resources will now be used up [1].
 less money is spent on (child) benefits [1] more can be spent on other things, e.g. education.
 may reduce demand [1] which may cause under use of resources [1] including unemployment [1].
 the average age of the labour force will rise [1] it may become less mobile [1] less adaptable [1].
 may reduce the size of the labour force in the long run [1] increase dependency ratio in the long run [1].
 may lead to an ageing population in the long run [1] so proportionately more spent on health
care/pensions [1].
 businesses in the child care sector would suffer [1] causing loss of jobs for, e.g. nursery workers [1].
 the effects will be experienced in the long run rather than the short run.
Maximum of 3 marks for a list‐like response.
Note: a maximum of 5 marks overall.
343. Discuss whether or not a rise in the birth rate will benefit an economy. [8]
• A higher birth rate will increase the labour force in the long run (1) increase the potential output (1)
total (aggregate) demand may rise (1).
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• It will lower the average age of the population, (1) younger workers may be occupationally mobile (1)
geographically mobile (1) may be able to work with the latest technology (1).
• There may be rise in tax revenue (1).
• If the country is underpopulated (1) better use might be made of resources in the long run (1).
• Demand for products related to children will increase (1) benefiting e.g. toy industry (1).
• A higher birth rate will increase the number of dependents (1) resources that could have been used to
e.g. increase the quality of healthcare will have to be devoted to providing more healthcare services to
mothers and children (1) there will be an opportunity cost (1).
• It will reduce the size of the labour force in the short run (1) as mothers leave it to have children (1).
• If the country is overpopulated (1) resources may be depleted more quickly (1).
344. Discuss whether a government should be concerned about a fall in the country’s population size.
[10]
 may result in a less efficient use of resources (below the optimum population) (1), as there may not be
enough workers to make full use of the other factors of production (1), and so output per head will fall
(1).
 will experience a fall in total (aggregate) demand (1), as there will be fewer consumers (1) and lower
demand may reduce employment (1).
 labour force may be reduced (1). If the fall in population size is due to emigration, there may be fewer
workers to dependents (1) and this will increase the dependency ratio (1).
 may reduce factor mobility (1), if there are fewer young workers, there may be less occupational mobility
(1) and geographical mobility (1).
 a rise in the death rate may indicate serious health problems/a natural disaster (1). This would indicate a
need for greater government spending on health care/better disaster response (1).
 may result in a more efficient use of resources (towards the optimum population) (1), as there will now
be more workers to make full use of the other factors of production (1), and so output per head will rise
(1).
 may reduce overcrowding (1), giving people more living space (1) and reducing stress/ill health (1).
 labour force may still be increasing (1). If the fall in population size is due to a fall in the birth rate (1) this
will mean a reduction in the dependency ratio (1).
 may reduce environmental problems (1), e.g. traffic congestion/pollution (1).
 may reduce the need for social capital (1), e.g. hospitals/schools (1).
345. Discuss whether an increase in a country’s labour force will increase income per head. [8]
• A larger labour force may enable greater advantage to be taken of division of labour/specialisation /
economies of scale (1) this can reduce average costs of production (1) as workers can concentrate on what
they are best at (1) can be trained more quickly (1) reduces the amount of capital equipment needed (1)
lower costs may increase sales at home and abroad (1) increasing output and raising incomes (1).
• A larger labour force may reduce the dependency ratio (1) a higher proportion of workers to non‐workers
will increase income per head (1).
• A larger labour force will enable successful firms to expand (1) this will increase GDP (1).
• Multinational companies may be attracted to set up in the country by a larger labour force (1) this may
result in a rise in wages (1).
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• Population may increase by more than the labour force (1) this will increase the dependency ratio (1).
• The labour force may increase but demand for labour may not (1) so the unemployment rate may increase
(1) so income divided by population may fall (1).
• The quantity of the labour force may increase but the quality of the labour force may fall (1) productivity
may decline (1) reducing output and incomes per head (1).
• An increase in the labour force may increase competition in the labour market (1) lowering wages (1).
346. Discuss whether a country will benefit from the emigration of some of its people. [8]
• emigration of dependents (1) would reduce the burden on the working population (1) reduce government
spending on benefits/pensions (1) which means government spending on other items can increase (1)
• if there is overpopulation/population above the optimum level (1) output per head should rise/more
efficient use can be made of resources (1)
• workers who emigrate may send money back to relatives (1) this may increase living standards (1)
• emigrants may later return to the country bringing new skills with them (1) this may raise the productivity of
the labour force (1)
• skilled workers may emigrate (1) this will reduce the quality of the labour force (1) lowering productivity (1)
discouraging multinational companies setting up in the country (1)
• if people of working age emigrate (1) the dependency ratio will increase (1)
• if there is under‐population/population below the optimum level (1) output per head would fall/less
efficient use can be made of resources (1)
• with lower output less advantage can be taken of economies of scale (1)
347. Explain what is meant by an ageing population. [2]

• this is where people are generally living longer (1)
• the average age of people in a country increases (1)
• more older people as a proportion of the population (1)
348. Identify two causes of an ageing population. [2]

A fall in the birth rate (1) a fall in the death rate / longer life expectancy (1) net emigration of young people / net
immigration of old people (1).
349. Discuss whether the government of a country with an ageing population should raise the retirement
age. [8]
• Increasing the retirement age will increase the size of the labour force (1) there will be a decrease in the
dependency ratio (1) output / incomes will increase (1) this will increase tax revenue (1).
• Older workers have more experience (1) productivity may be higher (1).
• The cost of pensions will fall (1) pensions will become more affordable to the government/firms (1).
• It will enable workers to save for their retirement (1) may increase the physical and mental health of the
elderly (1).
• It may avoid the need to raise tax rates (1).
• Pension provision involves opportunity cost (1) the funds could be spent on e.g. infrastructure projects (1).
• If life expectancy is low (1) it may be seen to be inequitable (1) it may lower living standards (1).
• Older people blocking jobs to younger people (1) older workers may be less productive than younger
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workers (1).
• If work is physically demanding (1) older workers’ health may suffer (1).
• There are alternative measures (1) encouraging immigration of people of working age (1) promote private
pensions (1).
350. Discuss whether an ageing population benefits an economy. [8]

• A rise in the average age from a young age (1) may increase the size of the labour force (1) which may
reduce dependency ratio (1).
• Older workers may be more experienced/skilled (1) more reliable (1) leading to higher
productivity/efficiency (1) resulting in higher economic growth/lower unit costs (1).
• May indicate longer life expectancy/better health (1) higher living standards (1) raising the level of
economic development (1).
• The outcome will depend on the cause (1) may be the result of a fall in the birth rate (1) or a fall in the
death rate (1).
• May increase need for healthcare (1) tax revenue used to provide healthcare could have been used for
another purpose/opportunity cost (1) example (1)
• Increase cost of pensions (1) which may require higher taxation (1) which may place a burden on workers
(1).
• May increase dependency ratio (1) more non‐workers will have to be supported by fewer workers (1).
• Reduce mobility of the labour force (1) older workers may be less geographically/occupationally mobile (1).
• Older workers may be less familiar with advances in technology (1) less productive (1).
351. Discuss whether or not a government should be worried about an increase in the proportion of its
population aged over 65. [8]
• May mean more people are retired (1) increase the cost of pensions (1) may have to raise taxes (1) increase
dependency ratio (1) may mean less people in the labour force (1) may lose some skills (1).
• May increase the cost of healthcare (1) the elderly tends to place a greater burden on the health services
(1).
• May reduce the mobility of the labour force (1) older workers tend to be less mobile (1).
• Older workers may be less familiar with new technology (1) less productive (1).
• Longer life expectancy (1) is a feature of economic development (1) raises HDI (1).
• Government could raise retirement age (1) encourage rise in birth rate (1) encourage immigration (1)
increasing the labour force (1) older workers have more experience (1) and so may have higher productivity
(1).
• Improvements in health care (1) may mean people are healthier at older ages (1).
352. Explain how the rate of population growth may differ between a developed country and a developing
country. [4]
• a developed country is likely to have a low rate of population growth (1) e.g. because of a relatively low
birth rate (1)
• a developing country is likely to have a higher rate of population growth (1) e.g. because of a relatively
higher birth rate (1)
353. Discuss to what extent an ageing population is a serious economic problem. [8]
103
Up to 5 marks for why it might be a serious problem:
• increase need for health care (1) tax revenue used to provide health care could have been used for another
purpose/opportunity cost (1)
• increase cost of pensions (1) place a tax burden on workers (1)
• increase the dependency ratio (1) proportionally more non‐workers will have to be supported by
proportionally fewer workers (1)
• reduce mobility of the labour force (1) older workers may be less geographically/ occupationally mobile (1)
Up to 5 marks for why it might not be a serious problem:
• a rise in the average age from a young age is increasing the size of the labour force (1) may reduce
dependency ratio (1)
• older workers may be more experienced (1) leading to higher productivity (1)
• ageing population may not increase dependency ratio/cost of pensions (1) if retirement age is raised (1)
• longer life expectancy (1) raise living standards (1)
354. Explain why the rate of population growth in some countries is greater than in others. [5]
• some countries have a higher birth rate (1) this may be because of, e.g. a high infant mortality rate/lack of
availability of contraception/low cost of raising children/need for children to support parents in old age (1)
• some countries have a lower death rate (1) due to, e.g. better health care/housing/ nutrition (1)
• a birth rate that exceeds the death rate will lead to a natural increase in population (1)
• differences in fertility rates (1) if the fertility rate is below the replacement ratio, the population size will fall
(1)
• differences in net migration (1) some countries experience net emigration whilst others have net
immigration (1) due to, e.g. differences in incomes, job opportunities (1)
Alternatively allow up to 5 marks for a fully developed answer on any one of higher birth rate/lower death rate/net
immigration.
355. Discuss whether an ageing population is always a problem for an economy. [6]
Up to 4 marks for stating that it is always a problem:
• an increase in the dependency ratio (1) with fewer people working to support more older people (1).
• increased government spending on health care (1) and pensions (1) involves an opportunity cost (1),
example (1).
• there may need to be higher taxes for those in work (1) which could cause a disincentive to effort effect
(1).
• it could lead to a shortage of workers (1) which could push up wages (1) leading to inflation (1).
Up to 4 marks for stating that it is not always a problem:
• older people can be an economic asset (1), such as through their knowledge and experience (1).
• firms could be encouraged to give jobs to older people (1) through various government schemes (1).
• the government could increase the retirement age (1), and so control the extent of any problem (1).
• indicates a good health care system (1), increased life expectancy/improved living standards (1).
• dependency ratio may be falling (1) if the increase in average/very young age is increasing the size of the
labour force (1).
• may be importing labour (1) to overcome the potential fall in the supply of labour (1).
Maximum of 3 marks for a list or list‐like answer.
356. Discuss whether the Bulgarian Government should try to reverse the decline in the country’s
population size. [6]
Up to 4 marks for arguing that the government should try to reverse the decline:
• The decline in the population could lead to less demand in the economy (1) which could have a negative
104
effect on the economy, e.g. a higher rate of unemployment (1) and a lower rate of economic growth/living
standards (1)
• Action by the government to increase population results in larger labour force (1), greater demand/higher
output/more employment (1) resulting in higher standard of living/economic growth (1)
• A falling population could lead to lower demand (1), less employment (1) and a further reduction in living
standards (1)
• Expenditure on health as a % of GDP (7.4%) is already much less than the EU average (1), suggesting that it
needs to be increased (1)
Up to 4 marks for arguing that it should not try to reverse the decline:
• There is an opportunity cost (1), the allocation of resources in one area means that fewer resources can be
allocated in other areas (1)
• The government may reallocate resources, such as through spending more on the health service (1), but
there is no guarantee that this will lead to a substantial decrease in the death rate (1)
• Encouragements of an increase in the birth rate not likely to be that successful (1) given the pessimistic
outlook on the economy discovered by the survey (1)
• It may not be worth reallocating resources to meet this objective (1) given that there is actually not much
of a change in the size of population (1)
357. Discuss the effectiveness of possible government policy measures to reduce the growth of population.
[8]
Up to 5 marks for why policy measures may be effective:
• improved/increased education (1) raise the cost of having children (1) people in education tend to delay
having children (1) more educated women are likely to work and have fewer children (1) increase
information about contraception (1) lower birth rate (1)
• improved/increased healthcare (1) lower infant mortality rate may reduce number of children people have
(1) as more expected to survive (1)
• improved/increased state provision of healthcare and pensions (1) reduce need to have children to
support adults in old age (1)
• tighter immigration restrictions (1) may reduce inward migration (1)
• remove state benefits for having children (1) may increase the cost to families of bringing up children (1)
• adopt a “one child per family” policy, such as in China (1) directly reducing population growth (1)
Up to 5 marks for why policy measures may not be effective:
• improved/increased education may also lower death rate (1) is more likely to lead to healthier lives e.g.
eat more nutritious food (1) have higher incomes and so better living standards (1) may also reduce
emigration (1) as may be more job opportunities (1)
• improved/increased healthcare is also likely to reduce death rate (1) if death rate falls by more than birth
rate, population may continue to increase (1)
• tighter immigration restrictions may make it difficult for firms to obtain skilled labour (1) may increase
dependency ratio (1) may be difficult to stop people entering the country (1)
• remove state benefits for having children may increase poverty (1) as poor families may have a large
number of children/be less able to afford to raise children (1) this may increase infant mortality (1) and as a
result people may have more children (1)
• adopting a “one child policy” causes problems with population structure (1) e.g. lack of young people to
support the elderly population (1)
358. Discuss whether population growth is likely to exceed the growth of food production in the future.
[8]
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• Diseases/pests/bad weather might reduce the supply of some food products (1) famines may occur (1).
• Rises in income (1) will increase demand for food (1) put pressure on natural resources (1).
• Reduction in food waste (1) may enable a higher population to be supported by the same amount of food
(1).
• Birth rate may accelerate (1) due to e.g. lack of contraception (1).
• Death rate may fall faster (1) due to e.g. better healthcare (1).
• Shortage of land (1) on which to produce more food crops (1).
• Global warming (1) may reduce the amount of productive land (1).
• Overfishing of the oceans (1) may reduce availability of fish (1).
• Advances in technology (1) greater use of capital equipment (1) may increase the output of food per unit
of land (1).
• Population growth is likely to decline as economies develop (1) birth rates tend to fall (1) as e.g. the cost
of having children increases (1).
• Food consumption per person may be reduced (1) concerns about obesity in some countries (1).
• An individual country may be able to import more food (1) to match any growth in population (1).
• Food production may increase if there is a switch from meat to arable production (1) it takes less land to
produce the same amount of e.g. vegetables (1).
359. Discuss whether countries with high population growth have high economic growth. [6]
• Population growth resulting from net immigration/natural increase (rise in birth rate/fall in death rate) (1)
may increase the labour force (1) increasing productive potential/ability to produce products will rise (1).
• The quality of the labour force may increase (1) if the high population growth is the result of the
immigration of skilled workers/more young people who have received better education than their elders
(1) this will increase productivity (1) increasing productive potential/ability to produce products will rise (1).
• A growing population increases total demand (1) this will encourage firms to increase their output (1) may
attract MNCs to set up in the country (1).
• A higher population may make better use of resources (1) allow firms to take advantage of economies of
scale (1).
• A higher population may increase economic growth in terms of output but not GDP per head (1) if
population grows at a greater rate than GDP (1).
• A higher population may put pressure on resources (1) may be less capital/land per worker (1) reducing
productivity (1) resources may be diverted from increasing productive capacity to coping with more
dependents (1).
• A rise in birth rate/fall in death rate/immigration of the elderly or children will increase dependents (1) the
very young and the old are not economically active (1).
Reward but do not expect reference to the optimum population.
360. Discuss whether having a relatively small population is an advantage or a disadvantage for an
economy. [8]
Up to 5 marks for why it might be an advantage:
• A small population may mean that resources will last over a longer time period (1) enabling economic
growth to continue/sustainable growth (1).
• There may be less environmental damage (1) less risk of overcrowding (1).
• There may be fewer dependents (1) smaller proportion of children and elderly people (1) which can
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increase income per head (1) and may reduce the need for some forms of government spending (1).
• May be less imports (1).
Up to 5 marks for why it may be a disadvantage:
• There may not be enough workers / low labour force (1) to take advantage of resources (1) low output (1)
low tax revenue (1) reduces government ability to spend (1).
• The size of the market for the country’s products may not be large enough / low total (aggregate) demand
(1) less ability to take advantage of economies of scale (1) may be less attractive to MNCs (1).
• May be less exports (1).
361. Discuss whether or not net emigration will reduce poverty in a country. [8]
• Net emigration of workers (1) may result in money (remittances) being set home (1) such remittances may
increase the income of their families (1) allowing them to buy basic necessities (1).
• Net emigration may result in ideas being set home (1) workers may later return with better skills (1) raising
the country’s output (1) increasing employment (1).
• Wages may be raised (1) to retain workers (1).
• If a country is overpopulated (1) net emigration may enable there to be better use of resources (1).
• Net emigration of older people (1) may reduce dependency (1) lower cost of pensions (1) lower healthcare
costs (1).
• Net emigration of unemployed/low‐paid workers may reduce the number living in poverty (1).
• Net emigration of workers may reduce output (1) this could lower tax revenue (1) reduce the revenue the
government can spend on lowering unemployment (1).
• Net emigration of skilled workers may discourage MNCs setting up in the country (1) lowering potential
output/income (1).
• Net emigration of workers may leave their dependents relying on government benefits (1).
• If a country is underpopulated (1) net emigration may mean there is worse use of resources (1)

Chapter 35 Difference in economic development between

countries
362. Identify four characteristics of a developed country. [4]
1 mark for each of four characteristics, e.g.:
• high income per head
• low birth rate
• low death rate
• high dependency ratio
• long life expectancy
• high proportion of the labour force in tertiary sector/low proportion in primary
• low infant mortality rate
• high labour productivity
• high level of saving
• high investment
• high level of literacy/education provision.
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363. Describe three features of a developing country. [6]
1 mark each for identification of three features and 1 mark each for the description:
• low incomes/low GDP per capita (1) low GDP per capita: Gross Domestic Product of a country is low when
divided by the number of people living in that country
• low Human Development Index/low standard of living (1) low standard of living: means low
wages/unemployed can only afford necessities/poor quality ousing/education/health
• low life expectancy (1) low life expectancy: the number of years, on average, that the people in a country
can expect to live, relative to the number of years a person, on average, is expected to live in a developed
country
• low school enrolment/education (1)
• high level of absolute poverty (1) high level of absolute poverty i.e. the basic needs for food, clothing and
shelter are not being met, is much higher than in developed countries
• high level of malnutrition/starvation (1)
• high rate of population growth (1)
• high birth rate (1)
• high death rate (1) high death rate, i.e. the number of people dying in a developing country per thousand of
population is higher than would be the case in a developed country
• high infant mortality rate (1)
• may have a large primary/small tertiary sector (1)
364. Explain two characteristics of a rapidly developing economy. [4]

1 mark each for each of two characteristics and 1 mark each for each of two explanations e.g.:
• high increase in real GDP per head (1) a high increase in real GDP per head will increase living standards/be
caused by e.g. higher investment(1)
• significant improvements in healthcare(1) significant improvements in healthcare will increase life
expectancy/be caused by e.g. higher spending on hospitals(1)
• significant improvements in education(1) significant improvements in education will raise workers’ skills/be
caused by increased spending on universities(1)
• high proportion of workers employed in the tertiary sector(1) as countries develop, workers tend to move
from the primary and secondary sectors to the tertiary sector(1)
• low rates of population growth(1) as countries develop, the birth rate tends to fall faster than the death
rate(1)
• high spending on luxury products(1) as countries develop, people may be able to spend on more than
necessities(1)
• encouragement of MNCs to set up(1) the attraction of MNCs may reduce unemployment(1)
• more use of advanced technology(1) advances in technology due to more research and development and
investment/will raise productivity. (1)
365. Discuss whether developed countries are likely to attract more foreign investment than developing
countries. [8]
Up to 6 marks for why developed countries might:
 possibly high supply of skilled labour [1] good education standards [1] high productivity [1] low costs of
production [1] high profits [1].
 good infrastructure/facilities already established [1], e.g. good road/rail links [1] low costs of transport [1]
high profits [1].
 high demand for products produced [1] due to high incomes/standard of living [1] and so high profits [1].
 way round import controls [1] reduce costs of production [1] raise profits [1].
 stable economy [1] so less risks for foreign investors [1].
 developed legal system [1] which protects property rights [1].
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 supporting ancillary industries/developed tertiary sector [1], e.g. providing banking services/component
parts [1].
 fewer security concerns [1] firms are more confident to invest [1].
 access to better technology [1] more efficient production [1].
Up to 6 marks for why developing countries might attract more FDI:
 expanding markets [1] rising incomes [1] potential to sell large quantities[1] high profits [1].
 high supply of relatively cheap labour [1] low costs of production [1] high profits [1].
 land is cheap/natural resources to exploit [1] these can be exported [1] raising revenue [1].
 possibly less rules and regulations [1] taxes may be lower [1] governments keen to attract foreign firms [1]
low costs of production [1] high profits [1].
 currency may be cheaper [1] making investments cost less [1].
Note: a maximum of 8 marks overall.

Chapter 36 International specialization

366. Explain two advantages of countries specialising. [4]
1 mark each for each reason identified:
• can concentrate on what they are best at / factor endowment
• can reduce average costs / create economies of scale
• can increase output/income/GDP
• can improve quality of output.
1 mark each for each of two reasons explained:
• influenced by factor endowment
• productivity can be increased / more price competitive / increased speed of production
• living standards can rise
• ‘practice makes perfect’.
367. Describe the benefits and disadvantages of specialisation at a regional level. [6]
Up to 4 marks on the benefits:
• regions can concentrate or specialise in what they are good at (1) and this will involve making the most
efficient use of the region’s factor endowments and climate (1).
• this will lead to an increase in output (1) and this will provide for an increase in incomes and living
standards (1).
• may enable the region to develop a reputation for providing the product (1), this may increase demand
(1).
Up to 4 marks on the disadvantages:
• such specialisation could lead to a depletion in the factor endowments (1) and so would not be favourable
in the long‐run (1).
• the region could be vulnerable (1) if new alternative products are produced/grown elsewhere more
cheaply (1).
• there may be a change in world economic conditions (1), making a region that specialises in just a few
products vulnerable, leading to a rise in unemployment (1).
368. Analyse why countries specialise and trade. [5]

• specialising allows countries to concentrate on what they are best at (1) influenced by factor endowment (1)
• specialisation can reduce the (average) costs of production (1) raise productivity (1) efficiency (1) enabling lower
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prices to be charged (1)
• specialisation could increase export revenue/improve trade position (1)
• specialisation can increase output/income/GDP (1)
• specialisation can improve the quality of output (1)
• higher output/income/GDP may raise living standards (1)
• increasing the size of the market (1) can lead to economies of scale (1)
• countries may import products from countries that can produce them more efficiently (1)
• countries may import products to gain a greater variety of goods and services (1)
• countries may import products they cannot produce themselves (1)
Note: reward reference to comparative advantage and/or absolute advantage (max 2 marks) but do not expect it.
Chapter 37 Free trade and protection

369. Explain what is meant by free trade. [4]
• international trade which is not restricted by import controls (1) such as tariffs, quotas or other methods of trade
protection (1)
• allows world output to be increased (1) when each country specialises in producing the goods and services they
are best at producing/with the lowest opportunity cost (1)
• is encouraged by organisations such as the World Trade Organisation (1)
• can increase standards of living (1)
370. Define ‘trade protection’.[2]

Protecting domestic firms (1) from foreign competition (1).
Helping domestic firms (1) to face foreign competition (1).
Implementing trade barriers (1).
Deliberate attempt to limit imports (1).
Government action (1) that restricts international trade (1).
371. Analyse three ways in which international trade differs from internal trade. [6]
1 mark for identification of a difference and 1 mark for analysis:
• International trade usually covers greater distances (1) which increases the cost of transport (1) may take longer
for delivery (1).
• International trade means a bigger market than the internal market (1) and more competitive (1) enabling firms
to gain economies of scale (1)
• Internal trade involves using the same currency (1) international trade may involve two or more currencies (1)
increasing transaction costs (1).
• International trade means a wider range of goods & services (1) this gives consumers greater choice (1)
• Trade restrictions may be imposed on products traded internationally (1) raising costs of production (1).
• Tastes and cultures may differ (1) requiring differences in products offered (1).
• Regulations may differ (1) requiring adjustments in products (1).
• Languages may differ (1) e.g. incurring costs of translation (1).
372. Analyse how a tariff can be used as a method of trade protection. [4]
• a tariff is a tax/duty on imported products (1)
• increases costs of production (1)
• reduces supply (1)
• raises price (1)
• this should lead to a reduction in demand (1)
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• the demand for the home produced/domestic products (substitutes) rises (1)
373. Describe how a tariff could reduce imports [4]

A tariff is a tax on imports (1) tariff increases importing firms’ costs of production (1) a tariff will reduce supply (1) a
tariff will raise price (1) a tariff will reduce quantity demanded (1)
1 mark for relevant reference to PED of imports.
Note: Accept a diagrammatic approach showing supply decreasing, price rising and demand falling for 3 marks.
374. Distinguish between quotas and exchange controls as methods of trade protection. [4]
• Quotas is a restriction/limit (1) on quantity of the imports of goods into a country (1)
• Exchange controls is where a government limits access to foreign currency (1) which makes it more difficult to
buy imports from abroad (1)
375. Explain how two methods of trade protection may reduce imports. [4]
1 mark each for each of two methods identified; 1 mark each for each of two explanations given:
• tariffs – tax on imports will raise price of imports which may reduce demand
• quotas – a limit on imports will restrict quantity of imports that can be purchased
• embargo – a ban on imports will reduce quantity imported to zero
• exchange control – a limit on availability of foreign currency will make it difficult to get the currency to buy
imports
• VER – agreements between governments to restrict exports to each other
• quality standards – making it difficult / expensive to achieve requirements
• subsidies – given to domestic producers to make them internationally competitive expensive paperwork –
increase the costs of exporting to the country
376. Analyse how free trade can reduce firms’ costs of production. [6]
• can allow a country to specialise in what it is best at (1) use resources more efficiently (1)
• no tariffs charged on exports/imports (1)
• increase competition (1) may force firms to reduce costs/increase productivity (1)
• larger market (1) firms may be more able to take advantage of economies of scale (1) example(s) (1)
• more sources of raw materials/capital goods (1) lower price or better quality (1)
377. Analyse how a country could reduce its reliance on imports.[6]

• Replacing imports with domestic products (1) by producing more domestic products / reducing price of
domestic products / raising quality of domestic products (1)
• It could subsidise domestic producers (1) help infant industries to grow (1) replacing imports with domestic
products (1).
• It could place trade restrictions on imports (1) example: e.g. tariffs (1) reason why restriction could reduce
imports e.g. tariff could make imports more expensive (1).
• It could keep its exchange rate low (1) e.g. by buying the currency (1) keeping import prices high (1)
• It could use supply‐side policy (1) e.g. increase spending on education (1) to improve the quality of output (1)
reduce costs of production (1) make domestic products more competitive (1).
378. Discuss whether an economy will always benefit from an increase in international trade. [10]
Up to 7 marks on the benefits of international trade:
• the concentration on the most effective use of resources (1) can lead to greater output (1)
• it can lead to a greater choice for consumers (1), improving standards of living (1).
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• the opportunity to participate in international trade will force domestic firms to be efficient (1), they will
need to be as competitive as possible and this will lead to a reduction in unemployment (1).
• it might be possible for such firms to benefit from economies of scale (1), reducing the costs of production
(1).
• if the value of the exports exceeds the value of the imports, this could lead to a favourable balance of trade
(1), bringing more money into the economy than goes out (1).
Up to 7 marks on the disadvantages of international trade:
• the domestic firms may be less efficient than foreign ones (1) and this could lead to some of them going
out of business (1), leading to an increase in unemployment (1).
• the value of imports could be greater than the value of the exports (1), leading to a trade deficit (1).
• foreign firms may use certain tactics (1) to establish themselves in a market, such as dumping (1), which
could lead to domestic firms being undercut (1).
379. Discuss whether engaging in free trade will always benefit an economy. [10]
Up to 7 marks for the benefits of free trade:
• allows countries to specialise [1] may result in an efficient allocation of resources [1] enables firms to
take advantage of economies of scale [1] lowers costs of production [1] may lower prices [1].
• greater competition [1] raises quality [1] may lower prices [1] increases choice [1].
• protecting domestic industries may be inefficient [1] infant industries may not have the potential to grow
[1] may become dependent on support [1].
• prevents retaliation [1] stops trade wars/keeps exports high [1].
• allows import of resources not available/more expensive domestically [1] allowing firms to produce more
efficiently [1].
• offers consumers a variety of goods and services [1] from a wide range of different countries [1].
Up to 7 marks for disadvantages of free trade:
• may prevent development of infant industries [1] may have high start‐up costs [1] initially unable to take
advantage of economies of scale [1] charge high prices [1]
• there may be unfair competition [1] dumping [1] selling at a price below cost [1] making it impossible for
domestic firms to compete [1].
• may result in declining and strategic industries going out of business [1] sudden increase in
unemployment [1] increase structural unemployment [1].
• increased dependence on other countries for products [1] so less control over what is imported [1] such as
poor‐quality goods/illegal items [1].
Up to 5 marks for a list‐like response.
380. Discuss whether a reduction in a country’s trade protection will improve its economic performance.
[8]
• may increase competition (1) this may put pressure on domestic firms to keep prices low (1) reduce
inflation (1)
• price of imported raw materials may fall (1) this may lower costs of production (1) reduce cost‐push
inflation (1)
• finished imports may be cheaper (1) more imports can increase choice for consumers (1)
• other countries may reciprocate (1) lower trade protection measures (1) enable the country to export more
(1) raise output (1) increase employment (1)
• may drive infant industries out of business (1) reduce output and employment in the long run (1) may harm
the current account position (1)
• may cause declining industries to go out of business more quickly (1) causing unemployment (1)
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• may increase dumping (1) foreign firms may be selling below cost price (1) unfair competition that may
drive domestic firms out of business (1)
• may lower government tax revenue (1) reduce expenditure on, e.g. health care, education (1)
• may become dependent on other countries (1) risk of a supply‐side shock (1)
381. Discuss whether trade protection should always be preferred to free trade. [6]
Up to 4 marks for why trade protection may be preferred:
• protect infant/sunrise industries (1), because they can’t take advantage of economies of scale/high set‐up
costs (1), long‐run may become competitive (1) and (therefore) will no longer need protection (1)
• protect declining/sunset industries (1), to prevent a sudden rapid increase in unemployment (1), and so to
allow time for retraining/reskilling (1)
• prevent dumping (1), that is selling products below cost (1), this will give advantages to consumers in the
short‐run (1), but in the long‐run if domestic firms are driven out of business, prices rise (1)
• to raise revenue for the government (1), in a number of countries tariffs are an important source of income
(1), higher government revenue could be spent to benefit the economy, e.g. spending on education and
healthcare (1)
• to discourage imports (1) reducing the current account deficit (1)
Up to 4 marks for why free trade may be preferred:
• provide opportunities for specialisation (1), in products the country is good at producing (1), this would
improve the allocation of resources (1) and lead to higher output (1) and so higher employment (1), and so
higher living standards (1)
• encourages firms to be more competitive (1), resulting in lower costs (1), leading to lower prices for
consumers (1)
• encourages more trade between countries (1), leading to a wider choice of products for consumers (1).
Maximum of three marks for a list or list‐like response.
382. Discuss whether a country which engages in free trade is likely to have a higher economic growth
rate than one which uses trade protection. [8]
• It may enable countries to concentrate on what they are best at (1) making best use of their
resources/specialisation (1).
• Greater exports bring in foreign revenue (1) contributing to economic growth (1).
• Unrestricted competition may improve efficiency of firms (1) increase sales (1) increase output (1).
• Firms will have more sources of raw materials (1) may lower production costs (1) lower prices (1) increase
international competitiveness (1) make firms more price competitive (1).
• Capital equipment / new technology can be imported (1) gaining new ideas (1) improving production (1).
• Firms may be able to grow (1) take advantage of economies of scale (1) lower average costs (1).
• May attract MNCs (1) that contribute to economic growth (1).
Note: reward but do not expect reference to comparative or absolute advantage.
• May make it difficult for infant industries to grow (1) unable to compete (1) because too small to take
advantage of economies of scale (1).
• May result in declining industries going out of business (1) no longer contributing to output/GDP (1).
• Foreign firms may dump products in the country (1) selling at a price less than cost (1) may drive domestic
firms out of business (1).
383. Discuss whether a government should use trade protection to reduce a current account deficit. [6]
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• Trade protection/tariffs may increase import prices (1) import volumes will fall (1).
• Trade protection/quotas will reduce the quantity of imports (1)
• Trade protection/embargoes will stop imports of certain products (1) may cause lower mport expenditure
(1) reducing a current account deficit (1)
• Trade protection may prevent other countries from dumping their output (1)
• A reduction in a current account can increase output (1) raise incomes (1) reduce unemployment (1)
• Trade protection may provoke retaliation (1) if other countries impose trade restrictions(1) the current
account may not improve (1) GDP may fall (1) unemployment may rise (1).
• Trade protection may discourage firms from becoming efficient (1) this will mean the deficit will continue
(1).
• Other policies may be more effective (1) e.g. increase in income tax (1).
• Trade protection can disadvantage domestic consumers/producers (1) raise price (1) reduce imports of
e.g. raw materials (1) reduce quality (1).
• Some products cannot be produced domestically (1).
384. Discuss whether a government should protect infant industries. [6]

 Infant industries may struggle to compete against foreign competitors (1) because they are not large
enough to take advantage of economies of scale (1) example/s of economies of scale (1) average cost
higher (1).
 To offset predatory pricing from overseas (1) or to develop a strategic or innovative new industry (1) to
reduce reliance on other countries (1).
 Imposition of tariffs (1) would benefit the government through higher tax revenue (1).
 Infant industries may grow (1) increasing output/GDP/economic growth (1) increasing
employment/reduce unemployment (1).
 Infant industries may become reliant on protection (1) not become efficient/not reduce average
costs (1) may not work (1).
 It is difficult to determine which industries have the potential to grow (1).
 Protection of infant industries may provoke retaliation (1) reducing exports of other industries (1).
 There is an opportunity cost (1) the subsidies to infant industry can be used in other areas, such as
education and health care (1).
385. Discuss whether the protection of a declining and inefficient industry in a country can ever be
justified. [6]
Up to 4 marks for why protection can be justified:
• to prevent a rise in unemployment (1) output can be reduced gradually (1) workers who retire or leave will
not be replaced (1) unemployment causes a range of problems e.g. low tax revenue, high costs of benefits (1)
• to protect a strategic industry (1) concern that supplies might be cut off (1)
Up to 4 marks for why protection cannot be justified:
• leads to an inefficient allocation of resources (1) lowers living standards (1)
• may lead to retaliation (1) resulting in a fall in exports (1)
• owners of the industry may resist protection being removed (1) industry will not decline (1)
• better to train workers in new skills (1) subsidise/protect new industries (1)
386. Discuss whether a declining industry should be protected by the government. [5]
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• Will save jobs / prevent unemployment (1) this can prevent living standards falling (1) lower government
spending on unemployment benefits (1) prevent loss of tax revenue (1) give workers time to find other jobs
(1)
• Will stop real GDP / output falling (1) avoid a recession / fall in economic growth (1).
• Will assist exports / reduce imports (1) positive effect on Balance of Payments on current account (1)
• Industry may be a strategic industry (1) such industries are important for the survival of the country (1).
• An inefficient use of resources (1) involves an opportunity cost (1) resources would be better devoted to
infant industries / expenditure on health and or education (1).
• May provoke retaliation (1) other countries may impose trade restrictions (1) this may raise the cost of other
firms/make it difficult for them to sell abroad (1).
• Industry becomes too dependent on government support (1) making it less competitive (1)
387. Explain two benefits that a country may gain from the presence of a foreign multinational company.
[4]
1 mark each for each of two benefits identified, 1 mark each for each of two explanations given:
• higher output / economic growth (1) MNCs’ output will count in the country’s GDP / raise living standards (1)
• higher employment (1) MNCs may employ workers from the country (1)
• contribution to current account position (1) MNCs may export products from the country (1)
• higher tax revenue (1) MNCs profits will be taxed / tax revenue can be spent on e.g. education (1)
• new technology introduced (1) MNCs may use more advanced capital equipment (1)
• encourage other MNCs to invest (1) more MNCs can increase employment (1)
• increase competition (1) increased competition may make domestic firms more efficient/more productive
/lower prices (1)
• increase variety of products produced (1) a greater variety of products will increase consumer satisfaction (1)
• train workers in new skills (1) more skilled workers will be more productive (1)
388. Discuss whether an economy would benefit from a foreign producer setting up in the country. [8]
• increase GDP (1) raise living standards (1)
• create new jobs (1) lower unemployment (1) less spent on benefits (1)
• pay higher than local wages (1)
• bring new knowledge and skills (1) boosting productivity (1)
• pay (corporation) taxes (1) increasing government revenue (1)
• increased (inward) investment (1)
• creates competition for domestic firms (1) making them cut costs/become more efficient (1)
• contribute to the country’s exports (1) improve the current account position (1)
• sell more cheaply in the country (1) as lower transport costs (1)
• country benefits from improved infrastructure (e.g. roads) built by foreign producer (1)
• creates demand for products of local firms e.g. components (1)
• may drive local producers out of business (1) so not adding to GDP, employment, etc. (1)
• may create external costs (1) e.g. pollution (1) may set up in the country to get round regulations at home
(1)
• top jobs may be taken by workers from the MNC’s home country (1) jobs created for locals may be unskilled
(1)
• profits earned from the firm may be sent home (1) so not benefiting the home economy (1)
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• it may have powerful influence on the government (1) reducing budget revenues by demanding tax
relief/subsidies (1)
389. Discuss whether a country’s economy would be harmed if multinational companies moved out. [8]
• Employment may fall (1) and output/income/GDP/economic growth may decline (1).
• The current account position may worsen (1) as the MNC may have contributed to exports (1).
• Wages may fall (1) if the MNC was paying above wages paid by domestic employers (1).
• Government tax revenues may fall (1) reducing its ability to spend on e.g. education (1).
• Less variety of products may be available to consumers (1).
• Discourage other MNCs setting up (1).
• The MNC may have been depleting the country’s resources (1) reducing its ability to grow in the future (1).
• More domestic firms may set up/expand (1) to meet the demand that had previously been supplied by the
MNC (1).
• The MNC have been sending profits home (1) and so tax revenue may not fall significantly (1).
• The MNC may have been putting pressure on the government to follow policies not in the country’s interest
(1).
• The MNC may not have created much employment (1) keeping top jobs for workers from own country (1).
• MNCs may have been subsidised (1) can use tax revenue for other purposes (1)
390. Discuss whether the establishment of a multinational company in a country will always be beneficial
for all the workers it employs. [8]
Up to 6 marks for arguing that it will always be beneficial for all the workers it employs:
• it provides employment, avoiding someone being without a job (1), and this will increase incomes (1)
• employees will acquire skills/receive training (1) which will improve their employment/wage prospects
generally (1)
• the employment will enhance living standards (1), especially if the firm pays wages above a country’s
minimum wage (1)
• results in higher government tax revenue (1) which could be used to improve education/health services
benefitting workers
• employees may receive discounts on the products that the company produces (1), saving them money (1)
Up to 6 marks for arguing that it will not always be beneficial for all the workers it employs:
• the multinational company may decide to relocate to another country in the future (1), making the
employee redundant (1)
• some jobs may involve very little skills (known as ‘screwdriver jobs’)/may bring in skilled workers from
abroad (1), so the benefit of working for the multinational company can be exaggerated (1)
• the multinational company seeks to maximise profits and may forgo environment (1) putting health of
workers at risk (1)
• the remuneration may only be equal to a country’s minimum wage (1) and the large profits made by the
company will then be repatriated to the home country and not invested in the firm, e.g. the facilities
provided (1)
• for comments about poor working conditions (1) due to lack of trade unions to protect workers(1)
• employees may have had to work there for a minimum number of years (1) to take advantage of any
discounts (1)
391. Discuss whether engaging in free trade increases living standards in a country. [6]
116
 Free trade may increase competition / removal of tariffs and quotas (1) encourages multinational
corporations (MNCs) to set up in country (1) specialise (1) drives down prices (1) promotes efficiency (1)
encourages innovation (1) increases quality (1) increase the range of products available (1) reduce
unemployment (1) raise income/GDP (1).
 May increase the size of firms’ markets (1) allowing them to take advantage of economies of scale (1).
 Free trade may cause some industries to go out of business (1) increasing unemployment (1) reducing
incomes / GDP falls (1) may cause higher pollution (1).
 Unsafe products/low quality products may be imported (1).
 Dumping may occur (1) driving out domestic producers (1) which can raise prices (1) lower quality in the
long run (1).
392. Discuss whether multinational companies (MNCs) will always locate in countries with a high GDP
per head. [8]
Up to 5 marks for why some will:
• The countries will have high average incomes (1) there may be a high demand for the firms’ products (1)
can sell at high prices (1) increase revenue (1) raise profits (1)
• The countries may have a skilled labour force (1) high labour productivity (1) low costs of production (1)
• The countries may have better infrastructures, e.g. motorways (1) reducing transport costs (1) making
transport more reliable (1)
Up to 5 marks for why some will not:
• Countries with a high GDP per head may not have supplies of specific raw materials/they may be expensive
(1) which the companies can use for their production (1)
• Countries with a high GDP per head may have few unemployed workers (1) that the firms can recruit (1) at
low wages (1)
• Countries with a high GDP per head may have more expensive labour (1) land (1) making production costs
high (1)
• The government of the country may provide subsidies for the firms to set up there (1) this would, in effect,
reduce average costs (1)
• There may already be (similar) MNCs in the country (1) increasing competition (1) increasing PED for the
firm’s products (1) reducing ability to charge high prices (1)

Chapter 38 Foreign Exchange rate

393. Define ‘exchange rate’. [2]
The price (value) of a currency/how much a currency is worth (1) in terms of another currency/currencies. (1)
Note: allow 1 mark for an example e.g. £1 = $2.
394. What is meant by a ‘depreciation’ of a currency? [2]

A fall in value (1) of a floating exchange rate (1) compared to another currency (1)
395. Define ‘devaluation’. [2]

A fall in the value (1) of the currency (1) in the case of a fixed exchange rate/caused by government decision /
117
against other currencies (1)
396. Explain the difference between a fixed exchange rate and a floating exchange rate. [4]
• The value of a fixed exchange rate is set by the government (1) using purchases and sales of foreign
currency/changes in interest rates (1)
• The value of a floating exchange rate is determined by market forces (1) changes in demand and supply of
currency (1) e.g. a rise in demand causes currency to appreciate (1)
397. Explain two benefits of a floating exchange rate system. [4]

• no need to keep reserves of foreign currencies (1) as the central bank will not be buying the currency to support
its value (1)
• the exchange rate should move automatically/it is self‐correcting (1) to eliminate a current account
deficit/surplus (1)
• allows a government to concentrate on other aims e.g. full employment (1) as interest rate changes/foreign
exchange dealings do not have to be undertaken (1)
• market forces determine the exchange rate (1) equilibrium price will be achieved (1)
398. Analyse why a country’s exchange rate may rise in value. [6]
• the government/central bank [1] may decide to raise the value of a fixed exchange rate [1] by buying the
currency [1] or raising the rate of interest [1].
• demand for exports may rise [1], e.g. due to rise in incomes abroad/rise in quality of domestic products/fall
in domestic inflation rate/rise in domestic productivity [1] will increase demand for the currency [1].
• demand for imports may fall [1], e.g. due to fall in domestic incomes/rise in quality of domestic
products/rise in inflation abroad/fall in productivity abroad [1] will reduce the supply of the currency [1].
• FDI(foreign direct investment) into the country may increase [1] which will increase demand for the currency
[1].
• speculation [1] traders may buy the currency expecting its value to rise in the future [1].
• demand for the currency increases [1] supply of currency falls [1].
1 mark for: demand for the currency exceeds the supply.
399. Analyse the causes of an increase in a country’s exchange rate. [6]

• Change in market conditions for a floating exchange rate (1)
• Increase in demand for the currency (1) cheaper exports/higher quality exports (1) may lead to greater demand
for exports (1) higher interest rates may increase demand for financial investment (1) there may be speculation
that the currency may rise further (1)
• Decrease in supply of the currency (1) more expensive imports/poorer quality imports/trade barriers (1) may lead
to lower demand for imports (1) lower interest rates may cause inward financial investment (hot money) to fall (1)
• Government decision to raise the value of the currency (1) for a fixed exchange rate (1)
400. Explain two reasons why an economy may have a high foreign exchange rate. [4]
• a high demand for the currency (1) this may arise from e.g. good quality/lower price of exports/speculation that
the currency will rise in the future (1)
• a low supply of the currency (1) due to, for instance, a low demand for imports/a low level of investment abroad
(1)
• government setting a high exchange rate (1) by buying the currency/raising the exchange rate (1)
401. Discuss whether an increase in exports will increase the exchange rate. [8]
• The exchange rate is the price of a currency (1)
118
• An increase in exports may increase export revenue (1) this will increase demand for the currency (1)
higher demand pushes up the price of the currency (1) raising the value of a floating exchange rate (1)
which is determined by market forces (1).
• Exports may increase but export revenue may not (1) more exports may be bought for a lower price (1)
and so demand for the currency will not rise (1).
• An increase in exports may be offset by an increase in imports / lower interest rate (1) or government
intervention by selling domestic currency (1) so demand of currency decrease and supply of the currency
will increase (1) which may leave the exchange rate unchanged (1).
402. Analyse how an appreciation of the exchange rate may reduce the country’s inflation rate. [6]
An appreciation in the exchange rate means a rise in the value of the currency (1) higher export prices (1) lower
import prices (1) less competitive (1) may reduce net exports (1) may increase imports (1) lower total demand (1)
reduce demand‐pull inflation (1).
Lower import prices will reduce the price of some of the products people in the country buy (1) may lower price of
raw materials (1) lower costs of production (1) reduce cost‐push inflation (1).
Lower import prices and higher export prices will put pressure on domestic firms to keep prices low (1).
403. Explain how a depreciation of a currency can cause a rise in the inflation rate of a country. [4]
A fall in the exchange rate will increase the price of imports (1) this will directly increase the domestic price level (1)
costs of imported raw materials will increase (1) firms raise prices to maintain profits (1) causing cost‐push inflation
(1).
A fall in the exchange rate may reduce competitive pressure on domestic firms (1) to keep price rises low (1).
A fall in the exchange rate will reduce the price of exports (1) this may increase total (aggregate) demand (1)
causing demand‐pull inflation/shown on a diagram (1).
404. Analyse how a fall in the rate of interest may affect a country’s exchange rate. [6]
A fall in the rate of interest may increase demand/spending (1) increasing the demand for imports (1) the higher
demand may result in products being diverted from the export market to the domestic market (1) increased
spending on imports will increase the supply of the domestic currency (1) lower revenue from exports will reduce
the demand for the domestic currency (1) price of currency will fall (1).
A fall in the rate of interest may discourage foreigners from putting money into the country’s banks (1) this will
reduce demand for currency (1) some domestic residents may decide to move funds abroad (1) this will increase the
supply of the currency (1) the price of the currency will fall (1).
A fall in the rate of interest may encourage firms to invest/attract foreign firms to invest in the country (1) spend
more on capital goods (1) increase efficiency (1) increase exports (1) increase demand for the currency (1) raise
exchange rate (1)
405. Discuss whether a fall in the international value of its currency will always benefit an economy. [8]
• it will lower export prices (1) and raise import prices (1) make domestic products more internationally
competitive (1) this may raise export revenue and lower import expenditure (1) if demand for exports and
imports is elastic (1) this may improve the current account position/reduce a current account deficit (1)
• producing more domestic products (1) may raise output/GDP (1) cause economic growth (1) raise
employment/reduce unemployment (1) increase income (1) and living standards (1)
• if the value was being maintained by the government above the equilibrium level (1) reserves of foreign
currency may not now have to be used (1) these could be used for another purpose (1) interest rate may
119
not have to be as high (1) a lower interest rate may stimulate economic activity (1)
• higher import prices may cause cost‐push inflation (1) raise costs of raw materials and capital goods (1)
increase costs of production (1) put less downward pressure on domestic firms to be price competitive (1)
• lower prices of exports may be offset by low quality of exports (1) fall in incomes abroad (1) increase in
trade restrictions imposed by foreign governments (1)
• demand for exports and imports may be price inelastic (1) in this case export revenue may fall (1) and
import expenditure may rise (1)
406. Discuss whether a firm would benefit from a fall in its country’s exchange rate. [5]
• Lower prices of exports (1) increase demand for its products (1) raise sales / revenue (1) increase profits
(1).
• Increase size of market (1) enabling it to take greater advantage of economies of scale (1) lower average
costs of production (1).
• Price of imports increase so Domestic producers can produce goods cheaper than overseas goods (1)
resulting in higher home sales (1).
• Increase price of imported raw material and capital goods (1) raise a firm’s costs of production (1) lower
profits (1).
• If demand for exports is price‐inelastic (1) a fall in price of exports will cause a fall in revenue (1).
• A fall in the exchange rate (1) may create uncertainty, making it difficult for a firm to plan (1)
• Maybe recession in other countries (1) will not result in increased sales (1).
• Quality of goods may be poor compared with other competitors (1) sales do not rise (1).
407. Discuss whether a government should devalue the country’s exchange rate. [8]
A devaluation will reduce the price of exports (1) raise the price of imports (1).
• Export revenue may increase (1) and import expenditure may fall (1) improving the current account
position/reducing a current account deficit (1).
• May increase total demand (1) causing economic growth (1) reducing unemployment (1).
• The currency may initially be overvalued (1) foreign reserves may have to be used to buy the currency (1).
• Some MNCs may be attracted by a lower exchange rate (1) make exports from the country more
competitive (1).
• It may cause inflation (1) rise in price of finished imported goods (1) rise in price of imported raw materials
(1) higher costs of production (1) higher total demand (1) because of rise in net exports (1).

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IGCSE Economics Structured Question

2. Why can the economic problem never be solved? [2] ................................................................................................ 17

Chapter 2 Factors of production ................................................................. 17

4. What is the difference between labour and enterprise? [4] ......................................................................................... 17

5. Identify the two human factors of production. ............................................................................................................ 17

6. Identify two risks that entrepreneurs have to bear. [2] ................................................................................................ 17

Chapter 3 Opportunity cost ......................................................................... 17

9. Explain why scarcity gives rise to an ‘opportunity cost’. [4] ...................................................................................... 17

Chapter 4 Production Possibility Curve ..................................................... 19

Chapter 13 Market Economic System ......................................................... 22

Chapter 15 Mixed Economic System ........................................................... 22

31. Explain how resources are allocated in a market system. [4]...................................................................................... 23

Chapter 14 Market Failure ......................................................................... 24

37. Why is pollution an example of market failure? ......................................................................................................... 24

43. Analyse the social benefits of giving vaccinations. [6] ............................................................................................... 25

45. Analyse the causes of market failure. [6] .................................................................................................................... 26

Chapter 7-10 Demand & Supply ................................................................. 28

54. Define ‘equilibrium price’. ......................................................................................................................................... 28

55. Describe what determines ‘equilibrium price’. [2] ..................................................................................................... 28 3

56. Define a substitute and give an example. [2] .............................................................................................................. 28

57. Giving an example, define ‘complements’. [2] ........................................................................................................... 28

Chapter 11-12 PED & PES ......................................................................... 33

75. Describe the concept of price elasticity of demand. [4] .............................................................................................. 34

76. Define ‘price-inelastic demand’. [2] ........................................................................................................................... 34

77. Define ‘price elasticity of supply’. [2] ........................................................................................................................ 34

Chapter 16 Money and Banking ................................................................. 37

90. Define a ‘standard for deferred payments’. [2] ........................................................................................................... 37

91. Define ‘Central Bank’. [2] .......................................................................................................................................... 37

93. Explain two functions of money. [4] ........................................................................................................................... 37

96. Define commercial bank. [2] 22/MJ/2018 .................................................................................................................. 37

98. Explain two functions of a commercial bank. [4] ....................................................................................................... 38

101. Describe two functions of a central bank. [4] ............................................................................................................. 38

102. Analyse the importance of a central bank in an economy. [7] .................................................................................... 39

104. What is sold on a stock exchange? [2] ........................................................................................................................ 39

105. Explain two functions of a stock exchange. [4] .......................................................................................................... 39

Chapter 17 Households ............................................................................... 40

113. Identify two influences on the amount people save. [2].............................................................................................. 41

Chapter 18 Workers .................................................................................... 43

130. Discuss whether workers benefit from specialising. [8] ............................................................................................. 45

Chapter 19 Trade Union ............................................................................. 46

132. Describe what is meant by a trade union. [4] .............................................................................................................. 46

133. Identify two aims of a trade union. [2] ........................................................................................................................ 46

134. Explain two influences on the strength of a trade union. [4]....................................................................................... 46

136. Identify two reasons why workers go on strike. [2] .................................................................................................... 47

138. Explain why governments may discourage strikes. [4] ............................................................................................... 47

148. Define ‘private limited company’. [2] ........................................................................................................................ 50

149. Identify two features of a sole proprietor. [2].............................................................................................................. 51

151. Analyse the advantages of being a sole trader. [6] ...................................................................................................... 51

152. Distinguish between a sole proprietor and a partnership. [4] ...................................................................................... 51

153. Describe two features of a partnership. [4] ................................................................................................................. 51

154. Describe two characteristics of a co-operative. [4] ..................................................................................................... 51

Chapter 20 Firms-Growth of firms ............................................................. 52

159. Define ‘conglomerate integration’ [2] ......................................................................................................................... 52

166. Analyse the advantages of vertical integration. [4] ..................................................................................................... 54

Chapter 20 Firms-Economies of Scale........................................................ 54

173. Analyse three advantages of small firms. [6] .............................................................................................................. 56

174. Discuss the advantages and disadvantages of small firms. [8].................................................................................... 57

Chapter 21 Firms and Production .............................................................. 59