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IGCSE Economics 0455

Paper 2
Structured revision paper
Name: _________________________
INDEX
FEB/MARCH MAY/JUNE OCT/NOV
Year/Var 22 21 22 23 21 22 23
2018
2019
2020
2021
2022
Cambridge International Examinations
Cambridge International General Certificate of Secondary Education
ECONOMICS 0455/22
Paper 2 Structured Questions May/June 2018
2 hours 15 minutes
No Additional Materials are required.
* 9 5 9 7 4 0 0 1 2 7 *
READ THESE INSTRUCTIONS FIRST
An Answer Booklet is provided inside this Question Paper. You should follow the instructions on the front cover
of the Answer Booklet. If you need additional answer paper ask the invigilator for a Continuation Booklet.
Section A
Answer Question 1.
Section B
Answer any three questions.
The number of marks is given in brackets [ ] at the end of each question or part question.
This document consists of 5 printed pages, 3 blank pages and 1 Insert.
DC (SC/FC) 148196/2
© UCLES 2018 [Turn over
2
Section A
Answer this question.
1 Crisis in the ice cream market
Vanilla is used in the production of soft drinks, cakes and perfumes. Its main use, however, is in
the production of ice cream. Fig. 1 shows the different costs of making ice cream for one firm.
Fig. 1 The costs of producing ice cream for one firm
raw materials
including vanilla
other wages
insurance
security
lighting rent
Madagascar is the world’s largest supplier of vanilla followed by Mexico and Tahiti. At the start of
2016, economists expected the price of ice cream to increase as the price of vanilla had risen by
130% in 2015. This was largely because of the poor harvests in Madagascar which reduced the
output of vanilla in 2015.
Ice cream is seen as a luxury product in most countries. It has a range of substitutes and this is
one reason why producers do not always pass on higher costs to consumers. In 2015, there were
a number of other changes in the production of ice cream including a rise in the productivity of the
workers.
As well as vanilla, Madagascar produces a number of other primary products including coffee and
sugar. Nearly 80% of the country’s labour force is employed in the primary sector. The country has
a relatively low Gross Domestic Product (GDP) per head and a relatively low Human Development
Index (HDI) value as shown in Table 1. This limits the amount that people in Madagascar save.
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Table 1 GDP per head and HDI in selected countries in 2015
Country GDP per head (US$) HDI
Argentina 22 400 0.836
Bangladesh 3 600 0.570
Cuba 10 200 0.769
Egypt 11 500 0.690
Ghana 4 300 0.579
Madagascar 1 500 0.510
Half of Madagascar’s population live in poverty. The government is trying to reduce poverty by
introducing a programme of cash benefits. It is hoped that one effect of this will be to increase
school enrolment and attendance of the children of poor families. To increase economic growth,
the government has sold off a number of state-owned enterprises and is moving the economy
towards a market system.
(a) Identify two fixed costs of production in Fig. 1. [2]
(b) Explain, using information from the extract, two reasons why a rise in the price of vanilla
might not cause an increase in the price of ice cream. [4]
(c) Analyse, using a demand and supply diagram, the effect of an increase in income on the
market for ice cream. [5]
(d) Analyse the extent to which the relationship shown in Table 1 between countries’ GDP per
head and their HDI value is the expected one. [4]
(e) Discuss whether or not a government should encourage people to save more. [5]
(f) Explain, using information from the extract, how cash benefits given to the poor can reduce
poverty. [4]
(g) Discuss whether or not a market system benefits consumers. [6]
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Section B
Answer any three questions in this section.
2 Swaziland is a small African country where six in ten people live in poverty and most firms are
small and use little capital equipment. In October 2015 it opened a new airport. Some economists
suggest that the building of the airport involved a high opportunity cost and caused a range of
external costs. The building of the airport is part of the government’s plan to turn the country from
a developing into a developed country.
(a) What may be the opportunity cost of building an airport? [2]
(b) Explain two reasons why a government would want to turn its country from a developing into
a developed country. [4]
(c) Analyse the external costs that can be caused by the building and expansion of an airport. [6]
(d) Discuss whether people would prefer to buy a product from a small firm or a large firm. [8]
3 Farms in the USA are getting larger. One dairy farm in the state of Indiana has over 38 000 cows.
Farms in the USA compete with farms in both developed and developing countries. The value of
the farms’ exports of milk appears in the trade in goods section of the current account of the USA’s
balance of payments.
(a) Identify two examples of capital goods that may be used by a farm. [2]
(b) Explain how a country could have a trade in goods surplus, but a deficit on the current account
on the balance of payments. [4]
(c) Analyse the economies of scale from which a farm may benefit. [6]
(d) Discuss whether or not developing countries benefit from producing mainly primary products.
[8]
4 In the UK, bus journeys outside London have fallen by nearly 40% since 1980. This fall in demand
has been largely due to a rise in bus fares, a rise in income and changes in the price and quality of
substitutes. On some routes there are monopolies operating and this lack of competition can push
up the price.
(a) Define a substitute and give an example. [2]
(b) Explain two advantages a firm may gain from being a monopoly. [4]
(c) Analyse how price elasticity of demand for a product influences the revenue a firm receives.
[6]
(d) Discuss whether or not a government should subsidise bus transport. [8]
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5 In October 2015, the Chinese government switched from its one child policy to a two child policy
partly because of the challenges caused by an ageing population. The birth rate was falling
anyway due to rising female participation in the labour force, improvements in education, later
marriages and the rapidly rising price of housing.
(a) Identify two causes of an ageing population. [2]
(b) Explain why the price of housing may increase. [4]
(c) Analyse why more women may enter the labour force. [6]
(d) Discuss whether or not a rise in the birth rate will benefit an economy. [8]
6 In February 2016, share prices on stock exchanges fell throughout the world. There were a
number of reasons for this; including concerns about the slowdown in world growth, the possibility
of deflation and unemployment, and fears that some commercial banks could go out of business.
(a) Define commercial bank. [2]
(b) Explain how a stock exchange could encourage economic growth. [4]
(c) Analyse what can cause deflation. [6]
(d) Discuss whether or not government policy measures to reduce unemployment will cause
inflation. [8]
7 World output has grown in recent years, but a number of countries have experienced a recession.
The removal of trade restrictions such as import tariffs has slowed down, reducing the growth of
world trade.
(a) Define import tariff. [2]
(b) Explain two benefits of an increase in world output. [4]
(c) Analyse how a recession may reduce a country’s imports. [6]
(d) Discuss whether or not a developing country will benefit from the removal of trade restrictions.
[8]
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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
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Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2018 0455/22/M/J/18

ECONOMICS 0455/22
Paper 2 Structured Questions February/March 2018
2 hours 15 minutes
* 5 8 7 3 7 7 0 4 8 6 *
Section A
Answer Question 1.
Section B
DC (KN/FC) 148194/2
2
Section A
1 India’s high-technology industry
India has a number of expanding industries including construction, engineering, healthcare

and retail. Its high-technology industry, which is often referred to as ‘hi-tech’, is its most rapidly
growing industry, adding more than 200 000 jobs a year. It currently employs more than 10 million
people and accounts for exports worth US$90 billion each year. Firms in the industry specialise
in research and development, electronics and software production. Software production includes
applications (apps) for smartphones and tablets.
One Indian hi-tech firm has developed an app that allows people to look at menus in a range
of restaurants, to book a table and to order food. The firm now supplies the app in a number of
countries including the Philippines, Turkey and the USA. This Indian hi-tech firm also produces
electronic equipment in these countries. One of the reasons for its expansion abroad is the
relatively low demand for restaurant meals in India. This situation could change soon as incomes
rise and restaurants increase their advertising, including on the firm’s app.
India’s hi-tech industry is concentrated in Bengaluru (Bangalore). The city has strong links to
universities and multinational companies (MNCs) and is home to some of India’s most innovative
entrepreneurs. Some of these entrepreneurs come from other countries. Immigrants play a large
role in the creation and growth of hi-tech firms throughout the world. A number of factors can
encourage entrepreneurs to move to another country including a low rate of tax on profits.
An expanding economy is a key influence on the number of new firms that are set up. In turn,
economic growth is influenced by how much firms spend on capital goods (investment). Fig. 1
shows India’s economic growth rate and the percentage change in investment in India between
2008 and 2014. India’s economic growth rate peaked in 2010. It then fell in 2011 and 2012 caused,
in part, by a rise in the interest rate and concerns about future economic prospects.
Fig. 1 Economic growth rate and percentage change in investment in India 2008–14
%
14
12
10
8
6
4
2
0
2008 2009 2010 2011 2012 2013 2014
–2
Economic growth rate (%) Change in investment (%)
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(a) Identify, using information from the extract, two industries that operate in the secondary
sector of the Indian economy. [2]
(b) Explain, using information from the extract, two reasons why the price of restaurant meals in
India is likely to increase in the future. [4]
(c) Analyse how a government can encourage enterprise. [5]
(d) Analyse the extent to which the relationship shown in Fig. 1, between changes in India’s
investment and its economic growth rate, is the expected one. [4]
(e) Discuss whether or not a city such as Bengaluru should specialise in one industry. [5]
(f) Explain, using information from the extract, two reasons why some Indian people might have
spent less in 2012. [4]
(g) Discuss whether or not an economy would benefit from its firms producing in other countries.
[6]
Section B
2 It is forecast that by 2022 India will overtake China as the world’s most highly populated country.
China’s birth rate is lower than India’s and China has a higher proportion of its population aged
over 65. By 2050, it is estimated that 500 million Chinese people and 330 million Indian people
will be over 65. Changes in population size and age structure affect the quantity and quality of a
country’s resources.
(a) Define resources. [2]
(b) Explain two reasons why the quality of a country’s resources may increase. [4]
(c) Analyse the reasons why a country’s birth rate may fall. [6]
(d) Discuss whether or not a government should be worried about an increase in the proportion
of its population that is aged over 65. [8]
3 Taxi drivers usually have to buy a licence to carry passengers. The relatively high fixed cost of the
licence discourages some people from becoming taxi drivers. Encouraging more people to be taxi
drivers would be likely to reduce taxi fares and unemployment. It may, however, increase traffic
congestion.
(a) Define fixed cost. [2]
(b) Explain why traffic congestion is an external cost. [4]
(c) Analyse how a taxi firm can use information about price elasticity of demand for its service.
[6]
(d) Discuss whether or not a reduction in unemployment always increases living standards. [8]
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4 In March 2016, the Canadian government announced increases in government spending including
an increased subsidy to environmentally friendly technology. It also announced that high income
earners would face an increase from 29% to 33% in the highest rate of income tax. Changes in
government spending and taxation can influence a country’s inflation rate.
(a) Define subsidy. [2]
(b) Explain two disadvantages of inflation. [4]
(c) Analyse how an increase in government spending may cause inflation. [6]
(d) Discuss whether or not an increase in the highest rate of income tax will benefit an economy.
[8]
5 South Africa has more than 700 state-owned enterprises, a number of which have engaged
in vertical integration and horizontal integration. Some of the state-owned enterprises are
monopolies, including a railway monopoly. A leading South African economist has argued that
more of the country’s resources should be devoted to building and operating new railway lines
and stations.
(a) Define state-owned enterprise. [2]
(b) Explain the difference between vertical integration and horizontal integration. Give an example
of each. [4]
(c) Analyse how a monopoly could benefit consumers. [6]
(d) Discuss whether or not a country should devote more of its resources to building and
operating new railway lines and stations. [8]
6 The effects of a depreciation of a currency are influenced by the price elasticity of demand of
exports and imports. Worldwide there has been a reduction in trade barriers including tariffs.
There has also been an increase in the movement of goods and services between countries and,
to a lesser extent, the movement of people. Some countries experience net emigration with more
people leaving the country than entering it.
(a) Define depreciation of a currency. [2]
(b) Explain two reasons why demand for a country’s exports may be price-inelastic. [4]
(c) Analyse how a reduction of its import tariffs could increase a country’s output. [6]
(d) Discuss whether or not net emigration will reduce poverty in a country. [8]
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7 France is a mixed economy. During recent years there have been a number of changes in its
labour market. More workers are employed in the tertiary sector and fewer workers in the primary
sector. Average working hours have increased and public sector workers have received wage
rises.
(a) Define mixed economy. [2]
(b) Explain two advantages of working in the tertiary sector rather than the primary sector. [4]
(c) Analyse why a trade union may oppose a rise in working hours. [6]
(d) Discuss whether or not a government should increase the wages it pays to workers in the
public sector. [8]
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ECONOMICS 0455/21
2 hours 15 minutes
* 1 9 2 0 3 7 6 1 2 1 *
Section A
Answer Question 1.
Section B
DC (SC/FC) 148195/2
2
Section A
1 Banking and unemployment in Morocco
Morocco’s banking industry has been described as one of the best in Africa. It has some of Africa’s
largest commercial banks, but three out of nineteen control more than two-thirds of the market.
These three have grown mostly through mergers and it is expected more mergers will occur
between Moroccan banks in the future.
The banks make use of brand names, set their own interest rates on loans and provide some
different services. The larger banks tend to lend to large firms. Small and medium sized firms find
it more difficult to get loans.
More than 60% of the population now make use of the services of commercial banks. The
proportion of families opening savings accounts at commercial banks is increasing.
Moroccan banks now have branches in 22 African countries as well as a number of European
countries. They are also expanding in Morocco, creating more jobs. Morocco has a relatively high
unemployment rate. Fig. 1 shows the unemployment rate in 2015 in a range of African countries
including Benin, a relatively poor country. Benin has a large labour-intensive, subsistence farming
sector. Fig. 1 also shows youth unemployment and population growth. Unemployment rates vary
between different groups. Youth unemployment is often twice the rate of the overall unemployment
rate.
Fig. 1 The unemployment rate, youth unemployment rate and population growth rate
in selected African countries in 2015
45
40
35
30
rate (%)
25
20
15
10
5
0
Benin Egypt Morocco Nigeria Uganda
Unemployment rate Youth unemployment rate Population growth rate
In Morocco, the population is increasing at a faster rate than new jobs are being created. The rising
unemployment rate is affecting wage rates in the country. As with unemployment, wage rates vary
between different groups. Older workers, for example, tend to be paid more than younger workers.
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(a) Identify, using information from the extract, two functions of a commercial bank. [2]
(b) Explain, using information from the extract, two reasons why the banking market in Morocco
is not an example of perfect competition. [4]
(c) Analyse why a commercial bank may prefer to sell its services in foreign countries rather than
in its home country. [5]
(d) Analyse whether the information in Fig. 1 supports the view that:
(i) countries with high population growth rates have a high unemployment rate [2]
(ii) the youth unemployment rate is usually twice that of the overall unemployment rate. [2]
(e) Discuss whether or not older workers are always paid more than younger workers. [5]
(f) Explain, using information from the extract, one reason why a relatively poor country may
have a low unemployment rate. [4]
(g) Discuss whether or not commercial banks in Morocco would benefit from further mergers. [6]

4
Section B
2 In England football stadiums are usually built and financed by the private sector, but in some
countries the stadiums are built and financed by the government. Many football stadiums in the
English Premier League are full on match days. In the short run the supply of seats is perfectly
inelastic. The football clubs could actually raise prices, still sell their tickets and so raise their
profits. Premier League footballers currently receive very high wages.
(a) Define perfectly inelastic supply. [2]
(b) Explain two reasons why a firm may not aim to earn maximum profit. [4]
(c) Analyse why Premier League footballers receive very high wages. [6]
(d) Discuss whether or not a government should spend some of its tax revenue on building sports
stadiums. [8]
3 In 2014, the government of Kazakhstan devalued its currency, the tenge. A year later the country
still had a current account deficit. Therefore, in 2016 it considered adopting a floating exchange
rate which might help to remove the deficit. However, it had concerns that this might affect the
country’s inflation rate which was already high at 17%.
(a) Define devaluation. [2]
(b) Explain two advantages of a floating exchange rate. [4]
(c) Analyse how fiscal policy measures could reduce inflation. [6]
(d) Discuss whether or not a reduction in a current account deficit on the balance of payments
will benefit an economy. [8]
4 In 2015, the Tripartite Free Trade Area (TFTA) was established. It covers 26 countries and is
the biggest free trade area in Africa. Removing trade restrictions can enable economies to take
greater advantage of economies of scale. Some economists argue that improving Africa’s roads
would be more beneficial and would do more to reduce a current account deficit on the balance of
payments and raise living standards.
(a) Define economies of scale. [2]
(b) Explain two benefits consumers may gain from free trade. [4]
(c) Analyse how reducing transport costs could increase a country’s exports and imports. [6]
(d) Discuss whether or not raising living standards is the most important economic objective for
developing countries. [8]
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5 The government of Slovenia has introduced a range of supply-side policy measures to influence
the country’s inflation rate. Among other factors affecting the economy is a change in trade union
membership and strength.
(a) Identify two price indices. [2]
(b) Explain two supply-side policy measures. [4]
(c) Analyse why a government may want to reduce its country’s inflation rate. [6]
(d) Discuss whether or not increasing the strength of trade unions will benefit an economy. [8]
6 More than 80% of Qatar’s population are immigrants. Net immigration has helped to meet the
country’s demand for labour. As well as a shortage of workers, the country has a shortage of
drinking water. The government has run public campaigns to stop people using their free supply
of drinking water to fill their swimming pools and water their gardens. In 2016, the government
increased its spending to increase the country’s economic growth rate.
(a) Define net immigration. [2]
(b) Explain how market forces would respond to a shortage of drinking water. [4]
(c) Analyse what determines the demand for labour. [6]
(d) Discuss whether or not increased government spending will increase economic growth. [8]
7 More governments are imposing taxes on unhealthy food and drinks. Such taxes are usually
regressive. Some of these governments are also increasing their spending on healthcare. In other
countries healthcare is provided by the private sector. The number of state-owned enterprises is
declining in a number of countries due to privatisation.
(a) Define regressive tax. [2]
(b) Explain why the social benefit of healthcare is greater than the private benefit. [4]
(c) Analyse why a government imposes taxes. [6]
(d) Discuss whether or not consumers are likely to benefit from state-owned enterprises
becoming private sector firms. [8]
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ECONOMICS 0455/23
2 hours 15 minutes
* 0 2 6 9 8 9 3 5 4 9 *
Section A
Answer Question 1.
Section B
DC (SC) 148197/2
2
Section A
1 The global water crisis
In 2015, the World Economic Forum identified the water crisis as the world’s biggest risk. Across
many Asian and African nations the water supply was at critically low levels, insufficient to meet
the rising demand. Demand has risen because of the expansion of cities and population growth
requiring much more agricultural production.
Water scarcity is a problem shared by many developing countries which have a low life
expectancy. A third of all their healthcare facilities are estimated to lack access to safe water and
basic sanitation. Water shortages harm public health – 80% of all illnesses in developing countries
are caused by poor water and sanitation conditions. Water shortages also restrict the amount of
food production. Table 1 shows the risk of water shortage (highest risk is 5) and Gross Domestic
Product (GDP) per head measured in US$.
Table 1 Risk of water shortage and GDP per head for countries / regions in 2015
Country / region Risk of Water Shortage GDP per head

(highest risk = 5) (US$)
Algeria 3.4 4 318
Canada 1.2 43 332
Germany 1.9 40 997
Pakistan 4.3 1 450
Saudi Arabia 5.0 20 813
Western Sahara 5.0 2 500
The shortage of water has led various countries and regions to experiment with privatising their
supply. However, because water is a necessity, private supply has in some cases resulted in
consumers suffering from significant price increases. A 10% increase in the price of water is
estimated to result in only a 0.7% decrease in quantity demanded. This means that governments
have to regulate water markets to protect consumers.
Some economists argue that consistent undervaluing of water has led to it being used inefficiently.
This is because prices fail to take into account the long-run consequences of not conserving this
valuable resource. With much of the world facing a hotter and drier future as a result of climate
change, water will become increasingly scarce.
More than 663 million people are estimated to live without access to clean water. The World Bank
funds a range of projects designed to tackle this and in doing so reduce levels of absolute poverty.
Improving access to natural resources is seen as essential in promoting economic development in
some of the world’s poorest nations.
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(a) Identify, using information from the extract, two causes of low life expectancy in developing
countries. [2]
(b) (i) Explain, using information from the extract, how the water shortage is an example of the
economic problem. [4]
(ii) Explain, using information from the extract, why the problem of water shortages is likely
to become even worse in the future. [4]
(c) Analyse, using Table 1, the extent to which a high risk of water shortage in a country/region
causes low GDP per head. [5]
(d) Calculate, using the information in the extract, the price elasticity of demand for water. [2]
(e) Discuss whether or not private firms supplying water should increase their prices. [5]
(f) Explain what is meant by absolute poverty. [2]
(g) Discuss whether or not a country’s economic growth rate depends mostly on the availability
of its natural resources. [6]

4
Section B
Answer any three questions from this section.
2 In 2016, the trade union representing doctors in the UK was involved in collective bargaining with
the government over proposed changes to doctors’ contracts. The trade union considered that the
aim of the changes was to reduce the cost to the government of providing healthcare. It may also
result in fewer individuals training to become doctors in the future.
(a) Identify two influences on the strength of a trade union’s collective bargaining power. [2]
(b) Explain the likely impact of trade unions on the welfare of their members. [4]
(c) Analyse the impact of a reduction in government expenditure on healthcare on a country’s

unemployment rate. [6]
(d) Discuss whether or not a decrease in the number of doctors will reduce living standards. [8]
3 In the 1990s Cambodia became a mixed economy. One of the results of this was specialisation in
the clothing industry. In 2005, import quotas for clothing in the key markets of the USA and the EU
were removed. Clothing now accounts for 80% of Cambodia’s exports. The increased role of the
private sector has resulted in a rise in malnutrition in Cambodia.
(a) Define import quota. [2]
(b) Explain two advantages to a country of specialisation. [4]
(c) Analyse the impact on an economy of the removal of import quotas imposed by other
countries. [6]
(d) Discuss whether or not an increase in the role of the private sector will benefit an economy.
[8]
4 In early 2016, the central bank of the Republic of Turkey cut interest rates five times. This was
despite an inflation rate of 7.6%. The economy had a combination of a low saving rate and weak
investment. To stimulate economic growth the Turkish government announced a package of
reforms including subsidies for research and investment.
(a) Identify two functions of a central bank. [2]
(b) Explain how the Consumer Prices Index (CPI) is calculated. [4]
(c) Analyse the impact of a cut in interest rates on saving and investment. [6]
(d) Discuss the impact of supply-side policy measures on government expenditure and on
government revenue. [8]
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5 The state of California has the most progressive tax system in the USA. The tax system helps
reduce high poverty rates. Policy makers are considering reforming sales tax in the state to include
services, while reducing the use of direct taxes.
(a) Define progressive tax. [2]
(b) Explain two reasons why a government may want to reduce poverty. [4]
(c) Analyse, using a supply and demand diagram, the effect of increasing a sales tax. [6]
(d) Discuss whether a government should increase indirect taxes and whether it should reduce
direct taxes. [8]
6 The production process in the oil industry is capital-intensive. The pollution it generates means
it is one cause of environmental market failure. A Nigerian oil monopoly is starting to produce
more environmentally friendly liquefied petroleum gas (LPG), rather than kerosene, in an attempt
to reduce pollution. The Nigerian government intends to split the monopoly firm into separate
companies to improve efficiency.
(a) Identify two features of a capital-intensive production process. [2]
(b) Explain how market failure might occur in the oil industry. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of reallocating
resources from kerosene to LPG. [6]
(d) Discuss whether or not removing a firm’s monopoly power will benefit consumers. [8]
7 In 2016, there were fears that the Singaporean economy could enter a recession because of falling
demand from China, its biggest export market. One of the results of a recession is likely to be a
fall in consumer spending. A previous recession in 2008 had led to unemployment increasing from
1.6% to 3.4%. Singapore’s central bank therefore decided to intervene in the foreign exchange
market to influence the value of the currency.
(a) Define recession. [2]
(b) Explain why a recession is likely to reduce consumer spending. [4]
(c) Analyse the consequences of rising unemployment on a government’s spending and tax
revenue. [6]
(d) Discuss whether or not an exchange rate depreciation will prevent an economy from
experiencing a recession. [8]
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ECONOMICS 0455/22
Paper 2 Structured Questions October/November 2018
2 hours 15 minutes
* 4 1 3 2 8 8 8 9 3 4 *
Section A
Answer Question 1.
Section B
DC (CE) 148227/3
2
Section A
1 Rubber production in Liberia
Liberia is a west African country that has faced a number of serious problems in recent years.
These have included a civil war and in 2014 the outbreak of the Ebola epidemic. There have
also been improvements. The unemployment rate was 85% in 2004 but had fallen to 4% in 2016.
This reduction has influenced both emigration and wages. Workers have received higher wages
although some economists think that the higher wages have increased the country’s inflation rate
which in 2016 was 8%.
The country has a good supply of drinking water and a climate favourable to agriculture. More
than 70% of the country’s labour force is currently employed in agriculture. The country’s main
exports are rubber, iron ore, timber and gold.
A US multinational company (MNC) runs the world’s largest single natural rubber farming
operation in Liberia. The price of rubber fell by 75% between 2011 and 2016. The global supply of
rubber had exceeded demand as a number of countries imposed import restrictions on rubber. In
response to the lower price the US MNC cut its production, but still made a loss. The MNC does
not want to go out of business and is trying to survive by cutting its costs. In the long run it hopes
to maximise profits. When some of its 7000 workers retire, they will not be replaced. The MNC has
introduced new production techniques and diversified into growing cocoa and coffee.
The Liberian government is providing subsidies to local rubber farmers to help them buy new
equipment and introduce new farming methods. Despite the challenging situation, a number of
local Liberian rubber farmers are increasing the size of their operations by buying up more land.
Some others are diversifying by using wood from the rubber trees to make furniture.
While helping its rubber farmers, the Liberian government is also encouraging the expansion of the
secondary and tertiary sectors. Between 2014 and 2016 it increased its expenditure on healthcare
but this was at the expense of a number of public sector investment projects. Table 1 compares
the infant mortality rate and healthcare expenditure per head in selected countries in 2015.
Table 1 Infant mortality rate and healthcare expenditure per head

in selected countries in 2015
Infant mortality rate Healthcare expenditure

Country (deaths per 1000 per head
live births) (US$)
Cuba 4.5 459
Hungary 5.0 2 096
India 41.5 248
Liberia 67.5 90
Turkey 18.8 1 148
UK 4.4 3 749
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(a) Identify, from the extract, two goals of business organisations. [2]
(b) Explain, using information from the extract, two reasons why the price of rubber fell between
2011 and 2016. [4]
(c) Analyse how an increase in wages could cause inflation. [5]
(d) Analyse to what extent the information in Table 1 suggests that healthcare expenditure per
head is an important influence on the infant mortality rate. [4]
(e) Discuss whether or not having more of its workers employed in the tertiary sector would
benefit the Liberian economy. [5]
(f) Explain, using information from the extract, how the concept of opportunity cost affects all
rubber farmers in Liberia. [4]
(g) Discuss whether or not a high rate of unemployment would always cause emigration. [6]
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Section B
2 Mexico has recently experienced relatively low inflation and the Mexican government wants to
maintain this price stability. Despite this its currency has fallen in value with each Mexican peso
exchanging for less foreign currency. The government is also trying to reduce pollution in the
country. One key cause of pollution in Mexico is car travel. Driving has both private and external
costs.
(a) Define private cost. [2]
(b) Explain two ways a government could reduce external costs. [4]
(c) Analyse how a high rate of inflation affects the functions of money. [6]
(d) Discuss whether or not a fall in its foreign exchange rate will benefit an economy. [8]
3 In 2016, the Indonesian government increased its spending on healthcare and education and
considered raising the school leaving age. The government also planned to increase taxation.
Such a move might conflict with its aim of reducing unemployment at a time when a number of
countries were at risk of entering a recession.
(a) Identify two types of tax. [2]
(b) Explain two benefits to a government from a fall in unemployment. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effects of high unemployment
in a country. [6]
(d) Discuss whether or not a government should raise the school leaving age. [8]
4 UK students often take jobs during their holidays and some save part of their income to pay their
tuition fees. UK graduates earn, on average, £8500 a year more than non-graduates. Economics
graduates had the second highest average earnings of all UK graduates in 2016. The top 10% of
economics graduates earned £115 000 a year.
(a) Define earnings. [2]
(b) Explain two non-wage factors that influence an individual’s choice of occupation. [4]
(c) Analyse why economics graduates are well-paid. [6]
(d) Discuss whether or not people in developed countries are likely to save more than people in
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5 Productivity has fallen recently in Finland particularly in the public sector. The country has a
relatively high number of small firms. In recent years the price elasticity of demand and the price
elasticity of supply of the products made by Finnish firms have changed.
(a) What is the difference between the private sector and the public sector? [2]
(b) Explain two reasons why productivity may fall. [4]
(c) Analyse how an increase in the price elasticity of demand (PED) and the price elasticity of
supply (PES) of its products could benefit a firm. [6]
(d) Discuss whether or not small firms are likely to survive in the long run. [8]
6 A relatively high proportion of people from the Philippines either work in call centres or abroad.
Call centres employ 1.2 million people in the Philippines and account for 8% of the country’s
Gross Domestic Product. Due to the time difference with the US, the main market for call centre
services, many Filipinos have to work at night. The call centres are introducing new technology
including robots.
(a) Define Gross Domestic Product (GDP). [2]
(b) Explain two reasons why a person may be willing to work at night. [4]
(c) Analyse how having some of its population working abroad may benefit an economy. [6]
(d) Discuss whether or not advances in technology benefit an economy. [8]
7 The price of gold rose in 2016. This encouraged owners of gold mines to employ more resources
to increase the supply of gold. The level of competition in gold production varies in the different
gold producing countries. A number of countries, including India, impose a tariff on imported gold.
(a) Identify two factors of production involved in mining gold. [2]
(b) Explain two reasons why a government may impose a tariff on imported gold. [4]
(c) Analyse how perfect competition differs from monopoly. [6]
(d) Discuss whether or not an economy should mine and sell all of its gold now. [8]
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ECONOMICS 0455/23
2 hours 15 minutes
* 0 9 4 1 7 1 8 2 7 1 *
Section A
Answer Question 1.
Section B
DC (CE/CGW) 148228/4
2
Section A
1 Nigeria adopts a floating exchange rate
In June 2016, Nigeria adopted a floating exchange rate after the country’s central bank had spent
months trying to maintain its fixed exchange rate. It had used foreign currency reserves to buy its
currency, imposed tariffs and limited the amount of foreign currency that Nigerians could purchase.
Most economists thought that the value of Nigeria’s currency would depreciate. A lower value of
the Nigerian naira might help increase output and reduce the deficit on the current account of the
country’s balance of payments. In 2015, Nigeria experienced a deficit on its current account for
the first time in 20 years. Countries with a current account deficit often have a higher inflation rate
and a lower economic growth rate than those with a current account surplus. Fig. 1 shows the
inflation rate, economic growth rate and the current account balance of selected countries in 2015.
Fig. 1 The inflation rate, economic growth rate and current account balance
of selected countries in 2015
China
Colombia
Germany
Nigeria
Turkey
-8 -6 -4 -2 0 2 4 6 8 10
Inflation rate Economic growth rate Current account balance (% of GDP)
A current account deficit can lower the exchange rate and so may increase import prices. A higher
price of imports, including imported food, can accelerate inflation.
In 2015, as well as experiencing a current account deficit, tax revenue fell in Nigeria and was
lower than government expenditure. Some economists predicted that the government would
cut spending on education and healthcare in 2016 to reduce the gap between tax revenue and
government spending.
The Nigerian government has been trying to reduce poverty in the country. In 2015, more than
60% of the population were living in poverty. Among the causes of the high level of absolute
poverty was an unemployment rate of 9.5%. One policy measure proposed to reduce poverty in
Nigeria is for the government to raise the wages of low-paid workers.
The government also wants to diversify the economy because the oil industry accounts for almost
90% of the country’s export earnings. The oil industry pays high wages to some of its workers
and relatively high interest rate payments to local banks. It also creates water pollution and air
pollution.
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(a) Identify, from the extract, two methods of trade protection. [2]
(b) Analyse what may cause a depreciation in an exchange rate. [5]
(c) Analyse to what extent the information in Fig. 1 suggests that countries with current account
deficits have higher inflation rates and lower economic growth rates than those with current
account surpluses. [4]
(d) Explain, using information from the extract, two reasons why poverty may have increased in
Nigeria in 2015–16. [4]
(e) Discuss whether or not a cut in government spending on education would reduce the gap
between government spending and tax revenue. [5]
(f) Explain, using information from the extract, two external costs that arise from oil production in
Nigeria. [4]
(g) Discuss whether or not an increase in the wages of low-paid workers will reduce poverty. [6]

4
Section B
2 A United Arab Emirates (UAE) airport announced a record profit of $1.9 billion in 2016. This was
despite a fall in its total revenue. In 2016, the UAE considered introducing Value Added Tax (VAT).
The introduction of an indirect tax may have an impact on unemployment. The UAE has a very low
unemployment rate which is one reason why multinational companies (MNCs) set up in the UAE.
(a) Define total revenue. [2]
(b) Explain how a firm may earn a profit despite a fall in revenue. [4]
(c) Analyse how the introduction of an indirect tax may cause unemployment. [6]
(d) Discuss whether or not MNCs are likely to set up in countries with low unemployment. [8]
3 The price of dental treatment is increasing in most countries. For example, the average price
of filling a tooth is $180 in the US. The number of dentists is increasing in the US. The largest
proportion of the US labour force is employed in the tertiary sector. Price changes have an impact
on the supply of products in the tertiary sector as well as in the primary and secondary sectors.
(a) Identify two reasons why someone may choose to train to become a dentist. [2]
(b) Explain two reasons why manufactured goods are usually in more price-elastic supply than
agricultural goods. [4]
(c) Analyse the advantages of an increase in a country’s labour force. [6]
(d) Discuss whether or not a government should provide free dental treatment. [8]
4 In 2015, Spain experienced a higher death rate than birth rate for the first time since 1939. It is
forecast that its population will fall by 5.6 million over the next 50 years. Such a decline would
be likely to influence the number and size of the country’s firms and have an impact on the
environment. There are a variety of ways of increasing a country’s population.
(a) Define death rate. [2]
(b) Explain two policy measures a government could introduce to encourage families to have
more children. [4]
(c) Analyse the impact a declining population could have on the environment. [6]
(d) Discuss whether or not a firm that produces a wide range of products can take advantage of
economies of scale. [8]
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5 In 2016, the world shortage of peanuts increased their price. China, which has traditionally been a
net exporter of peanuts, was about to become a net importer. South Africa, which is an exporter of
high-quality, high-cost peanuts used in chocolate confectionery, experienced the worst drought on
record. A higher number of South African farmers applied for bank loans in the same year.
(a) What is the difference between the price of a product and the cost of a product? [2]
(b) Explain two influences on a country’s demand for food. [4]
(c) Analyse why a country may change from a net exporter of a product into a net importer of the
product. [6]
(d) Discuss whether or not a central bank should limit the amount that a commercial bank can
lend to its customers. [8]
6 The United Nations (UN) has set out development goals for countries to achieve by 2050. These
goals include:
• conserve natural resources

• ensure education for all
• end poverty everywhere
• promote sustained economic growth
(a) Identify two ways a government could conserve its country’s resources. [2]
(b) Explain two external benefits that can arise from education. [4]
(c) Analyse how a cut in the rate of interest could reduce poverty. [6]
(d) Discuss whether or not economic growth always increases living standards. [8]
7 High technology (hi-tech) firms use a range of resources including labour and land. One US hi-tech
firm has produced a new price index which it claims is more accurate than the Consumer Prices
Index (CPI). Central banks try to achieve the most accurate measure of inflation because inflation
has effects on a range of people, including savers and borrowers, and on the level of investment
in a country.
(a) Identify the reward received by labour and the reward received by enterprise. [2]
(b) Explain how inflation may affect borrowers and savers. [4]
(c) Analyse why it is important to a government that inflation is measured accurately. [6]
(d) Discuss whether or not an increase in investment would reduce a deficit on the current
account of the balance of payments. [8]
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ECONOMICS 0455/21
2 hours 15 minutes
* 7 0 1 9 4 6 5 5 9 2 *
Section A
Answer Question 1.
Section B
DC (CE) 148226/3
2
Section A
1 Russia’s struggle for economic recovery
Shortly after the 2014 Winter Olympic Games in Sochi, Russia, the value of the Russian currency,
the rouble, depreciated significantly against the US$. Russian Gross Domestic Product (GDP)
growth rates also became negative. Political and economic instability in the region contributed to
these changes.
To avoid further outflows of financial capital from the Russian economy and further falls in the
value of the Russian rouble, the central bank of Russia increased the official interest rate to 17%.
By 2016, the rouble fell even more and the central bank considered selling its foreign reserves to
raise the exchange rate against the US$.
Overall, things did not look good for the Russian economy in 2016. Export values fell and foreign
investors lacked confidence in the Russian economy. This not only had a negative impact on
unemployment rates and economic growth but also had an impact on poverty rates which were
expected to return to pre-2007 levels. Demographic trends did not help as Russia’s population
declined due to high death rate, low fertility rate, and a high level of emigration.
Domestic consumption and investment, however, showed some positive signs. Consumers
bought more domestic products and domestic investment increased. However, inflation rose and
the central bank introduced policy measures to avoid a rapid increase in prices.
As an oil producer, Russia’s economy was affected by falling international oil prices. Saudi Arabia,
the world’s second largest oil producer, continued to increase oil production despite pressures by
other producers to cut production. In addition, global demand for oil was weak. Table 1 shows the
price of oil between 2010 and 2016.
Table 1 Price of Oil 2010–16 (US$)
Price of Oil
Year
(US$ per barrel)
2010 82
2011 92
2012 103
2013 93
2014 95
2015 53
2016 37
In 2016, domestic Russian oil producers struggled to make a profit due to economic uncertainty
and competition from renewable energy. They were also concerned that it may become even
more difficult for them to make a profit in the future. This was because the government wanted to
increase tax on oil producers to raise more revenue. The government believed that such an extra
tax would not actually hurt the large oil producers.
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(a) Calculate, using the information in Table 1, the percentage change in the price of oil between
2010 and 2016. [2]
(b) Explain, using information from the extract, two reasons for falling oil prices. [4]
(c) Identify, using information from the extract, two ways a central bank could try to stop a fall in
the international value of its currency. [2]
(d) Explain, using information from the extract, two reasons for Russia’s declining population. [4]
(e) Analyse the extent to which a rise in oil prices will cause inflation. [5]
(f) Discuss whether or not increasing taxes on Russian oil producers will be harmful to those
producers. [5]
(g) Identify one way in which monetary policy differs from fiscal policy. [2]
(h) Discuss whether or not the Russian government should have been concerned about the state
of the Russian economy in 2016. [6]

4
Section B
2 In 2016, there was a global surplus in the steel market pushing down steel prices. This situation
led to various calls for protectionist measures by other steel producers such as those in the EU
and the USA. However, such measures were not supported by car producers as approximately
22% of a car manufacturer’s costs depend on steel prices.
(a) Define protectionism. [2]
(b) Explain two methods of trade protection. [4]
(c) Analyse, using a demand and supply diagram, the effect of falling steel prices on the market
for cars. [6]
(d) Discuss whether or not protectionism is effective in raising living standards. [8]
3 Droughts in the Pacific Coast region of the US and regulations, in the form of limits on the amount
of salmon that can be caught in the wild, have reduced the supply of wild salmon. These limits
were imposed to avoid market failure in the salmon market. However, the effect of this on the
revenue of salmon producers is uncertain. In addition, producers of farmed salmon in the US
states of Washington and Alaska have received subsidies from the US government.
(a) Define supply. [2]
(b) Explain one market failure that may occur in the salmon market. [4]
(c) Analyse how information on changes in a firm’s revenue can be obtained from price elasticity
of demand calculations. [6]
(d) Discuss whether or not government subsidies are beneficial to producers. [8]
4 The Malaysian government implemented the Vision 2020 policy which aims to make Malaysia a
developed country by the year 2020. Along with this vision, the National Privatisation Policy was
also implemented whereby various firms, such as those involved in telecommunications, were
privatised. Poverty has significantly reduced since the implementation of these policy measures.
(a) Identify the difference between absolute poverty and relative poverty. [2]
(b) Explain two characteristics of a developed country. [4]
(c) Analyse two policy measures to alleviate poverty. [6]
(d) Discuss whether or not moving firms from the public sector to the private sector will benefit an
economy. [8]
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5 The largest airline in Pakistan was originally formed as a result of a merger between a state-
owned airline and a private airline. In April 2016, the Pakistan government made this merged firm
a public limited company. This was hoped to improve the productivity of this loss-making airline
and also improve the overall economy of Pakistan.
(a) Define public limited company. [2]
(b) Explain the difference between productivity and production. [4]
(c) Analyse how increased productivity could reduce inflation. [6]
(d) Discuss whether or not a merger might make it easier for a firm to achieve its goals. [8]
6 Teachers in many countries oppose their governments’ cuts in spending on education. They worry
that this could reduce the standard of education and also the welfare of teachers employed in the
state sector. Some teachers specialise in teaching one subject while others teach a number of
subjects.
(a) Identify two reasons why a person may want to work in the state sector. [2]
(b) Explain two reasons why a government may want to cut spending on education. [4]
(c) Analyse the contribution that education can make in an economy. [6]
(d) Discuss whether or not a worker would benefit by specialising. [8]
7 During a recent recession in Europe, Spain had an unemployment rate of over 25%. This led to
high levels of emigration from Spain into higher-wage European economies such as Germany and
the UK. This has created both opportunities and problems in countries where immigration was
higher than emigration.
(a) Define unemployment. [2]
(b) Explain two reasons for wage differentials between different economies. [4]
(c) Analyse how a recession in one country could cause unemployment in another country. [6]
(d) Discuss whether the economic advantages of immigration into countries such as the UK and
Germany outweigh the economic disadvantages. [8]
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Cambridge Assessment International Education
ECONOMICS 0455/22
2 hours 15 minutes
* 9 0 7 4 1 6 6 1 7 8 *
Section A
Answer Question 1.
Section B
DC (ST/CT) 164709/1
2
Section A
1 Premium Friday
At the start of February 2017, the Japanese government introduced its ‘Premium Friday’ scheme.
This encourages employers to allow their workers to leave work at 15:00 on the last Friday of
each month, without experiencing any reduction in their wages.
The Japanese government wants to reduce the number of hours people work. One reason is
to improve the health, and so possibly the productivity, of workers. Fig. 1.1 shows the average
number of hours worked and productivity (GDP per hour worked in US $) in six selected countries.
80
70
60
50
40
30
20
10
0
France Germany Japan Mexico Russia South Korea
Average hours worked per week Productivity (GDP per hour worked (US $))
Fig. 1.1 Average hours worked and productivity of selected countries in 2017
Nearly one quarter of Japanese workers work more than 50 hours a week and some work more
than 25 hours overtime a week. The average Japanese worker only takes half of their paid
holidays. Nearly 20 years of low economic growth and deflation have created a sense of job
insecurity. Trade unions in Japan have been concentrating on trying to achieve shorter working
hours.
The government thinks that working fewer hours would give people more time to bring up a child
and look after elderly relatives. Japan’s birth rate has fallen every year for the last 36 years, and at
a faster rate than the fall in the death rate leading to a fall in the size of the population.
The government hopes more leisure time will encourage an increase in consumer spending.
Higher consumer spending would benefit Japanese firms and would reduce the chances of
deflation returning.
The initial response to Premium Friday was not promising. At the end of February 2017, only 4%
of Japanese workers left early. In the longer run, however, the scheme may be more successful.
This is because unemployment in the country had fallen with only 2 million out of a labour force
of 66 million being unemployed at the end of February 2017. Low unemployment increases job
security and usually increases wages. In Japan’s case, however, the higher demand for labour
has been matched by a higher supply. Some of this higher supply has come from migrant workers,
but a greater proportion has come from more Japanese people working past retirement age and
more women working.
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(a) Identify, using information from the extract, two factors that influence an individual’s choice of
occupation. [2]
(b) Explain, using information from the extract, an opportunity cost of working. [2]
(c) Calculate, using information from the extract, the number of Japanese workers who left work
early on Premium Friday in February 2017. [2]
(d) Explain, using information from the extract, why the size of Japan’s population has fallen in
recent years. [4]
(e) Analyse, using Fig. 1.1, the relationship between the average hours worked and productivity.
[5]
(f) Discuss whether or not a cut in income tax would stop deflation. [5]
(g) Explain, using information from the extract, why wage rises have been low in Japan. [4]
(h) Discuss whether or not Japan will benefit from employing more migrant workers. [6]

4
Section B
2 The markets for cars and tyres are closely related. The five largest tyre firms used to make 66%
of all tyres. The entry of more than 250 Chinese firms has reduced the global market share of
the largest five firms to less than 50%. This also changed the price elasticity of demand (PED)
for individual firms’ tyres. Some of these firms are state-owned enterprises and some are in the
private sector.
(a) Identify two types of business organisation that operate in the private sector. [2]
(b) Explain what effect more firms producing tyres would have on the PED of individual firms’
tyres. [4]
(c) Analyse, using a demand and supply diagram, the effect of an increase in demand for cars on
the market for tyres. [6]
(d) Discuss whether a large firm will earn more profit per unit sold than a small firm. [8]
3 There was a global surplus of steel in 2017. In mid-2017, the US government considered imposing
tariffs on steel imports to protect its declining steel industry. Cheap imports from other countries
were reducing employment in the US steel industry. The pattern of US employment was also
being affected by improvements in education.
(a) Identify two methods of trade protection other than tariffs. [2]
(b) Explain how market forces will eliminate a surplus and a shortage. [4]
(c) Analyse how improvements in education can affect the pattern of employment. [6]
(d) Discuss whether or not the imposition of import tariffs by a country will reduce its
unemployment. [8]
4 In March 2017, Peru was hit by floods and the strongest winds in decades. Roads, bridges, houses
and capital goods were destroyed. It is expected that the damage caused will affect Peru’s Human
Development Index (HDI) and economic growth rate. In 2016, Peru experienced a 4% economic
growth rate which was higher than the growth rate of the USA.
(a) Define a capital good. [2]
(b) Explain two causes of an increase in a country’s HDI. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of damaging weather
on an economy. [6]
(d) Discuss whether countries with a high Gross Domestic Product (GDP) per head will have a
faster rate of economic growth than countries with a low GDP per head. [8]
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5 Moldova is Europe’s poorest economy with many of its people living in poverty. It is mainly an
agricultural economy with many small farms. Its shops are also small. The government has used
a range of policies, including supply-side policy, to improve the economy’s performance. It has
mostly been successful. For instance, unemployment has fallen.
(a) Identify two supply-side policy measures. [2]
(b) Explain two ways a government could reduce relative poverty. [4]
(c) Analyse the reasons why small shops may be easy to set up. [6]
(d) Discuss whether or not firms will benefit from a fall in unemployment. [8]
6 In a mixed economic system, such as Portugal’s, the government intervenes in the economy.
Reasons for government intervention include to correct market failure and to achieve its aims for
the economy, such as control of inflation. In 2017, one-fifth of Portugal’s population was living in
poverty and the government increased its spending.
(a) Identify two reasons why market failure may occur. [2]
(b) Explain how resources are allocated in a mixed economic system. [4]
(c) Analyse how a high rate of inflation may harm the poor. [6]
(d) Discuss whether or not increasing government spending will enable a government to achieve
its aims for the economy. [8]
7 The price elasticity of demand (PED) for sugar in most countries is less than 1. In 2017, the price
of sugar fell. However, the price of specialised, higher quality sugar grown in countries such as
Mauritius fell by less than the average global price. Efficient producers, such as some farmers in
Brazil that have a low fixed cost of production, were also less affected by the fall in price.
(a) State the formula used to calculate PED. [2]
(b) Explain two reasons why the price of sugar may fall. [4]
(c) Analyse the possible reasons why a producer’s fixed cost may increase. [6]
(d) Discuss whether or not a country will benefit from specialising in an agricultural product such
as sugar. [8]
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To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge
Assessment International Education Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download
at www.cambridgeinternational.org after the live examination series.
Cambridge Assessment International Education is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of the University of
Cambridge Local Examinations Syndicate (UCLES), which itself is a department of the University of Cambridge.
© UCLES 2019 0455/22/M/J/19

ECONOMICS 0455/21
2 hours 15 minutes
* 2 1 3 4 0 2 5 8 0 0 *
Section A
Answer Question 1.
Section B
DC (ST) 164708/2
2
Section A
1 Universal basic income (UBI)
UBI is a scheme where a government provides everyone with a payment, regardless of their
circumstances. Such a scheme can help a number of groups including the sick and the old. In
2016, the Indian government was looking at a UBI as an alternative to its existing system of
state benefits. A politician in Costa Rica proposed a UBI of $337.5. Finland started a two-year
experiment with a version of UBI in 2017.
A guaranteed minimum income might help some of the poor who currently do not receive state
benefits and may reduce inequality. In a number of countries, income and wealth inequality is
increasing. For instance, in Russia 16% of the population live below the official poverty line and
10% of the population own 87% of the country’s wealth. State benefits are relatively low in Russia
and the country has one income tax rate of 13%. One cause of the rise in the gap between the rich
and the poor in Russia has been the effect on prices and profits arising from the privatisation of a
number of state monopolies.
Differences in annual average incomes (annual GDP per head) between countries can affect life
expectancy as shown in Table 1.1.
Table 1.1 Annual GDP per head and life expectancy in selected countries in 2016
Country Annual GDP per head Life expectancy

(US$) (years)
Costa Rica 16 200 78.8
Finland 42 000 80.8
India 7 400 68.6
Mali 2 300 55.7
Monaco 76 000 89.5
Russia 26 200 70.4
In Finland, a country with an average monthly income per head of $3500, the trial UBI is $600
per month. This does not cover everyone’s needs in a country with high prices, high tax rates and
periods of very cold weather. In India, the average monthly income per head is almost the same
as Finland’s UBI.
A UBI could help the unemployed including the temporary unemployed. Governments welcome
a reduction in unemployment. This is because it increases output and enables governments to
reduce spending on state benefits for the unemployed. Governments could then increase spending
on other areas including education and healthcare.
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(a) Identify, using information from the extract, two reasons why a person may have a low
income. [2]
(b) Explain, using information from the extract, whether Russia has a progressive, proportional,
or regressive income tax system. [2]
(c) Calculate, using Table 1.1, what percentage of annual average income in Costa Rica a person
would have if he receives UBI of $337.5 a month. [2]
(d) Analyse, using Table 1.1, the relationship between annual GDP per head and life expectancy.
[5]
(e) Explain an example of opportunity cost in the extract. [4]
(f) Discuss whether or not a monopoly will charge high prices. [5]
(g) Explain, using information from the extract, two reasons why someone from India with the
same income as someone from Finland may enjoy a higher living standard. [4]
(h) Discuss whether or not a government paying higher state benefits to the unemployed will
reduce unemployment. [6]

4
Section B
2 The Saudi Arabian government is encouraging the growth of the private sector. It is a low-cost oil
producer, but its exports to South Africa have fallen recently. South Africa has a floating foreign
exchange rate, but its central bank has recently tried to prevent a large fall in its foreign exchange
rate.
(a) Define a floating foreign exchange rate. [2]
(b) Explain two benefits a government may gain from the growth of the private sector. [4]
(c) Analyse why a country with low costs of production may experience a decrease in its exports.
[6]
(d) Discuss whether or not a government should prevent a fall in its country’s foreign exchange
rate. [8]
3 In February 2017, Europe experienced a shortage of fresh vegetables due to bad weather. For a
period of time, the markets for a number of vegetables, including broccoli and lettuces, were not
in equilibrium. The price of food tends to fluctuate more than the price of manufactured goods and
services. These fluctuations influence the rate of inflation.
(a) When is a market in equilibrium? [2]
(b) Explain how a rise in the price of food would affect a country’s consumer prices index (CPI).
[4]
(c) Analyse, using a demand and supply diagram, how bad weather is likely to affect the market
for broccoli. [6]
(d) Discuss whether or not a higher inflation rate will benefit producers. [8]
4 Changes in the supply of enterprise result in the development of new firms. In 2016, a theme park
in Hong Kong made a loss with visitor numbers falling by 9%. In 2017, the same public limited
company opened another larger theme park in Shanghai. The new theme park is expected to
benefit from both internal and external economies of scale.
(a) Define a loss. [2]
(b) Explain, giving examples, the difference between an internal economy of scale and an
external economy of scale. [4]
(c) Analyse how a government could increase the supply of enterprise. [6]
(d) Discuss whether or not consumers would benefit from a firm changing from being a public
limited company to a public corporation (state-owned enterprise). [8]
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5 In February 2017, China’s central bank raised the rate of interest. It wanted to reduce borrowing
and the growth of the money supply, but it was worried that the rise in the interest rate might
reduce the country’s economic growth rate. The change in interest rate is likely to have increased
the workload of skilled commercial bank workers.
(a) Identify two functions of money. [2]
(b) Explain two reasons why a central bank may want to reduce borrowing. [4]
(c) Analyse why skilled workers are usually paid more than unskilled workers. [6]
(d) Discuss whether or not a rise in the rate of interest will reduce economic growth. [8]
6 A number of book publishers operate in Pakistan. These include multinational companies (MNCs).
They employ a range of specialist workers. A number of these specialists estimate the price
elasticity of demand (PED) for their firms’ books. There is a debate about whether some books
should be subsidised by the government.
(a) Define a multinational company. [2]
(b) Explain two disadvantages a worker could experience from specialising. [4]
(c) Analyse how a change in the PED for its products may benefit a firm. [6]
(d) Discuss whether or not the government should subsidise the production of books. [8]
7 It was predicted that global unemployment would rise by over two million in 2017. Unemployment
rates, however, vary between countries. Some governments use fiscal policy measures and others
use supply-side policy measures to reduce unemployment. The unemployment rate can also be
influenced by trade protection.
(a) Identify two fiscal policy measures. [2]
(b) Explain two reasons why the unemployment rate may be higher in one country than another.
[4]
(c) Analyse how supply-side policy measures may reduce unemployment. [6]
(d) Discuss whether or not a government should protect its country’s industries from foreign
competition. [8]
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ECONOMICS 0455/22
2 hours 15 minutes
* 2 9 3 5 1 1 6 1 8 9 *
Section A
Answer Question 1.
Section B
DC (ST) 164706/3
2
Section A
1 Driverless cars and advances in technology
It is predicted that driverless cars, powered by electricity, will be on the roads by 2030. Driverless
cars have already been tried out on the roads in some cities, including Pittsburgh in the USA. It is
thought that driverless cars will reduce accidents, will have lower repair costs and will create less
pollution.
At first, the supply of driverless cars may exceed the demand, but it is expected that they will soon
grow in popularity. As more driverless cars come into use, the demand for bus travel and petrol
stations may decline, and some taxi drivers may be made redundant. In contrast, the increased
access to transport that driverless cars will give to people, including the elderly, is likely to increase
demand for out of town restaurants and places of entertainment.
It has been forecast that the technology being developed in connection with driverless cars will
make the supply of them elastic. It is predicted that an 8% rise in the price of driverless cars would
cause a 20% rise in the quantity supplied.
Advances in technology and the replacement of workers by machines are forecast to destroy
80 million jobs in the USA. Job losses are also forecast in other countries and trade unions are
likely to be less able to resist these due to a fall in membership and governments reducing the
power of trade unions. Among the jobs thought to be at risk are accountants, train drivers and
financial advisers. Demand for workers in other occupations, including doctors and dentists, may
increase but there is a risk that unemployment may rise. The more educated workers are, the
more easily they can move from one occupation to another. Table 1.1 shows education spending
as a percentage (%) of GDP and the unemployment rate in selected countries.
Table 1.1 Education spending and the unemployment rate in selected countries
Education spending Unemployment rate

Country
as a % of GDP (%)
Argentina 5.3 8.0
Brazil 5.8 13.5
Ghana 6.5 12.0
New Zealand 7.3 4.8
South Africa 6.0 26.0
USA 8.2 4.7
Jobs selling houses and flats may decline but it is expected that the demand for building workers
may increase. Some people welcome house building in their area but others oppose it.
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(a) Identify, from the extract, two pairs of substitutes. [2]
(b) Explain, using information from the extract, whether the market for driverless cars is expected
to be in equilibrium in 2030. [2]
(c) Calculate, using information from the extract, the price elasticity of supply (PES) of driverless
cars. [2]
(d) Explain, using information from the extract, two external costs that driverless cars could
reduce. [4]
(e) Analyse, using Table 1.1, the relationship between educational spending and the
unemployment rate. [5]
(f) Discuss whether or not an increase in house building will benefit the people who live in the
area. [5]
(g) Explain, using information from the extract, two reasons why the power of trade unions may
decline in the future. [4]
(h) Discuss whether or not a rise in unemployment is harmful. [6]

4
Section B
2 It is predicted that the UK economy will avoid another recession in the next two decades and that
its population will increase significantly by 2040. Most of this predicted increase will come from
immigration. By 2040, it is also expected that one in twelve people will be aged over 80. A number
of countries, including some low-income countries, may have a more rapid population growth rate
than high-income countries.
(a) Identify two reasons why people are living longer. [2]
(b) Explain two reasons why net immigration may increase the standard of living in a country.
[4]
(c) Analyse how fiscal policy could be used to stop a recession. [6]
(d) Discuss whether or not low-income countries have a faster rate of population growth than
high-income countries. [8]
3 In 2015, the Malaysian government set out its objectives to increase productivity and savings.
There has been higher consumer expenditure, driven in part by higher wages received mainly
by older workers. However, low levels of savings remain a concern. Savings provide funds for
investment (spending on capital goods) which contributes to economic growth and can influence
inflation.
(a) Identify two ways a government could encourage saving. [2]
(b) Explain two reasons why productivity may increase. [4]
(c) Analyse how an increase in investment could influence inflation. [6]
(d) Discuss whether or not older workers are paid more than young workers. [8]
4 Mali is a developing country. Its Human Development Index (HDI) rose from 0.297 in 2000 to
0.442 in 2016. Most of Mali’s workers are employed in agriculture and cotton is the country’s main
agricultural crop. The country’s main export, however, is gold. The country is the third largest
exporter of gold in Africa.
(a) Identify two components of the HDI. [2]
(b) Explain how the proportion of a country’s resources devoted to the primary, secondary and
tertiary sectors change as its economy develops. [4]
(c) Analyse, using a demand and supply diagram, how a fall in the price of cotton would affect
the market for cotton shirts. [6]
(d) Discuss whether or not an increase in the size of a country’s gold mining industry will benefit
an economy. [8]
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5 In May 2017, the price of olive oil rose by more than 10%. This was caused by a drought in
Greece, Italy, Spain and Tunisia, the major producing countries. Global supply was forecast to
fall by 14% in 2017. Demand for olive oil fell in Europe, but rose in a number of other countries
including Australia, Brazil and China. Some basic food items, including bread and rice, are taxed
in some countries but are subsidised in other countries.
(a) Identify two examples of land used in growing agricultural crops. [2]
(b) Explain why the concept of price elasticity of supply (PES) may be useful to a government in
deciding whether to subsidise the production of a product. [4]
(c) Analyse why the demand for a product may be higher in one country than in another country.
[6]
(d) Discuss whether or not the government should influence the production of basic food items,
such as bread or rice. [8]
6 The Indian government subsidises the country’s exports of cotton textiles. The USA, the largest
buyer of Indian cotton textiles, benefited from this. India planned to stop the subsidy by 2019.
This was welcomed by other cotton textile exporters. The USA may not be much affected, in part,
because income usually rises in the country. The value of the Indian rupee against the US dollar
was relatively stable in this period but rose slightly in mid-2017.
(a) Identify the difference between an export and an import. [2]
(b) Explain how a rise in the income of its main trading partners may affect a country’s trade in
goods balance. [4]
(c) Analyse how a rise in a country’s foreign exchange rate may affect its unemployment rate.
[6]
(d) Discuss whether or not a government should subsidise its exports. [8]
7 More agricultural markets come close to perfect competition than markets for manufactured
goods and for services. The goals of business organisations can vary between markets, and
within markets. In 2017, the Nigerian government used supply-side policy measures to influence
the goals and performance of firms in a range of markets and to lower firms’ average costs of
production.
(a) Identify two characteristics of perfect competition. [2]
(b) Explain two goals a business organisation may have. [4]
(c) Analyse the main reasons for the differences in the size of firms. [6]
(d) Discuss whether or not the use of supply-side policy measures by a government will reduce
firms’ average costs of production. [8]
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ECONOMICS 0455/22
2 hours 15 minutes
* 7 4 6 4 3 1 1 5 9 2 *
Section A
Answer Question 1.
Section B
DC (LT/CT) 164711/3
2
Section A
1 India: a growing success
In 2016, the Indian economy grew by 7.5%. This made it the world’s fastest growing large
economy. In contrast, the Chinese economy grew by 6.8%. India had some other macroeconomic
successes. Its price level rose by less in 2016 than it had in any year since 2004. The price of oil
fell in 2016 and India is a large importer of oil. The government’s use of monetary policy helped to
keep down rises in the general price level.
India’s manufacturing sector grew rapidly in 2016. One industry that performed particularly well
was the vehicle industry. India was the world’s sixth largest producer of vehicles, employing 26
million workers. India was the world’s largest producer of tractors. In 2015, the price of tractors
was increased. This led to a short-term fall in demand but a rise in revenue.
The growth of the vehicle industry has enabled firms in the industry to employ more specialised
workers and made it easier for these larger firms to borrow from banks. It is expected that the
industry will be able to recruit extra workers in the future because India’s labour force is growing.
In 2014, India’s labour force was 500m and this grew by 4% between 2014 and 2016.
The economic growth rate and the population growth rate in recent years are shown in Fig. 1.1.
The rate of economic growth and its stability affect households’ decisions on how much they spend
and save.
12
10
0
2010 2011 2012 2013 2014 2015 2016
Economic growth rate (%) Population growth rate (%)
Fig. 1.1 India’s economic growth rate and population growth rate 2010–2016
The rising optimism about the performance of India’s economy has increased total demand in the
economy. However, the Reserve Bank of India, the country’s central bank, has been relatively
successful at keeping the inflation rate close to the government’s target which in 2016 was
4%. One influence on the country’s future macroeconomic performance will be changes in its
population. India is set to have one of the world’s youngest populations by 2020, with an average
age of only 29.
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(a) Identify, using information from the extract, two reasons why India’s inflation rate fell in 2016.
[2]
(b) Explain, using information from the extract, whether demand for Indian tractors was
price-elastic or price-inelastic in 2015. [2]
(c) Explain two internal economies of scale referred to in the extract. [4]
(d) Calculate, using information from the extract, the percentage of India’s labour force that was
employed in the vehicle industry in 2016. [2]
(e) Analyse, using Fig. 1.1, what happened to India’s output and population over the period
shown. [5]
(f) Discuss whether or not a government should aim for a low rate of inflation. [5]
(g) Explain, using information from the extract, two reasons why consumer expenditure may
increase in India in the future. [4]
(h) Discuss whether or not having a young population is a benefit to an economy. [6]
Section B
2 Ireland has attracted a significant number of foreign multinational companies (MNCs) to set up
production in the country. These firms employ approximately 10% of the country’s labour force
and make a high proportion of Ireland’s exports. The surplus on the current account of Ireland’s
balance of payments fell in 2016 while government spending rose.
(a) Identify two reasons why an MNC may decide to start producing in a foreign country. [2]
(b) Explain two reasons why someone may want to work for an MNC. [4]
(c) Analyse how an increase in exports could improve a country’s economic performance. [6]
(d) Discuss whether or not an increase in government spending will reduce a surplus on the
current account of that country’s balance of payments. [8]
3 The economic problem results in people having to make choices. In Bulgaria, in recent years,
people have changed how much they spend. The Bulgarian government is encouraging people to
spend more. It is trying to ensure that deflation does not return and that the country will continue to
experience an increase in output.
(a) Identify two ways a government could encourage people to spend more. [2]
(b) Explain how the economic problem results in people having to make choices. [4]
(c) Analyse why deflation may cause a fall in output. [6]
(d) Discuss whether or not a country will suffer if its output falls. [8]

4
4 Average life expectancy is as short for the poorest Americans as it is for the people of Sudan, a
low-income African country. Low-income individuals tend to live longest in countries with more
educated populations. Economic growth can increase education and reduce poverty. In 2017, the
US President announced a cut in the tax on firms’ profits. He said the measure would increase
employment.
(a) Identify two reasons why someone may want to migrate to the USA. [2]
(b) Explain two reasons why less-educated people tend to have a shorter life expectancy than
people who have received more education. [4]
(c) Analyse how economic growth can reduce absolute poverty. [6]
(d) Discuss whether or not a cut in the tax on firms’ profits will increase employment. [8]
5 The mobile (cell) phone industry is growing in Asia with more workers being employed. In March
2017, there was a merger between two mobile phone producers, both of which had relatively
high fixed costs. This merger created one of the largest mobile phone firms and moved the Asian
market further from perfect competition and closer to monopoly. It was expected that profits in the
industry would increase as a result of the merger.
(a) Identify two fixed costs. [2]
(b) Explain two ways monopoly differs from perfect competition. [4]
(c) Analyse what determines a firm’s demand for labour. [6]
(d) Discuss whether or not a merger will increase profits. [8]
6 Botswana has a number of conservation projects. These are thought to provide a social benefit
to local communities. Botswana has a mixed economic system with tax revenue as a percentage
of GDP at 27% in 2017. Some Botswanan economists suggest that the country should move
towards a market economic system, taking care to avoid market failure.
(a) Define social benefit. [2]
(b) Explain two advantages of conserving natural resources. [4]
(c) Analyse how taxation could reduce market failure. [6]
(d) Discuss the advantages and disadvantages of a market economic system. [8]
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7 Indian Railways is a state-owned enterprise, owned and operated by the Ministry of Railways.
There is currently only one privately-owned railway line in India. The market for rail travel is
influenced by changes in the markets for other forms of transport. For instance, changes in the
supply of oil and petrol influence the market for car travel.
(a) Define a market. [2]
(b) Explain two reasons why the supply of a raw material such as oil may rise in the future. [4]
(c) Analyse, using a demand and supply diagram, how the market for oil would be affected when
the demand for oil increases by more than the supply of oil. [6]
(d) Discuss whether or not car travel will increase in the future. [8]
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ECONOMICS 0455/21
2 hours 15 minutes
* 4 0 7 3 1 2 7 8 0 1 *
Section A
Answer Question 1.
Section B
DC (ST) 164705/3
2
Section A
1 New York: A Global Financial Centre
New York is the best city in the world in terms of human capital according to the Global Financial
Centres Index. This, along with economic freedom that encourages new business start ups, has
contributed to high economic growth rates. In fact, the city’s economic growth rate is higher than
the GDP growth rate for the entire USA. Overall, New York’s economy grew 3.4% in 2015, faster
than the 2.4% recorded nationally. However, land area is scarce, especially in the Manhattan
district of New York, where most economic activity is concentrated.
The financial sector is the most important sector in the city’s economy – New York is home to the
first and second largest stock exchanges in the world and 3 of the top 10 largest banks in the USA
have their headquarters in New York. Improvements in education also contribute to New York’s
fast economic growth rate as New York continues to attract students from all over the world and
from various areas of study.
Unemployment rates in the city continue to fall. In addition, average weekly wages in New York are
consistently higher than the rest of the USA. Table 1.1 shows the average weekly hours worked
and average weekly wages in New York between 2011 and 2017.
Table 1.1 Average weekly hours worked and average weekly wages in New York, 2011–17
Average weekly hours worked Average weekly wages (US$)
2011 33.9 906.83
2012 34.1 933.66
2013 33.5 932.31
2014 33.4 935.87
2015 33.5 961.45
2016 33.4 976.95
2017 33.5 1011.03
New jobs that are created today are in middle and low-paying jobs, not in high-paying jobs.
Finance industry workers are 20% of the workers in the city, but they earn more than half of all the
wages paid in New York. The pay gap between workers in the finance industry and the 1.6 million
other workers in the city continues to widen. This is often due to the lack of skills of the lower paid
workers and also the male-dominance in the finance industry.
In addition to the income inequality, continuous economic development in the city has affected the
environment. The ever-expanding finance industry is also creating the risk of a repetition of the
2007–08 Global Recession with the possibility of bank failures. Rising trade protection by the US
government may negatively affect American cities such as New York, especially while Asian cities
such as Singapore, Hong Kong, and Shanghai continue to open up to free trade.
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(a) State a factor of production and identify an example of it from the extract. [2]
(b) Explain, using information from the extract, two causes of economic growth in New York. [4]
(c) Calculate, using information from the extract, the total number of workers in New York. [2]
(d) Analyse, using Table 1.1, the relationship between average weekly hours worked and average
weekly wages. [5]
(e) Explain, using information from the extract, one reason for differences in earnings between
different jobs in New York. [2]
(f) Explain, using information from the extract, the possible negative effects of economic growth
in New York. [4]
(g) Discuss the advantages and disadvantages of a city having a large tertiary sector. [5]
(h) Discuss whether or not opening up to free trade benefits an economy. [6]

4
Section B
2 In 2017, two firms in the chemical industry in China merged. This created the world’s largest
chemical group with approximately US$100 billion revenue. The main aim of this integration was
to control the domestic market for chemicals and fertilisers by creating a monopoly. The new
firm is a multinational company (MNC) as it also produces in other countries such as Italy and
Switzerland.
(a) Define industry. [2]
(b) Explain two types of integration (merger). [4]
(c) Analyse the advantages that an MNC has over a firm which only produces domestically. [6]
(d) Discuss whether or not an economy benefits from firms which are monopolies. [8]
3 Estonia has one of the fastest internet speeds in the world. The government allows both direct
and indirect taxes to be paid online. According to the World Bank, it is very easy for a firm to deal
with construction permits and to register property in Estonia. A low level of government regulation
affects how easy it is to start and to run a firm. Many new firms are labour-intensive but some
become more capital-intensive as they grow.
(a) Identify one example of a direct tax and one example of an indirect tax. [2]
(b) Explain two reasons why a firm may become more capital-intensive as it grows. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the possible effects of faster
internet speeds for economic growth. [6]
(d) Discuss whether or not an economy would benefit from less government regulation. [8]
4 In 2016, Argentina’s annual inflation was 20%, down from 40% in 2015. Inflation had been high
since 2003. Wages were constantly adjusted upwards. In addition, some employees demanded
more non-wage benefits. Industrial action, often in the form of strikes called by trade unions,
became more common in Argentina.
(a) Identify two non-wage factors that could affect an individual’s choice of occupation. [2]
(b) Explain two causes of inflation. [4]
(c) Analyse the impact of strikes on an economy. [6]
(d) Discuss whether or not an increase in wages will reduce a firm’s profit. [8]
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5 The Monetary Authority of Singapore (MAS), the government body which controls the monetary
policy of the country, has allowed the Singapore dollar to appreciate. However, the high cost of the
Singapore dollar has created a need for new incentives for firms, such as a reduction in taxes and
granting subsidies.
(a) Define monetary policy. [2]
(b) Explain two functions of money. [4]
(c) Analyse the consequences of an appreciating currency on the current account of the balance
of payments of a country. [6]
(d) Discuss whether or not a reduction in taxes is beneficial for an economy. [8]
6 A local manufacturer of medicines (pharmaceuticals) in Nigeria wants to expand which will

increase the contribution of this industry to the Gross Domestic Product (GDP) of the country. This
firm’s expansion may enable Nigeria to reduce its dependence on imports of medicines and may
make medicines more affordable. To ensure success, however, the firm will need to increase its
investment in research and development.
(a) Define Gross Domestic Product (GDP). [2]
(b) Explain two ways in which more affordable medicines can improve standards of living. [4]
(c) Analyse how investment in research and development (R&D) can help a firm to grow in size.
[6]
(d) Discuss whether or not a reduction in imports is beneficial to an economy. [8]
7 In 2017, the UK included bicycle helmets for the first time in its calculation of the consumer prices
index (CPI). Many bicycle retailers now provide their customers with a choice of bicycle helmets.
Estimates show that 25 million bicycle helmets are sold globally per year and the number sold is
on a steady upward trend.
(a) Define choice and give an example. [2]
(b) Explain how the CPI is calculated. [4]
(c) Analyse the possible reasons for the increase in global demand for bicycle helmets. [6]
(d) Discuss whether or not increasing sales of a product will be beneficial to a firm. [8]
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ECONOMICS 0455/23
2 hours 15 minutes
* 1 5 3 0 1 6 7 3 5 4 *
Section A
Answer Question 1.
Section B
DC (ST/CT) 164707/2
2
Section A
1 A new capital for Zambia?
Zambia is a middle-income country but one with 60% of its population of 15 million living below
the poverty line. In 2017, the Zambian government announced that it was planning to move the
country’s capital from Lusaka in the south of the country to Ngabwe, a village in the centre of the
country. Ngabwe currently lacks good roads and other infrastructure. A move to Ngabwe, however,
may help the country to cope with its high rate of population growth and encourage entrepreneurs
to set up new businesses in that area. In 2017, the country had a zero net migration rate, a birth
rate of 41.8, a death rate of 12.4, and a life expectancy of 52.5 years.
Zambia’s economic growth rate averaged 6.8% between 2004 and 2014. This rate fell after 2014
due, in part, to a depreciation in the kwacha, Zambia’s currency. The reduction in the foreign
exchange rate of the kwacha contributed to the rise in the country’s inflation rate from 10.1% in
2015 to 20.6% in 2016.
In 2017, the labour force of 7.2 million accounted for 48% of the country’s population. Workers
are employed in a range of industries including agriculture, banking, building, copper mining, and
emerald mining. Fig. 1.1 shows the relationship between copper output and revenue from the sale
of copper, the index for 2010 is 100.
140
130
120
110
index 100
90
80
70
60
2010 2011 2012 2013 2014 2015 2016 2017
Copper output Revenue from the sale of copper
Fig. 1.1 Copper output and revenue from the sale of copper 2010—17 (index numbers)
In 2017, Zambia’s central bank reduced commercial bank lending. This lowered investment and
household borrowing. Government spending rose more slowly and some cuts were made to the
government’s spending on training.
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(a) Identify, from the extract, two primary sector industries. [2]
(b) Calculate, using information from the extract, how many people in Zambia lived in poverty in
2017. [2]
(c) Explain, using information from the extract, why Zambia had a high rate of population growth
in 2017. [2]
(d) Explain, using information from the extract, why a depreciation of the kwacha harmed the
Zambian economy. [4]
(e) Analyse, using Fig. 1.1, the relationship between copper output and revenue from the sale of
copper. [5]
(f) Discuss whether or not a central bank should reduce commercial bank lending. [5]
(g) Explain, using information from the extract, two reasons why productivity may have been low
in Zambia. [4]
(h) Discuss whether or not building a new city will benefit an economy. [6]

4
Section B
2 Between 2007 and 2017, the average wage in China tripled, while it fell in Brazil. The rise in
average wage in China was particularly high in the tertiary sector. Farm workers experienced
a smaller rise. In June 2017, unemployment in China was only 4% while it was 13.5% in Brazil.
Despite the lower unemployment, China’s inflation rate was lower than that of Brazil.
(a) Define tertiary sector and give an example of an industry operating in the tertiary sector. [2]
(b) Explain two reasons why farm workers may be low-paid. [4]
(c) Analyse how lower unemployment may cause inflation. [6]
(d) Discuss whether or not a country with high wage rates will have a high unemployment rate.
[8]
3 The food items people buy can be influenced by taxes, subsidies and health reports. A report
published in 2017 outlined the health benefits of eating tomatoes including improved vision and
reduced risk of heart disease. Egypt is a major producer of tomatoes and it also produces a large
amount of cement. Cement is a product with price-inelastic demand. Egyptian cement producers
have introduced more capital-intensive production methods.
(a) Identify the difference between a tax and a subsidy. [2]
(b) Explain two reasons why demand for a product may be price-inelastic. [4]
(c) Analyse, using a demand and supply diagram, the effect a report stating that eating tomatoes
is good for health will have on the market for tomatoes. [6]
(d) Discuss whether or not introducing more capital-intensive production methods will increase a
firm’s profits. [8]
4 Australia’s economic growth rate has fallen in recent years. Its Human Development Index (HDI),
however, is high and in 2016, Australia had the second highest HDI in the world. The Australian
government hopes that the country’s birth rate will rise from a low of 12.1 in 2016. An increasing
proportion of Australian children are going to private sector schools. Their parents have to pay a
fee for them to attend these schools.
(a) Identify the difference between economic growth and recession. [2]
(b) Explain how the HDI compares living standards between countries. [4]
(c) Analyse the effects of a rise in a country’s birth rate. [6]
(d) Discuss whether or not parents should have to pay a fee to send their children to school. [8]
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5 Angola is an African country without a stock exchange. In contrast, South Africa has the most
active stock exchange in Africa. Firms in South Africa are also much larger than firms in Angola
and South African firms undertake more borrowing from commercial banks. Both countries do,
however, have a low saving rate which could be increased if the rate of interest was raised.
(a) Define saving. [2]
(b) Explain two benefits a country can gain from having a stock exchange. [4]
(c) Analyse how firms may be affected by a rise in the rate of interest. [6]
(d) Discuss whether or not an economy will benefit from its firms getting larger. [8]
6 It has recently been revealed that a king works as a part-time pilot for a multinational airline. Some
pilots and police officers have left their jobs to become teachers and others have left to become
sole traders. The wages teachers earn vary according to their age.
(a) Define wages. [2]
(b) Explain why the opportunity cost of becoming a teacher for one worker may be greater than
for another worker. [4]
(c) Analyse how an individual’s earnings are likely to change over her or his lifetime. [6]
(d) Discuss whether most people would prefer to work for a multinational company (MNC) or a
sole trader. [8]
7 In 2016, France had a trade in services deficit. France is a rich, developed country with a high
standard of living. The country is, however, facing several challenges including population
problems. Also, after elections in 2017, politicians and economists debated whether the country
should try to move towards freer international trade.
(a) Define a trade in services deficit. [2]
(b) Explain two population problems a rich, developed country may experience. [4]
(c) Analyse how a move to freer international trade may benefit a country’s producers. [6]
(d) Discuss whether or not the standard of living is higher in developed countries than in
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ECONOMICS 0455/23
2 hours 15 minutes
* 5 5 7 8 9 0 3 6 6 6 *
Section A
Answer Question 1.
Section B
DC (ST/CT) 164710/3
2
Section A
1 Iceland’s Economic Structure
The people of Iceland once depended on farming and fishing as their main source of income. By
2008, the Icelandic economy was also very heavily dependent on its financial sector. However, the
country is now well-known internationally for tourism.
Even though the primary sector now only employs a small proportion of the country’s labour force,
the influence of this sector in policy-making is very strong. For example, in the fishing industry,
there are many government regulations. Regulations that restrict foreign investment in the fishing
industry both protect domestic fisherman and the stock of fish in Icelandic waters. Regulation also
affects the price elasticity of supply (PES) of fish. The quantity of fish supplied tends to change by
a smaller percentage than the change in its price.
From 2002 to 2007, Iceland’s annual economic growth rate averaged 5%. In 2006, Iceland’s Gross
Domestic Product (GDP) was US$17 billion and in 2007 it grew by 9%. This high growth rate was
due to the increased availability of bank loans and also the increasing income of its major trading
partners, including the European Union (EU) and Norway.
It was during this period of rapid economic growth that the financial sector became an important
part of the Icelandic economy. The major commercial banks supported increased consumer
spending and major construction projects which improved the standard of living of Icelanders. In
addition, commercial banks also expanded into international markets. The international markets
were growing rapidly between 2002 and 2007 which brought more money back into the Icelandic
financial sector.
However, Iceland faced a major financial crisis in 2008 where all three of its major privately-owned
commercial banks failed. This led to falling overall levels of output and increased unemployment.
Fig. 1.1 shows the economic growth rate and unemployment rate in Iceland from 2002 to 2014.
12
10
8
6
4
2
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
–2
–4
–6
Unemployment rate (% of total labour force)
Economic growth rate (% change in GDP)
Fig. 1.1 Economic growth rate and unemployment rate in Iceland from 2002 to 2014
The recovery from 2010 to 2017 was initially possible due to loans obtained from international
organisations. More recently, it was also due to successful tourism campaigns that have made
Iceland a ‘must-see’ destination for tourists.
© UCLES 2019 0455/23/M/J/19
3
(a) Identify, using information from the extract, two industries that are in the primary sector of the
Icelandic economy. [2]
(b) Explain, using information from the extract, two reasons for government regulation of the
fishing industry in Iceland. [4]
(c) Explain, using information from the extract, two reasons, apart from changes in employment,
for Iceland’s high economic growth rate from 2002 to 2007. [4]
(d) Calculate, using information from the extract, Iceland’s GDP in 2007. [2]
(e) Analyse, using Fig. 1.1, the relationship between changes in the economic growth rate and
the unemployment rate over the period shown. [5]
(f) Explain, using information from the extract, whether the supply of Iceland’s fish is price-elastic
or price-inelastic. [2]
(g) Discuss the advantages and disadvantages of the activities of commercial banks to an
economy. [5]
(h) Discuss whether or not a growth in tourism is an advantage to a country such as Iceland. [6]

4
Section B
Answer three questions from this section.
2 Germany’s economy is one of the best performing economies in the European Union (EU).
Germany has low unemployment rates and a surplus on the current account of the balance of
payments. Single parents, long-term unemployed, immigrants, elderly, and low-skilled workers
have not always benefitted from Germany’s economic performance. This has created increasing
levels of relative poverty.
(a) Define a surplus on the current account of the balance of payments. [2]
(b) Explain two possible causes of low unemployment. [4]
(c) Analyse how long-term unemployment can cause relative poverty. [6]
(d) Discuss whether or not an increase in a surplus on the current account of the balance of
payments decreases unemployment. [8]
3 Confidence in the government’s reform agenda led to very strong growth of India’s stock exchange
index in 2017. Firms liked the supply-side policy measures that had been introduced, such as
government spending on infrastructure projects including building new motorways. However,
opponents of the government claimed that the government was prioritising one government aim
over others.
(a) Define supply-side policy. [2]
(b) Explain two functions of a stock exchange. [4]
(c) Analyse two possible conflicts between government aims. [6]
(d) Discuss whether or not infrastructure projects will benefit an economy. [8]
4 After the UK’s decision to leave the European Union (EU) in June 2016, the value of the British
currency, the pound (£), depreciated. However, in August 2016, despite the fall in the value of
the £, the Bank of England reduced interest rates from 0.5% to 0.25%. This was to encourage
further spending and borrowing to avoid a lower economic growth rate.
(a) Identify two motives for consumer spending. [2]
(b) Explain two benefits a firm can gain by borrowing. [4]
(c) Analyse two consequences of a depreciating foreign exchange rate. [6]
(d) Discuss whether or not a fall in interest rates will benefit an economy. [8]
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5 The South Korean economy was dominated by many family-owned firms which have now become
large public limited companies. The government provided subsidies and imposed trade protection
to help their domestic firms to grow. Since 2010, average earnings have risen in South Korea.
(a) Define public limited company. [2]
(b) Explain two reasons for growth in average earnings. [4]
(c) Analyse, using a demand and supply diagram, how government subsidies help firms grow.
[6]
(d) Discuss whether or not trade protection supports the growth of domestic firms. [8]
6 Non-renewable energy (e.g. coal) is thought to cause a higher social cost than renewable energy
(e.g. solar or wind power). Excessive demand for non-renewable energy causes a failure of the
market economic system. However, producers of renewable energy, some of which specialise in
one form of energy, are beginning to produce on a larger scale.
(a) Define social cost. [2]
(b) Explain two reasons why a firm would want to specialise in producing only one product. [4]
(c) Analyse how the ability of firms to produce on a larger scale is beneficial to consumers. [6]
(d) Discuss whether or not the operation of a market economic system is harmful to an economy.
[8]
7 Some economists have claimed that the 21st century will be the ‘African century’ because of
the growth in their working-age population. Forecasts show that by 2030, Africa’s contribution to
the increase in the global labour force will exceed that from the rest of the world. This will affect
incomes, saving, and economic policies in African countries.
(a) Define labour. [2]
(b) Explain two motives for saving. [4]
(c) Analyse the reasons for countries having different population growth rates. [6]
(d) Discuss whether or not a rise in the working-age population, as a percentage of the total
population, will be beneficial to a country. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes
You must answer on the enclosed answer booklet.

* 9 8 0 8 0 0 9 6 7 5 *
You will need: Answer booklet (enclosed)
INSTRUCTIONS
● Answer four questions in total:
Section A: answer Question 1.
Section B: answer three questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.
INFORMATION
● The total mark for this paper is 90.
● The number of marks for each question or part question is shown in brackets [ ].
This document has 8 pages. Blank pages are indicated.
DC (JC) 184588/2
2
Section A
Read the source material carefully before answering Question 1.
Source material: Air pollution in India
India fact file 2016 2017

Real GDP $8750.0 billion $9362.5 billion
Current account deficit as % of GDP –0.7 –1.2
Car production 3.7 million 4.0 million
As India increases its output, it creates more pollution. Its government encourages economic growth
by promoting investment and free trade. It is considering cutting taxes, spending more on education,
lowering import tariffs and removing some import quotas.
The Indian government intervenes in its economy for a number of reasons, including to reduce
pollution. The causes of pollution include vehicles and private and public sector factories which emit
harmful gases. With reductions in the cost of producing cars and rising incomes, more cars are being
produced and purchased in India.
Producers and car drivers base their decisions on just their private costs and benefits. Some farmers
burn their fields after harvesting to increase the growth of their next crop, even though their action
causes pollution. Also, some owners of mines do not take sufficient care to ensure that minerals and
metals do not leak into local water supplies.
As well as affecting pollution, the relative size of the primary sector can influence average income as
shown in Table 1.
Table 1 Primary sector output as a percentage of GDP

and GDP per head in selected countries in 2017
Primary sector output GDP per head

Country
(% of GDP) ($)
US 1 59 600
Spain 3 38 200
Argentina 8 20 700
Egypt 11 13 000
India 18 7 200
Philippines 30 8 200
To reduce pollution, the Indian government subsidises bus travel. It also requires buses to run on
natural gas rather than on more polluting diesel and petrol. Reduced pollution can attract more foreign
tourists. Foreign tourism and changes in the foreign exchange rate affect the current account of a
country’s balance of payments. It has been predicted that India’s foreign exchange rate is likely to rise
in the future.
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3
Answer all parts to Question 1. Refer to the source material in your answers.
1 (a) Calculate India’s economic growth rate in 2017. [1]
(b) Identify two methods of protection. [2]
(c) State why India is a mixed economy. [2]
(d) Explain why external costs cause market failure. [4]
(e) Draw a demand and supply diagram to show the effects of a decrease in the costs of
production on the market for cars. [4]
(f) Analyse the relationship between the size of countries’ primary sector output and GDP per
head. [5]
(g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in
India. [6]
(h) Discuss whether or not India is likely to experience a deficit on the current account of its
balance of payments in the future. [6]

4
Section B
Each question is introduced by stimulus material. In your answer you may refer to this material and / or
to other examples that you have studied.
2 The main industries in the Seychelles, an island country in the Indian ocean, are tourism and
fishing. The price elasticity of supply of fish is affected by the relatively short time that fish can be
stored. Economic goods and free goods play a role in both fishing and tourism. With rises in the
skills of workers and an increase in enterprise, GDP per head has increased by more than seven
times over the last fifty years.
(a) State the formula for calculating the price elasticity of supply (PES). [2]
(b) Explain how opportunity cost is different for economic goods and free goods. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in
enterprise on an economy. [6]
(d) Discuss whether or not skilled workers are always paid more than unskilled workers. [8]
3 In 2017, the Brazilian paper industry was booming. Its total revenue increased and it employed
both more, and better quality, factors of production. Brazil’s largest paper producer merged with an
Indonesian paper-producing firm at the end of 2017. The performance of Brazil’s coffee industry
differed from its paper industry. Brazilian coffee experienced a fall in demand and a fall in total
revenue.
(b) Explain two differences between capital and labour. [4]
(c) Analyse the possible effects on consumers of a merger between two paper-producing firms.
[6]
(d) Discuss whether or not demand for coffee is likely to rise in the future. [8]
4 African countries are expected to experience growth in their output. It is also predicted that Africa’s
population will increase from 1.1 bn in 2017 to 4.2 bn by 2100, when Nigeria will account for one
in twelve of the world’s births. Nigeria and South Africa are expected to experience the greatest
rise in investment (spending on capital goods) over this period, and a change in their gender
distribution.
(a) Define gender distribution. [2]
(b) Explain two benefits of a higher economic growth rate. [4]
(c) Analyse the disadvantages of a rapidly growing population. [6]
(d) Discuss whether or not a cut in the rate of interest will increase investment. [8]
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5 The Chinese government reformed the Chinese tax system in 2016. It extended VAT (sales tax)
from the sale of goods to the sale of services enabling it to cut the corporation tax rate. Taxes
on goods and services are usually regressive. The Chinese government wanted to raise living
standards and hoped that a cut in the tax rate firms pay would attract multinational companies
(MNCs) to the country.
(a) State two reasons for levying taxes. [2]
(b) Explain the difference between a progressive tax and a regressive tax. [4]
(c) Analyse how a cut in the rates of corporation tax and income tax may influence the number of
MNCs setting up in the country. [6]
(d) Discuss whether or not people in a high-income country always enjoy a higher living standard
than those in a low-income country. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 7 3 1 1 5 8 5 9 8 1 *
INSTRUCTIONS
INFORMATION
DC (JC) 184590/2
2
Section A
Source material: the challenges facing Pakistan
Pakistan fact file 2016 2017

$ billion $ billion
Exports of goods 20.5 25.2
Imports of goods 47.0 61.7
Government spending 40.5 43.2
Consumer spending 259.3 294.8
Pakistan faces a number of economic challenges. These include responding to a rising population,
improving its trade in goods balance, controlling the country’s inflation rate and increasing the country’s
economic growth rate. To overcome these challenges, the Pakistani government is trying to increase
investment. Currently, a high proportion of the country’s resources are used to produce consumer
goods.
The government is subsidising entrepreneurs and charities to open low-cost schools. It wants to reduce
the dropout rate from schools and to raise educational standards. Some parents do not recognise the
advantages that a merit good such as education can give their children, for example better health and
better job opportunities. Some of the poor need their children to work from a young age to support the
family. Government reforms have not yet led to a significant rise in teachers’ wages but have improved
school buildings and the number of children attending. The qualifications required to teach may be
increased in the future.
Improved education may affect the number of skilled workers who emigrate and may raise the quantity
and quality of goods and services produced. Any resulting higher income may influence the value of
imports purchased, as shown in Table 1.
Table 1 GDP per head and imports per head in selected countries in 2017.
Country GDP per head Imports per head

($) ($)
Norway 70 600 14 472
UK 43 600 10 419
South Korea 39 400 11 602
Russia 27 900 4 002
Mexico 19 500 7 343
Pakistan 5 400 1 143
Haiti 1 800 853
Pakistan has relatively high import tariffs. Revenue from import tariffs is 45% of total tax revenue. The
tariffs on vehicles, some of which have inelastic demand, are particularly high. Future Pakistani tariffs
may be influenced by changes in other countries’ trade policies, as well as other factors.
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1 (a) Calculate Pakistan’s trade in goods balance in 2017. [1]
(b) Identify two possible causes of demand-pull inflation in Pakistan in 2017. [2]
(c) Explain the opportunity cost to Pakistan of producing consumer goods. [2]
(d) Explain two reasons why education is a merit good. [4]
(e) Analyse why the children of poor families tend to receive less education than the children of
rich families. [4]
(f) Analyse the relationship between GDP per head and imports per head. [5]
(g) Discuss whether or not the supply of teachers in Pakistan is likely to increase in the future.
[6]
(h) Discuss whether or not an increase in its import tariffs would be likely to benefit the Pakistani
economy. [6]

4
Section B
2 The Indian government has declared that the country, now a major car producer, will sell only
electric cars by 2030. The government wants to reduce external costs, some of which are caused
by petrol and diesel cars. Demand for electric cars is currently relatively low and price-elastic. The
government, however, thinks that it will not need to subsidise the production of electric cars to
achieve its target.
(a) Define external costs. [2]
(b) Explain two influences on whether demand for a product is price-elastic or price-inelastic. [4]
(c) Analyse, using a demand and supply diagram, how a subsidy given to producers could affect
the market for electric cars. [6]
(d) Discuss whether cars should be produced by the private sector or the public sector. [8]
3 A number of countries are withdrawing high value banknotes. For instance, Singapore plans to
stop issuing its $10 000 note. High value notes were originally intended to act as a convenient store
of value. Central banks are concerned some notes are now being used illegally. The Singapore
Police Force and the Monetary Authority of Singapore (its central bank) were trying to recruit more
workers in 2017. It was expected that the central bank would raise the rate of interest in 2018.
(a) State two functions of money, other than a store of value. [2]
(b) Explain two advantages banknotes have as a form of money. [4]
(c) Analyse the influences on the mobility of workers. [6]
(d) Discuss whether or not a central bank should raise the rate of interest. [8]
4 In 2017, the Japanese government announced improvements to its tax system. The amount of
tax raised is influenced by the size and age distribution of a country’s population. Japan’s birth
and death rates are falling, its population is ageing, and it has low immigration. Overall, Japan’s
population is decreasing.
(a) State two qualities of a good tax. [2]
(b) Explain two causes of a decrease in the death rate. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of a decrease in
population size on an economy. [6]
(d) Discuss whether or not an ageing population is a benefit to an economy. [8]
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5 Mali is a low income and low productivity country in Africa. Its government is using fiscal policy
to reduce poverty. The country’s main industries are agriculture and gold mining. In recent years,
however, there have been some changes in its resource allocation. The country is developing its
iron ore industry. Globally, the iron ore industry is one which has experienced a significant number
of mergers in recent years.
(a) State two key questions about how resources are allocated. [2]
(b) Explain two fiscal policy measures that can be used to reduce poverty. [4]
(c) Analyse why a country may have low productivity. [6]
(d) Discuss whether or not mergers benefit an economy. [8]
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Cambridge IGCSE™
ECONOMICS 0455/23
2 hours 15 minutes

* 5 5 9 5 1 9 6 5 7 2 *
INSTRUCTIONS
INFORMATION
DC (JC/SG) 184591/3
2
Section A
Source material: some problems affecting the Greek economy
Greece fact file 2015

Population 10.8 million
% Population over 60 years old 27%
Unemployment rate 24%
Net migration – 44 905
Greece is the country that was worst affected by the European financial crisis that began in 2008. From
the start of the crisis, no other European economy had such a large percentage fall in GDP. Greece’s
GDP fell by 9% in 2011. One reason for this was a very strong foreign exchange rate.
Since 2014, other European economies have recorded positive economic growth rates. Among the
reasons for this were successful supply-side policy measures and an improving global economy. The
Greek government introduced market-friendly measures, including privatisation and labour market
reforms. These measures brought back some investors and moved the Greek economy closer to a
market economic system. However, Greece’s output still fell. This may be due to the fact that none of
the government policies have managed to change population trends.
The Greek population has been falling since 2010. Greece has the third most rapidly ageing population
in the world, behind Japan and Italy. The economy has not made good use of its older population
because a significant percentage of workers retire earlier than the national retirement age of 67. For
example, 74% of employees in the public sector retire before 61 years old. In addition, the crisis also
led to high levels of emigration.
However, those living on some Greek islands have escaped the effects of the crisis. Income from
tourism has continued to flow into the islands. An island called Ikaria has also managed to gain
international attention as one of the healthiest places in the world. Approximately 30% of the people
who live on this island, live until they are over 90. Health problems are also much less frequent than
those living elsewhere. Overall, however, Greece has managed to improve its Human Development
Index (HDI) value as shown in Fig. 1.
30 000 0.868
25 000 0.866
GDP per head ($)
0.864
20 000
HDI value
0.862
15 000
0.860
10 000
0.858
5000 0.856
0 0.854
2010 2011 2012 2013 2014 2015
Year
GDP per head ($) HDI Value
Fig. 1 Greece’s GDP per head ($) and HDI value from 2010–2015
© UCLES 2020 0455/23/M/J/20
3
Answer all parts of Question 1. Refer to the source material in your answers.
1 (a) Calculate the total number of people over 60 years old in Greece in 2015. [1]
(b) Explain what is meant by an unemployment rate of 24%. [2]
(c) Identify two reasons for the recovery of the European economies, other than Greece. [2]
(d) Explain the two supply-side policy measures being used by the Greek government. [4]
(e) Analyse how two of Greece’s population trends may have affected its economy. [4]
(f) Analyse the relationship between Greece’s GDP per head and its HDI value. [5]
(g) Discuss whether or not having a strong foreign exchange rate is a problem for Greece’s
economy. [6]
(h) Discuss whether or not a market economic system improves living standards. [6]

4
Section B
Each question is introduced by stimulus material. In your answer you may refer to this material and/or
2 In Nagicho, a small town in Japan, a woman on average has 2.8 children in her lifetime. In Japan
as a whole, a woman on average only has 1.4 children in her lifetime. Nagicho’s higher birth rate
is partly the result of a lower cost of living for families, as the prices of basic items are lower in
Nagicho than in the rest of Japan. The local government not only offers housing at subsidised
rates, to get more labour into the area, but also tries to get more investment into the town.
(a) State two functions of local government. [2]
(b) Explain how a lower cost of living can encourage population growth. [4]
(c) Analyse the influences on the mobility of two factors of production. [6]
(d) Discuss whether or not increased investment is beneficial to an economy. [8]
3 Ireland has one of the lowest rates of corporation tax in Europe. This has encouraged many
multinational companies (MNCs) to produce in Ireland. Other reasons why firms want to produce
in Ireland include access to freer trade with other European countries, higher labour productivity
and government grants.
(a) State two benefits of free trade. [2]
(b) Explain two reasons why governments levy taxes. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the impact of higher labour
productivity on an economy. [6]
(d) Discuss whether or not MNCs always benefit their host countries. [8]
4 Business-friendly fiscal policy in the United States (US) has encouraged firms to produce more.
The US government has also encouraged mergers, including firms in the gas and electricity
industries. Even though there are significant regulations, entrepreneurs have found that mergers
enable them to maximise their profits. However, this may make markets less competitive and
some states have imposed a maximum price for gas and electricity.
(a) Define profit maximisation. [2]
(b) Explain two types of mergers. [4]
(c) Analyse how fiscal policy can encourage firms to produce more. [6]
(d) Discuss whether or not maximum prices are beneficial. [8]
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5 There is a high level of division of labour in the United Kingdom (UK) energy industry. Cold
weather in early 2018 caused very high demand for energy and a change in its price. This led to a
temporary shortage of energy for firms and households in the UK. Part of the change in price may
have been the result of UK energy firms abusing their monopoly power. This would be an example
of market failure.
(a) Define market failure. [2]
(b) Explain two influences, other than weather, that could affect the demand for a product. [4]
(c) Analyse the possible effects of a shortage of a product such as energy on an economy. [6]
(d) Discuss whether or not workers benefit from division of labour. [8]
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ECONOMICS 0455/22
2 hours 15 minutes

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INSTRUCTIONS
INFORMATION
DC (KN) 184663/2
2
Section A
Source material: The destruction of forests in Indonesia
Indonesian fact file 2017 Indonesia 2017 world

palm oil production
36.0 60.0
(million metric tons)
rice production
74.2 483.9
(million metric tons)
unemployment rate
5.4 5.7
(%)
population growth rate
1.2 1.4
(%)
Indonesia is the world’s largest producer of palm oil. The costs involved in producing palm oil include
rent of land, fertiliser, palm oil seeds, maintenance of irrigation systems and casual labour. Fires are set
to clear forests to make way for palm oil plantations. These fires destroy the homes of many species
of wildlife and release harmful gases into the air. Since 2011, Indonesia has been paid to conserve its
forests by the Norwegian government.
While Indonesia is the largest producer of palm oil, it is the third largest producer of rice. Indonesia
exports 85% of its palm oil but sometimes has to import rice to meet domestic demand. Its international
trade in palm oil and rice is influenced by changes in its foreign exchange rate. The price of the
Indonesian currency, the rupiah, fell in 2017.
Rice production also contributes to air pollution. Rice farmers burn the stubble left after harvesting to
clear the fields and to raise the fertility of the land so they can produce more rice. Some environmentalists
argue that stubble burning should be banned.
The Indonesian economy, along with the world economy, continues to grow. Economic growth can
cause pollution. It can also affect a country’s GDP per head ranking and Human Development Index
(HDI) ranking as shown in Table 1.1.
Table 1.1 GDP per head ranking and HDI ranking for selected countries in 2016
country GDP per head ranking HDI ranking

Luxembourg 2 20
Mauritius 64 64
Indonesia 99 113
Cuba 120 68
Ghana 134 134
Ethiopia 167 174
Indonesia experiences net emigration. Some Indonesians work abroad and send money home to their
families. People also come from abroad to work in Indonesia, some in relatively highly paid jobs in the
country’s expanding tourism industry. Indonesia currently attracts fewer tourists than its neighbours,
Singapore and Malaysia. It does, however, have many natural tourist attractions and is currently price
competitive.
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1 (a) Calculate the percentage of total world output of palm oil produced by Indonesia in 2017. [1]
(b) Identify two variable costs of producing palm oil. [2]
(c) Explain one opportunity cost of conserving forests in Indonesia. [2]
(d) Explain two external costs of the destruction of forests in Indonesia. [4]
(e) Draw a demand and supply diagram to show the effect of a ban on burning stubble on the
market for rice. [4]
(f) Analyse the relationship between countries’ GDP per head ranking and HDI ranking. [5]
(g) Discuss whether or not the immigration of workers would be likely to benefit the Indonesian
economy. [6]
(h) Discuss whether or not the Indonesian tourism industry will increase in the future. [6]

4
Section B
2 Mexico has a history of trade deficits. The government is moving the economy closer to free trade,
to try to improve its macroeconomic performance. It was predicted in 2017 that Mexico’s economy
would experience a small rise in its unemployment rate. In 2017 the economy’s inflation rate was
6.6%, the highest rate since 2001. A number of policy measures may be used to reduce inflation,
including increasing the rate of income tax.
(a) Define trade in goods balance. [2]
(b) Explain two benefits producers may gain from free trade. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in
unemployment on an economy. [6]
(d) Discuss whether or not an increase in the rate of income tax will reduce inflation. [8]
3 The population of Hungary is the most obese in Europe. Hungarians eat fewer vegetables than
most Europeans and more food types that may be considered to be demerit goods. In 2017,
the Hungarian government introduced a tax on unhealthy food, known as the chips tax. The tax
has had some success in moving demand to healthier foods. Some economists suggest that
governments should use price controls as well as taxes to influence the food market.
(a) Define demerit good. [2]
(b) Explain the difference between an extension in demand and an increase in demand. [4]
(c) Analyse the effects on income distribution and tax revenue of an increase in indirect taxes.
[6]
(d) Discuss whether or not a government should impose a maximum price on food. [8]
4 Italy is home to the world’s oldest bank and some of the world’s oldest car producers. Internationally,
both industries are facing a number of challenges. The wages of bank workers and car workers are
increasing. Demand for bank loans and for cars is changing, in part, due to changes in population
size. It is predicted that the price elasticity of demand (PED) for cars will also change in the future.
(a) State two functions of a commercial bank. [2]
(b) Explain two reasons why emigration from a country may increase. [4]
(c) Analyse the possible causes of a rise in the wages of bank workers. [6]
(d) Discuss whether or not demand for cars will become more price-elastic in the future. [8]
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5 Wage rate growth has increased recently in Kazakhstan, but its economic growth rate has slowed.
This is, in part, due to a fall in exports. To try to increase the economic growth rate, the government
has increased its spending on investment. In August 2015, it adopted a floating foreign exchange
rate system in an attempt to improve the country’s macroeconomic performance.
(a) Define wages. [2]
(b) Explain two reasons, other than methods of protection, why a country’s exports may fall. [4]
(c) Analyse how a rise in investment could increase a country’s economic growth rate. [6]
(d) Discuss whether or not a country should switch from a fixed foreign exchange rate system to
a floating foreign exchange rate system. [8]
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Cambridge IGCSE™
ECONOMICS 0455/21
2 hours 15 minutes

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INSTRUCTIONS
INFORMATION
DC (KN) 184662/3
2
Section A
Source material: Istanbul’s geographical advantage
Istanbul fact file 2014

Population 14 million
Output per head $6858
Total output $96 billion
Istanbul’s output contribution to Turkey’s
30%
total output (%)
Istanbul is Turkey’s largest city by population size. In 2014, its population was approximately 14 times
more than it was in 1955. This could be due to increased migration from rural areas to cities and
improved healthcare. Istanbul also has the highest output per head of all regions in Turkey.
Good transport links have contributed to Istanbul’s economic growth. In addition to good land transport,
Istanbul is also home to the 14th largest airport in the world, measured by passenger numbers. From
Istanbul, there is access to a market of $24 trillion with 1.5 billion people within a flight time of 4 hours.
In addition to affordable international air travel to and from Istanbul, domestic air travel is also very
affordable. This is most likely due to economies of scale. There is also a high level of competition in this
industry which influences prices and quality of service. The growth in transport industries, along with
growth of financial services, has contributed greatly to Istanbul’s growth rate as shown in Table 1.1.
Table 1.1 The percentage growth of Istanbul’s service sector and

the percentage growth of Istanbul’s total output 2010–2014
% growth of % growth of
Year Istanbul’s Istanbul’s
service sector total output
2010 11.9 14.4
2011 28.2 21.9
2012 15.3 16.0
2013 14.2 16.1
2014 13.6 12.7
Foreign investment is flowing into Istanbul. Multinational companies (MNCs) are finding Istanbul an
attractive city to invest in because of the low cost of living. These MNCs are affecting employment, the
level of technology and wages in Istanbul.
However, there is worry that such confidence in the Turkish economy may not last. Many companies
have depended on borrowing for expansion. Increased interest rates around the world may make
it harder for such companies to continue borrowing and also to attract new customers. If there are
greater worries about safety for tourists in Turkey in the future, this may cause fewer people to book
flights to Turkey.
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1 (a) Calculate Turkey’s total output. [1]
(b) Identify two factors that affect borrowing in an economy. [2]
(c) Explain the relationship between the growth of Istanbul’s service sector and its growth in total
output. [3]
(d) Explain two reasons for Istanbul’s increased population. [4]
(e) Analyse how good transport links have contributed to Istanbul’s economic growth. [4]
(f) Draw a demand and supply diagram to show the effects on flights to Turkey of greater worries
about safety for tourists. [4]
(g) Discuss whether or not Istanbul benefits from investment by MNCs. [6]
(h) Discuss whether or not competition is beneficial for airlines. [6]

4
Section B
2 The election of a new president in South Africa in 2018 led to improvement in business and
consumer confidence. Inflation rates fell despite a rise in total demand. One government policy
measure established areas known as economic zones where firms pay lower, or no, taxes. These
zones encourage domestic firms to become internationally competitive which could reduce the
deficit on the current account of South Africa’s balance of payment.
(a) State two components of the current account. [2]
(b) Explain why inflation may fall even if there is an increase in total demand. [4]
(c) Analyse how a country’s current account deficit might be reduced if its firms become
internationally competitive. [6]
(d) Discuss whether or not lower taxes on firms will be beneficial for an economy. [8]
3 Among the reasons for Malaysia’s continued economic growth are rises in consumer spending
and the country’s ability to adapt to changes in global demand. For example, when the price of
natural rubber fell, most rubber plantations changed to palm oil production. The government has
tried to promote the growth of different sectors, including the primary sector.
(a) State two sectors, other than the primary sector, in an economy. [2]
(b) Explain two possible reasons for a fall in the price of a product such as natural rubber. [4]
(c) Analyse the influences on spending. [6]
(d) Discuss whether or not the growth of the primary sector is beneficial to a country. [8]
4 South east Asian countries have reduced tariffs between themselves through the ASEAN Free
Trade Agreement. ASEAN member countries are also removing non-tariff methods of protection.
The intention is to raise economic growth through more international trade. This should enable
small and medium-sized firms in ASEAN countries to grow and increase their exports.
(a) Define tariffs. [2]
(b) Explain two non-tariff methods of protection. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the beneficial effects for a
country of the growth of its small and medium-sized firms. [6]
(d) Discuss whether or not increased international trade can promote economic growth. [8]
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5 Free trade has allowed the Mexican economy to specialise in low-cost manufacturing.
Unemployment nationally is relatively low, but approximately 50 million people were still
considered to be in poverty in 2016. In addition, there are worries that technological advances will
soon replace labour with capital.
(a) State the rewards for labour and capital. [2]
(b) Explain the two types of poverty. [4]
(c) Analyse how firms can benefit from specialisation. [6]
(d) Discuss whether or not supply-side policy measures can reduce unemployment. [8]
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Cambridge IGCSE™
ECONOMICS 0455/23
2 hours 15 minutes

* 2 4 9 4 6 8 5 7 6 4 *
INSTRUCTIONS
INFORMATION
DC (KN) 184664/3
2
Section A
Source material: Traffic jams in the Philippines
Philippines fact file 2010 2017

Social cost per kilometre of
0.88 1.22
driving a car in Manila ($)
Private cost per kilometre of
0.45 0.68
driving a car in Manila ($)
Population
72.9 105.8
(millions)
Economic growth rate
7.3 6.9
(%)
Manila, the capital city of the Philippines, is densely populated and has almost no spare land to build
on. It is well-known for its traffic jams (congestion). People can spend hours travelling just a short
distance. The Philippine government is concerned that the traffic congestion may damage people’s
health, discourage multinational companies (MNCs) from setting up in the country and reduce
economic growth. It will also stop the country achieving full employment and reduce labour productivity.
Entrepreneurs and workers are regularly arriving at their firms stressed and tired.
More Philippine workers are moving into Manila to take up jobs in the expanding computer, retail and
education industries. One of the advantages of the Philippine economy is its young and well-educated
population. Increases in the skills of Philippine workers are making it easier for workers to transfer from
declining to expanding industries.
Rises in the country’s population are increasing the number of cars on Philippine roads. Driving is also
encouraged by the low cost and ease of parking, and the poor quality of public transport. Manila has
too few trains but too many buses. By 2017, deregulation had increased the number of bus companies
in the city to more than 1100.
Taxes in the Philippines are relatively high but disposable income has risen. As a result consumer
spending, including on cars, has increased. Some of the cars purchased are imported. Table 1.1 shows
consumer expenditure and imports in selected countries in 2017.
Table 1.1 Consumer expenditure and imports in selected countries in 2017
consumer expenditure imports

country
($bn) ($bn)
Brazil 1322.6 160.6
Argentina 412.3 61.2
Philippines 240.9 93.2
Chile 168.2 60.1
Peru 137.2 40.2
Costa Rica 37.5 15.8
Panama 28.9 9.2
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The government is considering a number of measures to reduce the traffic congestion in Manila. These
include building more roads, building a rapid bus route where buses travel along bus-only lanes and
increasing car park charges. Building more roads may affect not only journey time but also the number
of cars purchased and driven in the city.
1 (a) Calculate the external cost per kilometre of driving a car in Manila in 2017. [1]
(b) Identify two macroeconomic aims of the Philippine government. [2]
(c) Explain one reason why traffic congestion can reduce labour productivity. [2]
(d) Explain how an increase in the mobility of Philippine workers would be likely to affect
unemployment in the Philippines. [4]
(e) Draw a demand and supply diagram to show how a rise in the price of car parking could
affect the market for cars in the Philippines. [4]
(f) Analyse the relationship between the countries’ consumer expenditure and imports. [5]
(g) Discuss whether or not the supply of enterprise is likely to increase in the Philippines. [6]
(h) Discuss whether or not building more roads in Manila will benefit the Philippine economy. [6]

4
Section B
2 Changes in tobacco production and consumption can have both microeconomic and
macroeconomic effects. Tobacco plants are grown in at least 124 countries with different levels
of development. A higher proportion of the poor than of the rich consume tobacco products. The
market for cigarettes, produced using tobacco, is changing. Demand for cigarettes and some
other demerit goods is declining in a number of countries.
(a) Define microeconomics. [2]
(b) Explain two causes of differences in economic development between countries. [4]
(c) Analyse how a cut in the interest rate could reduce poverty. [6]
(d) Discuss whether or not government intervention will correct the market failure caused by a
demerit good. [8]
3 Russia’s birth rate fell by 11% in 2017 to its lowest level for a decade. Over the next 30 years,
Russia’s population is forecast to fall from 144 million to 107 million. The government announced
measures to reverse this decline in population. In 2017, it also announced privatisation plans and
measures to reverse a decrease in investment which could lead to a fall in the quantity of capital
goods. Privatisation can reduce monopoly power in a market.
(a) Define privatisation. [2]
(b) Explain two causes of a fall in the birth rate. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effects of a decrease in the
quantity of capital goods in an economy. [6]
(d) Discuss whether or not a government should allow monopolies. [8]
4 The use of supply-side policy measures, including deregulation, is moving China closer to a
market economic system. Some supply-side policy measures, such as education and subsidies,
can also increase a country’s economic growth rate. China joined the World Trade Organisation
in 2001 and has since removed some quotas on imports and reduced some import tariffs. These
measures may influence the size of its current account surplus.
(a) Define deregulation. [2]
(b) Explain two benefits consumers may gain from a market economic system. [4]
(c) Analyse how education and subsidies can increase a country’s economic growth rate. [6]
(d) Discuss whether or not a reduction in a country’s trade protection will reduce its current
account surplus. [8]
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5 It was announced in November 2016 that 500 and 1000 rupee banknotes could no longer be used
in shops in India. These were replaced by the central bank, an institution that makes extensive
use of division of labour. In India, cash is still an important form of money used in economic
transactions. The replacement of banknotes put pressure on banking staff and other workers in
the tertiary sector, and affected the general price level.
(a) State two functions, other than issuing banknotes and coins, of a central bank. [2]
(b) Explain two reasons why workers in the tertiary sector may be paid more than workers in the
primary sector. [4]
(c) Analyse the advantages for firms of using division of labour. [6]
(d) Discuss whether or not deflation will benefit an economy. [8]
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Cambridge IGCSE™
ECONOMICS 0455/21
2 hours 15 minutes

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INSTRUCTIONS
INFORMATION
DC (JC) 184589/2
2
Section A
Source material: Vietnam’s growing population and economy
Vietnam fact file 2010 2017

GDP $272.8 billion $662.4 billion
Population 88 million 96 million
Foreign exchange rate $1 = 19 500 dong $1 = 22 780 dong
Vietnam’s population and its output are increasing. Consumers, workers and firms are benefiting from
the higher output. Some Vietnamese people are receiving more generous pensions and higher wages
while some firms are earning higher profits.
Vietnam’s population is ageing but the country still has a relatively young labour force. Age can affect
workers’ flexibility, mobility, level of experience and their knowledge of the latest technology. The
Vietnamese government wants to raise the quality of its labour force by spending more on education.
Vietnamese children have recently performed better in international tests than children in richer
countries. Education spending can influence the percentage of the labour force working in the tertiary
sector as shown in Table 1.
Table 1 Education spending as a percentage of GDP and the percentage of the labour force
employed in the tertiary sector in selected countries in 2017.
Country Education spending Labour force employed in

% of GDP the tertiary sector
(%)
Norway 7.4 78.0
Vietnam 6.3 32.3
France 5.5 75.9
Germany 4.9 71.2
Indonesia 3.6 45.2
Iran 3.1 49.1
Bangladesh 2.0 35.6
Vietnam has had a budget deficit since 2008. The country’s high economic growth rate and changes in
government policies will affect its budget balance in the future. The government is privatising a number
of public sector firms. It also plans to spend more on education and defence and is likely to raise some
tax rates.
Deregulation has increased the number of firms, both foreign and domestically owned, in a number
of markets. For instance, in 2007 there was only one Vietnamese airline. It operated only two routes
and the fares it charged were not affordable to most Vietnamese. Now the country has seven airlines
offering domestic and international flights.
Borrowing by both households and firms increased in Vietnam between 2010 and 2017. Households
borrowed mainly to purchase more consumer goods while firms borrowed mainly to invest.
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1 (a) Calculate Vietnam’s GDP per head in 2017. [1]
(b) Identify two rewards to factors of production. [2]
(c) Explain what happened to Vietnam’s foreign exchange rate between 2010 and 2017. [2]
(d) Explain two benefits an economy may gain from having a young labour force. [4]
(e) Analyse why Vietnam’s budget deficit may decline in the future. [4]
(f) Analyse the relationship between government spending on education and the percentage of
the labour force employed in the tertiary sector. [5]
(g) Discuss whether or not an increase in competition is likely to benefit Vietnamese consumers.
[6]
(h) Discuss whether or not the increase in borrowing is likely to have caused inflation in Vietnam
in 2017. [6]

4
Section B
2 Japan has a low immigration rate and a declining population. In recent years, it has experienced
deflation and a rise in child poverty. By 2017, one in six Japanese children lived in a household
with less than half of the average household income. Japan operates a national minimum wage
which increased every year between 2010 and 2017. This may have affected the level of poverty
in the country.
(a) State two benefits a country may gain from immigration. [2]
(b) Explain two consequences of deflation. [4]
(c) Analyse why children from low-income families may have low incomes as adults. [6]
(d) Discuss whether or not a national minimum wage will reduce poverty. [8]
3 There is a smaller proportion of large firms in Africa than in Asia. The two African countries with
the largest firms are Nigeria and South Africa. These two countries’ firms have more capital
goods than most other African countries’ firms. Firms in South Africa produce a range of products
including gold and petrochemicals. In recent years, a number of African firms have developed into
multinational companies (MNCs), producing mainly in other African countries.
(a) Define a capital good. [2]
(b) Explain two challenges facing small firms. [4]
(c) Analyse, using a demand and supply diagram, how a rise in income may affect the market for
gold. [6]
(d) Discuss whether or not MNCs increase production and productivity in their host countries. [8]
4 Economists are uncertain about the future United States (US) macroeconomic performance. For
instance, in recent years, US unemployment has fallen while the deficit on the current account of
the balance of payments has fluctuated. Whether its current account deficit will rise or fall in the
future may be affected by proposed tax cuts. Some economists suggest that the US government
should not be concerned about the country’s current account deficit.
(a) Define macroeconomics. [2]
(b) Explain two consequences to firms of unemployment. [4]
(c) Analyse how tax cuts could increase exports. [6]
(d) Discuss whether or not a current account deficit on its balance of payments harms an
economy. [8]
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5
5 Australian firms have been praised for introducing new technology. The actions of some of these
firms, however, cause market failure. The Australian government uses subsidies, among other
policies, to reduce market failure. Government spending is used both to improve the performance
of individual markets and the macroeconomy. The Australian government increased its spending
in 2017, in part to reduce unemployment.
(a) State two objectives of firms. [2]
(b) Explain how a subsidy can correct market failure. [4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of advances in
technology on an economy. [6]
(d) Discuss whether or not an increase in government spending will reduce unemployment. [8]
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ECONOMICS 0455/21
2 hours 15 minutes

* 5 1 0 5 4 1 9 0 9 8 *
INSTRUCTIONS
INFORMATION
This document has 8 pages. Any blank pages are indicated.
DC (DH) 201166/1
2
Section A
Source material: changes in the Nigerian economy
Nigeria fact file 2017

Government spending $19.5bn
Tax revenue $12.9bn
Balance of trade in goods $10.4bn
Imports of goods $32.7bn
Nigeria produces a range of products including delivery vehicles, footwear, machines, maize and office
equipment. It does, however, depend heavily on oil for its exports. The government tries to encourage
an increase in the output and export of other products. To achieve this, it uses a range of policy
measures including changes in taxation and government spending e.g. subsidising the training of
construction workers. Successful training can increase job opportunities and wages. The government’s
aims are to improve Nigeria’s macroeconomic performance and to raise living standards.
Table 1.1 shows data on living standards in Nigeria and Ethiopia in 2017.
Table 1.1 Selected data on living standards in Nigeria and Ethiopia in 2017
Country GDP per Life expectancy Average years % of children

head ($) at birth (years) spent at school aged under 5 who
are underweight
Nigeria 5,900 59 9 31.5
Ethiopia 2,200 63 8 23.6
Investment in Nigeria has been growing slowly. Some firms are discouraged from spending on capital
goods by the relatively high interest rate, high corporation tax rate and economic uncertainty.
Nigeria’s population is increasing rapidly. The birth rate is high and the death rate is falling but it has
net emigration. Nigeria’s population was 191 million in 2017 and is forecast to grow to 402 million by
2050. An increase in its population size will create both challenges and opportunities. It will affect the
level of demand in the economy, may harm the environment and more food will be needed.
The Nigerian government increased the tariff on imported rice in 2016, to encourage an increase in its
own rice production. Nigeria is Africa’s largest producer of rice but also its largest importer. In 2018,
Nigeria imported almost 50% of the rice it consumed. Nigerian farmers produce less rice for every unit
of land used than Asian farmers and Nigerian farmers have high costs of production.
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3
1 (a) Calculate the value of Nigeria’s exports of goods in 2017. [1]
(b) Identify two examples of capital goods. [2]
(c) Explain whether Nigeria had a budget deficit or a budget surplus in 2017. [2]
(d) Explain how government spending on training may increase tax revenue in the long run. [4]
(e) Analyse how living standards in Nigeria compare with living standards in Ethiopia in 2017. [4]
(f) Analyse how a government could encourage firms to increase their investment. [5]
(g) Discuss whether or not an increase in Nigeria’s population will benefit its economy. [6]
(h) Discuss whether or not an increase in Nigeria’s import tariff on rice would increase the output
of Nigerian rice. [6]

4
Section B
Each question is introduced by stimulus material. In your answers you may refer to the material and / or
to other examples you have studied.
2 There is an area of rubbish, three times the size of France, floating in the Pacific Ocean called
the Great Pacific Garbage Patch. It is made up of rubbish including old fishing nets but most is
plastic waste. It is forecast that, by 2050, there will be more plastic in the Pacific Ocean than fish.
A number of islands in the Pacific Ocean specialise in fishing. Greater pollution will increase the
social cost of the fishing industry.
(a) Identify the two types of costs that make up social cost. [2]
(b) Explain two causes of a shift to the right in the demand curve for fish. [4]
(c) Analyse how cleaning up pollution could benefit an economy. [6]
(d) Discuss whether or not countries specialising benefits consumers. [8]
3 In 2018, the US had its lowest unemployment rate for 18 years. Cyclical unemployment was
very low and so was the rate of inflation. The US also experienced a rise in labour productivity.
However, it did not do so well in reducing poverty. In 2018, approximately 12% of Americans were
living in poverty.
(a) Define cyclical unemployment. [2]
(b) Explain two ways a firm could increase the productivity of its workers. [4]
(c) Analyse the advantages of a low rate of inflation. [6]
(d) Discuss whether or not a fall in a country’s unemployment rate will reduce poverty in that
country. [8]
4 The Canadian government has introduced a number of policy measures designed to encourage
more women to enter the labour force. Canada’s labour force has reduced as its population
has aged. The number of workers and their output are influenced by changes in the country’s
foreign exchange rate and consumer expenditure. In 2018, the Canadian dollar fell in value while
Canadian consumer expenditure increased.
(a) Define the labour force. [2]
(b) Explain two causes of an ageing population. [4]
(c) Analyse how a fall in the value of a country’s foreign exchange rate could reduce a deficit on
the current account of its balance of payments. [6]
(d) Discuss whether or not an economy will benefit from an increase in consumer expenditure.
[8]
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5 Australia experienced a drought in 2018 which caused its agricultural output to fall. Australia’s
secondary and tertiary sectors performed better in 2018 than its primary sector. All three sectors
were affected by the measures taken by the central bank to avoid deflation. Some firms benefited
from these measures and increased their output.
(a) Identify two industries, other than agriculture, that operate in the primary sector. [2]
(b) Explain two possible disadvantages to an economy of a fall in agricultural output. [4]
(c) Analyse how a central bank could avoid deflation. [6]
(d) Discuss whether or not a firm should have growth as its main objective. [8]
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Cambridge IGCSE™
ECONOMICS 0455/21
2 hours 15 minutes

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INSTRUCTIONS
INFORMATION
DC (KN) 203612/2
2
Section A
Source Material: Laos, a land-locked country
Laos fact file 2017

GDP $16.85 billion
total exports $2.04 billion
percentage of Laos’ exports sold to China 58%
GDP growth rate 6.9%
adult literacy rate 85%
Laos is a land-locked country, surrounded by Vietnam, Cambodia, Thailand, Myanmar and China.
Access to seaports helps an economy take full advantage of international trade. The economy of Laos
has grown rapidly since the government initiated free market reforms, with an average growth rate of
approximately 7% annually in the last 10 years.
The free market reforms have encouraged Laos to sell their abundant raw materials internationally
and also attracted foreign investment. Laos has large deposits of copper which are in high demand by
global manufacturing industries. A new rail link connecting China and Laos is expected to make such
transactions easier.
The government of Laos has also put a lot of emphasis on education. The adult literacy rate of both
males and females has increased from 60% to 85% over the last 20 years.
The financial sector, including commercial banks, is growing. This has enabled local entrepreneurs to
borrow money and encouraged more households to save.
However, investors are still uncertain about investing in Laos. There are strict rules and regulations
for foreign investors, especially in industries such as mining. The government says the regulations
are needed to avoid market failures, such as external costs, and abuse of monopoly power. However,
these rules and regulations are sometimes unclear. Laos is one of the lowest in the World Bank’s Ease
of Doing Business index, which measures how easy it is to start up and run a business in a country.
Fig. 1.1 shows the Ease of Doing Business ranking (1 = easy) and GDP per head of selected countries
in 2018.
Ease of Doing Business

Country GDP per head ($)
ranking
Singapore 2 64 581
South Korea 5 31 362
Malaysia 15 11 239
Brunei 55 31 627
Laos 154 2567
Timor-Leste 178 2035
Fig. 1.1 The Ease of Doing Business ranking and GDP per head ($) of selected
countries in 2018
The recent economic slowdown of China may have harmful effects on Laos. China is Laos’s largest
trading partner and also the largest source of foreign investment into Laos.
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1 (a) Calculate, in $, the total exports of Laos to China in 2017. [1]
(b) Identify two roles of commercial banks. [2]
(c) Explain how access to seaports may benefit an economy. [2]
(d) Explain two benefits of the free market reforms introduced by the government of Laos. [4]
(e) Analyse the impact of improved education on the economy of Laos. [4]
(f) Analyse the relationship between a country’s Ease of Doing Business ranking and its GDP
per head. [5]
(g) Discuss whether or not strict rules and regulations benefit an economy. [6]
(h) Discuss whether or not a slowdown of China’s economy will be harmful to the economy of
Laos. [6]

4
Section B
2 In 2019, the government of France proposed a 3% tax on the revenue of large firms that advertise
and sell products online. This tax may lead to a redistribution of income. There are concerns that
this tax may also lead to a reduction in France’s export of services as firms affected may leave
France. However, the government hopes that supply-side policy measures will encourage such
firms to stay in France.
(a) Define redistribution of income. [2]
(b) Explain two reasons why governments redistribute income. [4]
(c) Analyse the economic effects of a reduction in a country’s export of services. [6]
(d) Discuss whether or not supply-side policy measures will encourage firms to operate in an
economy. [8]
3 The island of Borneo is famous internationally for its rainforests which can bring many benefits,
both private and external. However, the economy is heavily dependent on a finite resource, oil.
The discovery of oil reserves in other parts of the world led to a significant fall in the world price of
oil. This affected producers of oil in Borneo.
(a) Define finite resource. [2]
(b) Explain the difference between private and external benefits. [4]
(c) Analyse, using a demand and supply diagram, the effects on the world price of oil of the
discovery of new reserves of oil. [6]
(d) Discuss whether or not the fall in the price of a product is a disadvantage to an economy. [8]
4 Uruguay’s inflation rate reached 8.4% in July 2018. The central bank considered increasing the
interest rate to reduce the inflation rate. An increase in interest rates might influence total demand
in an economy and lead to an appreciation of its currency. This might influence Uruguay’s exports,
especially soybean exports. The total revenue of Uruguay’s soybean firms might change if there is
an appreciation of the Uruguayan peso.
(b) Explain two causes of inflation. [4]
(c) Analyse how an increase in the interest rate could reduce total demand in an economy. [6]
(d) Discuss whether or not an appreciation of a country’s domestic currency will have negative
effects on its economy. [8]
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5 Some economists criticise high government spending and trade unions for creating market
disequilibrium. However, trade unions may also play a key role in economic development. There
are over 60 trade unions in Singapore, in both labour-intensive and capital-intensive industries.
(a) Define market disequilibrium. [2]
(b) Explain the difference between labour-intensive and capital-intensive industries. [4]
(c) Analyse how trade unions could increase economic development. [6]
(d) Discuss whether or not high government spending can help a government achieve its
macroeconomic aims. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 4 3 9 7 5 9 7 0 4 3 *
INSTRUCTIONS
INFORMATION
DC (MB) 199838/2
2
Section A
Source material: Will Germany continue to be a strong economy?
Population fact file 2017 Germany world

population 81 million 7.5 billion
percentage of population aged over 65 22.0% 8.5%
average age 47.4 years 30.6 years
Germany is a country with a trade surplus and a high GDP per head. It also has a budget surplus
(government tax revenue greater than expenditure), a high HDI and a low inflation rate.
In recent years, German firms have exported a higher value of goods and services. This has contributed
to the growth of world trade, caused partly by a fall in transport costs. A relatively large number of
German firms produce both in Germany and in other countries, helped by better communications.
Germany is a major producer and exporter of luxury cars. Demand for luxury cars was influenced in
2018 by increases in incomes in Germany and abroad, a rise in the price of US luxury cars and, in
some countries, a fall in the price of petrol.
Improvements in the quality of education and information on job vacancies have made it easier
for workers to change jobs in Germany. This greater ability to change jobs has helped to reduce
unemployment and to increase the country’s output.
Fewer workers in the German car industry are now members of a trade union. As shown in Table 1.1,
trade union membership in Germany has declined in recent years.
Table 1.1 selected data on the German labour market 2013–2016
Trade union Unemployment Average annual

Size of labour force
Year membership rate wage
(millions)
(millions) (%) ($)
2013 18.0 42.2 5.4 40 567
2014 17.7 42.5 5.1 41 188
2015 17.6 42.8 4.8 42 084
2016 17.0 43.3 4.3 42 708
A challenge facing Germany is its ageing population. The effect of an older labour force is uncertain. It
may mean firms become reluctant to invest in new technology, but a shortage of young workers may
encourage firms to buy more capital goods.
Germany’s population may fall and there will soon be fewer Germans aged under 30 than over 60
unless immigration continues at a relatively high rate. Immigration might increase both the country’s
labour force and its government’s spending on education.
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1 (a) Calculate the number of Germans aged over 65 in 2017. [1]
(b) Identify two measures of living standards. [2]
(c) Explain one cause of globalisation. [2]
(d) Explain two advantages of an increase in the occupational mobility of labour. [4]
(e) Analyse why the price of German luxury cars may have increased in 2018. [4]
(f) Analyse whether the strength of German trade unions increased from 2013–2016. [5]
(g) Discuss whether or not an ageing labour force will reduce productivity. [6]
(h) Discuss whether or not immigration will increase a country’s budget surplus. [6]

4
Section B
2 India has experienced a relatively high economic growth rate in recent years. This growth has
been driven by increases in government spending and exports, including exports of textiles. India’s
unemployment rate has, however, increased. The government is concerned that trying to reduce
unemployment may increase India’s inflation rate.
(a) Define economic growth. [2]
(b) Explain the possible opportunity cost to India of exporting more textiles. [4]
(c) Analyse how higher government spending could increase economic growth. [6]
(d) Discuss whether or not a government can reduce unemployment without increasing inflation.
[8]
3 In the Netherlands in 2018, there were 1.3 bicycles per person and the world’s largest underground
bicycle parking area was built in the capital city. Land is scarce in city centres, where most cycling
takes place. Demand for bikes in the Netherlands is price-inelastic. Only a few people in the
Netherlands borrow money to buy bikes. The government encourages cycling by spending on
both bike parking areas and leisure cycle parks.
(a) Identify one difference between land and labour. [2]
(b) Explain two reasons why demand for a product may be price-inelastic. [4]
(c) Analyse why households in one country may borrow more than households in another
country. [6]
(d) Discuss whether or not a government should encourage more people to cycle. [8]
4 It is estimated that half of Egyptian men smoke. This is one of the highest rates in the world.
In recent years the Egyptian government has increased the tax on cigarettes. The government
and central bank have also tried to reduce inflation and improve Egypt’s international trade
performance. The Egyptian government could use subsidies to reduce its deficit on the current
account of its balance of payments.
(a) Identify two qualities of a good tax. [2]
(b) Explain two reasons why governments tax cigarettes. [4]
(c) Analyse how a central bank could reduce inflation. [6]
(d) Discuss whether or not an increase in government subsidies will reduce a deficit on the
current account of the balance of payments. [8]
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5 Sweden has a mixed economic system. In 2018, it was operating at a point inside its production
possibility curve (PPC). In 2018, the country’s schools employed nearly 2500 extra teachers. A few
of these had previously been actors. A higher number had previously been government officials
involved with regulation of Swedish monopolies.
(a) Define a mixed economic system. [2]
(b) Explain the difference between a point inside a PPC and a point outside a PPC. [4]
(c) Analyse why an actor may decide to become a teacher. [6]
(d) Discuss whether all monopolies have low costs of production. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 9 5 2 4 8 9 4 5 1 1 *
INSTRUCTIONS
INFORMATION
DC (DH) 314876/1
2
Section A
Source material: India’s airline industry
Air India fact file

total revenue 2018 $2.2 bn
total cost 2018 $2.9 bn
number of passengers carried in 2018 16.4 m
number of passengers carried in 2017 14.8 m
share of India’s international and national air travel market in 2018 13%
share of India’s international and national air travel market in 1994 100%
Air India is owned by the Indian government. The entry of new firms into India’s air travel market has
reduced Air India’s ability to set price. The state-owned firm faces competition not only from other
airlines but also from other forms of transport including trains and ships.
In 2017 the Indian government tried, unsuccessfully, to sell Air India to the private sector. A successful
sale would have raised money for the Indian government and might have increased the airline’s
efficiency.
It is predicted that India will have the third largest airline industry by 2025. The growth in the industry
may affect the current account position of India’s balance of payments. Table 1.1 shows the current
account position in India and four other countries.
Table 1.1 The current account position of the balance of payments of selected countries in 2017
Country Current account Current account

($ bn) % of GDP
Brazil –9.8 –0.5
China 164.9 1.4
India –48.7 –1.9
Kenya –5.4 –6.8
Russia 35.4 2.2
A rise in both the number of routes flown and the quality of the passenger experience may increase
the number of tourists visiting India. A larger Indian airline industry is likely to increase the ease of
movement of people and goods into and out of India. This might attract more multinational companies
(MNCs) and reduce firms’ costs of production.
India’s air travel market faces a number of challenges. India has Asia’s highest airline fuel tax. Some
economists suggest that this should be increased further to increase tax revenue and to reduce market
failure. The airlines’ other costs are rising but it is difficult for them to raise prices. This is because
India’s air passengers are among the most price-sensitive in the world. Some airlines stop their costs
rising any further by improving their staff training, introducing new technology and improving their pilots’
working conditions. The airlines’ ability to hire pilots is influenced by, among other factors, the quality of
education and other job opportunities.
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(a) Calculate, in $, Air India’s loss in 2018. [1]
(b) Identify two substitutes for air travel. [2]
(c) Explain one characteristic that suggests that Air India was a monopoly in 1994. [2]
(d) Explain two reasons why a government may privatise an industry. [4]
(e) Analyse how India’s position on the current account of its balance of payments in 2017
compares with the other four countries. [4]
(f) Analyse how a successful airline industry can promote economic growth. [5]
(g) Discuss whether the Indian government should increase the tax on airline fuel. [6]
(h) Discuss whether more people will apply to be pilots for Indian airlines in the future. [6]

4
Section B
Each question is introduced by stimulus material. In your answers you may refer to the material and/or
2 A number of countries, including Morocco, capture water from fog. Water is used in the primary,
secondary and tertiary sectors. In recent years, Morocco has increased the quantity and quality
of its resources and has moved more of them into the tertiary sector. The quantity, quality and
composition of a country’s resources are influenced by a number of factors, including its birth rate.
Morocco’s birth rate fell from 19.9 in 2016 to 18.7 in 2018.
(a) Define a free good. [2]
(b) Explain, with examples, the difference between the secondary sector and the tertiary sector.
[4]
(c) Analyse, using a production possibility curve (PPC), the effect of an increase in the quality of
its resources on an economy. [6]
(d) Discuss whether or not a fall in a country’s birth rate will benefit an economy. [8]
3 Two of Uzbekistan’s main industries are cotton and gas. Uzbekistan is the world’s seventh largest
producer, and fifth largest exporter, of cotton. The Uzbek government has tried to influence the
cotton industry’s price elasticity of supply. It has also nearly ended the use of child labour in cotton
production. The country’s output of gas increased by 7% in 2018 and its average cost of gas
production fell.
(a) Identify two determinants of price elasticity of supply. [2]
(b) Explain two advantages to an economy of ending child labour. [4]
(c) Analyse how average cost can change as output increases. [6]
(d) Discuss whether or not an economy would benefit from allocating more of its resources to
agriculture. [8]
4 In Tunisia, resource allocation decisions are made by both the public sector and private sector.
Tunisia’s GDP increased from 2014 to 2018 but its households saved less. Income levels can be
affected by changes in trade union activity and the foreign exchange rate. From 2014 to 2018,
Tunisia experienced a number of strikes organised by its largest trade union, the Tunisian General
Labour Union. There was also a significant fall in its foreign exchange rate.
(a) Identify two of the three resource allocation decisions. [2]
(b) Explain two reasons why households may save less even though their income has increased.
[4]
(c) Analyse how a trade union may benefit its members. [6]
(d) Discuss whether or not a fall in its foreign exchange rate will improve a country’s
macroeconomic performance. [8]
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5 The US operates a mainly market economic system. Life expectancy in the US fell in 2017, for the
third year in a row. Although the US has a high GDP per head, it also has a high level of income
inequality. The poor benefited from the US’s low and stable inflation rate. The government’s
supply-side policy measures were partly responsible for reducing inflationary pressure.
(a) Identify two ways a government could reduce income inequality. [2]
(b) Explain two advantages of a market economic system. [4]
(c) Analyse why life expectancy may decrease. [6]
(d) Discuss whether or not supply-side policy measures can reduce inflation. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 6 1 8 0 4 7 2 8 0 7 *
INSTRUCTIONS
INFORMATION
DC (DH/CB) 201167/2
2
Section A
Source material: Chilean cherries
Content removed due to copyright restrictions.
Producing just a few products can be risky for a country.
Fig. 1.1 Population pyramids of Chile and Haiti 2018
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3
There is, however, evidence of market failure and inequality in

how resources are allocated.
1 (a) Calculate Chile’s agricultural output in 2017. [1]
(b) Identify two disadvantages of a country specialising. [2]
(c) Explain one reason why demand for cherries is price-elastic. [2]
(d) Explain how Chile’s population structure differs from Haiti’s population structure. [4]
(e) Analyse why China buys most of its cherries from Chile. [4]
(f) Analyse why Chilean astronomers are paid more than Chilean farm workers. [5]
(g) Discuss whether or not Chilean consumers would benefit from more government intervention
in the economy. [6]
(h) Discuss whether or not the Haitian economy would benefit from fewer of its people working in
Chile. [6]

4
Section B
Each question is introduced by stimulus material. In your answers you may refer to the material and / or
2 Nearly one million people in Cairo, the capital city of Egypt, live in crowded, unhealthy housing.
One reason why people lack basic necessities, including adequate housing, is unemployment. In
2019, nearly 10% of Cairo’s workers did not have a job. Other citizens of Cairo live in luxury, in
houses costing more than $1 million. Many of Cairo’s rich adults grew up in rich families.
(a) Identify two basic necessities, other than housing. [2]
(b) Explain how frictional unemployment differs from cyclical unemployment. [4]
(c) Analyse why the children of the rich tend to become rich adults. [6]
(d) Discuss whether a government should provide subsidies to families to spend on housing. [8]
3 Consumers in Uruguay are eating more processed foods. Factors of production, including
enterprise, have responded to this change. Firms in the processed food industry have become
more capital-intensive. All of Uruguay’s industries were affected by the rise in its inflation rate,
from 6.2% in 2017 to 7.7% in 2018.
(a) Define enterprise. [2]
(b) Explain the influence of opportunity cost on consumers’ decisions. [4]
(c) Analyse why a firm may become more capital-intensive. [6]
(d) Discuss whether inflation harms a country’s industries. [8]
4 Turkey’s birth rate is falling which is likely to reduce its supply of labour. However, improvements
in the quality of labour and the increase in foreign multinational companies (MNCs) operating in
Turkey (the host country to the MNCs) may help the economy avoid a recession. One reason why
economists are worried that a recession may occur is an expected rise in the interest rate.
(a) Define birth rate. [2]
(b) Explain two causes of an increase in the quality of labour in a country. [4]
(c) Analyse how a rise in the interest rate could cause a recession. [6]
(d) Discuss whether or not MNCs improve the economic performance of the host countries in
which they operate. [8]
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5 The money supply in Bangladesh increased every year from 2010 to 2018. Changes in the
money supply and the foreign exchange rate can affect a government’s macroeconomic policy
aims, including full employment. There have been few mergers between commercial banks in
Bangladesh, although its banks are larger than many of its other firms.
(a) Identify two functions of money. [2]
(b) Explain two reasons why commercial banks may want to merge. [4]
(c) Analyse how a fall in a country’s foreign exchange rate could increase employment. [6]
(d) Discuss whether or not it is an advantage to keep a firm small. [8]

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Cambridge IGCSE™
ECONOMICS 0455/23
2 hours 15 minutes

* 6 8 7 9 5 4 1 1 3 3 *
INSTRUCTIONS
INFORMATION
DC (DH/CB) 203610/3
2
Section A
Source material: Changing eating habits
Obesity fact file 2016

Country Population (million) Obesity % (percentage of population overweight)
Senegal 15 9
UK 65 28
US 330 36
Concerns about health, obesity and animal welfare have risen in high income countries. This led to
an increase in vegetarianism (not eating meat) and veganism (not eating meat, eggs or dairy) in high
income countries. In 2017, veganism increased in the UK by 20%. As incomes rise in the UK, people
are more likely to eat vegan food. Advertising vegan food has encouraged its consumption.
It is claimed that eating vegan food can improve people’s health. Healthier workers can produce more,
and better quality, products. Eating less meat and dairy products can also improve the environment.
Farm animals emit greenhouse gases and their waste products add to water pollution.
While meat consumption per person is falling in high income countries, it is rising in low income
countries. Fig. 1.1 shows average daily calorie intake consumed in Senegal, a west African country,
and in the US, by food groups in 2015. The recommended daily calorie intake is 2800.
Senegal calorie intake = 2320 US calorie intake = 3800
Cereals/grains Meat Sugar & sweeteners Fruit & vegetables Added fats & oils
Fig. 1.1 Average daily calorie intake in Senegal and the US by food groups in 2015
To respond to changes in the type of food that people are eating, it is useful if workers are mobile.
Generally, the greater labour mobility, the more efficient the labour market becomes in adjusting to
changes in demand, and the supply of workers. This helps a country’s international performance in
trade of goods.
As some people in Africa are malnourished, eating more food of any type, including meat, may make
them healthier. A rise in meat consumption will increase demand for vets (for animal welfare) and
transport firms. It can also increase the number of meat processing firms.
Senegal has a high unemployment rate and a low income per head. It has recently experienced a fall
in consumer expenditure. New industries and new jobs would help to stop Senegal experiencing a
recession. A rise in government spending may also be needed. The high birth rate and rising population
also puts pressure on the government to spend more. Emigration is, however, reducing tax revenue
while providing some Senegalese with useful employment experience.
© UCLES 2021 0455/23/O/N/21
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1 (a) Calculate the number of obese people in the UK in 2016. [1]
(b) Identify two reasons why the demand for vegan food has increased in the UK. [2]
(c) Explain one external benefit that may arise from eating less meat. [2]
(d) Explain how food consumption in Senegal differed from the US in 2015. [4]
(e) Analyse how an increase in labour mobility could improve the performance of a country’s
trade in goods. [4]
(f) Analyse how an increase in meat consumption could benefit African economies. [5]
(g) Discuss whether or not an increase in Senegalese government spending will stop the country
experiencing a recession. [6]
(h) Discuss whether or not emigration would reduce poverty in Senegal. [6]

4
Section B
Each question is introduced by stimulus material. In your answers you may refer to the material and/or
2 In 2018, 54% of Russia’s population was female and the government announced plans to raise the
state retirement age. In Russia, the role of the price mechanism to answer key resource allocation
questions is increasing. However, the Russian government raised indirect taxes, partly to reduce
market failure.
(a) Identify two reasons why a country may have more women than men in its population. [2]
(b) Explain two advantages of raising the retirement age. [4]
(c) Analyse how the price mechanism answers the three key resource allocation questions. [6]
(d) Discuss whether or not indirect taxation can reduce market failure. [8]
3 South Africa has a high number of unemployed workers. South Africa’s inflation rate has been
stable in recent years, partly due to relatively stable wages. An increase in wages can cause
inflation and can increase the number of consumer goods bought and produced. To increase
employment and reduce the deficit on the current account of South Africa’s balance of payments,
some economists suggest more foreign multinational companies (MNCs) should be encouraged
to produce in South Africa.
(a) Identify two ways unemployment is measured. [2]
(b) Explain two ways an increase in wages can cause inflation. [4]
(c) Analyse, using a production possibility curve (PPC), the opportunity cost to an economy of
producing more consumer goods. [6]
(d) Discuss whether or not an increase in foreign MNCs will reduce a deficit on the current
account of the balance of payments of a host country. [8]
4 Norway has engaged in free trade to a greater extent in recent years. The country operates a
floating foreign exchange rate. There has been a change in the pattern of employment in Norway.
For example, more Norwegians now work in jobs requiring a university degree. Some of these
graduates work as economists and lawyers dealing with mergers between firms. In 2017, there
were 332 mergers, an increase of 23% on the previous year.
(a) Identify two benefits of free trade. [2]
(b) Explain two differences between a floating foreign exchange rate and a fixed foreign
exchange rate. [4]
(c) Analyse how a change in the pattern of employment in a country may change its average
wage. [6]
(d) Discuss whether or not a government should stop firms merging. [8]
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5
5 Industries and markets are changing in Vietnam. There is greater use of division of labour in
a range of industries. Many markets are becoming more competitive, causing some firms to
make losses. Manufacturing was Vietnam’s strongest sector in 2018, when manufacturing output
increased by 13%.
(a) Define division of labour. [2]
(b) Explain two reasons why a loss-making firm may continue to produce. [4]
(c) Analyse the advantages that consumers may gain from a competitive market. [6]
(d) Discuss whether or not an increase in a country’s manufacturing output will increase its
economic development. [8]
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Cambridge IGCSE™
ECONOMICS 0455/23
2 hours 15 minutes

* 1 5 8 1 0 5 5 6 0 5 *
INSTRUCTIONS
INFORMATION
DC (DH/CB) 201168/4
2
Section A
Source Material: Morocco’s blue economy
Morocco fact file 2017

GDP $109 billion
Contribution of fishing industry to GDP 2%
Population 35.74 million
Continent Africa
The World Bank defines a ‘blue economy’ as an economy which uses ocean resources sustainably for
economic growth and creates employment to improve the livelihoods of its people. Making full use of
the blue economy may reduce the level of poverty among fishermen. Many fishermen globally still live
in poverty due to low wages and seasonal and structural unemployment.
Morocco is the leading supplier of fish in Africa. Despite the length of the Moroccan coastline, the fishing
industry currently makes a very small contribution to Morocco’s GDP. The government, therefore, wants
to further increase the size of the fishing industry. Policy measures, such as subsidies to fishermen,
could help Moroccan fishermen increase productivity and reduce competition from abroad.
The United Nations’ Food and Agricultural Organisation (FAO) forecasts that Moroccan fisheries’ output
could rise to nearly 2 million tonnes of fish per year by 2030. The global demand for fish is also on a
steep upward trend as more people see the benefits of eating fish rather than meat. Such increases
could help reduce the deficit on Morocco’s current account of its balance of payments.
Increased dependence on the primary sector may not improve living standards in Morocco because
some other countries who have done the same have had disappointing outcomes. Fig. 1.1 shows the
GDP per head ($) and percentage (%) contribution of the primary sector to GDP of selected countries.
60 000 Australia
50 000 Germany
GDP per head ($)
40 000
South Korea
30 000
20 000
Bulgaria Malaysia
10 000
Morocco India Pakistan
0
0% 5% 10% 15% 20% 25%
% Contribution of primary sector to GDP
Fig. 1.1 GDP per head ($) and % contribution of primary sector to GDP of selected countries
Environmentalists worry that there is no proper regulation of fishing in Morocco. If overfishing occurs,
fish stocks would be reduced for future generations. However, if fish stocks are maintained, the
economy can continue its high economic growth rate. At a time when African countries are reducing
trade protection, a sustainable fishing industry could be very positive for Morocco’s future.
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1 (a) Calculate, in $s, the contribution of the fishing industry to Morocco’s GDP in 2017. [1]
(b) Identify two macroeconomic aims, other than balance of payments stability, that the Moroccan
government could achieve through the blue economy. [2]
(c) Explain why an increase in the global demand for fish could reduce a deficit in Morocco’s
current account of its balance of payment. [2]
(d) Explain two causes of poverty amongst fishermen. [4]
(e) Analyse whether GDP per head always increases when the percentage (%) contribution of
the primary sector increases. [4]
(f) Analyse how regulation of fishing could ensure economic growth is sustained for future
generations. [5]
(g) Discuss whether or not subsidies to fishermen could help the Moroccan economy. [6]
(h) Discuss whether or not a reduction in trade protection by other African countries would be
beneficial for Morocco. [6]

4
Section B
2 Latvia is one of the fastest growing economies in Europe. Although its GDP per head is below the
European average, it is quickly catching up. Living standards are improving. At the same time, a
decrease in borrowing has reduced the chance of high inflation. The job market is also improving
as the unemployment rate is falling. However, there are concerns that there might be less balance
of payments stability.
(a) Identify two indicators of living standards. [2]
(b) Explain how a decrease in borrowing could reduce the chance of high inflation. [4]
(c) Analyse how economic growth conflicts with balance of payments stability. [6]
(d) Discuss whether or not having a lower GDP will be a disadvantage to an economy. [8]
3 Cyclical unemployment is below the national average in some big cities in Canada such as Toronto,
Vancouver, and Montreal. This could be a result of higher government spending and tax cuts in
big cities. However, productivity is low. There are also concerns that structural unemployment may
increase as some industries cannot compete with more efficient foreign firms.
(a) Define structural unemployment. [2]
(b) Explain two causes of low productivity. [4]
(c) Analyse how higher government spending and tax cuts can lead to a fall in cyclical
unemployment. [6]
(d) Discuss whether or not competition between firms in the same industry is always a
disadvantage to workers. [8]
4 Global spending on the health sector, by both the private and public sectors, is the highest
compared with all other sectors including education and defence. Investment in education and the
health sector has resulted in new life-saving technology being introduced. However, demand for
certain vaccinations has decreased over the years, shifting the demand curve of vaccinations to
the left.
(a) Define investment. [2]
(b) Explain two causes of a shift of a product’s demand curve to the left. [4]
(c) Analyse, using a production possibility curve diagram (PPC), the effect of increased
investment in both education and the health sector. [6]
(d) Discuss whether consumers would benefit more from healthcare being provided by the
private sector or the public sector. [8]
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5 The demand for smartphones has become more price-inelastic as the range of functions available
has increased. In low-income countries, smartphones are an important tool for economic
development. This is because they provide access to education and banking services which were
once not available in rural areas. Smartphones have made it easier for people to borrow and save
their money.
(a) Define economic development. [2]
(b) Explain two reasons why children in rural areas may receive less education than those in
cities. [4]
(c) Analyse the advantages of selling a product which is price-inelastic in demand. [6]
(d) Discuss whether or not an increase in the level of savings is beneficial for an economy. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 9 3 0 7 2 5 9 7 3 1 *
INSTRUCTIONS
INFORMATION
DC (PQ/FC) 303889/2
2
Section A
Source material: The advantages of visiting, producing and living in Bermuda
Bermuda fact file 2018
Population 72 000
Labour force 33 500
Unemployment rate 7%
Inflation rate 2%
Bermuda is a well-known holiday destination. It offers luxury holidays which are expensive.
Bermuda bans foreign fast-food outlets. It does have one foreign outlet selling fried chicken in the
island’s capital, Hamilton. This was opened before the ban was introduced in 1997. Some foreign
multinational companies (MNCs), which produce other goods and services, operate in Bermuda.
Bermuda is considered a tax haven. It does not have any corporation tax, but it does charge high
import tariffs particularly on demerit goods which are harmful to health.
Bermuda has a higher literacy rate and a lower population growth rate than most other countries. Its
GDP per head is high. Fig. 1.1 shows the relationship between GDP per head ($) and life expectancy
(years) in selected countries in 2018.
200 000
Monaco
180 000
160 000
140 000
GDP
per 120 000
Bermuda
head 100 000
($)
80 000
USA
60 000
Bahamas
40 000
20 000 Eswatini Argentina
0
0 10 20 30 40 50 60 70 80 90 100
Life expectancy (years)
Fig. 1.1 The relationship between GDP per head ($) and life expectancy (years)
in selected countries 2018
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3
Bermuda also has a relatively larger tertiary sector than most other countries. Insurance and other
financial services contributed 85% of its GDP in 2018. The Bermudian Monetary Authority (BMA)
carries out most of the functions of a central bank. For example, it acts as banker to the government,
holds the country’s reserves of foreign currency and implements the government’s monetary policy. The
BMA has been relatively successful in keeping inflation low. However, government policy measures
designed to reduce unemployment may affect the inflation rate. This is because policy measures can
influence total demand, productivity and firms’ costs of production.
Bermudian government policy may change, not only to cut unemployment, but also to reduce market
failure. For example, higher indirect taxes on demerit goods may be used but it can be difficult to
change people’s spending patterns.
1 (a) Calculate the number of Bermudian workers who were unemployed in 2018. [1]
(b) Identify two reasons why demand for holidays in Bermuda may be price-elastic. [2]
(c) State two reasons why a foreign MNC may want to operate in Bermuda. [2]
(d) Explain two reasons why Bermuda has a higher level of economic development than many
other countries. [4]
(e) Analyse the role of the Bermudian Monetary Authority (BMA). [4]
(f) Analyse the relationship between GDP per head and life expectancy. [5]
(g) Discuss whether or not Bermudian government policy measures designed to reduce
unemployment would increase the inflation rate. [6]
(h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit
goods. [6]

4
Section B
2 South Africa (SA) experienced a recession in the second half of 2019 and an unemployment
rate of 29%. Only a small proportion of this unemployment was frictional. South Africa’s foreign
exchange rate fell from 1 SA rand = US$0.08 in 2018 to 1 SA rand = US$0.06 in 2019. South
Africa had reduced import tariffs, but in 2019 some South African economists suggested tariffs
should be used to protect its infant industries.
(a) Define frictional unemployment. [2]
(b) Explain why an infant industry may need protection. [4]
(c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current
account of its balance of payments. [6]
(d) Discuss whether or not a reduction in income tax will end a recession. [8]
3 New Zealand is a small country with a population of 5 million. Most New Zealand firms are
relatively small and most do not experience diseconomies of scale. In 1894, New Zealand was the
first country to introduce a national minimum wage. New Zealand experienced a rise in income per
head every year between 2010 and 2019. During this period, 6% of New Zealand’s households
experienced absolute poverty.
(a) Define diseconomies of scale. [2]
(b) Explain two reasons why a high-income household may borrow more than a low-income
household. [4]
(c) Analyse, using a diagram, the effect of an increase in output on average fixed cost (AFC) and
total fixed cost (TFC). [6]
(d) Discuss whether or not the introduction of a national minimum wage will reduce poverty. [8]
4 Botswana’s net migration varies. In 2019, Botswana had net immigration. Since 2010, its
unemployment rate has averaged 18%. Between 2010 and 2019, the number of women in the
labour force increased from 380 000 to 490 000. Although Botswana is one of Africa’s richer
countries, its households do not save much of their income.
(a) Identify two reasons why immigration may increase. [2]
(b) Explain two consequences of unemployment. [4]
(c) Analyse why more women may join a country’s labour force. [6]
(d) Discuss whether or not a government should encourage an increase in saving. [8]
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5 The economic problem means that countries have to decide what to produce. Ghana uses much
of its agricultural land to grow cocoa. Cocoa is sold to chocolate producers. The world’s main
chocolate producer in 2019 was a US firm with a 14% share of the global market. That firm was
the largest seller of chocolate in the US and, if it merges, may become a monopoly.
(a) Define the economic problem. [2]
(b) Explain whether land is mobile. [4]
(c) Analyse the causes of a shift to the right in the supply curve of chocolate. [6]
(d) Discuss whether or not consumers would benefit from a firm becoming a monopoly. [8]
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Cambridge Assessment International Education is part of Cambridge Assessment. Cambridge Assessment is the brand name of the University of Cambridge
Local Examinations Syndicate (UCLES), which is a department of the University of Cambridge.
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Cambridge IGCSE™
ECONOMICS 0455/21
2 hours 15 minutes

* 1 9 4 1 2 7 9 0 1 5 *
INSTRUCTIONS
INFORMATION
DC (KS/FC) 303844/3
2
Section A
Source material: Cyprus
Cyprus fact file 2015 2019

Life expectancy (years) 79 81
GDP per head $23 334 $27 900
Population 1 100 000 1 200 000
Birth rate (per 1000) 11.0 10.2
Cyprus is a small country which had a relatively high HDI ranking in 2019. It exports a range of goods
and services including fruit, pharmaceuticals and clothing. Cyprus imports the majority of the food it
consumes but produces most of its own grapes and potatoes. In 2019, the global grape harvest was
affected by bad weather. Global grape production fell by 35% which caused a shortage.
Approximately 14% of Cyprus’s labour force is employed in the primary sector. The average age
of Cyprus’s workers is increasing and more of them are now working past retirement age. This is
particularly true of highly qualified workers who tend to be well-paid, healthy and have jobs that do not
require physical strength.
The rise in life expectancy and the increase in the cost of providing state pensions led some economists
to suggest a rise in the retirement age. Such a change would have an impact on the government’s
budget balance. In 2019, the Cypriot government had a budget surplus. In contrast, Cyprus had a
deficit on the current account of its balance of payments. The size of a country’s current account
balance can be influenced by its inflation rate. Fig. 1.1 shows selected countries’ inflation rates (%) and
current account balances (% of GDP) in 2019.
Cyprus Iceland Kenya Mongolia Nepal Slovenia

10
5
% 0
–5
–10
–15
–20
Inflation rate (%) Current account balance as % of GDP
Fig. 1.1 Inflation rates (%) and current account balances (% of GDP)
in selected countries 2019
The interest rate in Cyprus was very low in 2019. It was expected that this would influence the country’s
investment. Since 2015, some of the country’s firms have become more capital-intensive. This change
has affected Cyprus’s productivity and may have influenced the standard of products produced.
In 2019, two concerns for the future of Cyprus’s economy were that the quality of some of its agricultural
land may decline and that some of its top entrepreneurs may emigrate.
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1 (a) Calculate the number of births in Cyprus in 2019. [1]
(b) Identify two indicators of living standards. [2]
(c) State why the global market for grapes was in disequilibrium in 2019. [2]
(d) Explain two reasons why more well-educated workers tend to work past retirement age than
less-educated workers. [4]
(e) Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. [4]
(f) Analyse the relationship between inflation rates and current account balances. [5]
(g) Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is likely to
shift to the right. [6]
(h) Discuss whether or not adopting capital-intensive production will benefit consumers. [6]

4
Section B
2 Australia’s foreign exchange rate fluctuates. The value of Australia’s exports is regularly greater
than the value of its imports. Australia is Papua New Guinea’s main trading partner. In 2019, the
government of Papua New Guinea increased income tax to reduce its inflation rate. It used other
policy measures to increase its economic growth rate.
(a) Define foreign exchange rate. [2]
(b) Explain two reasons why the value of a country’s exports may be greater than the value of its
imports. [4]
(c) Analyse how an increase in income tax can affect a country’s inflation rate. [6]
(d) Discuss whether or not governments should aim for a high rate of economic growth. [8]
3 Trade union membership is much higher in Sweden than in most countries. In 2019, 70%
of Swedish workers were members of a trade union. More than 85% of Swedish workers are
employed in the tertiary sector, compared with only 2% in the primary sector. Swedish workers
spend their incomes on a variety of products some of which, e.g. sweets, are demerit goods.
Sweden has the 7th highest per head consumption of sweets in the world.
(a) Identify two influences on what products a person buys. [2]
(b) Explain two ways a government could decrease the consumption of demerit goods. [4]
(c) Analyse why workers may join a trade union. [6]
(d) Discuss whether or not tertiary sector workers are paid more than primary sector workers. [8]
4 Uganda specialises in agricultural products and has a relatively small secondary sector. In the
1990s, the Ugandan government privatised most of its firms, including banks and railways.
Some economists thought this privatisation was unsuccessful because poverty increased and
unemployment remained high. In recent years, the Ugandan government has used supply-side
policy measures to reduce unemployment.
(a) Define privatisation. [2]
(b) Explain the difference between absolute poverty and relative poverty. [4]
(c) Analyse how specialisation can benefit firms. [6]
(d) Discuss whether or not the use of supply-side policy measures will reduce unemployment. [8]
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5 Singapore is a high-income country with a shortage of land and labour. Singapore is often given
as an example of a market economy. The Singaporean government does, however, intervene
in the economy. For example, it encourages its population to eat two servings of fruit and two
servings of vegetables per day.
(a) Identify the reward to labour and the reward to land. [2]
(b) Explain how an increase in a worker’s income can affect their mobility of labour. [4]
(c) Analyse, using a demand and supply diagram, how a greater awareness of the health benefits
of eating fruit will affect the market for fruit. [6]
(d) Discuss whether or not a market economic system benefits an economy. [8]
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Cambridge IGCSE™
ECONOMICS 0455/22
2 hours 15 minutes

* 1 0 5 6 6 1 0 1 7 3 *
INSTRUCTIONS
INFORMATION
DC (CJ/SG) 303865/3
2
Section A
Source material: Happiness
Bhutan fact file 2018

Population 0.8 m
GDP per head $3250
Government spending $450 m
Government tax revenue $380 m
World Happiness Index ranking 95th
Human Development Index ranking 134th
The United Nations has published a World Happiness Index every year since 2012. This index ranks
countries according to life expectancy, freedom, social support, trust, generosity and GDP per head.
New Zealand was ranked 8th in the World Happiness Index in 2019. The governments of both Bhutan
and New Zealand now consider a number of influences on the happiness of their populations.
While more than half of Bhutan’s labour force is employed in agriculture, most people in New Zealand
are employed in the tertiary sector. Working conditions, working hours, the type of work and pay vary
between the primary and tertiary sectors. Productivity is higher in all sectors in New Zealand than in
Bhutan. This is partly the result of higher investment in capital goods and education in New Zealand.
New Zealand also has a higher GDP per head. GDP per head ($) can influence net migration (number
of people) as shown for selected countries in 2017 in Fig. 1.1.
Bhutan
Cyprus
Kenya
Mozambique
New Zealand
Slovenia
–55 000 –35 000 –15 000 5000 25 000 45 000 65 000
Net migration (number of people) GDP per head ($)
Fig. 1.1 GDP per head ($) and net migration (number of people) of selected countries 2017
In its 2019 budget, the New Zealand government said it would measure its progress not by increases in
GDP but by increases in the quality of people’s lives. To achieve this, it announced increased spending
on some areas including mental health, child poverty and pollution. Some economists criticised this
approach. They argued that the best way the government could improve living standards is to reduce
income tax rates. This reduction could change government spending and the quantity of products that
people buy, including cars.
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3
Tax revenue had increased in New Zealand in 2019, partly because of a rise in revenue from corporation
tax. It was, however, difficult to predict firms’ future profits. This was because of uncertainty about what
would happen to its GDP and its corporation tax rates.
1 (a) Calculate Bhutan’s GDP in 2018. [1]
(b) Identify two indicators that are in both the World Happiness Index and the Human
Development Index. [2]
(c) State why Bhutan’s 2018 government budget is likely to have increased total demand in
Bhutan. [2]
(d) Explain two reasons why someone may prefer to work in the tertiary sector rather than in the
primary sector. [4]
(e) Analyse how investment in capital goods and education can increase New Zealand’s
productivity. [4]
(f) Analyse the relationship between GDP per head and net migration. [5]
(g) Discuss whether or not enterprise is likely to have increased in New Zealand after 2019. [6]
(h) Discuss whether or not a cut in income tax rates will increase living standards. [6]

4
Section B
2 There was a significant increase in the money supply in Angola in 2019. The National Bank of
Angola was concerned that this would keep inflation above 17% and harm Angola’s producers.
The Angolan government had concentrated on reducing unemployment, which had fallen from
10% in 2010 to 7% in 2019.
(a) Identify two forms of money. [2]
(b) Explain two functions a central bank performs for its government. [4]
(c) Analyse why a government may have lower unemployment as its main aim. [6]
(d) Discuss whether or not inflation will harm producers. [8]
3 In 2019, France produced inside its production possibility curve (PPC). France exports a wide
range of its products. It is the world’s top exporter of luxury perfume and the 7th largest exporter of
soap. Changes in technology affect the products people produce and buy. The French government
plans to upgrade its infrastructure for all households to have internet access.
(a) Define a production possibility curve. [2]
(b) Explain why demand for soap is more price-inelastic than demand for a luxury brand of
perfume. [4]
(c) Analyse, using a demand and supply diagram, how an increase in income will affect the
market for a luxury brand of perfume. [6]
(d) Discuss whether or not the public sector should be responsible for the supply of all internet
services. [8]
4 The South Korean government thinks that Japan is dumping steel. South Korean firms trade with,
and produce in, other countries. Some South Korean multinational companies (MNCs) claim to
reduce poverty in their host countries. In 2019, South Korean firms were affected by a depreciation
in South Korea’s foreign exchange rate. Some firms also experienced a shortage of workers,
which was influenced by the country’s very low birth rate.
(a) Define dumping. [2]
(b) Explain two reasons why a country’s foreign exchange rate may depreciate. [4]
(c) Analyse how a MNC could reduce poverty in a host country. [6]
(d) Discuss whether or not a very low birth rate would be a cause for concern for a government.
[8]
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5 Nicaragua experienced a 4% decrease in GDP in 2019, although household spending rose.

One Nicaraguan product that increased in supply was bananas, which are a merit good. The
Nicaraguan government encouraged its banana farmers and its other producers to increase their
output. Increases in output can affect a firm’s average costs of production.
(a) Define supply. [2]
(b) Explain two ways a government could increase the consumption of merit goods. [4]
(c) Analyse how the level and pattern of household spending may change when GDP decreases.
[6]
(d) Discuss whether or not a firm will benefit from an increase in its output. [8]
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Cambridge IGCSE™
ECONOMICS 0455/23
2 hours 15 minutes

* 8 9 8 1 9 8 0 4 0 9 *
INSTRUCTIONS
INFORMATION
DC (NF) 303849/2
2
Section A
Source Material: The eSports industry and Malta
eSports fact file 2019

Global total revenue $1 billion
Revenue from Europe $300 million
Total number of viewers globally 454 million
Growth of viewers compared to 2018 15%
eSports is now recognised as a sports competition, just like playing other competitive sports such as
football and basketball. In eSports, participants compete through video games either as an individual or
as part of a team. eSports also attracts large audiences who watch these online competitions. eSports
is growing rapidly, both in terms of revenue generated and in the number of viewers. Demand has
increased because of increases in incomes and decreases in the price of the technology needed to
play or watch eSports. A change in social attitudes has also increased female participation in eSports.
The fast growth in this industry has attracted both private and public sector investment. Private sector
firms sponsor various eSports teams and also advertise their products during eSports competitions.
Public sector investment has come from the governments of China, Denmark, Malaysia and Malta,
mainly in development and training programmes for young eSports participants. The government of
Malta, a small island country, hopes to make Malta a main centre for eSports in Europe, to attract
visitors for eSports events. The aim is for the eSports industry to contribute 1% to Malta’s GDP, provide
3000 more jobs and improve the current account of its balance of payments.
Malta’s service sector has always been important and contributes approximately 90% of its GDP. Malta
is an attractive tourist destination due to its mild weather. The island is used as a location for many
movies and TV series, which also attracts visitors who want to see the filming locations. However, to
ensure growth is sustainable, the government sees the importance of economic diversification and
does not want the economy to overspecialise.
To achieve this, the labour force has to be adaptable and the government has to invest in education and
training. The government provides new scholarship schemes, organises work placements and brings
in professionals from other countries to help train Maltese students. However, there are concerns that
these measures may be too expensive and take too long to have a significant impact on the economy.
Female participation in the labour force is also encouraged. Table 1.1 shows the proportion of women
in the labour force (%) and GDP per head ($) of selected countries in 2019.
Table 1.1 Female labour force participation rate and GDP per head
of selected countries 2019
Country Female labour force participation rate GDP per head

(%) ($)
Bangladesh 36 2 070
France 50 42 640
Luxembourg 53 116 730
Malta 43 32 020
Saudi Arabia 23 22 530
Yemen 6 710
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1 (a) Calculate Europe’s percentage contribution to the global total eSports revenue in 2019. [1]
(b) Identify two conditions of demand for eSports. [2]
(c) Explain how a change in social attitudes would lead to greater participation by women in the
labour force. [2]
(d) Explain two differences between private sector investment and public sector investment. [4]
(e) Analyse how the development of eSports in Malta can help the government achieve its
macroeconomic aims. [4]
(f) Analyse the relationship between GDP per head and the proportion of females in the labour
force. [5]
(g) Discuss whether or not specialisation at a national level is harmful to an economy. [6]
(h) Discuss whether or not government investment in education and training will help the Maltese
economy. [6]

4
Section B
2 Voralberg, a region in Austria, has the highest income and best healthcare of any region in Austria.
It benefits from its short distance to Germany and Switzerland, and from the free trade between
these countries. However, Voralberg hosts only a small number of foreign multinational companies
(MNCs) and its inflation is higher than most areas in Europe.
(a) Define free trade. [2]
(b) Explain two possible causes of better healthcare. [4]
(c) Analyse why few MNCs may choose to locate in a particular region. [6]
(d) Discuss whether or not inflation is always a disadvantage to an economy. [8]
3 Leading jewellery firms in Qatar and Ukraine have asked their governments to remove trade
protection between them to increase trade in jewellery. The jewellery firms of Qatar and Ukraine
produce unique products which are improving in quality. They believe that increased trade between
the two countries will enable them to exploit internal economies of scale in jewellery production.
(a) Identify two internal economies of scale. [2]
(b) Explain two methods of protection in international trade. [4]
(c) Analyse, using a demand and supply diagram, the effects of higher quality products on the
market for jewellery. [6]
(d) Discuss whether or not protection in international trade benefits an economy. [8]
4 In 1982, Nauru had the world’s highest GDP per head. It had a large primary sector and exported
phosphate, a natural fertiliser. However, this natural resource did not last long. Nauru is now facing
market failure due to pollution and unhealthy food imports. Despite having more imports of goods
than exports of goods, it still records a surplus on the current account of its balance of payments.
(a) Define GDP per head. [2]
(b) Explain how a country with more imports of goods than exports of goods can still record a
surplus on the current account of its balance of payments. [4]
(c) Analyse the causes of market failure. [6]
(d) Discuss whether or not having a large primary sector is a disadvantage to an economy. [8]
© UCLES 2022 0455/23/M/J/22

5
5 More government spending creates opportunity costs. This was one of the problems that the
president of France faced in 2017. Since he came to power, he has focused on using supply-side
policy measures, rather than monetary policy. Trade union membership has reduced in France in
recent years.
(a) Define monetary policy. [2]
(b) Explain, using an example, the influence of opportunity cost on government decision-making.
[4]
(c) Analyse the reasons why trade union membership has reduced in some countries. [6]
(d) Discuss whether or not supply-side policy measures always promote economic growth. [8]
© UCLES 2022 0455/23/M/J/22

6
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© UCLES 2022 0455/23/M/J/22

7
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© UCLES 2022 0455/23/M/J/22

8
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© UCLES 2022 0455/23/M/J/22

ECONOMICS 0455/22
Paper 2 Structured Questions March 2018
MARK SCHEME
Maximum Mark: 90
Published
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.
Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.
Cambridge International will not enter into discussions about these mark schemes.
Cambridge International is publishing the mark schemes for the March 2018 series for most
Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level
components.
® IGCSE is a registered trademark.
This document consists of 17 printed pages.

0455/22 Cambridge IGCSE – Mark Scheme March 2018
PUBLISHED
Generic Marking Principles

These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of
the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles.
GENERIC MARKING PRINCIPLE 1:
Marks must be awarded in line with:
• the specific content of the mark scheme or the generic level descriptors for the question
• the specific skills defined in the mark scheme or in the generic level descriptors for the question
• the standard of response required by a candidate as exemplified by the standardisation scripts.
Marks awarded are always whole marks (not half marks, or other fractions).
Marks must be awarded positively:
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the
syllabus and mark scheme, referring to your Team Leader as appropriate
• marks are awarded when candidates clearly demonstrate what they know and can do
• marks are not deducted for errors
• marks are not deducted for omissions
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated
by the mark scheme. The meaning, however, should be unambiguous.
Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level descriptors.
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited
according to the quality of the candidate responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in
mind.
© UCLES 2018 Page 2 of 17

PUBLISHED
Question Answer Marks Guidance
1(a) Identify, using information from the extract, two industries that operate in the 2 High-tech or electronics or software or
secondary sector of the Indian economy. electronics and software = 1 mark.
Two from:
Construction, engineering and high-tech (electronics and software).
1(b) Explain, using information from the extract, why the price of restaurant meals 4 Explanation mark is dependent on
in India is likely to increase in the future. correct identification.
Increase in incomes (1) which will increase demand/consumption/spending (1).

Increase in advertising (1) which will increase demand/consumption/spending/attract
new customers/make people more aware of the products/firms may raise price to
cover costs (1).
Advances in technology/development of apps (making it easier to book) (1) increase
demand (1).
1(c) Analyse how a government can encourage enterprise. 5 Up to 3 marks for one way well
explained.
Increase spending on education (1) open new universities (1) train entrepreneurs (1).
Encourage MNCs to set up in the country (1) learn ideas from owners/managers of Maximum of 3 marks for identifying
MNCs (1). ways/measures.
Encourage immigration/remove restrictions on immigration (1) migrants often set up
new businesses (1).
Provide subsidies/grants/loans (1) to encourage new firms to set up/lower costs (1)
less finance needed to start a business (1).
Cut taxes/provide tax benefits (1) to increase reward/profit (1).
Lower interest rates (1) to make it cheaper to set up a new firm/expand (1).
Privatise firms/end state monopolies (1) allowing new firms to come into the market
(1).
Deregulate industries (1) removing barriers to entry/allowing new firms to come into
the market (1)..

PUBLISHED
1(d) Using Fig.1, comment on whether the relationship shown between changes in 4
India’s investment and economic growth rate is the expected one.
Yes (1).
In most years, investment and economic growth move in the same direction/follow a
similar trend (1) exception 2011 (1) economic growth rate is highest in 2010 whereas
investment increase is highest in 2011/2012 (1).
Higher investment will increase total (aggregate demand) (1) and productive
potential/resources to increase output (1).
Economic growth may encourage investment (1) firms expanding due to higher
demand/expectation of higher profit (1).
1(e) Discuss whether or not a city should specialise in one industry. 5
Up to 3 marks for why it should:

Can concentrate on what the city is best at producing/make best use of the city’s
resources (1) increase output/economic growth (1) lead to higher income/higher
profit/higher revenue (1).
Can gain a reputation in producing the product/quality (1) increase demand (1)
attract other firms to set up in the city (1).
Firms/industry can grow in size (1) enjoy economies of scale/increase
productivity/increase efficiency (1) lower average cost (1).
Up to 3 marks for why it should not:

There is a risk that if the industry fails (1) there will be high unemployment (1) fall in
income (1).
There will be only a limited number of different types of jobs/occupations available
(1) may not suit all workers/workers may lack the skills to work in the industries (1).
Certain industries may create negative externalities (1) e.g. pollution (1).
Firms/industry may grow too large (1) experience diseconomies of scale/reduce
productivity/reduce efficiency (1) higher average cost (1).
Increased dependency on other areas for other products (1) prices of these may
rise/supply may fall (1) opportunity cost in terms of lost output of other industries (1).

PUBLISHED
1(f) Explain, using information from the extract, two reasons why some Indians 4
spent less in 2012.
A rise in the rate of interest (1) would encourage saving/discourage borrowing (1).
Concerns about future economic prospects/lower economic growth/possibility of
recession (1) would encourage saving (in case of a fall in income (GDP)
/unemployment) (1).
1(g) Discuss whether or not an economy would benefit from one of its industries 6
opening branches in other countries.
Up to 4 marks for why it might:

May improve the balance of payments/current account (1) profits sent home (1)
obtain foreign currency (1) branches may buy imports from the home country (1).
May enable firms to get round other countries’ trade restrictions (1).
May be able to take advantage of subsidies given by foreign governments (1) lower
costs of production/more competitive (1) other reasons why cost may fall (1) higher
output (1).
May reduce external costs at home (1) lower pollution (1).
Up to 4 marks for why it might not:

May take production away from the economy/opportunity cost of producing in the
home country (1) lower (potential) output (1) lower potential employment/cause
unemployment (1).
May reduce potential government tax revenue (1) corporation tax paid to foreign
governments (1).
Some top managers and workers may be employed in the overseas branches (1)
reducing the supply of skilled managers and workers in the home country (1).

PUBLISHED
2(a) Define resources. 2
Factors of production/inputs (1) used to produce goods and services/example of a

factor of production (1).
2(b) Explain two reasons why the quality of a country’s resources may increase. 4
Advances in technology/investment (1) would increase the quality of capital (1).

Improved education/training (1) would increase the quality of labour (1).
Improved health care (1) would increase the quality of labour (1).
Irrigation (1) may improve the quality of land (1).
Reduction in pollution (1) may improve the quality of land (1).
2(c) Analyse the reasons why a country’s birth rate may fall. 6 Maximum of 3 marks for a list-like
approach.
Increase in the cost of raising children (1) e.g. increase in the time children spend in
education (1). Up to 3 marks for one reason well
Increase in the proportion of women in the labour force (1) tends to reduce family explained.
size (1).
Increase in state provision of welfare payments (1) reducing the need to have
children support parents in old age (1).
Reduction in infant mortality (1) people having fewer children in the expectation more
will survive (1).
Ageing population (1) fewer people of child bearing age (1).
Greater availability/knowledge of contraception (1) makes family planning easy (1).
Education (1) e.g. higher cost of having children (1) women may get married later
(1).
More women working (1) may delay childbirth (1)
Government policy (1) e.g. placing a limit on number of children (1)

PUBLISHED
2(d) Discuss whether or not a government should be worried about an increase in 8

the proportion of its population aged over 65.

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 tend 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).

PUBLISHED
3(a) Define a fixed cost. 2
A cost that does not change with output/has to be paid even if no output produced
(1) in the short run/example (1).
3(b) Explain why traffic congestion is an external cost. 4
An external cost is a harmful effect imposed on a third party/those not involved in the
decision making process/social cost minus private cost (1).
Traffic congestion causes journeys to take longer than they should (1) opportunity
cost of lost time (1) higher costs for transport firms (1) cause pollution (1) cause
health problems (1).
3(c) Analyse how a taxi firm could make use of information about the price 6
elasticity of demand for its service.
Information on PED can influence a taxi firm’s pricing strategy (1) could be used to
determine whether demand is elastic or inelastic (1).
If demand is elastic, a change in price will cause a greater percentage change in
quantity demanded (1) a reduction in price would raise revenue (and vice versa) (1)
elastic demand would suggest there are close substitutes/competitive market (1).
If demand is inelastic, a change in price will cause a smaller percentage change in
quantity demanded (1) a rise in price would raise revenue (and vice versa) (1)
inelastic demand would suggest lack of substitutes/high market power (1).

PUBLISHED
3(d) Discuss whether or not a reduction in unemployment always increases living 8

standards.

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).
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).

PUBLISHED
4(a) Define a subsidy. 2
A government payment/extra payment/grant/financial assistance (1) designed to

encourage production/consumption/lower costs of production (1).
4(b) Explain two disadvantages of inflation. 4 Lower employment/output only

credited if linked to cost-push inflation.
May reduce purchasing power/value of money will fall (1) each unit of the currency
will buy less/if wages rise by less than inflation (1).
May be a reduction in international competitiveness (1) exports may fall/imports may
rise (1).
Savings may fall in value (1) if the rate of interest rises by less than inflation (1).
More income may be taken in tax/fiscal drag (1) if tax brackets are not changed in
line with inflation (1).
There may be menu costs (1) the costs of adjusting prices/catalogues etc. (1).
Random redistribution of income (1) e.g. lenders may lose and borrowers may
gain/those with strong bargaining power may gain and those with weak bargaining
power may lose (1).
More difficult to plan (1) discourages investment/causes people to make inefficient
choices (1).
4(c) Analyse how an increase in government spending may cause inflation. 6
Higher government spending will increase total (aggregate) demand (1) higher
demand may push up the price level/prices (1) cause demand-pull inflation (1).
Higher demand may increase demand for workers (1) this may cause wages to rise
(1) higher wages may cause cost-push inflation (1).
Higher government spending may be financed by borrowing (1) this may increase
the money supply (1) more money can cause demand-pull/monetary inflation (1).

PUBLISHED
4(d) Discuss whether or not an increase in the top rate of income tax will benefit an 8
economy.

An increase in the top rate of income tax may raise more tax revenue (1) the extra
revenue may be spent on e.g. healthcare/education (1) which may increase living
standards (1).
The tax revenue may be spent on e.g. infrastructure/education (1) which may
increase economic growth (1).
The higher rate may reduce income inequality (1) especially if some of the revenue is
used to help the poor (1).

The higher rate may discourage effort and enterprise (1) some entrepreneurs may
choose to leave the country (1) may discourage MNCs from setting up in the country
(1)
High paid workers may reduce their working hours (1) some workers may decide not
to take up the offer of a promoted job (1).
The higher rate may encourage tax evasion (1) reduce tax revenue (1).
Higher tax rate may encourage the high paid to seek wage rises (1) this may raise
costs of production (1) may cause cost-push inflation (1).
Reduce the disposable income of the rich (1) lower total (aggregate) demand (1)
reduce output (1).

PUBLISHED
5(a) Define a state-owned enterprise. 2
A firm owned by the government/a nationalised industry (2).

A firm in the public sector (1).
5(b) Explain, giving examples, the difference between vertical integration and 4
horizontal integration.
Vertical integration is the merger between two firms producing at different stages of
production (1) example e.g. a tyre producer and a car manufacturer (1).
Horizontal integration is the merger between two firms producing at same stage of
production (1) example e.g. two commercial banks (1).
5(c) Analyse how a monopoly could benefit consumers. 6 Maximum of 3 marks for a list-like
approach.
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).

PUBLISHED
5(d) Discuss whether or not a country should devote more of its resources to 8
building and operating new railway lines and stations.

It may increase the efficiency of the transport system (1) improve infrastructure (1)
meet rising demand (1) reduce travel time (1) lower transport costs (1) making the
country’s firms more internationally competitive (1) attract MNCs (1) raising net
exports (1) increasing output (1).
Passengers and freight may switch from road to rail (1) reducing congestion (1) and
pollution (1).
May increase employment (1) if make use of previously unemployed resources (1).
May increase mobility of labour (1) reducing unemployment (1).
In long run, may increase government tax revenue (1).

It will involve an opportunity cost (1) resources might be used more efficiently in
producing e.g. healthcare (1) might reflect consumer demand to a greater effect (1)
there may currently be underutilisation of the rail system (1).
Building railway lines may harm the environment (1) e.g. wildlife habitats may be
destroyed (1).
Resources may not be suited to the industry (1) e.g. may be a lack of skilled
engineers (1).

PUBLISHED
6(a) Define a depreciation of the currency. 2
A fall in the value/price of a currency/exchange rate (1) against another

currency/caused by market forces/demand and supply (1).
6(b) Explain two reasons why demand for a country’s exports may be price- 4
inelastic.
Exports may lack substitutes/a country may have a monopoly in the product (1)
people/firms may find it difficult to switch easily to products from home country or
other countries (1).
Exports may be of addictive products (1) so a rise in price will not discourage people
from buying the product (1).
Exports may be low-priced products which take up only a small part of income (1) so
a price change will not have a significant impact on the amount people buy (1).
Exports may be necessities (1) and so people may continue to buy them in almost
the same quantities should their price rise (1).
6(c) Analyse how the removal of import tariffs could increase a country’s output. 6
The removal of import tariffs would reduce the price of imports (1) enable firms to
buy better quality products (1).
A lower price of imported raw materials (1) would reduce the cost of production (1)
this may lower price of finished products (1) increasing demand (1) stimulating firms
to produce a higher output (1).
A lower price of imports may put pressure on domestic firms to be more competitive
(1) this may encourage them to be more efficient (1) raising quality (1) lowering price
(1) increasing sales (1) stimulating firms to produce a higher output (1).
May attract MNCs into the country (1) as it is a move towards free trade (1).
May encourage other countries to remove tariffs (1) increase global output/allow
firms to specialise (1).

PUBLISHED
6(d) 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)

PUBLISHED
7(a) Define a mixed economy. 2
An economy with a private sector and a public sector (2).

An economy where some resources are allocated by the government and some by
market forces/the price mechanism (2).
An economy where different groups own resources (1).
7(b) Explain two advantages of working in the tertiary sector rather than the 4
primary sector,
Pay may be higher (1) some jobs in the tertiary sector are well-paid e.g.
banking/some jobs in the primary sector are low-paid e.g. farm-work (1).
Working conditions may be better (1) e.g. working in an office may be more
comfortable than working outside in bad weather in the case of farming (1);
The work may be less dangerous (1) e.g. there are a number of accidents each year
in mining (1).
Working hours may be shorter/more convenient (1) e.g. farm workers may have to
start early in the morning (1).
There may be more fringe benefits (1) e.g. free air travel for pilots and their families
(1).
There may be more job security (1) as the tertiary sector may be increasing while the
primary sector is decreasing (1).
May provide greater job satisfaction (1) e.g. nurses may gain satisfaction from
helping patients (1).
7(c) Analyse why a trade union may oppose a rise in working hours. 6
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).

PUBLISHED
7(d) Discuss whether a government should pay high wages to workers in the public 8
sector.

High wages may increase workers’ motivation/morale (1) increase labour productivity
(1) unit wage cost may not rise (1).
High wages may attract skilled workers (1) raise the quality of public services (1).
High wages may increase total (aggregate) demand (1) this may increase output (1)
reduce unemployment (1).
Avoid industrial action (1) and so disruption to key services (1).
May attract more workers/retain workers (1) may be a shortage of public sector
workers (1).
May raise living standards of the workers (1).

High wages may increase labour costs (1) raise government spending (1) this will
increase total (aggregate) demand (1) may cause inflation/demand-pull inflation (1).
May cut employment (1) to keep wage costs the same (1).
Private sector firms may experience difficulty recruiting/retaining workers (1) may
raise wages of their workers (1) to retain them (1) unit wage costs may rise (1)
causing cost-push inflation (1).
Tax revenue may have to be raised to pay the higher wages (1) higher taxes may
harm the poor if they are regressive taxes (1).
Opportunity cost (1) in terms of e.g. less spending on healthcare (1).

ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the May/June 2018 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and
some Cambridge O Level components.
IGCSE™ is a registered trademark.

0455/22 Cambridge IGCSE – Mark Scheme May/June 2018
PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the
specific content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these
marking principles.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the syllabus and mark
scheme, referring to your Team Leader as appropriate
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as indicated by the mark
scheme. The meaning, however, should be unambiguous.
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited according to the
quality of the candidate responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in mind.

PUBLISHED
1(a) Identify two fixed costs of production in Fig.1. 2 If more than two examples
are given, consider only
One mark each for any 2 from: insurance, security, rent, lighting and wages. the first three.
1(b) Explain, using information from the extract, two reasons why a rise in the price of 4
vanilla might not cause an increase in the price of ice cream.
Ice cream is a luxury product (1) likely to have elastic demand / producers will be concerned
that a rise in price could cause a fall in revenue/profit/demand (1).
Ice cream has substitutes (1) likely to have elastic demand / producers will be concerned that
a rise in price could cause a fall in revenue / loss of customers / loss of demand (1).
Rise in productivity of workers (1) fall in labour costs / lower costs may offset a rise in the
price of vanilla (1).
Fall in another cost identified in the pie chart (1) may offset a rise in the price of vanilla (1),

PUBLISHED
1(c) Analyse, using a demand and supply diagram, the effect of an increase in income on 5
the market for ice cream.
Up to 4 marks for a diagram:

• axes correctly labelled – price and quantity or P and Q (1)
• demand and supply curves correctly labelled, S (1)
• demand curve D1 shifted to the right D2 (1)
• correct equilibriums identified either by lines drawn to both axes or equilibrium prices
clearly identified e.g. E1 and E2 (1)
D2
price of S
ice cream D1
P2
P1
D2
S
D1
O Q1 Q2
quantity of
ice cream
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)
• demand will increase as ice cream is a luxury good
• price will rise

PUBLISHED
1(d) Analyse the extent to which the relationship shown in Table 1 between countries’ GDP 4 Reward 1 mark for a
per head and their HDI value is the expected one. supported conclusion that
it is generally the expected
Generally, in the same order / positively related / countries with highest GDP per head have relationship.
the highest HDI (1) countries with high incomes generally spend more on education and
healthcare (1) supporting evidence e.g. Argentina has highest GDP per head and highest Marks may be gained in
HDI (1). relation to Cuba by
Egypt higher in terms of GDP per head but lower in terms of HDI than Cuba (1). mentioning Egypt may
Cuba may have a high life expectancy (1) indicating good healthcare (1). have less good healthcare
Cuba may have a high number of mean and expected years of schooling (1) indicating a and education.
strong education system / more educated population (1).
1(e) Discuss whether or not a government should encourage people to save more. 5 Accept response from the
perspective of why it
Up to 3 marks for why it should: should not, by discussing
More savings can fund investment / enable people to set up a business (1) higher investment why it would be better for
can increase economic growth (1) higher economic growth can increase living standards (1). the government to
A government may make use of money in government-run saving schemes (1) e.g. to fund encourage spending,
infrastructure projects (1).
More savings can reduce consumer spending (1) which will lower total (aggregate) demand Reward change in
(1) which can reduce inflation (1). consumer spending and
More savings can reduce demand for imports (1) improve the current account position (1). total demand in either why
More savings can help people cope with emergencies / increase wealth / for future use (1) it should, or why it should
prepare for retirement (1) in case of unemployment (1) spend on education (1) reduce need not, but not in both.
for government expenditure e.g. pensions/education (1) enabling the government to spend on
other named area (1).

More saving may reduce output / cause recession (1) increase unemployment (1) cause
deflation (1).
More saving will increase deposits at banks (1) this may encourage them to lend to un-
creditworthy customers (1) causing banks to collapse (1).

PUBLISHED
1(f) Explain, using information from the extract, how cash benefits given to the poor can 4 Maximum of 1 mark for a
reduce poverty. way cash benefits may
reduce poverty, if not
May enable them to send their children to school for longer (1) this may increase their linked to education.
children’s skills (1) qualifications (1) increase their job opportunities / start a business (1)
increase their earning potential / living standards (1) enable them to purchase more goods Reward but do not expect
and services (1) including basic necessities (1). reference to an implied
multiplier effect resulting
from the higher spending
creating more jobs.
1(g) Discuss whether or not a market system benefits consumers. 6 Reward but do not expect
reference to public goods.
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).

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).

PUBLISHED
2(a) What may be the opportunity cost of building an airport? 2
Opportunity cost is the (next) best alternative foregone (1).

Relevant example e.g. building a hospital (1).
2(b) Explain two reasons why a government would want to turn its country from a 4 Accept response from the
developing into a developed country. perspective of the
disadvantages of
Developed countries tend to have higher GDP/output/economic growth (1) reduces poverty developing countries.
(1)
Developed countries tend to have higher living standards (1) due to earning higher incomes / Accept any reason that is
higher GDP per head (1) linked to improved
Developed countries may have better education (1) e.g. resulting in more skilled workers (1) macroeconomic
so improving productivity (1). performance or improved
Developed countries tend to have better healthcare (1) resulting in longer life expectancy / living standards.
lower death rate (1).
Developed countries tend to have more economic power (1) stronger in international
negotiations (1).
Developed countries tend to have a higher proportion of workers employed in the tertiary
sector (1) which may mean better working conditions (1).
Tax revenue may be higher (1) enabling more government expenditure (1).
2(c) Analyse the external costs that can be caused by the building and expansion of an 6 Accept pollution on its own
airport. as one example.
External costs are harmful effects on third parties / social costs minus private costs (1). Also allow visual pollution,
Building and operating an airport will cause noise pollution (1) air pollution (1) which will be but maximum of 2 marks
experienced by those living near the airport (1) reducing their health (1). for types of pollution.
Traffic congestion may be caused (1) delaying people’s journeys (1).
The prices of houses close to the airport may fall (1) reducing local residents’ wealth (1) local
residents may be displaced (1).
Train companies may lose revenue (1) as people switch from train travel to air travel (1).
Environmental damage / global warming (1) e.g. loss of wildlife habitats (1).

PUBLISHED
2(d) Discuss whether people would prefer to buy a product from a small firm or a large 8 Accept response from
firm. either perspective.
Up to 5 marks for why they might prefer to buy from a small firm: Accept better quality for
May be flexible (1) quick to respond to changes in consumer demand (1) as do not have to either side, but only one
consult others (1). mark if given on both
May provide a personal service (1) can get to consumers and their requirements (1) adapt to sides. More marks can
particular requirements (1). only be awarded if it is
May be specialised (1) produce high quality products (1). established why there may
Small firms may receive government subsidies (1) enabling them to keep price low / quality be better 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).

PUBLISHED
3(a) Identify two examples of capital goods that may be used by a farm. 2
One mark each for each of two examples e.g. tractor, farm buildings.
3(b) Explain how a country could have a trade in goods surplus but a deficit on the current 4
account on the balance of payments.
Trade in goods surplus means exports (of goods) exceeds imports (of goods) (1) trade in
goods is only one part of the current account (1) identification of two of the three other
components (1) there could be a larger deficit on the trade in services balance (1) example of
a service item decreasing (1) there can be a larger deficit on income (primary) balance (1)
example of an income item increasing (1) there could be a larger deficit on current transfers
(secondary) balance (1) example of a current transfer item decreasing (1) or a combination of
deficits on other items (1).
A current account deficit means more money will be leaving than entering the country (1).
3(c) Analyse the economies of scale from which a farm may benefit. 6 Maximum of 4 marks
unless at least one type of
Buying (purchasing) economies (1) e.g. buying seed in bulk at reduced price (1). economy of scale is
Technical economies (1) using up to date / efficient equipment e.g. combine harvesters (1). related specifically to a
Managerial economies (1) employing specialist workers e.g. farm managers (1). farm e.g. buying seed in
Financial economies (1) borrowing at a lower rate of interest/finding it easier to obtain a loan bulk.
(1).
Risk bearing economies (1) a farm may grow a variety of crops (1). Also credit analysis of
external economies of
scale.
Maximum of 3 marks for a

list-like approach.

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3(d) Discuss whether or not developing countries benefit from producing mainly primary 8 Accept as an alternative to
products. the first two points that
developing countries may
Up to 5 marks for why they might: have the resources to
May have the resources to produce high quality (1) low cost primary products (1). produce high quality
If more can be exported (1) revenue can be used for development (1). primary products at low
Specialisation can reduce average costs (1) increasing output (1) enabling advantage to be cost, that they may not
taken of economies of scale (1). have the resources to
Demand for primary products may be increasing (1) some primary products can be sold for produce high quality
high prices (1) e.g. oil (1) increasing living standards (1). secondary / tertiary
May be able to raise revenue (1) as demand for some primary products, e.g. oil, is price- products at low cost.
inelastic (1).
Countries may lack education (1) primary sector provides some unskilled jobs (1). Reward but do not expect
reference to comparative
Up to 5 marks for why they might not: advantage.
Demand for primary products does not tend to rise as rapidly as demand for manufactured
products and services (1) tend to have less valued added (1).
The production of some primary products may be adversely affected by bad weather and
diseases (1) disrupting supply (1) resulting in fluctuating income (1) working conditions may
be poor (1).
Developed countries may impose trade restrictions on primary products from developing
countries (1).
The primary sector does not tend to offer many high skilled jobs (1) low pay (1) low living
standards (1).
There are risks of overspecialisation (1) a more diversified economy would be in a stronger
position to resist economic downturns (1).
Developing countries will be dependent on other countries for manufactured goods and
services (1).

PUBLISHED
4(a) 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).
4(b) 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).
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).
4(c) Analyse how price elasticity of demand for a product influences the revenue a firm 6 Accept as reasons why
receives. demand may be price-
elastic, availability of
Formula or definition of PED (1). substitutes and why
If demand is elastic, a rise in price will cause a fall in revenue (1) because the quantity demand may be price-
demanded will fall by more than the rise in price (1) in percentage terms (1) example of type inelastic, lack of
of product with elastic demand e.g. a luxury (1). substitutes.
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).

PUBLISHED
4(d) Discuss whether or not a government should subsidise bus transport. 8 Reward but do not expect
reference to bus transport
Up to 5 marks for why it should: being a merit good.
A subsidy will lower costs, (1) it may encourage a rise in bus travel (1) reducing bus fares (1).
It may reduce poverty / redistribute income (1) the poor tend to use buses more than the rich
(1) better quality travel (1).
Bus travel creates fewer external costs than car travel (1) reduce pollution (1) reduce traffic
congestion (1) increase employment / reduce unemployment (1) increase labour mobility (1).

It will involve an opportunity cost (1) the government might instead spend more on e.g.
education / raise taxes (1).
Bus companies may not pass on the subsidy to passengers (1) subsidies may make bus
companies complacent (1) not try to keep their costs low (1) may not improve quality (1).
Rail transport may be more efficient (1) may provide more social benefits (1) generate lower
social costs (1).

PUBLISHED
5(a) Identify two causes of an ageing population. 2 Accept causes that would
result in a fall in the birth
One mark each for each of two from: rate or fall in the death
A fall in the birth rate (1) a fall in the death rate / longer life expectancy (1) net emigration of rate. These may be two
young people / net immigration of old people (1). causes of a fall in the birth
rate or a fall in the death
rate e.g. better healthcare
and better nutrition.
5(b) Explain why the price of housing may increase. 4
Increase in demand (1) due to e.g. increase in income / rise in population (1).
Decrease in supply (1) due to e.g. rise in costs of production (1).
5(c) Analyse why more women may enter the labour force. 6
May be a reduction in gender discrimination (1) a change in social attitudes (1) making it
easier for women to get jobs (1) be promoted (1).
There may be a rise in the pay available to women (1) increasing the opportunity cost of not
being in the labour force (1).
There may be a fall in the birth rate (1) making it easier for women to work (1).
There may be improvements in the education of women (1) increasing their skills / raising
their earning potential (1).
There may be a rise in part-time and/or flexible employment (1) making it easier for women to
combine working and caring for families (1).
Increases in the cost of living (1) may create a need for higher family income / to support their
family (1).
Government measures to encourage the entry of women into the labour force (1) e.g.
provision of free or subsidised childcare (1).

PUBLISHED
5(d) Discuss whether or not a rise in the birth rate will benefit an economy. 8 Reward but do not expect
reference to the idea of an
Up to 5 marks for why it might: optimum population size.
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).
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).

PUBLISHED
6(a) Define commercial bank. 2
Two marks from:

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).
6(b) 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).
6(c) Analyse what can cause deflation. 6
A fall in the price level could be caused by a fall in total (aggregate) demand (1). This may be
due to a fall in consumer expenditure / rise in saving (1) a fall in borrowing (1) a fall in
investment (1) due to e.g. a lack of confidence (1) spending may be delayed due to the
expectation that prices may be lower in the future (1) deflationary demand-side policy
measures (1) e.g. a rise in the rate of interest (1) rise in direct taxation (1).
Exports may fall (1) due to e.g. fall in incomes abroad (1) a rise in exchange rate (1).
A rise in total (aggregate) supply (1) due to e.g. advances in technology (1) increased
investment (1) reduced costs of production (1) increase in productivity (1) supply-side policy
measures (1) resulting from e.g. improvements in education and training (1).

PUBLISHED
6(d) Discuss whether or not government policy measures to reduce unemployment will 8
cause inflation.
Up to 5 marks for why they might:

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).
Up to 5 marks for why they might not:

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).

PUBLISHED
7(a) Define import tariff. 2
A tax (1) imposed on products purchased from other countries / imports (1).
7(b) Explain two benefits of an increase in world output. 4
Higher output may increase employment (1) better use of resources (1).
Higher output may increase incomes (1) reduce poverty / raise living standards (1) increase
choice (1).
Higher output may increase government tax revenue (1) to increase education/healthcare (1).
Higher output may include higher agricultural output (1) reduce risk of malnutrition (1).
7(c) Analyse how a recession may reduce a country’s imports. 6
A recession is a decrease in GDP (1) over 6 months or more / two consecutive quarters (1).
A recession is likely to reduce incomes (1) increase unemployment (1) reduce confidence
levels (1) consumer spending is likely to fall (1).
As output is falling (1) firms are likely to buy less raw materials from abroad (1) buy fewer
capital goods from abroad (1).
During recessions governments may impose trade restrictions which will reduce imports (1).
A recession may cause a depreciation of the currency (1) making imports more expensive (1).

PUBLISHED
7(d) Discuss whether or not a developing country will benefit from the removal of trade 8
restrictions.

Developing countries tend to have more trade restrictions on their products (1).
The removal of trade restrictions on the country’s products can enable a country to specialise
in the products it is best at producing (1) they can be sold at a lower price which may increase
demand in foreign markets (1).
The removal of trade restrictions that the country imposes may mean it can purchase raw
materials (1) and capital equipment (1) at a lower price (1) reducing costs of production (1).
Consumers may enjoy a greater variety of products (1) greater availability of products (1) lower
prices (1) higher quality (1).
Domestic firms may respond to greater competition by becoming more efficient (1).
The removal of trade restrictions may increase inward investment / attract MNCs (1).

Infant industries (1) may not be able to survive without protection (1) because they cannot take
advantage of economies of scale (1).
Declining industries (1) may go out of business more quickly (1) causing unemployment (1).
Strategic industries (1) may go out of business disrupting the rest of the economy (1).
There may be dumping (1) with foreign firms selling products at below cost price (1) to drive
domestic firms out of business (1) and then raising price (1).
Demerit goods may be imported (1).
May result in imports exceeding exports, (1) causing a current account deficit (1).
Tax revenue may fall (1) revenue from tariffs may account for a relatively high proportion of a
developing country’s tax revenue (1).

ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the October/November 2018 series for most
Cambridge IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level
components.

0455/22 Cambridge IGCSE – Mark Scheme October/November 2018
PUBLISHED
marking principles.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
question as indicated by the mark scheme. The meaning, however, should be unambiguous.
Rules must be applied consistently e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.

PUBLISHED
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may
be limited according to the quality of the candidate responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or
grade descriptors in mind.

PUBLISHED
1(a) Identify, from the extract, two goals of business organisations. 2
Survival / growth / profit maximisation / diversification
1(b) Explain, using information from the extract, two reasons why the price of 4
rubber fell between 2011 and 2016.
Supply exceeding demand / diagram showing excess supply (1) the existence
of unsold rubber will encourage rubber producers to lower price (1).
Improved production methods (1) lowering costs of production / increasing
supply (1).
The imposition of import restrictions / diagram showing the effect of import
reductions (1) lowering demand for rubber / rubber producers may reduce
prices to ensure their rubber is still competitive (1).
Government subsidies (1) lowering costs of production / increasing supply /
diagram showing supply increasing (1).
1(c) Analyse how an increase in wages could cause inflation. 5
Higher wages may increase consumer expenditure (1) increasing total

(aggregate) demand / diagram showing total (aggregate) demand increasing
(1) causing demand-pull inflation (1) if demand rises by more than money
supply / the economy is at, or near, full capacity (1).
Higher wages may increase costs of production (1) decrease total (aggregate)
supply / diagram showing total (aggregate) supply decreasing (1) causes cost-
push inflation (1) if wages rise by more than productivity / may cause a wage-
price spiral (1).

PUBLISHED
1(d) Analyse to what extent the information in Table 1 suggests that 4

healthcare expenditure per head is an important influence on the infant
mortality rate.
Generally, yes, it would be expected that countries spending a higher amount

would have a lower infant mortality rate (1) because e.g. they would be able to
afford more midwives/doctors (1).
Examples of supporting evidence e.g. Liberia spends the least and has the
highest (1) UK spends the most and has the lowest (1).
There is an exception, Cuba (1) spends the 4th lowest and has the 2nd lowest
infant mortality rate (1).

PUBLISHED
1(e) Discuss whether or not having more of its workers employed in the 5 For all ‘Discuss’ questions
tertiary sector would benefit the Liberian economy.
Each point may be credited only once, on
Up to 3 marks for why it might: either side of an argument, but separate
Jobs in the tertiary sector tend to be better paid (1) may raise living standards development as to how/why the outcome
(1) working conditions tend to be better (1) e.g. less dangerous (1) demand for may differ is to be rewarded.
services tend to increase more than demand for primary products (1) imports
of services may be reduced (1) exports of services may increase (1) current
Generic example Mark
account position may be improved (1).
Productivity/skills may be higher in the tertiary sector (1) which may cause Economic growth will increase 1
economic growth (1) may make the country more developed (1).
A larger healthcare sector could reduce the infant mortality rate / increase life because of reason« 1
expectancy (1). e.g. demand for services is
May attract MNCs/FDI (1) increasing employment (1). increasing globally
Up to 3 marks for why it might not: Economic growth will decrease 0
The country may be better at producing primary or manufactured products (1) (reverse of 1st argument)
the country has a climate suited to agriculture (1) which may reduce economic
growth (1). because of a different reason / 1
There may be an opportunity cost in terms of less resources being available in not a reverse argument
the primary and secondary sectors (1). e.g. a country’s resources may be
Some jobs in the tertiary sector are low-paid (1) example (1) because they more suited to producing primary
require fewer skills (1). products.
Many tertiary industries are based in cities (1) this may lead to problems of
rural-urban migration / overcrowding (1).
Liberia’s resources are more suited to producing rubber (1) which can be Reward but do not expect reference to
exported and bring in foreign exchange (1). comparative advantage as equivalent to
Imports of manufactured/primary products may increase (1). better at producing.

PUBLISHED
1(f) Explain, using information from the extract, how the concept of 4
opportunity cost affects all rubber farmers in Liberia.
Opportunity cost is the (next) best alternative foregone (1).

The US MNC could use its resources to produce rubber (1) or cocoa/coffee
(1).
The local farmers could sell rubber (1) or rubber wood / make furniture (1).
The farmers could use the money to buy more land (1) example, e.g. diversify
into other areas / education for their children (1).
Subsidies to farmers (1) could be used to help them in other ways e.g.
education (1).

PUBLISHED
1(g) Discuss whether or not a high rate of unemployment would always cause 6 Each point may be credited only once, on
emigration. either side of an argument, but separate
development as to how/why the outcome
Up to 4 marks for why it might: may differ is expected.
People may go to other countries in search of jobs (1).
A high rate of unemployment is likely to mean wages are low in the country /
there is poverty in the country (1) people may emigrate in search of higher
wages (1).
A high rate of unemployment may mean poor healthcare / education / other
services in the country (1) people and governments not having the income to
spend much on these services (1) people may emigrate to get a higher
standard of living (1).
People may have skills more appropriate to jobs in other countries / in greater
demand in other countries (1).

Jobs may not be available abroad (1) unemployment may be higher in other
countries (1) there may be restrictions on immigration (1).
People may lack the skills to take up any available jobs in other countries (1).
People may have family ties (1) restricting their mobility (1).
People may not be aware of jobs in other countries / lack of information (1).
There may be generous unemployment benefits in the country (1).
The costs of living may be low in the country (1) which may discourage e.g.
the retired from emigrating (1).
People may be deterred by cost of emigration (1).
People may be deterred by cultural differences in other countries (1).
Unemployment may be short term / believed to be short term / the
unemployed may be optimistic about future economic prospects in the country
(1) if seasonal or frictional unemployment (1).

PUBLISHED
2(a) Define private cost. 2
Private costs are costs borne by those producing the product (1) consuming
the product (1) example of such a cost (1) social costs – external costs (1).
2(b) Explain two ways a government could reduce external costs. 4 Reward but do not expect explanation of
tradeable / pollution permits / property
Up to 2 marks for two explanations from: rights.
Impose a tax (1) to discourage production / discourage consumption / turn
external into private cost (1).
Regulation (1) ban or restrict production / ban or restrict consumption / may be
enforced by fines (1).
Provide information (1) to discourage consumption / discourage production (1).
Government subsidies (1) to encourage cleaner production methods / the
consumption of healthier food e.g. fruit instead of high fat foods (1).
2(c) Analyse how a high rate of inflation affects the functions of money. 6 Maximum 2 marks for a list-like approach
applied to high inflation.
People may not want to save money (1) as it may lose value (1) stop acting as
a store of value (1). Maximum 1 mark for a list of three or more
People may not accept money as a payment (1) as it may lose value / people functions of money.
may not know what its value is (1) stop acting as a medium of exchange (1).
People may not be willing to lend money (1) inflation rate may be higher than
interest rate (1) stop acting as a standard of deferred payments (1).
People may stop valuing products in monetary terms (1) due to instability of
prices (1) stop acting as a unit of account / measure of value (1).

PUBLISHED
2(d) Discuss whether or not a fall in its foreign exchange rate will benefit an 8 Each point may be credited only once, on
economy. either side of an argument, but separate
Up to 5 marks for why it might: may differ is expected.
A lower exchange rate will reduce the price of exports (1) raise the price of
imports (1) net exports may rise / exports may rise / imports may fall (1)
current account of the balance of payments may improve (1) total (aggregate)
demand may increase (1) real GDP may increase economic growth (1)
employment may rise (1).

Higher import prices may not reduce spending on imports if demand for
imports is inelastic (1) export revenue may not rise if demand for exports is
inelastic (1) import restrictions imposed on other countries may make it difficult
to sell more exports (1).
Higher import prices may cause inflation (1) imported raw material costs may
rise (1) causing cost-push inflation (1) imported finished products may not be
replaced by domestic products (1) rise in net exports may cause demand –
pull inflation (1).
Domestic citizens may be able to purchase fewer imports (1) lower living
standards (1).
If the country is in debt (1) it may increase the cost of repaying the debt (1).
If the country is operating at full employment (1) it may not be possible to
produce more exports / substitutes for imports (1).
Demand for the country’s exports may be low (1) if quality is poor / incomes
abroad are falling abroad (1).
If the fall is used as a way to capture markets abroad / protect domestic
industries (1) there may be retaliation (1).

PUBLISHED
3(a) Identify two types of tax. 2
Any 2 from:
Direct (1) indirect (1) progressive (1) regressive (1) proportional (1) VAT/GST
(1) excise duty (1) income tax (1) corporation tax (1) inheritance tax (1) lump
sum tax (1) specific tax (1) ad valorem tax (1).
3(b) Explain two benefits to a government from a fall in unemployment. 4
Rise in tax revenue (direct/indirect) (1) people earning more / people spending
more / output higher (1).
Fall in expenditure on unemployment benefit (1) enabling government to
spend on other areas e.g. healthcare/education (1)
May help the government achieve its macroeconomic objectives (1) e.g. raise
GDP / achieve full employment (1)
3(c) Analyse, using a production possibility curve (PPC) diagram, the effects 6
of high unemployment in a country.
Diagram up to 3 marks:
• axes labelled Capital Goods & Consumer Goods (also accept any other
combination as long as it is clear that it is two separate products, and not
Price and Quantity)
• a curve bowed outwards or a downward sloping straight line drawn to the
axes
• point inside the curve identified as point of unemployment e.g. X
Written analysis up to 3 marks:

• high unemployment means that the available resources are not fully (1)
and efficiently used (1)
• the economy will not be able to produce at its maximum level (1) i.e. on
the PPC (1) output of the economy is smaller than the maximum (1) lower
than potential living standards (1)
• May be negative or lower economic growth / recession (1)

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3(d) Discuss whether or not a government should raise the school leaving 8 Each point may be credited only once, on
age. either side of an argument, but separate
Up to 5 marks for why it should: may differ is expected.
More time in education may increase workers’ skills (1) raise qualifications (1)
reduce unemployment (1) raise productivity (1) increase output / increase
economic growth (1) raise wages / increase living standards / increase HDI /
reduce poverty (1) lower costs of production / improved quality of products (1)
increase net exports / raise exports / lower imports (1) improve the current
account position (1).
May improve life expectancy / health (1) by making people better informed (1).
May attract more MNCs to set up in the country (1) reduce their training costs /
raise the quality of their output (1).

May increase government spending (1) it will involve the use of extra
resources (1) there will be an opportunity cost involved (1) example (1).
In the short run the labour force will be reduced (1) lower potential output (1).
A greater quantity of education does not necessarily mean a rise in quality of
education (1).
Some of those who receive the extra years, of schooling may not take full
advantage of these (1) which may disrupt the learning of others (1).
The dependency ratio may rise (1) tax rates may have to be increased (1).
Families may not be able to afford the extra years schooling (1).

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4(a) Define earnings. 2
Income / money received by a factor of production (1) received from working /

payment to workers (1) includes wages/salaries (1) overtime payments /
bonuses / commission (1).income from other sources e.g. undertaking
financial investment / renting / running a business (1).
4(b) Explain two non-wage factors that influence an individual’s choice of 4

occupation.
Accept any valid non-wage factor (1) with a valid explanation (1) e.g.
Short working hours (1) would increase leisure time (1)
Job security (1) reduces stress (1)
Promotion chances (1) increase wages in long run (1)
Fringe benefit / example (1) explanation of fringe benefit / explanation of
example (1).
Qualifications / skills / education (1) allow an individual to choose an
appropriate occupation (1).
4(c) Analyse why economics graduates are well-paid. 6
Graduates are skilled / more knowledgeable (1) have high levels of

qualifications/training/education (1) productive / efficient (1) demand for their
services is high (1) demand is inelastic (1) supply is low (1) long period of
training required (1) supply is inelastic (1).
Graduates tend to work in jobs with high pay/position/responsibility/stress (1)
example (1).
An economics degree is held in high esteem as a qualification (1).

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4(d) Discuss whether or not people in developed countries are likely to save 8 Each point may be credited only once, on
more than people in developing countries. either side of an argument, but separate
Up to 5 marks for why they might: may differ is expected.
On average people in developed countries have a higher income (1) so are
more able to save (1) or more able to save larger amounts so may gain a Accept responses from the opposite
higher interest rate (1). perspective, i.e. people in developing
There tends to be a greater range of financial institutions in developed countries are likely to save less than those
countries (1) more secure financial institutions (1) this gives greater in developed countries.
confidence in saving (1).
People in some developed countries may have a culture of saving (1) e.g.
Japan (1).
Inflation rate may be lower in developed countries (1) enabling people to save
more of their income (1).

The lack of a developed welfare system in some developing countries (1)
means that some people may save more for e.g. their old age / retirement (1)
future health problems (1).
There may be greater confidence about economic prospects in some
developed countries (1) encouraging people to spend more (1).
The rate of interest may be lower in some developed countries (1) reducing
the incentive to save (1).
Some people in developing countries are richer than some people in
developed countries (1).
Some people in developing countries may save more to spend on higher
education to increase the opportunity to work abroad (1).

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5(a) What is the difference between the private sector and the public sector? 2
The private sector is the part of the economy where market forces / price
mechanism / producers and consumers’ decisions allocate resources (1) firms
are owned by private individuals (1).
The public sector is the part of the economy where the government makes the
decisions / government controlled / government-owned firms (1).
5(b) Explain two reasons why productivity may fall. 4
Productivity may fall as the result of a decline in the quantity or quality of

education/training (1) workers will be less skilled (1).
A decline in investment (1) workers will work with less equipment (1).
A decline in wage rates (1) will reduce workers’ motivation (1).
Worse working conditions (1) reduce job satisfaction (1).
A rise in working hours (1) making workers more tired (1).
Work may become more repetitive / less interesting (1) which may result in
workers becoming bored (1).
Change in average age of workers (1) e.g. older workers may be less up to
date with new technology / younger workers may have received less training /
be less experienced (1).
Higher tax rates in a country (1) may reduce workers’ motivation (1).
Poorer healthcare in a country (1) reducing workers’ physical strength / mental
alertness (1).
5(c) Analyse how an increase in the price elasticity of demand and the price 6
elasticity of supply of its products could benefit a firm.
A more elastic demand would mean that the firm could reduce price (1) to
raise revenue (1) as demand would rise by more than the fall in price (1) if
revenue rises by more than costs, profit will increase (1).
A more elastic supply will mean that the firm can adjust more quickly the
amount it sells when price changes (1) the firm will be able to take greater
advantage of an increase in demand / rise in price (1) the firm will be able to
take more of its products off the market should price fall (1).

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5(d) Discuss whether or not small firms are likely to survive in the long run. 8 Each point may be credited only once, on
either side of an argument, but separate
Up to 5 marks for why they might: development as to how/why the outcome
Small firms may provide a personal service (1) may have greater contact with may differ is expected.
their customers (1) more responsive to changes in consumer demand (1).
May be more flexible (1) fewer people to consult (1).
May be producing products in low demand (1) not facing competition from
large firms (1).
May be a local monopoly / in a good location (1) may not face competition in
the area (1).
May cooperate with other small firms (1) enable advantage to be taken of e.g.
buying in bulk (1).
May supply specialised products / in a niche market (1) including to large firms
(1).
May receive government subsidies (1) lowering their costs of production (1).

May be driven out of business (1) by larger firms with lower costs of production
(1) better known (1) larger firms can take advantage of economies of scale
(1).examples of economies of scale (Up to 2).
Large firms may take over / merge with smaller firms (1) to gain market power
(1) take advantage of economies of scale (1).
Government subsidies may only be short term (1).
Some small firms may cease to exist when their owners retire/die (1) e.g. sole
traders (1).
Less capital available / difficulties in raising capital (1) make it difficult to
purchase new / high quality equipment (1) make it difficult to invest in R&D (1).

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6(a) Define Gross Domestic Product. 2
The (total) output/income/expenditure (1) of a country/economy (1).
6(b) Explain two reasons why a person may be willing to work at night. 4
A person may lack the skills to gain another job (1) have no choice (1).
There may be a high unemployment rate (1) a person will be grateful for any
job (1).
Night work may fit in with family circumstances (1) a person may have to look
after children / older relatives during the day (1)
The job may be well paid (1) compensating for the inconvenience (1).
The job may offer fringe benefits (1) example e.g. longer holidays (1).
A person may enjoy their job (1) example (1).
A person may need to earn additional income (1) to supplement income from
day job / to support their family (1).
6(c) Analyse how having some of its population working abroad may benefit 6
an economy.
The workers may send income home (1) helping to support dependents / raise
living standards of dependents (1) saving on some government benefits
having to be paid (1).
They may gain skills abroad (1) if they return they will increase the productivity
of the labour force (1) may raise output / cause economic growth (1) reduce
firms costs of production (1).
The money they sent back will be an inflow of foreign currency / remittance /
primary income (1) improving the current account position on the balance of
payments (1).
May reduce unemployment (1) if the workers’ skills are not in demand at home
(1).

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6(d) Discuss whether or not advances in technology benefit an economy. 8 Each point may be credited only once, on
Up to 5 marks for why they might: development as to how/why the outcome
Advances in technology will raise the quality / productivity of capital / labour (1) may differ is expected.
it will increase the output that can be made / cause economic growth /
increase GDP (1) may raise income (1)
Advances in technology can lower costs of production (1) reduce cost-push
inflation (1) make domestic products more internationally competitive (1)
improve the current account position of the balance of payments (1).
May raise the quality of products produced (1) raise living standards (1) make
domestic products more quality competitive (1) improve the position of the
current account of the balance of payments (1).
May attract MNCs (1).
Provide employment for certain classes of worker (1) e.g. skilled (1).

Advances in technology may result in capital equipment that can replace
labour (1) result in unemployment (1).
If workers do not have sufficient skills (1) they may not be able to get the most
out of more advanced equipment (1).
New capital equipment may worsen working conditions (1) e.g. workers may
get eye strain by looking at a screen for long periods of time (1).
May be an opportunity cost (in the short run) (1) as more resources may have
to be devoted to capital goods / R&D (1).
New capital equipment may be expensive (1) increase firm’ costs (1) may be
an opportunity cost if provided by the government (1).

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7(a) Identify two factors of production involved in mining gold. 2
Any 2 from:
Labour/miner (1) land / gold ore (1) capital/equipment (1) enterprise/owner (1)
7(b) Explain two reasons why a government may impose a tariff on imported 4 Reward but do not expect an argument
gold. based on the dumping of gold.
To discourage the purchase of the foreign gold / reduce the demand for
imported gold (1) to improve the current account position on the balance of
payments (1).
To raise revenue (1) to fund government expenditure (1).
If gold is an infant industry (1) enable domestic industries to grow (1) increase
output / become more competitive / efficient / natural resources discovered (1)
Protect domestic gold industry (1) protect jobs / keep unemployment low (1)
encourage expansion of domestic firms (1).
Retaliation (1) in response to trade restrictions on gold imposed by other
countries (1).
7(c) Analyse how perfect competition differs from a monopoly. 6 Reward but do not expect that perfectly
competitive firms can only earn normal
In perfect competition there are many sellers (1) in monopoly there is only one profit in the long run, whereas a monopoly
(1). can earn supernormal/abnormal profit.
In perfect competition there are no barriers to entry and exit / free entry and
exit (1) in monopoly there are barriers (1).
Firms in perfect competition are price takers (1) a monopoly is a price maker
(1).
In perfect competition there is perfect knowledge (1) that other firms may not
be aware of e.g. the profit being earned by a monopoly (1).
In perfect competition there is a low degree of market concentration (1) in
monopoly it is 100% (1).
In perfect competition there are perfect substitutes / homogenous products /
identical products (1) in monopoly there are no substitutes / a unique product
(1).

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7(d) Discuss whether or not an economy should mine and sell all of its gold 8 Each point may be credited only once, on
now. either side of an argument, but separate
Up to 5 marks for why it should: may differ is expected.
Will create employment (1) raise output / higher economic growth (1) increase
incomes (1) increase living standards (1).
It can be exported (1) demand may be high now (1) improve trade in goods (1)
improve the current account position (1).
More tax revenue can be earned (1) enable the government to spend more on
e.g. education/healthcare (1).

It will stop future generations (1) being able to benefit from its sale / reduce
economic growth (1) as resources will be depleted (1) as a result of higher
demand (1) e.g. due to higher income (1).
The price of gold may rise in the future (1) now may not be the best time to sell
it (1).
The exchange rate may currently be low (1) which may reduce the revenue
that the country can gain from exporting the gold (1).
Advances in technology (1) may lower costs of extraction in the future (1).
Gold mining may cause external costs (1) example e.g. pollution (1).
In the long run, gold may have to be imported (1) increasing the current
It may lead to overspecialisation (1) potential for structural unemployment (1).

ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or
generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles.

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Question Answer Mark Guidance
1(a) Identify, using information from the extract, two causes of low life expectancy 2
in developing countries.
• Poor healthcare facilities

• lack of access to safe water
• lack of basic sanitation
• not enough food production
• absolute poverty
1(b)(i) Explain, using information from the extract, how the water shortage is an 4
example of the economic problem.
The economic problem consists of the allocation of scarce resources amongst

competing ends (1).
Water supply is at critically low levels (1) showing resources are scarce / limited (1).
Rising demand from growth of cities (1) and rising agricultural production (1) wants
are unlimited (1).
1(b)(ii) Explain, using information from the extract, why the problem of water 4
shortages is likely to become even worse in the future.
Water is being undervalued (1) this has led to it being wasted (1) and the prices do
not reflect scarcity that will arise in the future (1) this means that as demand
continues to rise (1) the gap between wants and the amount of the resource will
increase (1).
Climate change (1) will cause water supplies to become increasingly scarce (1).
Population will continue to rise / cities will expand (1) increasing demand (1) and
exceeding the ability of supply to match demand (1).

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1(c) Analyse, using Table 1, the extent to which a high risk of water shortage in a 5
country / region causes low GDP per head.
The data indicates a link (1) the greater the degree of water scarcity (i.e. the higher
the water risk score) the lower the GDP per capita. (1)
Canada / Germany have the lowest water risk scores and the highest GDP per
capita (1).
Pakistan / Western Sahara have high water risk scores and low GDP per capita (1).
Saudi Arabia illustrates that this relationship is not perfect (1) and demonstrates that
other factors contribute towards GDP per capita (1)
1(d) Calculate, using the information in the extract, the price elasticity of demand 2
for water.
PED = (–) 0.07 (2)

Correct working –0.7% / 10% or –0.07% or 0.7 (1)

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1(e) Discuss whether or not private firms supplying water should increase their 5
prices.
Up to 3 marks for why they should:
An increase in price will increase total revenue (1) as demand is price inelastic (1)
meaning an increase in price causes a less than proportional decrease in quantity
demanded (1) some of the extra funds could be used to increase the supply of water
(1) reducing its shortage (1) and improve the quality of water (1).
Higher prices may reduce demand (1) helping to eliminate the shortage / achieve
market equilibrium (1).
As population is increasing (1) rising prices are needed to ration extra demand (1).
Current prices do not take account of the long run costs of failing to conserve
supplies (1) higher prices will encourage more efficient use of water / less waste (1).
Up to 3 marks for why they should not:
Water is a necessity / has very inelastic demand (1) raising prices will harm
consumers (1) and will fall more heavily on the poor / the poor will be unable to afford
water (1) increase absolute poverty (1) increase inequality (1).
Higher water prices can reduce health (1) reduce life expectancy (1) as less people
will have access to safe water / basic sanitation (1).
Higher water prices reduce income available to spend on other necessities e.g.
education (1).
1(f) Explain what is meant by absolute poverty. 2
Individuals cannot afford the necessities essential for survival (1) such as food,
water, shelter, warmth and clothing (1) individuals living on less than a certain
amount per day, e.g. $1.

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1(g) Discuss whether or not a country’s economic growth rate depends mostly on 6
the availability of its natural resources.
Natural resources are an important factor of production (1) Countries endowed with
natural resources have a good productive capacity as a result (1), boosting the
growth that they can enjoy (1).
A lack of natural resources such as water can cause poverty / ill health (1). This can
harm productivity (1).
Countries with insufficient natural resources are reliant on other countries to provide
them (1) worsening the current account and reducing the economic growth rate (1)
and if a country does not have enough other resources to trade it must rely upon its
own natural resources (1).
Natural resources are important in agriculture (1) countries with a lack of natural
resources may not produce enough food (1) leading to poorer nutrition (1) poorer
health and lower productivity (1).
Natural resources are essential for the construction of infrastructure e.g. roads and
schools (1) Other economic sectors (secondary and tertiary) depend upon natural
resources (primary) (1).
Other factors of production are equally / more important e.g. capital investment or
education for skills (1).
Through trade (1) a country can obtain from other countries the natural resources it
lacks (1)
It depends upon what countries specialise in (1) and whether they face trade
restrictions (1) if they can import raw materials from other countries their growth will
not be limited (1).
Finding natural resources can take a long time (1) slowing down economic growth
(1).
There are many countries in the world with significant natural resources but poor
economic growth rates / standard of living (1) and many countries with limited
resources but high growth rates, such as Singapore (1).

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2(a) Identify two influences on the strength of a trade union’s collective bargaining 2 If more than 3 answers given only
power. consider the first three.
• size of membership
• financial position
• level of employment
• government legislation
• willingness to take industrial action
2(b) 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).
2(c) Analyse the impact of a reduction in government expenditure on healthcare on 6

a country’s unemployment rate.
Less spending on healthcare may result in less employment of doctors and nurses
(1) causing structural unemployment (1) but may mean less skilled (cheaper) doctors
and nurses employed (1) leaving unemployment rate the same (1).
Lower government spending is contractionary fiscal policy (1) this will reduce total
(aggregate) demand (1) firms’ output will fall (1) causing demand for labour to fall (1)
as derived demand (1) causing cyclical unemployment (1).
Quantity / quality of healthcare may decline (1) this may reduce labour productivity
(1) international competitiveness (1) reducing demand for the country’s products and
labour (1).

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2(d) Discuss whether or not a decrease in the number of doctors will reduce living 8
standards.
If there are less doctors patients may receive worse quality healthcare (1) reducing
life expectancy (1).
The productive capacity of the economy could fall in the long run (1) as a result of life
expectancy falling / more sick days as a result of a worse quality health service (1).
Worse healthcare can decrease productivity (1) causing wages to fall (1).
A shortage of doctors would cause their wages to rise (1) making health care less
affordable / less available / poor patients can’t afford it (1).
Technological advancement (1) could mean the quality of healthcare is improving

even though the number of doctors is falling (1) I
increased expenditure on facilities / equipment (1) could offset the impact of fewer
doctors (1)
Access to healthcare is more important in determining living standards in the country
(1) – there may be less doctors but if healthcare is now more affordable living
standards on the whole may be rising (1).
If population is increasing (1) less need for doctors / number of doctors per head may
not change (1)

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3(a) Define import quota. 2
Limit (1) on quantity of good or service allowed in to a country / bought from abroad /
imported (1).
3(b) Explain two advantages to a country of specialisation. 4
Generates economies of scale (1) enabling a country to be more internationally price

competitive (1)
Improves productivity / efficiency (1) by producing what the country is best at (1)
Increases GDP (1) by making better use of scarce resources (1) allowing country to
export more (1)
Increases purchasing power of consumers (1) who through trade can purchase
goods and services from the most efficient producers (1)
3(c) Analyse the impact on an economy of the removal of import quotas imposed 6
by other countries.
Likely to increase exports (1) improving the current account of the balance of
payments (1).
Extra revenue earned could be spent on imports (1) increasing variety / choice (1).
Allows country to specialise more (1) making better use of resources (1).
Rising total (aggregate) demand (1) could increase the demand for labour (1)
reducing unemployment (1) and causing economic growth (1).
Higher demand could cause inflation (1) demand-pull (1) reducing purchasing power
(1).

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3(d) Discuss whether or not an increase in the role of the private sector will benefit 8
an economy.
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 Accept, but do not expect, reference
being unable to access the gains of the market economic system because they are to public goods
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)

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4(a) Identify two functions of a central bank. 2
• Control money supply

• Issue notes
• Set interest rates
• Maintain price stability / low inflation
• Act as a lender of last resort / lend money to government / lends to
commercial banks
• Ensure stability of financial system
• Manage foreign exchange reserves
4(b) Explain how the Consumer Prices Index (CPI) is calculated. 4 Up to 2 marks for correct numerical
examples.
A representative basket of most commonly purchased goods and services is
constructed (1) the price of these goods and services is monitored over time (1) the
goods and services are ‘weighted’ (1) according to the proportion of disposable
income they account for (1) annual price changes are measured (1) and multiplied by
weights (1) weighted price changes are measured against a base year (1).
4(c) Analyse the impact of a cut in interest rates on saving and investment. 6
Saving is expected to fall (1) as the return from saving falls (1), reducing opportunity
cost of spending (1), causing individuals to spend more (1) and borrow more (1).
Investment will rise (1) as it becomes cheaper for firms to borrow (1), reducing the
cost of investment (1) and making investment more profitable (1).

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4(d) Discuss the impact of supply-side policy measures on government 8

expenditure and on government revenue.
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).

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5(a) 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).
5(b) Explain two reasons why a government may want to reduce poverty. 4
Reduce income inequality (1) raise living standards (1).

To increase tax revenue (1) as average incomes / GDP will rise (1).
To improve the country’s HDI / develop the country (1).
Reduce healthcare expenditure (1) as the poor will be fitter (1).
Increase labour productivity (1) leading to more output / lower unemployment (1).

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5(c) Analyse, using a supply and demand diagram, the effect of increasing a sales 6
tax.
Award up to 4 marks for a correct diagram:
S2
price S1
p2
p1
D1
O q2 q1 quantity
• Axes labels P and Q (1)
• Supply and demand curves correctly labelled (1)
• Supply curve shifting left (1)
• Original and new equilibrium positions identified (1)
Award up to 2 marks for associated explanation:
Increasing tax raises a firm’s costs of production (1).

A higher price (1) may be passed on to consumers (1).

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5(d) Discuss whether a government should increase indirect taxes and whether it 8
should reduce direct taxes.
Up to 5 marks for why the government should do this:
Incentives to work may increase (1) if low income then the extra income from work
(1) could reduce poverty (1) if high income then the individuals could work harder (1)
generating economic growth (1).
Raising indirect taxes on goods with external costs (demerit goods) e.g. cigarettes
(1) can help to reduce market failure (1) e.g. health of the country improves (1).
Up to 5 marks for why the government shouldn’t do this:
Indirect taxes tend to be regressive (1) whilst direct taxes are progressive (1) so this
will worsen inequality / poverty in a country (1).
Both policies may lead to inflation (1) indirect tax increases push up prices of goods
and services (1) direct tax cuts increase total (aggregate) demand (1).
Individuals may save any cuts in direct tax (1) minimising the economic impact (1).
It could cause individuals to spend more on imports (1) worsening the balance of
payments (1).
Tax take could fall (1) as indirect taxes can be avoided whereas direct taxes cannot
(1).

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6(a) Identify two features of a capital-intensive production process. 2
Process which relies heavily on capital goods e.g. machines (1) does not use much
labour (1) relies less on other factors of production e.g. land (1).
6(b) Explain how market failure might occur in the oil industry. 4
Market failure is when there is an inefficient allocation of resources (1).

There is over-consumption / over-production of oil (1) because the external costs (1)
are ignored by the market mechanism (1), such as pollution / global warming / harm
to the environment (1).
There are cases of monopoly power (1) restricting output (1) pushing up price (1).

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6(c) Analyse, using a production possibility curve (PPC) diagram, the effect of 6
reallocating resources from kerosene to LPG.
Award up to 4 marks for a correct diagram:

kerosene
A
K1
K2 B
L1 L2 LPG
• Axes labels LPG and kerosene (1)
• Curve / downward sloping line drawn to axes (1)
• Two production points illustrating increased production of LPG (1) Accept points on the curve with arrow
from A to B.
• New production point indicated (1)
Award up to 2 marks for associated explanation:
Reallocating resources will involve a movement along the PPC (1) this will involve an
opportunity cost (1).

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6(d) Discuss whether or not removing a firm’s monopoly power will benefit 8
consumers.
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).

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7(a) Define recession. 2
A fall in GDP / negative economic growth (1) for two successive quarters / 6 months
or more (1)
7(b) Explain why a recession is likely to reduce consumer spending. 4
Rise in unemployment (1) reduced income (1) reduced ability to spend (1).
Consumers save more (1) for fear of future / increased pessimism (1).
Likely to be associated with lower prices (1) consumers delay purchases (1).
7(c) Analyse the consequences of rising unemployment on a government’s 6

spending and tax revenue.
Pressure on the government budget will increase (1) as tax revenue will fall (1) from
both direct (income) taxes (1) and indirect (spending) taxes (1).
Expenditure on unemployment benefits will increase (1) spending in other areas will
increase (1) e.g. healthcare (1) higher spending on benefits involves an opportunity
cost (1) e.g. education (1).
A government may increase spending and reduce taxes to increase total demand (1)
to reduce cyclical unemployment (1).
Taxes may have to rise (1) creating a disincentive to work and enterprise (1).

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7(d) Discuss whether or not an exchange rate depreciation will prevent an economy 8
from experiencing a recession.
Depreciation means foreign consumers have to exchange less units of their currency
for one unit of domestic currency (1), making exports cheaper (1) raising export
demand (1) and imports more expensive (1) reducing demand for imports (1) as
domestic consumers will find domestic goods and services relatively cheaper (1).
Firms have more domestic and foreign demand (1) and will increase output to meet
this demand (1) preventing a recession (1).
Net exports will increase (1) increasing aggregate demand (1).
Demand for imports may be inelastic (1) and a depreciation will not have a great
effect (1).
Demand for exports may be inelastic (1) so export demand will not boost output (1).
If there is a recession in main export markets then demand for exports may still fall
(1) even if they are now relatively cheaper (1).
It may cause cost-push inflation (1) as domestic firms have to pay more for imported
inputs (1).
Depreciation may worsen investor confidence (1) reducing investment and causing a
recession (1).

ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

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marking principles.
descriptors.

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1(a) Calculate, using the information in Table 1, the percentage change in 2

the price of oil between 2010 and 2016.
54.9 (2)
$37 − $82
× 100 correct working (1)
$82
1(b) Explain, using information from the extract, two reasons for falling oil 4
prices.
Saudi Arabia’s output of oil is growing (1) increasing the supply / shown on
accurate diagram (1).
(Global) demand for oil is weak/decreasing / shown on accurate diagram (1)
due to global economic uncertainty / competition from renewable energy /
price reduced to attract consumers (1).
1(c) Identify, using information from the extract, two ways a central bank 2
could try to stop a fall in the international value of its currency.
Increase interest rate (1).

Sell its foreign reserves / buy its own currency (1).
1(d) Explain, using information from the extract, two reasons for Russia’s 4
declining population.
High death rate (1) e.g. low life expectancy / poor health of the population /
poor healthcare system (1).
Low fertility rate (1) e.g. low birth rate / birth rates below the replacement rate
(1).
High levels of emigration (1) e.g. better opportunities elsewhere,
unemployment, poverty, domestic political, social, and economic instability
(1).

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1(e) Analyse the extent to which a rise in oil prices will cause inflation. 5
Rise in oil prices will increase costs of production (1) e.g. higher energy costs
/ transport costs (1) resulting in cost-push inflation (1).
Demand for oil is price-inelastic (1) if prices rise most consumers will keep
buying it (1)
some producers and consumers however may switch to other products (1)
The extent will depend upon the proportion of oil costs in the total costs of
other products (1) other costs may be falling (1).
Because of rising oil prices, workers may demand higher wages (1) causing
cost-push inflation (1).
Movements in exchange rates will affect the impact on inflation (1) a rise in
the exchange rate would reduce the overall effect (1).
For oil producing countries export revenue may rise (1) causing higher
demand (1) and demand-pull inflation (1).

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1(f) Discuss whether or not increasing taxes on Russian oil producers will 5 Each point may be credited only once, on
be harmful to those producers. either side of an argument, but separate
Up to 3 marks for reasons why it would be harmful: may differ is to be rewarded.
Producers’ costs will rise (1) they will become less profitable (1) and they
already struggled to make a profit (1) small producers will find it difficult to
absorb the extra costs (1).
They may need to cut production / stop production completely (1) or cut costs
(1) causing unemployment of the workforce (1).
They might pass on the tax (1) by raising prices (1) to maintain profits (1) but
this could reduce demand (1) by making them less competitive with other
countries e.g. Saudi Arabia (1) less competitive with other energies e.g.
renewables (1)
Investments in the oil industry may fall (1) due to less funds available (1).
Up to 3 marks for reasons why it would not be harmful:

Demand for oil is likely to be price inelastic (1) this may enable the producers
to pass on the tax in higher price to consumers (1) without losing revenue (1).
Most oil producers are large (1) and earn very high profits (1) paying extra tax
will not harm them significantly (1).
Some of the tax revenue may be used on e.g. education/training (1) which
could increase productivity of workers (1) lowering oil producer’s costs (1).
1(g) Identify one way in which monetary policy differs from fiscal policy. 2 Maximum 1 mark for reference to only
monetary OR fiscal.
Fiscal policy includes taxes / government spending (1) monetary policy
includes interest rates / money supply / exchange rate (1).
Fiscal policy is conducted by the government of the country (1) while
monetary policy is conducted by the central bank of the country (1).

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1(h) Discuss whether or not the Russian government should have been 6 For all ‘Discuss’ questions
concerned about the state of the Russian economy in 2016.
Up to 4 marks for why they should have been concerned: either side of an argument, but separate
Negative economic growth / recession (1) increasing unemployment (1) development as to how/why the outcome
increasing poverty rates (1) possible policy measures to reduce poverty (1) may differ is to be rewarded.
e.g. costs of healthcare may rise (1) need for greater spending on benefits
e.g. unemployment benefits (1) falling tax revenues (1) may have to increase
taxes (1) opportunity cost(s) involved / reduced spending on other areas e.g.
defence (1). Economic growth will increase 1
Rising inflation (1) making goods and services less affordable (1).
Emigration from Russia is increasing (1) reducing the available workforce (1). because of reason 1
Export values are falling (1) so less foreign currency is earned (1) falling e.g. demand for services is
value of the rouble (1) causing imported inflation (1) leading to higher interest increasing globally
rates (1) higher cost of borrowing for government (1).
Investors lacked confidence in the Russian economy (1) may have reduced Economic growth will decrease 0
productive potential (1). (reverse of 1st argument)
Up to 4 marks for why it is less of a cause for concern: because of a different reason / 1
Government spending may not need to rise (1) and tax revenue may not a reverse argument
increase (1). e.g. a country’s resources may be
Domestic consumption is increasing (1) and domestic investment is more suited to producing primary
increasing (1) this may create employment (1) and offset decreases in foreign products.
investments and exports (1) therefore total (aggregate) demand might not
decrease significantly (1).
Inflation may be a sign of increasing demand (1) showing confidence in the
economy (1).
Emigration may be mainly of unskilled workers (1) who are less valuable to
firms (1).
The falling exchange rate may improve the current account (1) with no need
for government / central bank action (1).

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2(a) Define protectionism. 2
Protectionism is the deliberate attempt to limit imports or promote exports /

make foreign products less competitive (1) have trade restrictions (1).
2(b) Explain two methods of trade protection. 4
Tariffs (1) tax on imports that would increase the price of imports (1).
Quotas (1) limit on the volume of imported goods allowed into the country (1).
Subsidies (1) to reduce the costs of domestic firms / reduce the price of
domestic goods and services (1).
Embargoes (1) total restriction / ban on imported goods (1).
Exchange controls (1) limit on the amount of foreign currency that can be
purchased (1)
Regulations (1) making it difficult to import (1)

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2(c) Analyse, using a demand and supply diagram, the effect of falling steel 6 Price
S1
prices on the market for cars. S2
Diagram up to 3 marks:
• P, Q, S, D correctly labelled
• Shift in supply curve to the right
• Decrease in P and increase in Q P2
• New equilibrium indicated P1
Written analysis up to 3 marks:

• Steel prices decreasing will lead to a decrease in car manufacturers’
costs (1)
• This may be passed on in lower price of cars (1) D
O
• The extent of the change might be influenced by PED/PES (1) Q1 Q2 Quantity

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2(d) Discuss whether or not protectionism is effective in raising living 8 Each point may be credited only once, on
standards. either side of an argument, but separate
Up to 5 marks on how it will be effective in raising living standards: may differ is to be rewarded.
Protectionism may increase the price of imports (1) the quantity of imports
demanded will decrease (1) the quantity of domestic goods demanded may
increase (1) demand for labour is derived demand (1) demand for workers
will increase (1), therefore unemployment decreases (1) domestic incomes
increase (1) consumption of goods and services increase (1) employment in
infant/declining (sunrise/sunset) industries may be protected (1).
Increased demand for products of domestic firms may lead to an increase in
total revenue (1) and profits (1).
Protectionism can decrease imports of demerit goods (1) reducing external
costs (1) e.g. pollution, health/social problems (1).
Up to 5 marks on how it will not be effective in raising living standards:

Protectionism may reduce the possibility of specialisation (1) to produce what
a country is best at (1) increasing production costs (1) increasing import
prices (1).
Protectionism might lead to retaliation (1) other countries may adopt
protectionist policies on imports (1) increasing the price of the country’s
exports (1) decreasing the demand for exports (1) reducing the demand for
workers (1) unemployment increases (1) less income (1)
consumption/production of goods and services decreases (1).
Protectionism may reduce competition / choices available to domestic
consumers (1) reducing the quality of the products available (1).
Protectionist policies in one country could reduce employment in other
countries (1) as they are no longer able to export the same amount (1).

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3(a) Define supply. 2
The number of products firms are willing to provide/sell (1) and are able to
provide/sell (1) at a given price (1).
3(b) Explain one market failure that may occur in the salmon market. 4
Market mechanism fails to allocate resources efficiently / not all costs are
considered (1).
Social cost is greater than private cost (1) as there are external costs /
negative externalities (1) consumption at the current rate may lead to
depletion of stock (1) consumption becomes unsustainable (1)
overconsumption / resources are overused (1) these resources could be
conserved for future generations (1) cost to future generations who will not be
able to enjoy the product (1) pollution may occur e.g. water pollution (1).
Monopoly / one large producer (1) no competition (1) can charge high prices /
exploit consumers (1) excess profits of producers (1).
Inequality (1) high price (1) poor cannot afford the product (1) and will not be
able to attain any health benefits of consuming the product (1).

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3(c) Analyse how information on changes in a firm’s revenue can be 6 Maximum 4 marks for reference to only
obtained from price elasticity of demand calculations. elastic OR inelastic.
PED definition or formula (1) PED provides information on how consumers

react to a change in price (1).
If PED is elastic / PED > 1, a fall in price will raise revenue (1) as quantity
demanded will increase more (1) than proportionately/percentage (1). A rise
in price will decrease revenue (1) as quantity demanded will decrease more
than proportionately (1).
If PED is inelastic / PED < 1, a rise in price will raise revenue (1) as quantity
demanded will decrease less (1) than proportionately / percentage (1). A fall
in price will decrease revenue (1) as quantity demanded will increase less
than proportionately (1).
If PED is perfectly elastic, a rise in price will cause revenue to fall to 0 (1) as
consumers will stop buying completely (1)
If PED is perfectly inelastic / PED = 0, a rise in price will raise revenue (1) as
consumers will continue to buy the same amount (1)
If PED has unit elasticity / PED = 1, a change in price will keep revenue
unchanged (1) as quantity demanded will change by the same proportion (1).

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3(d) Discuss whether or not government subsidies are always beneficial to 8 Each point may be credited only once, on
producers. either side of an argument, but separate
Up to 5 marks on how subsidies are beneficial to producers: may differ is to be rewarded.
Subsidies will lead to a decrease in cost of production (1) leading to a
decrease in the price of products / shown on a diagram (1) and an increase
the quantity demanded for producers / shown on a diagram (1).
Total revenue for producers may increase (1) increasing profits (1).
Subsidies will enable producers to increase investment (1) increasing future
output (1)
Producers can maintain a stable livelihood (1) ensure a stable income (1)
ensure jobs can continue to be provided (1).
Subsidies can encourage new entrants to an industry (1) increasing
competition (1)
Up to 5 marks on how subsidies are not beneficial:

Subsidies may be relatively small (1) and not be enough to offset the firm’s
losses (1) or not enough to offset higher costs (1).
Subsidies can lead to complacency (1) where producers do not use subsidies
in an effective way (1) they will be reluctant to lose the subsidies (1) and
producers not receiving the subsidy e.g. those in a competing industry will be
at a disadvantage (1).
Subsidies have opportunity cost for the government (1). Other government
provisions might be sacrificed (1) e.g. healthcare and education (1).

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4(a) Identify the difference between absolute and relative poverty. 2
Relative poverty is where people have fewer goods and services / income
than others in an economy / lower income than the average in the country (1).
Absolute poverty is where people are unable to meet basic needs e.g. food
and shelter / living on e.g. less than US $1.25 a day / a given % of a country’s
average income (1).
4(b) Explain two characteristics of a developed country. 4
High incomes / high GDP per capita / high standard of living / high HDI (1)
due to high production of goods and services (1).
High life expectancy / low death rate / low infant mortality (1) due to e.g. good
healthcare, better nutrition, low crime rates (1).
High school enrolment / standard of education (1) due to high spending on
education (1).
Low level of absolute poverty / malnutrition / starvation (1) due to high
incomes / fairer distribution of income (1).
Low rate of population growth (1) due to e.g. availability of contraception,
social attitudes, women working for longer, less need for children to work (1).
Low primary / large secondary / tertiary sectors (1) value of output is greater
in the secondary/tertiary sector (1).

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4(c) Analyse two policy measures to alleviate poverty. 6 Max 4 marks for analysis of only one policy
measure.
Increasing benefits (1) increasing the incomes of the poor (1) e.g. housing
benefits, disability benefits, unemployment benefits (1).
Increased provision of merit goods such as healthcare (1) and education /
improved literacy (1) improving the ability to earn an income through
employment (1).
Government employment creation schemes (1) creating new jobs and
employing more people in the government (1) government providing help to
search for employment (1)
Encouraging economic growth (1) through fiscal or monetary policies (1)
decreasing interest rates (1) increasing government spending (1).
Provision of subsidies (1) example (1) keeping down the cost of living (1)
leaving more for other essential items (1).
Progressive taxation (1) to redistribute income towards the poor (1).
The introduction of minimum wage legislation (1) so that everyone can at
least afford basic necessities such as food and shelter (1).

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4(d) Discuss whether or not moving firms from the public sector to the 8 Each point may be credited only once, on
private sector will benefit an economy. either side of an argument, but separate
Up to 5 marks for positive effects: may differ is to be rewarded.
Private sector firms have the profit motive (1) and so the efficiency (1) and
quality of their output may be good (1) and so may enable them to pay higher Accept responses from the opposite
wages (1). perspective i.e. positive effects of the public
The threat of closing down (1) will force firms to provide a good service to sector and negative effects of the private
stay in business (1). sector.
Competition between private firms (1) leads to better response to consumer
demand (1) keeping costs (1) and prices low (1).
Private firms are accountable to shareholders (1) who want high dividends (1)
therefore firms need to be efficient/profitable (1).
Investment in the private sector will not be disrupted by fluctuations in
government tax revenue (1).
May attract financial investment from abroad (1).
Up to 5 marks for negative effects:

Investment funds may be more available to the public sector than the private
sector (1) to provide a quality service (1).
A public sector firm can be prevented from going of business (1)
guaranteeing the provision of certain products e.g. water (1) maintaining
employment (1)
Public sector firms are not always motivated by profit (1) the government is
more likely to base its decisions on social/external costs and benefits (1) e.g.
the environment (1) rather than just private costs and benefits (1).
Public sector firms may provide essential services (1) which the private
sector is not willing to provide (1) will be more inclined to keep prices low (1)
the poor will be able to afford essential products (1).

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5(a) Define public limited company. 2
A company whose securities/shares/stocks are traded on a stock exchange

(1) can be bought and sold by anyone (1) has limited liability (1) makes its
accounts public (1) legal entity separate to owners (1).
5(b) Explain the difference between productivity and production. 4
Productivity is the output produced per factor / input, e.g. per worker (1) per
period of time, e.g. per hour (1) measure of efficiency / how quickly products
are produced (1).
Production is the total output (1) the process of producing goods and services
(1) in a period of time, e.g. per year (1)
5(c) Analyse how increased productivity could reduce inflation. 6
An increase in productivity means that more could be produced / output

increased (1) from a given set of factors/inputs (1) could also lower (average)
costs of production (1) reducing prices (1).
Increased productivity could reduce wage costs (1) reduce waste (1)
increased profits of firms (1) increasing investments / expansion of business
(1) new capital equipment could further lower costs of production (1) lowering
cost-push inflation (1).

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5(d) Discuss whether or not a merger would make it easier for a firm to 8 Each point may be credited only once, on
achieve its goals. either side of an argument, but separate
Up to 5 marks for why it would be easier: may differ is to be rewarded.
It could be a horizontal merger (1) enabling easier exploitation of economies
of scale (1) leading to lower average costs (1) examples of economies of
scale (max 2) lower prices (1) leading to more demand (1) and higher profits
(1).
It could be a vertical merger (1) reducing the costs of obtaining materials /
making it easier to distribute the firm’s products (1)
Reduced competition / monopoly (1) a quick way to grow (1) the firm can set
higher prices (1) without losing too many customers (1).
Reduced risk (1) the loss of one part of the business could be offset by the
other (1) it is easier for the firm to survive (1).
Up to 5 marks for why it would not be easier:

Reduced competition may cause complacency (1) may fail to control of costs
(1).
The merged firm may experience diseconomies of scale (1) average cost
may increase as output increases (1) example (max 2) leading to higher
prices (1) reduced demand (1) and lower profit (1).
Large firms may lose customers due to lack of personal touch (1).
Cost of integrating firms such as redundancies / fall in morale (1).
Government may no longer support large firms (government support small
firms) (1) removing tax advantages (1) and subsidies (1).

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6(a) Identify two reasons why a person may want to work in the state sector. 2
Higher wages (1) job security (1) better pension (1) good working conditions
(1) status of public sector worker (1) job satisfaction e.g. teacher (1)
patriotism / to perform a public service (1) state sector jobs may be more
widely available (1).
6(b) Explain two reasons why a government may want to cut spending on 4
education.
Government would like to reduce its total spending (1) to reduce government
borrowing (1) cut the national debt (1) avoid having to raise taxes (1) to
reduce total demand (1) reducing inflation (1)
Spending on education incurs an opportunity cost (1) government would
prefer to spend on other areas e.g. defence, healthcare (1).
Education is less valued by the public (1) than other services e.g. health,
defence (1).
Government would like to reduce wasteful expenditure (1) to increase the
efficiency of the public sector (1).
A drop in the number of students in education (1) less spending needed (1).
Government wants students to bear a greater proportion of costs (1) since
students ultimately benefit from better paid jobs (1).

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6(c) Analyse the contribution that education can make in an economy. 6
Education enables the population to develop the knowledge (1) skills (1) for
future development (1) better skills may improve productivity (1) increased
output / economic growth (1) improved quality of output (1) better skills may
attract foreign investors / MNCs to the country (1).
Educated people have better job opportunities (1) potentially enabling them to
earn higher incomes (1) leading to increased consumption (1) which reduces
poverty / improves living standards (1).
Increased consumption could lead to higher demand in the economy (1)
increasing output (1).
Education enables the economy to move to a tertiary based economy (1)
tertiary based economy relies heavily upon a well-educated population (1).
Education enables women to play a more active role in the economy (1)
enabling them to find jobs (1) and earn a living independently (1).
Education enables people to start their own business (1) increasing output
(1).
Education provides employment e.g. teachers, janitors (1)
More highly educated people may be more concerned about the environment
(1) may reduce external costs (1).
More highly educated people may be healthier (1) reducing costs of
healthcare / raising productivity (1).

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6(d) Discuss whether or not a worker would always benefit by specialising. 8 Each point may be credited only once, on
Up to 5 marks for why they would benefit: development as to how/why the outcome
By specialising workers focus on what they are best at (1) acquiring better may differ is to be rewarded.
skills (1) quality of goods increase (1) output/productivity increases (1) worker
earns a higher income (1) easier to find job in the same sector (1) more likely
to achieve promotion (1)
Saves time (1) workers don’t need to think of next process / move from place
to place (1).
Specialised workers are limited in supply (1) causing their wage to be higher
(1).
Invention of new technology (1) makes the job easier (1).
Up to 5 marks for why they would not benefit:

Workers may experience boredom (1) if the work is repetitive (1) reducing
productivity/efficiency/motivation (1)
Those with a limited amount of skills (1) may find it difficult to obtain
alternative jobs (1) may be replaced by machinery more easily (1) risk of
unemployment (1).
Workers may be over-dependent / too reliant on one skill / risk over-
specialisation (1) unable to complete the task without the help of others (1)
especially when production is disrupted (1).
Training to specialise has an opportunity cost (1) lost income / later starting
date (1)
7(a) Define unemployment. 2
Unemployment is the condition where a person is able (1) and willing to work
/ actively looking for a job (1) but unable to find a job (1).

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7(b) Explain two reasons for wage differentials amongst different 4 Accept reasons linked to differences in
economies. wages between countries as well as
differences in high-paid/low-paid gap within
Difference in demand for labour (1) difference in supply of labour (1). an economy.
Whether or not an economy is in recession (1) economies in decline will have
a low demand for labour / expanding economies will have a high demand (1).
Difference in population affecting the supply of labour (1) net migration rates /
birth rates / death rates (1) more supply would decrease wages / lower
supply would increase wages (1).
Difference in demand for goods and services (1) affecting the demand for
workers as demand for workers are derived demand (1).
Difference in government spending on e.g. education (1) affects wage of
pubic sector (1).
Difference in productivity affecting the demand (1) high productivity leads to
higher output (1) leads to higher wages (1).
Difference in trade union and collective bargaining power (1) countries with
stronger trade unions will push wages up (1).
Difference in living costs / inflation (1) e.g. food prices (1) wage demands
increase (1).
7(c) Analyse how a recession in one country could cause unemployment in 6

another country.
Emigration to another country (1) may push that country’s workers out of a
job (1).
Income / GDP per head would have fallen (1) the country may buy fewer
imports (1) demand for the country’s products may fall (1) firms in exporting
countries may reduce output (1) lower output would reduce demand for
workers (1).
MNCs in the country may make less profit / make a loss (1) may reduce
production in other countries (1).
A recession in a large economy could create worldwide uncertainty (1)
discourage investment / output of capital goods (1) reduce employment in the
capital goods industries of another country (1).

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7(d) Discuss whether or not the economic advantages of immigration into 8 Each point may be credited only once, on
countries such as the UK and Germany outweigh the economic either side of an argument, but separate
disadvantages. development as to how/why the outcome
may differ is to be rewarded.
Up to 5 marks for advantages:
Immigration increases the size of the labour force of the country (1) the
immigrants may be young working age people (1) this could increase the
productivity of the economy (1) increasing the supply-side capacity of the
economy (1) leading to economic growth.
Immigrants may take jobs which locals are unwilling to take (1) where a
shortage occurs (1) example (1)
Immigrants may be willing to work for lower wages (1) production costs would
fall (1) leading to lower prices (1)
Immigration leads to increased competition for jobs (1) workers need to work
harder (1) overall productivity increases (1)
Immigrants may also bring in capital (1) to start their own business (1)
creating even more jobs (1).
Immigrants spend money in the economy / increasing domestic consumption
(1) increasing total demand / causing economic growth (1) paying indirect
taxes (1).
Immigrants may also work and pay direct taxes / income tax (1) government
revenue increases (1) enabling more government spending (1) such as
health and education (1).
Up to 5 marks for disadvantages:

Immigrants may take jobs where locals could be employed (1) increasing
unemployment in that country (1).
Some immigrants have better qualifications and skills (1) taking jobs from
less qualified and lower skilled local workers (1).
Immigrants may be more willing to take up jobs with lower pay (1) locals will
not feel that such low pay is appropriate (1) depressing wage growth (1).

PUBLISHED
7(d) Large supply of foreign workers so local businesses will be less willing to take
on apprentices / train new workers (1) leaving the locals who are unemployed
with low skills / unable to take up a job and learn appropriate skills (1).
Increased demand for healthcare and education (1) increases demand on
government resources (1).
Immigrants may cause increased demand for houses (1) pushing house
prices up (1) making housing less affordable to local residents (1).

ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific content of the mark scheme or
generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking principles.

PUBLISHED
1(a) Identify, using information from the extract, TWO functions of a commercial bank. 2 If more than two given,
just look at the first three.
Providing savings accounts (1) lending (1) setting interest rates on loans (1).
1(b) Explain, using information from the extract, TWO reasons why the banking market in 4
Morocco is NOT an example of perfect competition.
Three banks control more than two-thirds of the market (1) implies high % of
market/dominance/not large number of small firms/ price maker (1).
The banks use brand names (1) there is no advertising/no brand loyalty in perfect competition
(1).
Set own interest rates (1) in perfect competition, firms are price takers/prices determined by the
market (1).
Provide different services (1) the product is homogeneous in perfect competition (1).
1(c) Analyse why a commercial bank may prefer to sell its services in foreign countries rather 5
than its home country.
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).
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).
1(d)(i) Analyse whether the information in Fig.1 supports the view that: 2 Accept any relevant
(i) countries with high population growth rates have a high unemployment rate country evidence.
Generally no (1) supporting evidence e.g. countries with the highest population growth rate,
Uganda and Benin, had the lowest unemployment rates (1).

PUBLISHED
1(d)(ii) Analyse whether the information in Fig.1 supports the view that: 2
(ii) the youth unemployment rate is usually twice that of the overall unemployment rate.
Generally yes (1) Supporting example (1) Egypt is the exception (youth unemployment rate
almost four times as high) (1).
Morocco is exactly twice (1) no other country is exactly twice (1).
1(e) Discuss whether or not older workers are always paid more than younger workers. 5 Accept skills or efficiency
on either side. One mark if
Up to 3 marks for why older workers may be paid more: given on both sides. More
Older workers may have been with a firm for a long time (1) may have gained promotion (1) marks can only be
developed skills (1) gained experience (1) may have undertaken training (1) may be in awarded if a reason for
managerial jobs (1) may be more productive (1). better skills is given.
Up to 3 marks for why older workers may not be paid more:

May be less productive (1) less fit for physical work (1) may be out of date with new technology
(1) lack new ideas (1) may have had less education in the past (1).
May be less occupationally mobile (1) less willing/able switch jobs (1).
May be less geographically mobile (1) less willing/able to move in search of higher paid
employment (1).
1(f) Explain, using information from the extract, ONE reason why a relatively poor country 4
may have a low unemployment rate.
A large proportion of its population is employed in agriculture (1) in subsistence farming (will
employ family members) (1) labour-intensive (1) would employ a high proportion of labour (1)
relative to capital (1) Lack finance to invest in new (labour-saving) technology (1).
No specific skills required for (subsistence) agriculture / low entry requirements for unskilled (1).

PUBLISHED
1(g) Discuss whether or not commercial banks in Morocco would benefit from further 6 Accept profits and/or costs
mergers. on either side. One mark if
given on both sides. More
Up to 4 marks for why they might: marks can only be
The merger would give the banks / firms more market power (1) a relatively quick way to grow awarded if a reason for
(1) may be able to raise price (1) without losing too many customers (1). change in profits is given.
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).

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).

PUBLISHED
2(a) Define perfectly inelastic supply. 2
A change in price causes no change in supply (2).

Correct formula (1).
A PES of 0 (1).
2(b) 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).
2(c) Analyse why Premier League footballers receive very high wages. 6 Up to 2 marks for a
relevant diagram – 1 for
High demand (1) due to high demand for the services of footballers (1) many people want to high demand and 1 for low
watch football matches in stadiums (1) on television (1). supply.
Football clubs receive high incomes (1) compete for players (1).
Low supply (1) have to be skilled (1) not many possess the skills (1). Max 4 marks if no specific
Premier League players may have strong bargaining power (1) through strong professional application to footballers.
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).

PUBLISHED
2(d) Discuss whether or not a government should spend some of its tax revenue on building 8 Accept, but do not expect,
sports stadiums. references to public and
merit goods.
Building sports stadiums may encourage people to participate in sport (1) increase health/living
standards (1).
It can generate jobs (1) increase incomes (1) reduce poverty (1).
Sports stadiums and sporting events may attract foreign tourists (1) improve the current account
of the balance of payments (1).
Generate government revenue which could be spent on e.g. health (1).

It will involve an opportunity cost (1) the tax revenue could be used on e.g. education (1).
It may generate external costs (1) e.g. noise suffered by local residents (1).
The private sector may be more efficient in building the stadiums (1) profit motive (1) .
Wasteful use of government funds (1) since benefits may be mainly private benefits (1).
Those who visit the sports stadiums may be richer (1) than some of the taxpayers (1)
redistribution of income from the poor to the rich (1).
Could result in a budget deficit (1) or need to raise taxes (1).

PUBLISHED
3(a) Define devaluation. 2 ‘Exchange rate’ means

one currency relative to
A fall in the value (1) of a (fixed) exchange rate (1). another.
Fall in value of currency (1) relative to another (1).
Fall/decrease in exchange rate (1). ‘Currency’ means one
Fall/decrease in currency (0). currency on its own –
mark as Too Vague
3(b) Explain TWO advantages of a floating exchange rate. 4
It should automatically eliminate current account imbalances (1) by floating down when there is a
deficit (1).
No currency reserves are needed (1) as the government will not intervene to influence the value
of the currency (1).
No government intervention needed (1) as the exchange rate will be at the market price /
determined by supply and demand (1).
The exchange rate is not a policy target (1) policy measures do not have to be used to influence
its value (1).
3(c) Analyse how fiscal policy measures could reduce inflation. 6
A rise in taxes (1) causes a fall in disposable income/rise in costs (1) fall in government spending
(1) will reduce total (aggregate) demand (1) reduce demand-pull inflation (1).
Government spending on education/training/subsidies (1) lower taxes (1) could reduce costs of
production (1) will increase total (aggregate) supply (1) lower cost-push inflation (1).
Lower taxes on imports would reduce cost-push inflation (1).

PUBLISHED
3(d) Discuss whether or not a reduction in a current account deficit on the balance of 8 Accept higher total
payments will benefit an economy. demand on either side.
One mark if given on both
Up to 5 marks for why it might: sides. More marks can
May mean that demand for imports has fallen (1) and/or demand for exports has risen (1) higher only be awarded if a
total (aggregate) demand (1) may increase GDP/create economic growth (1) reduce reason why this leads to a
unemployment (1). benefit/cost is given.
Will reduce debt (1) not have to borrow as much to finance it (1).
May cause appreciation of exchange rate (1) leading to lower inflation (1).

If the deficit is reduced by buying fewer imports of raw materials (1) and capital goods (1) may
reduce GDP (1) lower exports in the longer run (1).
If fewer imports are being purchased because of a recession (1) GDP will be falling (1).
If fewer imports are being purchased because trade restrictions are introduced (1) there may be
retaliation (1) with tariffs/quotas being imposed one exports (1).
Higher total (aggregate) demand might lead to (demand-pull) inflation (1).
Exchange rate may appreciate (1) can reduce total demand/worsen the deficit in the long run (1).

PUBLISHED
4(a) Define economies of scale. 2 Reward an accurately

labelled diagram.
A fall in average costs (1) resulting from an increase in output/scale of production (1).
4(b) Explain TWO benefits consumers may gain from free trade. 4 Maximum of 2 marks for
each benefit identified and
Lower prices (1) increases purchasing power (1) due to greater competition or economies of explained.
scale (1).
Better quality (1) improve living standards (1) due to greater competition (1).
Greater availability/variety of products (1) products can be purchased that are not made in the
domestic economy (1).
Higher exports can lead to economies of scale (1) and therefore lower prices (1).
4(c) Analyse how reducing transport costs could increase a country’s exports and imports. 6 It is possible to gain full
marks with reference to
Lower transport costs may reduce costs of production (1) lower costs may reduce export prices either just exports or just
(1) making the country’s products more internationally competitive (1) increase demand for imports.
exports (1).
Could attract more MNCs to set up (1) which tend to export high proportion of output (1).
Higher export revenue would enable a country to buy more imports (1).
Lower transport costs may enable a country to specialise to a greater extent (1) this would
encourage it to export the products it is good at producing (1) and import the products it is not so
good at producing (1).
Lower transport costs will reduce the cost of getting imports to market (1) lower price of imports
(1) increase demand for imports (1).
Lower transport costs for consumers can increase purchasing power and increase import
spending (1).
Could encourage tourism (1) increasing exports and imports of services (1).

PUBLISHED
4(d) Discuss whether or not raising living standards is the most important economic objective 8
for developing countries.
The chain of response
Up to 5 marks for why it might be: raise productivity (1) raise
Giving people access to basic necessities (1) may take them out of poverty (1). output/generate economic
Suggests higher incomes per head (1) allowing people to consume more goods and services (1). growth (1)
Improving healthcare (1) reduce death rates/people more fit for work (1) raise productivity (1) can only be credited once.
raise output/generate economic growth (1).
Improving education (1) may increase skills (1) raise productivity (1) raise output/generate A maximum of 3 marks for
economic growth (1). a list-like approach.
Better quality housing (1) can reduce illness (1) raise productivity (1) raise output/generate
economic growth (1).
Up to 5 marks for why it might not be:

Raising livings standards may cause higher inflation (1) a rising current account deficit (1).
Inflation may be more of a problem (1) costs of inflation (max 2).
Unemployment might be more of a problem (1) costs of unemployment (max 2).
Current account deficit might be more of a problem (1) costs of current account deficit (max 2).
Living standards is an average concept (1) and may be associated with rising inequality (1).
Some measures that could improve living standards such as taxing polluting firms (1) may
reduce economic growth (1) and so may result in lowering living standards (at least in the short
run) (1).
It may be more important to maintain living standards (1) (because) a rising population (1) may
be putting pressure on resources (1).

PUBLISHED
5(a) Identify TWO price indices. 2 Reward but do not expect

other valid indices.
RPI (1) CPI (1).
5(b) Explain TWO supply-side policy measures. 4 1 mark each for up to 2

identifications, plus up to 2
Improvements in education/training (1) to raise skills/labour productivity (1). marks for explanation
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).
5(c) Analyse why a government may want to reduce its country’s inflation rate. 6 Reward an approach that
analyses the
A lower inflation rate may increase a country’s international competitiveness (1) increase exports disadvantages of inflation.
(1) reduce imports (1) improve the current account position (1).
A lower inflation rate may create greater certainty (1) encourage investment (1) increase
A lower inflation rate may benefit savers (1) create funds for investment (1).
A lower inflation rate will reduce the rate at which money loses its purchasing power/value (1)
protect living standards (1) make products more affordable (1) helps people on fixed incomes
(1).
If cost-push inflation, total demand will fall/unemployment rise (1).
Lower inflation tends to have larger benefits for the poor than the rich (1) and helps towards
reducing inequality (1).
There may be hyperinflation (1) which could lead to a breakdown in economic activity (1).

PUBLISHED
5(d) Discuss whether or not increasing the strength of trade unions will benefit an economy. 8 NB: Max 5 marks for a
static answer (i.e. that
Up to 5 marks for why it might: discusses benefits and
Stronger bargaining power with employers (1) may improve working conditions of workers (1) drawbacks of trade
increase health and safety (1). unions, not the impact of
May raise the wages of workers (1) may reduce poverty (1) may increase labour productivity (1) the increasing strength of
through increasing worker morale/motivation (1). TUs).
May counterbalance the power of employers (1) protecting the rights of workers (1).
May provide worker training (1) increasing skills/productivity (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).

PUBLISHED
6(a) Define net immigration. 2
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).
6(b) Explain how market forces would respond to a shortage of drinking water. 4 Up to 2 marks for a
relevant diagram, showing
A shortage means demand exceeds supply (1) price would rise (1) more would be supplied (1) demand being greater
due to the profit motive (1) price signal sent to producers (1) demand would also contract (1). than supply (1) and price
Demand likely to be price inelastic (1) leading to large rise in price (1). below equilibrium (1).
6(c) Analyse what determines the demand for labour. 6
Demand for goods and services (1) demand for labour is a derived demand (1).
Productivity/skills (1) higher productivity will increase demand for labour (1).
Wage rates (1) higher wage rates will reduce demand for labour (1).
Price of capital (1) higher price may increase demand for labour if they are substitutes (1) higher
price will reduce demand for labour if they are complements (1).
Non-wage costs e.g. employer’s contribution to pension scheme (1) higher costs reduce demand
for labour (1).
Taxes on employment of labour (1) higher taxes reduce demand for labour (1).
Government employment subsidies (1) higher subsidies will increase demand for labour (1).

PUBLISHED
6(d) Discuss whether or not increased government spending will increase economic growth. 8

Higher government spending will increase total (aggregate) demand (1) higher total demand
may encourage firms to increase output (1).
Higher government spending on education/training (1) health (1) may raise labour productivity
(1) increase productive potential/long run economic growth (1).
Higher government spending on infrastructure (1) will reduce costs of production (1) encouraging
firms to expand (1).
Higher government spending on R & D (1) would lower costs/raise productive potential (1).

Higher government spending may increase inflation (1) this may make products less
internationally competitive (1) reducing net exports (1) reducing output (1).
Higher government spending may not increase total demand if offset by e.g. lower consumer
expenditure (1).
Higher government spending may not increase total demand if it is accompanied by higher
taxation (1).
Higher government spending on education/training may not increase labour productivity if it does
not raise the quality of education/training (1).
Higher benefits (1) may reduce incentives to work (1).
Government spending may be spent wastefully/inefficiently (1).

PUBLISHED
7(a) 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).
7(b) Explain why the social benefit of healthcare is greater than the private benefit. 4
Social benefit includes both private and external benefits (1).

Healthcare also provides external benefits(1).
Example of private benefits identified as a private benefit e.g. profits of provider, wages of
doctors, higher life expectancy of consumer (max 2).
Examples of external benefits identified as external benefits/recognised as 3rd party impacts e.g.
higher labour productivity, higher output, reduction in spread of diseases (max 2).
7(c) Analyse why a government imposes taxes. 6 Accept but do not expect
reference to public and
To raise revenue (1) to finance government spending/example of spending (1). merit goods.
To discourage the consumption of certain products (1) example/external costs (1).
To discourage the production of certain products (1) example/external costs (1).
To discourage the consumption of imports (1) improve the current account position on the
balance of payments (1).
To redistribute income (1) taxing the rich more (1).
To influence economic activity (1) raising taxes to reduce total (aggregate) demand (1) to control
(demand-pull) inflation (1).

PUBLISHED
7(d) Discuss whether or not consumers are likely to benefit from state-owned enterprises 8 Accept quality and prices
becoming private sector firms. on either side, but only
one mark if given on both
Up to 5 marks for why they might: sides. More marks can
There may be more competition in the markets (1) this may force down prices (1) increase only be awarded if a
quality (1). reason for change in
Firms will be influenced by the profit motive (1) this may make them more responsive to changes quality/prices are given.
in consumer demand (1).
State-owned enterprises may be slow in making decisions (1) due to bureaucratic control (1)
may not respond quickly enough to consumer demands (1).

State-owned enterprises might have taken into account social costs and social benefits (1) rather
than just private costs and private benefits (1) main goal may be economic welfare (1).
Private sector firms may merge (1) form monopolies (1) (use market power to) push up price (1)
they may become complacent (1) lower quality (1).
Private sector may not have sufficient finance for large-scale projects (1) consumers would lose
out on the benefits (1).

ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1(a) Identify, from the extract, two methods of trade protection. 2
Tariffs (1) Exchange control/limit on foreign currency that people can buy (1).
1(b) Analyse what may cause a depreciation in an exchange rate. 5
A deficit on the balance of payments on current account (1) imports are greater than
exports resulting in fall in market price (1).
A fall in demand for the currency (1) a rise in the supply of the currency (1).
A fall in exports/rise in imports (1) due to higher inflation (1) lower quality of goods being
produced (1) higher costs of production (1).
A rise in imports/fall in exports (1) due to increase in demand in the economy/economic
growth (1).
A fall in the rate of interest (1) due to a fall in FDI/speculation (1).
An expansionary government monetary policy (1) to sell currency to encourage exports
(1).
1(c) Analyse to what extent the information in Table 1 suggests that countries with 4
current account deficits have higher inflation rates and lower economic growth
rates than those with current account surpluses.
The three countries with current account deficits do have higher inflation rates (1).
Correct identification of Columbia/Nigeria/Turkey as the three countries with a deficit
(1).
China and Germany have lower inflation (1).
The picture is less certain in terms of economic growth (1).
Evidence (up to 2) e.g. Columbia has a deficit but relatively high economic growth (1).
Germany had a surplus but low economic growth (1).

PUBLISHED
1(d) Explain, using information from the extract, two reasons why poverty may have 4
increased in Nigeria in 2015–2016.
Higher price of imported food (1) the poor spend a high proportion of their income on
food (1).
Current account deficit (1) results in lower demand and unemployment rises (1).
Inflation (1) people can afford less (1).
Spending on education and health care may have been cut (1) this may have reduced
some people’s ability to access this services/reduced employment in these
sectors/unable to get jobs due to lack of skills/illness (1).
Unemployment may have increased/high unemployment (1) reducing some people’s
income (1).
Lower tax revenue (1) spending on welfare benefits may have fallen (1).
Water pollution (1) clean drinking water is seen as a necessity (1).

PUBLISHED
1(e) Discuss whether or not a cut in government spending on education would reduce 5 For all ‘Discuss’ questions
the gap between government spending and tax revenue.
Up to 3 marks for why it might: either side of an argument, but separate
Spending on education may form a relatively high percentage of government development as to how/why the outcome
spending/a reduction will reduce overall government spending (1) this could have big may differ is to be rewarded.
impact on gap if government does not raise spending on other items (1) if tax revenue
remains unchanged (1). Generic example Mark
The government may have used the tax revenue to spend on stimulating the economy
(1) raising tax revenue (1). Tax revenue may decrease 1
Lower government spending on education may reduce skills (1) lowering employment because of reason« 1
(1) reducing incomes (1) lowering tax revenue (1) increasing government spending on e.g. incomes may be lower
benefits (1) gap may widen (1).
Government may increase spending elsewhere e.g. infrastructure (1) therefore gap is Tax revenue may increase 0
not reduced (1). (reverse of 1st argument)
May encourage emigration (1) fewer people to pay taxes (1).
because of a different reason / 1
not a reverse argument
e.g. government spending on
subsidies may stimulate the
economy more than spending on
education.
1(f) Explain, using information from the extract, two external costs that arise from oil 4
production in Nigeria.
Water pollution (1) imposing a cost on fishermen/poor quality drinking water affects
health of local people/cost on third parties/government may have to spend money
clearing up the pollution (1).
Air pollution (1) imposing a cost on local people e.g. quality of air affects
breathing/damage to the environment/global warming (1).

PUBLISHED
1(g) Discuss whether or not an increase in the wages of low-paid workers will reduce 6 Each point may be credited only once, on
poverty. either side of an argument, but separate
Up to 4 marks for why it might: may differ is to be rewarded.
One cause of poverty is low pay (1) raising the pay of the poor can take them out of
poverty/increase their income (1) their spending is likely to increase (1) enabling them
to buy more basic necessities (1) reducing absolute poverty (1) stimulating higher
output/demand (1) reducing unemployment (1).
Enables low-income families to spend on education of children (1) raising skills and pay
in long-run (1).
Raising the pay of low-paid workers may increase their motivation (1) which may
increase their productivity (1) increasing their chances of keeping their jobs/gaining
promotion (1).

Increase may be very small (1) insufficient to take people out of poverty (1) Increase
maybe less than inflation rate (1) leaves poor worse off (1).
Poor may not have jobs (1) increase in pay has no affect for them (1).
The rise in pay (1) may increase firms’ costs of production (1) causing them to make
some workers redundant (1) reducing their income (1).

PUBLISHED
2(a) Define total revenue. 2
Price × quantity (2).

Total cost plus total profit/total cost minus any loss (2).
The amount received (1) from selling a product (1).
2(b) Explain how a firm may earn a profit despite a fall in revenue. 4
Profit is revenue minus cost (1).

Costs of production may fall by more than revenue (1) e.g. fuel costs may have
fallen/action taken to reduce costs if revenue falls (1).
Revenue may have initially been higher than cost (1) profit may have fallen but still be
positive (1).
The firm may receive government subsidies (1) reducing costs of production (1).
2(c) Analyse how the introduction of an indirect tax may cause unemployment. 6
An indirect tax will impose an additional cost on firms (1) example of an indirect tax (1)
producers are likely to pass some of the tax on to consumers (1) raise the price of
products (1) to maintain profit (1) higher price reduces demand for products (1) reduces
supply (1) reduce demand for labour (1).
Higher prices may reduce total demand (1) as consumption is a component of total
demand (1) reduction in derived demand for labour (1).
If tax mainly borne by producer/demand for the good is elastic (1) less money to invest
(1) less jobs available (1).

PUBLISHED
2(d) Discuss whether or not MNCs are likely to set up in countries with low 8 Each point may be credited only once, on
unemployment. either side of an argument, but separate
Up to 5 marks for why they might: may differ is to be rewarded.
Incomes/GDP may be high (1) creating high demand for the MNCs’ products (1)
increasing profit (1). Accept responses from the opposite
People they employ are likely to have work experience (1) may be trained/need less perspective i.e. why MNCs may want to
expenditure on training (1) have higher productivity (1) lowering costs of production (1). establish in countries with high
Employment may be in primary sector (1) where wages are lower (1). unemployment.
May be a capital intensive and don’t need many workers (1) just skilled workers (1).
Tax revenue may be high (1) due to high incomes and spending (1) so the government
may not set high corporation tax (1) may provide subsidies to the MNCs (1)
infrastructure is good reducing costs for MNCs (1).

May have to pay high wages (1) provide generous fringe benefits (1) to attract workers
from other firms/difficult to recruit (1) increasing costs of production (1) are
uncompetitive with other MNCs in other countries (1) reducing profits (1).
The workers may be employed in low-skilled jobs (1) the MNCs may have to spend
money on training workers (1).
High wages mean MNCs are unable to exploit labour with low wages (1) prefer to locate
in countries where pay low wages (1) as this means low costs of production (1) and
increases profits (1).
Low unemployment may mean a high level of demand (1) causing demand -pull
inflation (1) it may push up wages (1) causing cost-push inflation (1) higher inflation may
make it harder for the MNCs to export (1).

PUBLISHED
3(a) Identify two reasons why someone may choose to train to become a dentist. 2
High pay (1) fringe benefits (1) job security (1) good working conditions/environment (1)
Interest/vocation/passion/high job satisfaction (1) high status (1).
3(b) Explain two reasons why manufactured goods are usually in more price elastic 4
supply than agricultural goods.
The difference in the time it takes to produce the goods (1) it is usually quicker to make
manufactured goods/it takes time for crops to grow and/or animals to be raised (1).
May have more skilled workers (1) more flexible in adjusting to changes in demand (1).
May have more mobile factors of production (1) e.g. land itself is geographically
immobile (1).
The difference in storage time (1) it is usually easier to store manufactured goods (1).
3(c) Analyse the advantages of an increase in a country’s labour force. 6
A larger labour force increases (potential) output (1) if the increased labour force are
employed (1) output will rise (1) higher GDP/economic growth will occur (1).
Tax revenue will rise (1) enables increase in government expenditure on e.g. education
and health (1) the level of dependency may fall (1).
New workers may bring new skills to the labour force (1) labour productivity may rise (1)
the new workers may be more geographically mobile (1) occupationally mobile (1) may
attract MNCs (1).
Higher labour supply (1) may reduce wages (1) reduce cost-push inflation/lower prices
(1).
Higher output results in increased exports (1) improving balance of payments on current
account (1).

PUBLISHED
3(d) Discuss whether or not a government should provide free dental treatment. 8 Each point may be credited only once, on
Up to 5 marks for why it should: development as to how/why the outcome
Some low paid people may not be able to afford dental treatment (1) it is an essential may differ is to be rewarded.
service (1) reduces poverty (1) enables people to spend on other essential
goods/services e.g. education (1). Reward but do not expect reference to
Dental treatment can improve the health of the population (1) raising the productivity of dental treatment being a merit good and
workers (1) increasing output (1) raising living standards (1) providing an external being under-consumed.
benefit (1).
Some people may not appreciate the true benefits of dental treatment to themselves
(1).
The government’s main motive may be to promote economic welfare (1).

It may increase government spending (1) It will involve an opportunity cost (1) e.g.
higher spending on education/raise taxes to cover cost/results in budget deficit (1).
The private sector is motivated by the profit motive (1) may provide a better service (1)
be more responsive to consumer demand (1).
Some dental treatment is cosmetic (1) not an essential service (1).
Rich people able to pay for private treatment (1) waste of government resources in
supporting low income families/children (1).
People may not take care of their teeth (1) as treatment is free (1) resulting in more
resources devoted to dental treatment (1).
People who do not need treatment may go to the dentist (1) wasting resources (1).

PUBLISHED
4(a) Define death rate. 2
The number of deaths per 1000 of the country’s population (1) per year/time period (1).
4(b) Explain two policy measures a government could introduce to encourage families 4
to have more children.
Provide child benefit/subsidy/child bonus (1) to help cover the cost of raising children
(1).
Increase maternity/paternity leave (1) to make it easier for people to combine work and
parenthood (1).
Increase tax benefits/allowances to parents (1) to increase their disposable income (1).
Subsidise child care (1) to make it easier for people to combine work and parenthood
(1).
Provide free state education/healthcare (1) to reduce the cost of raising children (1).
Lower interest rate (1) may enable parents to buy a larger house (1).
4(c) Analyse the impact that a declining population could have on the environment. 6
A declining population is likely to lead to less production (1) less traffic (1) this could
reduce pollution (1) improving the quality of e.g. rivers (1).
A declining population could reduce consumption (1) slowing down depletion of
resources (1) e.g. destroying less of the rainforest (1) preserving fish stocks (1).
Reduced labour force (1) there is the possibility that having fewer people may reduce
the resources available to improve environmental conditions (1).
Shortage of labour may lead to increased use of machines (1) resulting in increased
pollution (1).

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4(d) Discuss whether or not a firm that produces a wide range of products can take 8 Each point may be credited only once, on
advantage of economies of scale. either side of an argument, but separate
May be able to take advantage of financial economy of scale/greater ability to raise

finance/borrow at a lower rate of interest (1) as this type of economy of scale is just
dependent on the size of the firm (1).
May be able to take advantage of risk bearing economy of scale (1) as this type is
dependent on a range of products being produced (1).
May be able to take advantage of managerial economy of scale (1) some specialised
jobs e.g. accountants are not dependent on type of products produced (1).
May be able to take advantage of external economies of scale (1) these depend on the
size of the industry (1).
May not be able to take advantage of buying/purchasing economy (1) may not be able
to buy raw materials in bulk (1).
May not be able to take advantage of technical economy (1) the different types of
product may require different capital equipment to produce them (1).
May not be possible to achieve selling economy in the form of specialised transport (1)
the different products may require different forms of transport (1).
May not be a large firm e.g. produces small amounts of lots of goods (1) and may not
benefit from economies of scale (1).
Maybe be too big a firm (1) suffers from diseconomies of scale (1) example (1).

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5(a) What is the difference between the price of a product and the cost of a product? 2
The price is the amount the customer pays for the product/average revenue/how much
the product is sold for (1).
The cost is the expenditure involved in producing product e.g. labour costs (1).
5(b) Explain two influences on a country’s demand for food. 4 .
Increase in population size (1) would increase demand as more people consume food
(1).
Increase in prices (1) will reduce demand and vice versa (1).
Increase in income (1) increase demand for food as people have more purchasing
power (1).
Health awareness (1) in some countries if people become more aware of the health
problems of obesity, demand for food may decrease (1).
Increase in proportion of young people (1) consume more than old people so demand
will rise/patterns of consumption are different (1).
The opening of fast food chains (1) may increase demand for meat (1).
Advertising (1) may persuade people to eat more (1).
5(c) Analyse why a country may change from a net exporter of a product into a net 6
importer of the product.
Internal demand for the product may increase (1) due to a rise in income (1).
There may be a change in tastes from domestic to foreign produced versions (1).
There may be supply problems at home (1) due to bad weather/diseases (1).
Imports may become relatively cheaper (1) better quality (1).
Import restrictions may be removed (1) and foreign producers may be more efficient (1).
Higher inflation at home (1) may reduce exports as more expensive/increase imports
which are cheaper than before (1).
Maybe a change in climate (1) making it difficult to grow a particular crop (1).

PUBLISHED
5(d) Discuss whether or not a central bank should limit the amount commercial banks 8 Each point may be credited only once, on
can lend to its customers. either side of an argument, but separate
Up to 5 marks for why it should: may differ is to be rewarded.
A function of a central bank maybe to control commercial bank lending (1).
Unlimited loans could encourage people to borrow too much (1) they may get into debt
(1).
Some of the borrowers may not be able to pay back the loans (1) this could result in the
banks collapsing (1) this could stop the economy working effectively (1).
A limit on the amount lent could control total (aggregate) demand (1) and reduce
inflation (1).
A limit on bank lending could reduce spending on imports (1) this could improve the
current account position on the balance of payments (1).

Some people who cannot borrow may not have sufficient purchasing power to afford
e.g. an adequate amount of food/education for their children (1) move into poverty (1).
Limiting loans to firms may cause some to close (1) causing unemployment (1).
Some firms may not be able to expand (1) restricting economic growth (1).
The limit may discourage MNCs from setting up in the country (1) foregoing the benefits
MNCs may bring (1).
State of economy (1) if in recession (1) limiting lending by banks could lead to loss of
jobs (1).
Unlimited loans could reduce the interest rate (1) this could increase economic
growth/lower unemployment (1)
May force some of the poor to borrow from unregulated lenders (1) causing them to get
into further debt (1).

PUBLISHED
6(a) Identify two ways a government could conserve its country’s resources. 2
One mark for each appropriate action identified. Examples include:

Ban/place a limit on the amount of resource consumed.
Import resources to reduce consumption of country’s own resources.
Reduce exports to reduce consumption of limited resources.
Put tax/increase tax on resources to reduce demand.
Educate consumers to reduce consumption/conserve resources.
Control immigration to reduce consumption of resources.
Encourage recycling of resources e.g. metals/plastic.
Subsidise firms that conserve natural resources.
6(b) Explain two external benefits that can arise from education. 4
Higher output (1) due to more skilled workers (1).

Better quality output (1) due to more efficient workers (1).
More advanced technology (1) due to ideas/ability to operate new technology (1).
Improved health/reduction in spread of diseases (1) more informed population (1).
Less pollution (1) if population educated on environmental issues (1).
Firms may have to spend less on training (1) due to greater supply of skilled workers
(1).
6(c) Analyse how a cut in the rate of interest could reduce poverty. 6
A lower interest rate will increase the purchasing power of the poor who have borrowed
before (1) will make it easier/cheaper to borrow (1) enabling them to buy more
necessities (1) spend on education (1) enabling them to get a job / better paid job (1).
A lower rate of interest may encourage a rise in consumer expenditure (1) encouraging
firms to expand (1) providing cheaper finance for the expansion (1) increase output (1)
raise employment (1) raise income (1).
Higher output and spending may increase tax revenue (1) enabling the government to
increase its spending to reduce poverty (1).

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6(d) Discuss whether or not economic growth always increases living standards. 8 Each point may be credited only once, on
Up to 5 marks for why it might: development as to how/why the outcome
Higher output (1) may enable people to enjoy more goods and services (1) especially if may differ is to be rewarded.
GDP per head rises (1) may increase employment (1) raise incomes (1)
Higher output may increase tax revenue (1) more resources/higher quality of resources
(1) may enable there to be better healthcare (1) increasing life expectancy (1)
more/better education (1).
Higher output may enable more resources to be devoted to improving environmental
conditions (1) e.g. reduce pollution (1).

The benefits may not be evenly spread (1) income and wealth may be unevenly
distributed (1) there may still be high levels of poverty (1).
Higher output may have been achieved by increasing working hours (1) working
conditions may have declined (1) there may be greater stress (1) quality of output may
be lower (1).
Expansion of heavy industries (1) may have created pollution (1) reduce health/life
expectancy (1).
Non-renewable resources may have been depleted (1) reducing the opportunity to
achieve sustainable development (1).
Economic growth may not be sustainable (1) increase in supply may not match increase
in demand (1) causing inflation (1).
Economic growth achieved by exporting goods and services (1) economy producing
more investment goods at expense of consumer goods (1) resulting in fewer goods
available in domestic market (1).

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7(a) Identify the reward received by labour and the reward received by enterprise. 2
Labour = wages (1). Enterprise = profit (1).
7(b) Explain how inflation may affect borrowers and savers. 4
Borrowers may gain (1) if the inflation rate exceeds the interest rate/the real value of
what they repay may fall (1).
Savers may lose (1) if the inflation rate exceeds the interest rate/the real value of their
saving will fall (1).
7(c) Analyse why it is important to a government that inflation is measured accurately. 6
It is important to ensure a government/central bank follows the right policies (1). If, for
instance, a government overestimates inflation it may increase taxes (1) cut
government spending (1) raise interest rates (1) which may increase unemployment (1)
reduce economic growth (1).
Measures of inflation e.g. CPI/RPI (1) can be the basis of wage claims (1) and rises in
some state benefits/indexed linked state benefits (1).
Helps planning (1) may encourage investment (1).

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7(d) Discuss whether or not an increase in investment would reduce a deficit on the 8 Each point may be credited only once, on
current account of the balance of payments. either side of an argument, but separate
May lower costs of production (1) make domestic products more internationally price
competitive / lower export prices (1) so increasing demand for exports (1).
Advanced technology / more efficient production (1) may increase the quality of
products produced (1) increase demand for domestically produced products (1)
reducing demand for imports (1).
Investment in labour (human capital) (1) can increase skills (1) raise productivity (1)
increase quality of products (1).
Investment abroad could increase primary income/income (1).

The investment may go on imported capital goods (1) in the short run would increase
spending on imports (1).
The investment may be in products which are not in demand abroad (1) are not
substitutes for imports (1).
In the short run investment may increase total (aggregate) demand by more than total
(aggregate) supply (1) which may cause inflation (1) making domestic products less
internationally competitive (1).
Domestic products may become more competitive but net exports may not rise if offset
by another change (1) e.g. import restrictions/fall in income abroad / rise in exchange
rate (1).
Investment may not be big enough to make a difference (1).

ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the March 2019 series for most
components.

PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers.
They should be applied alongside the specific content of the mark scheme or generic level descriptors
for a question. Each question paper and mark scheme will also comply with these marking principles.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit
is given for valid answers which go beyond the scope of the syllabus and mark scheme,
referring to your Team Leader as appropriate
• answers should only be judged on the quality of spelling, punctuation and grammar when these
features are specifically assessed by the question as indicated by the mark scheme. The
meaning, however, should be unambiguous.
Rules must be applied consistently e.g. in situations where candidates have not followed
instructions or in the application of generic level descriptors.
Marks should be awarded using the full range of marks defined in the mark scheme for the question
(however; the use of the full mark range may be limited according to the quality of the candidate
responses seen).
Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should
not be awarded with grade thresholds or grade descriptors in mind.

PUBLISHED
Question Answer Marks
1(a) Identify, using information from the extract, two reasons why India’s 2
inflation rate fell in 2016.
Fall in oil prices (1).

Monetary policy (1).
1(b) Explain, using information from the extract, whether demand for Indian 2
tractors was price-elastic or price-inelastic in 2015.
Inelastic (1) price and revenue moved in the same direction (1).
1(c) Explain two internal economies of scale referred to in the extract. 4
• managerial/labour economies (1) employing specialised workers (1)

• financial economies (1) easier to borrow from banks / lower borrowing
costs (1).
1(d) Calculate, using information from the extract, the percentage of India’s 2
labour force that was employed in the vehicle industry in 2016.
5% (2).
Correct working: (26m / 500m + 20m) × 100 / 520m (size of labour force) /
5.2% (percentage in 2014) (1).
1(e) Analyse, using Fig.1, the relationship between India’s economic 5

growth rate and population growth rate over the period shown.
Output rose over the period / economic growth rate was positive over the
period (1).
Economic growth rate fell over the whole period (1).
Economic growth rate fell from 2010 to 2012 (1).
Economic growth rate rose from 2012 to 2016 (1).
Economic growth rate is highest in 2010 (1).
Population rose over the period (1).

Population growth rate fell over the period / was on a downward trend (1).
Population growth rate was relatively stable (1).
Population growth rate is highest in 2010 (1).
Economic growth rate was higher than population growth rate (1) every year
(1).
Economic growth fluctuated more than population growth rate (1).
The data suggests that GDP per head / living standards would have risen
over the period (1).

PUBLISHED
1(f) Discuss whether or not a government should aim for a low rate of 5
inflation.

A low rate of inflation may result in increased international competitiveness
(1) improving the current account position (1).
It may create certainty/stability (1) encouraging firms to invest (1) increasing
output (1) increasing employment / lowering unemployment (1).
It will not cause a random redistribution of income (1) protecting savers (1).
It may raise profit (1) if demand-pull (1) encourage firms to expand (1)
increasing employment (1).
It stops purchasing power being eroded by too much (1).

It may involve policy measures such as e.g. higher income tax (1) which
reduce total (aggregate) demand (1) and so cause unemployment (1).
Inflation can reduce debts (1) keeping firms in business (1) stopping
households getting into difficulty (1).
Employment may be protected (1) wages can be raised by less than
inflation (1) enabling firms in difficulty to continue in production (1).
A government may have other policy objectives (1).
There is a risk that this could lead to deflation (1) have adverse
macroeconomic effects / lose benefits of low rate of demand-pull inflation
(1).
1(g) Explain, using information from the extract, two reasons why 4
consumer expenditure may increase in India in the future.
The economy is growing / there is a rise in GDP per head (1) more income
increases people’s ability to spend (1).
There is growing optimism (1) which is likely to increase people’s willingness
to spend as they may expect incomes/employment to be high in the future
(1).
The population is increasing (1) more people to buy goods and services (1).
The labour force is increasing (1) more people with incomes to spend (1).
The population is due to be relatively young (1) the young may spend a
relatively high proportion of their income (1).
Low/stable inflation (1) may enable interest rates to be low (1).

PUBLISHED
1(h) Discuss whether or not having a young population is a benefit to an 6

economy.

They may increase the size of the labour force (1) increase productive
capacity / potential output (1).
They may be more geographically mobile (1) allowing firms to fill vacancies
(1).
They may have up to date skills (1) may be fitter / physically stronger (1)
raise productivity (1).
A ready supply of young workers may attract MNCs (1) increase output (1).

If a high proportion are aged below school leaving age (1) there will be a
high dependency ratio (1) placing a burden on workers (1).
There may be a need for more schools (1) resources could have been used
for other purposes (1) opportunity cost (1).
Young workers may be less experienced (1) less productive/skilled (1) may
need more training (1) may emigrate (1).
There may be a fall in parents working for a while (1) reduce output (1).
2(a) Identify two reasons why an MNC may decide to start producing in a 2
foreign country.
• access to raw materials

• cheap labour
• skilled labour
• large market
• government support
• low taxes
• avoid trade restrictions
2(b) Explain two reasons why someone may want to work for an MNC. 4
• wages may be high (1) giving high living standards (1)

• working conditions may be good (1) e.g. short working hours, good
health and safety standards (1)
• training may be good (1) raising worker’s future job prospects (1)
• fringe benefits may be good (1) e.g. free accommodation (1)
• more chance of promotion (1) higher earnings in the long run (1)
• Good reputation (1) prestige working for the firm / increased future
employment opportunities (1).

PUBLISHED
2(c) Analyse how an increase in exports could improve a country’s 6

macroeconomic performance.
An increase in exports can increase export revenue (1) this may reduce a
current account deficit (1).
An increase in exports will increase total (aggregate) demand (1) firms will
produce more products / higher output (1) more workers will be employed
(1) unemployment will fall (1) economic growth will increase / incomes will
rise / higher living standards (1).
2(d) Discuss whether or not an increase in government spending will 8

reduce a surplus on the current account of the country’s balance of
payments.

Higher government spending may go on imports (1) e.g. imported
computers for government offices (1).
Higher government spending on e.g. state benefits (1) will increase
disposable income (1) some of this might be spent on imports (1).
Higher government spending will increase total (aggregate) demand (1) this
may cause inflation (1) reduce international competitiveness (1) reduce
exports (1) increase imports (1).

Government spending on education and training / healthcare (1) may raise
labour productivity (1) reduce costs of production (1) improve quality (1)
increased demand for domestically produced products (1) increase exports
(1) reduce imports (1).
Government spending on infrastructure (1) may reduce transport costs (1)
increasing price competitiveness (1) increasing exports (1) reducing imports
(1).
The government may subsidise domestic products (1) lowering the price of
domestic products (1) increasing exports (1) reducing imports (1).
3(a) Identify two ways a government could encourage people to spend 2

more.
• lower taxes
• increase government spending / expansionary fiscal policy
• increase money supply
• reduce interest rates / expansionary monetary policy
• raise subsidies
3(b) Explain how the economic problem results in people having to make 4
choices.
The economic problem is unlimited wants (1) but limited resources (1). As
resources are limited, people cannot have everything they want / not
everything can be produced / there is scarcity (1) there is an opportunity
cost (1).

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3(c) Analyse why deflation may cause a fall in output. 6
A fall in the price level (1) may discourage spending / reduce total
(aggregate) demand (1) households waiting for prices to fall further (1) the
fall in demand may reduce firms’ output (1).
Deflation may reduce firms’ profits (1) this may discourage investment (1)
reduce demand for capital goods (1) lower the output of capital goods (1).
3(d) Discuss whether or not a country will suffer if its output falls. 8

Lower output may mean that people will have fewer goods and services (1)
this could reduce living standards / reduce incomes (1).
Lower output may mean fewer workers are needed (1) unemployment may
rise (1).
If consumers cannot buy domestically produced products (1) they may buy
imports (1) exports may fall (1) resulting in a current account deficit (1).
MNCs may leave the country (1) reducing employment (1).
Tax revenue may fall (1) reducing government’s ability to spend on e.g.
education (1).

Living standards may rise (1) if output falls by less than population (1).
A lower output may reduce external costs (1) e.g. pollution (1) destruction of
sights of natural beauty (1).
Lower output may reduce demand for imports (1) improve the current
4(a) Identify two reasons why someone may want to migrate to the USA. 2
• higher wages
• better education
• better healthcare
• better employment prospects
4(b) Explain two reasons why less-educated people tend to have a shorter 4
life expectancy than people who have received more education.
• a lower income (1) worse nutrition/healthcare/housing (1)

• less well-informed (1) less likely to eat healthily / more likely to have
unhealthy habits e.g. smoking (1)
• more likely to be in a more physically demanding / risky job (1) less
choice of occupation due to less skills/qualifications (1).

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4(c) Analyse how economic growth can reduce absolute poverty. 6
Economic growth is likely to increase employment (1) this may increase the
chances of the poor gaining jobs (1) raise income (1) allow them to buy
basic necessities / definition of absolute poverty (1).
Economic growth can increase tax revenue (1) this may enable the
government to spend more to help the poor (1) e.g. improved education for
the poor (1) higher state benefits (1).
4(d) Discuss whether or not a cut in the tax on firms’ profits will increase 8
employment.

Firms will be able to keep more of their profits (1) this may increase the
incentive for them to expand their output (1) it will provide the funds to
spend on expansion (1). To increase their output, firms may take on more
workers (1) employment may rise in the private sector (1).
Higher profits may attract more shareholders (1) this will also increase the
funds for investment (1).

Firms will not expand if they have spare capacity (1) or they are worried
about the future (1).
Firms may distribute extra profits to shareholders rather than invest (1).
Firms may expand by adopting more capital-intensive methods (1) may
actually reduce employment (1).
May be lower tax revenue (1) example of what the government may spend
less on (1) link to unemployment (1).
5(a) Identify two fixed costs. 2
• rent
• interest on past loans
• insurance
• salaries
5(b) Explain two ways monopoly differs from perfect competition. 4
• one supplier in monopoly (1) many suppliers in perfect competition (1)

• a monopoly has 100% share of the market (1) one perfectly competitive
firm will have a small share of the market (1)
• barriers to entry and exit in monopoly (1) free entry and exit in perfect
competition (1)
• a monopoly is a price maker (1) while a perfectly competitive firm is a
price taker (1)
• a monopolist may advertise (1) no advertising in perfect competition (1)
• there may be brand loyalty in monopoly (1) but no attachment between
buyers and sellers in perfect competition (1)
• there are no substitutes in a monopoly (1) there are perfect substitutes
in perfect competition (1).

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5(c) Analyse what determines a firm’s demand for labour. 6
Demand for the product (1) demand for labour is a derived demand (1) the
higher the demand for the product, the more workers employed (1).
Productivity / high skills / qualifications (1) a rise in productivity will increase
the return from employing labour / the higher skills the higher the demand
(1).
Wage rate (1) a fall in the wage rate would be likely to increase the demand
for labour (1).
The price (1) and productivity (1) of substitutes to labour (1) and
complements to labour (1).
Production method (1) demand will be higher if production is labour-
intensive (1).
5(d) Discuss whether or not a merger will increase profits. 8

A merger will reduce competition (1) the merged firm will have increased
market share (1) this may make demand for its products more inelastic (1)
may be able to raise price (1).
The new combined firm may be able to take greater advantage of
economies of scale (1) so lower average cost (1) examples (2).
The new firm may be able to rationalise (1) cut out duplication (1) lower
average cost (1).
There may be more ideas / sharing of ideas (1) increasing innovation /
raising quality (1).
A vertical merger will provide greater control over the quality of raw
materials / outlets (1).

The reduction in competition may reduce competitive pressure on the new
firm to keep costs low (1) and quality high (1) so demand may fall (1).
It may be difficult for the two former firms to adopt common methods of
production (1) there may be duplication of equipment and staff (1).
The merged firm may experience diseconomies of scale (1) higher average
cost (1) examples (2).
6(a) Define social benefit. 2
The total benefit to society of an economic activity or external benefit +

private benefit (2).
A beneficial effect on society (1).

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6(b) Explain two advantages of conserving natural resources. 4
• resources will last longer / decrease rate of depletion (1) future

generations will be able to benefit from the resources (1)
• economic growth / development may be more sustainable (1) income
may be generated over time / value may rise in the future (1)
• over use of natural resources (1) may cause external costs (1)
• tourism may increase (1) increase export revenue / employment (1).
6(c) Analyse how taxation could reduce market failure. 6
Monopolies may be taxed (1) if they exploit their market power (1) by
charging high prices (1).
Production and consumption that generates external costs may be taxed (1)
example (1) this will turn an external cost into a private cost (1) increase
costs of production (1) reduce output (1).
Tax revenue can be used to e.g. subsidise products with external benefits
(1) example (1).
6(d) Discuss the advantages and disadvantages of a market economic 8

system.

In theory, there is consumer sovereignty (1) consumers determine what is
produced (1) firms will respond to changes in demand (1).
Prices may be low (1) quality may be high (1) high efficiency (1) due to
competition (1) and the profit motive (1)
A variety of products may be produced / there may be choice (1).

Poor consumers will have little influence on what is produced (1) as they
have little purchasing power (1).
Monopolies may develop (1) which may charge high prices (1) and produce
low quality (1).
Products that provide external benefits will be under-produced (1) so under-
consumed (1) example of such a product (1).
Products that cause external costs will be overproduced (1) and so
overconsumed (1) example of such a product (1).
7(a) Define a market. 2
An arrangement that brings buyers and sellers into contact / products are
bought and sold (2).
Buyers (1) sellers (1).
Example of the purchase and sale of products (1).

PUBLISHED
7(b) Explain two reasons why the supply of a raw material such as oil may 4
rise in the future.
• New supplies may be discovered (1) after investment searching for

them (1)
• Price may rise (1) giving suppliers a profit incentive to supply more (1)
• Advances in technology / cuts in wages (1) may reduce costs of
obtaining the raw material (1)
• Government subsidies (1) providing finance to search for oil / greater
incentive to increase output (1)
7(c) Analyse, using a demand and supply diagram, how the market for oil 6
would be affected when the demand for oil increases by more than the
supply of oil.
Up to 4 marks for the diagram:

Axes correctly labelled – price and quantity or P and Q (1).
Demand and supply curves correctly labelled D1 and S1 (1).
Demand and supply curves shifted to the right D2 and S2 (1).
Equilibrium – shown by lines e.g. P2 Q2 or at point e.g. E2 (1).
S1
price
S2
of oil
P2 E2
P1
D2
D1
O Q1 Q2
quantity of oil
Up to 2 marks for written comments:

More of the product will be traded / quantity will rise (1).
Price will be higher (1).
Note: Do not reward analysis marks for description of diagram e.g. price
changes from P2 to P1 or quantity changes from Q1 to Q2.

PUBLISHED
7(d) Discuss whether or not car travel will increase in the future. 8

Price of cars may fall (1) encouraging more people to buy cars (1).
Price of petrol may fall (1) making it cheaper to run a car/petrol is a
complement to cars (1).
Population may increase (1) more potential drivers (1).
More roads may be built (1) reduce time of car journeys (1).
People may live further from work (1) requiring longer journeys (1).
Driverless cars (1) may enable more people e.g. those with poor eyesight to
use cars (1).
Income may rise (1) enabling people to buy and use more cars (1).

Price of substitute travel may fall (1) e.g. due to government subsidising rail
travel (1).
Taxes on car travel may rise (1) raising the cost of car travel (1).
Parking charges may increase (1) parking is a complement to car travel (1).
Congestion may rise (1) increasing travel time (1).
Greater concern about the environment (1) may encourage some people to
switch to more environmentally friendly forms of transport (1).

ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond
the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
descriptors.

PUBLISHED

PUBLISHED
1(a) Identify, from the extract, two pairs of substitutes. 2
• Driverless cars and bus travel

• Driverless cars and taxi travel
• Bus travel and taxi travel
• Machines / advanced technology and workers
1(b) Explain, using information form the extract, whether the market for 2
driverless cars is expected to be in equilibrium in 2030.
No (1) supply is expected to exceed demand (1).
1(c) Calculate, using information from the extract, the price elasticity of 2
supply (PES) of driverless cars.
2.5 (2).
Correct working: 20% / 8% OR 20 / 8 (1).
1(d) Explain, using information from the extract, two external costs that 4
driverless cars could reduce.
• accidents (1) people are injured and killed as a result of other

people’s driving / accidents impose costs on hospitals and
healthcare / less human error / driverless cars reduce the death rate
/ accidents can cause traffic congestion / fewer accidents may
reduce cost of repairs (1)
• pollution (1) cars emit carbon dioxide / pollution causes health
problems / driverless cars are more environmentally friendly / use
electricity which causes less pollution (1)
• lower cost of insurance to (other) drivers (1) as a result of less
accidents / lower cost of repairs (1)

PUBLISHED
1(e) Analyse, using Table 1.1, the relationship between educational 5 A pattern of analysis is expected in response
spending and the unemployment rate. to this type of question.
Expected relationship – a country that spends more (a high proportion) If there is no expected pattern of analysis, the
of their GDP on education would have a low unemployment rate / a following may be worthy of some reward, e.g.:
country with a higher unemployment rate is likely to spend less on • it is not a consistent relationship (1)
education / it is an inverse relationship (1). • there are other influences on the
unemployment rate (1)
Reasons for expected relationship – workers would be likely to be more
skilled and productive / higher unemployment may result in less tax However, do not reward simple statements
revenue to spend on education (1). (repetition) of the figures given in the table. For
example, USA spends 8.2% on education and
Evidence in support of expected relationship – e.g. New Zealand or US has an unemployment rate of 4.7%, is not to be
(1) highest spenders and lowest unemployment rates (1). rewarded.
Evidence against expected relationship – e.g. Argentina or South Africa

(1) Argentina spends a lower proportion than Ghana and Brazil but has a
lower unemployment rate / South Africa spends more a higher proportion
than Argentina and Brazil but has a higher unemployment rate (1).

PUBLISHED
1(f) Discuss whether or not an increase in house building will benefit 5 Apply this example to all questions with the
the people who live in the area. command word DISCUSS
(1(g), 1(h), 2(d), 3(d), 4(d) and 5(d))
House building may create jobs (1) lower unemployment (1) generate Each point may be credited only once, on either
income / raise wages / raise living standards (1). side of an argument, but separate development
House building will increase the supply of housing (1) the lower price of as to how/why the outcome may differ is
housing (1) makes houses more affordable (1) fewer homeless (1). rewarded.
May attract more firms to set up in the area (1) more services may be
provided (1) due to more people living in the area / larger labour force
(1).
May save travel time for those working nearby (1) reduce pollution / Tax revenue may decrease « 1
congestion (1).
... because of reason e.g. incomes
Up to 3 marks for why it might not: 1
may be lower.
House building may cause external costs (1) examples (2).
More houses may reduce the value of people’s homes (1) reduce their Tax revenue may increase because
wealth (1). incomes may be higher i.e. reverse 0
There is an opportunity cost (1) the area used could have been used for of a previous argument.
e.g. school buildings (1).
Demand for extra services may not be met (1). Tax revenue may increase because
Jobs may only be temporary / seasonal unemployment (1). of a different reason i.e. not the
More housing may create overcrowding in the area. (1). reverse of a previous argument e.g.
1
government spending on subsidies
may stimulate the economy more
than spending on education.

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1(g) Explain, using information from the extract, two reasons why the 4 Some points may be interchangeable e.g. rise
power of trade unions may decline in the future. in unemployment (1) resulting in fall in
membership (1).
Fall in membership (1) lower funds / less bargaining power (1).
Rise in unemployment / workers being replaced by machines (1) trade
unions may be reluctant to take industrial action for fear that members
will be replaced by unemployed / non-member workers (1).
Government may reduce the power of trade unions (1) making it harder
for trade unions to protect workers’ rights (1).
Movement from primary to tertiary sector (1) which may be less
unionised / better working conditions (1).

PUBLISHED
1(h) Discuss whether or not a rise in unemployment is harmful. 6 Reward but do not expect reference to a
downward multiplier effect and/or not reaching
Up to 4 marks for why it is: productive capacity.
Output is likely to fall (1) incomes will decline / poverty increase (1) living
standards will fall (1) lower total (aggregate) demand (1).
Tax revenue will fall (1) government may have to cut spending on e.g.
education and healthcare (1).
Government may increase tax rates (1) which may create disincentive
effect (1).
The government will have to spend more on unemployment benefit (1)
this will involve an opportunity cost (1) may result in a budget deficit (1).
Unemployed workers may lose skills / become out of date (1) may need
retraining (1).
May increase emigration (1) lose skilled workers (1).
May cause social problems e.g. crime / mental health problems (1).
Up to 4 marks for why it is not:

Inflation may fall (1) due to lower total (aggregate) demand (1).
Firms may find it easier to recruit new workers (1) this will make it easier
to expand (1) at lower wage costs (1).
Productivity may be higher (1) more skilled workers kept (1).
Unemployment may give the unemployed time to search for a better job
(1) eventually raises their incomes (1).
Rise may only be temporary (1).
May reduce demand for imports (1) improve current account of the
balance of payments (1).
May be less pollution with lower output (1).

PUBLISHED
2(a) Identify two reasons why people are living longer. 2
• better healthcare
• improved nutrition
• better housing
• better living standards
• higher incomes
2(b) Explain two reasons why net immigration may increase the 4 Reward but do not expect reference to optimum
standard of living in a country. population.
May increase the size of the labour force (1) increase the number of Do not reward lower wages because the effect
goods and services available / increase output / increase GDP / on the standard of living is uncertain.
May bring in new skills (1) raise productivity (1) increase the quality of
products produced (1).
Fill jobs that local workers do not want to do (1) reduce shortages (1).
Fill jobs that local workers do not have the qualifications to do (1) reduce
shortages (1).
Increase total (aggregate) demand (1) which will encourage firms to
increase their output (1).
Make better use of other resources (1) if the country lacks labour / is
underpopulated (1).
Increase tax revenue (1) enabling government to spend more on e.g.
education (1).
Immigrants may set up firms (1) creating jobs / reducing unemployment
(1) / purchasing power (1).
May lower costs of production (1) make products more affordable (1).

PUBLISHED
2(c) Analyse how fiscal policy could be used to stop a recession. 6
The government could cut taxes (1) this could raise disposable income /
purchasing power (1) which may increase consumer spending (1) cuts in
corporate tax may provide more funds for firms (1) raise investment (1)
encourage firms to expand their output (1) increase employment /
A government could increase its own spending (1) example e.g.
healthcare (1) this would increase total (aggregate) demand (1)
encouraging an increase in output (1).
Spending on infrastructure (1) may reduce firms costs and so encourage
higher output (1).
2(d) Discuss whether or not low-income countries have a faster rate of 8 Some points may be interchangeable e.g.
population growth than high-income countries. factors attracting immigrants may encourage
emigration from poorer countries, but do not
Up to 5 marks for why some do: reward on both sides of the discussion.
Some have a high birth rate (1) reasons e.g. low number of women
working, (1) need for children to support parents in old age (1) lack of Maximum of 4 marks for a list-like approach.
education (1) falling death rate (1) natural increase (1) due to improved
healthcare (1) rise in incomes (1).
Up to 5 marks for why some do not:

Some high-income countries experience a high rate of net immigration
(1) factors attracting immigrants e.g. job opportunities, high income (2).
Some low-income countries experience net emigration (1).
Some low-income countries experience natural disasters and wars (1)
poor health care (1) which increase the death rate (1).
Some high-income countries are experiencing a fall in the death rate (1)
causes e.g. improved living standards, advances in medicines (2)
although birth rates falling (1) governments may provide incentives to try
to raise the birth rate (1) including financial aid / free child care (1).

PUBLISHED
3(a) Identify two ways a government could encourage saving. 2
• raise the rate of interest

• introduce tax-free saving schemes
• provide information / education about the benefits of saving
• introduce compulsory saving schemes
• government measure that can increase income e.g. lower taxes
3(b) Explain two reasons why productivity may increase. 4
Improvements in education and training (1) would increase the skills of

workers (1).
More capital equipment / investment (1) which may increase the speed /
accuracy at which workers work / more efficient machinery (1).
Increase in wages (1) which will motivate workers (1).
Lower working hours (1) workers less tired (1).
Better working conditions (1) less stressed (1).
Better weather / improvements in the type of crops grown / better feed
for animals (1) which can increase agricultural output / which may result
from research and development (1).
Immigration of workers (1) with better skills (1).
Better healthcare (1) workers fitter (1).
Successful supply-side policy measure (1) e.g. spending on
infrastructure (1).
Specialisation (1) workers concentrating on particular tasks may produce
products more quickly / efficiently (1).

PUBLISHED
3(c) Analyse how an increase in investment could influence inflation. 6
Higher investment will mean higher spending on capital goods (1) it

could increase total (aggregate) demand (1) this could increase demand-
pull inflation (1) if total (aggregate) demand exceeds total (aggregate)
supply (1).
May increase demand for imported capital goods / raw materials (1)
causing imported / cost-push inflation (1).
Higher total (aggregate) demand could increase employment / decrease
unemployment (1) which could increase total (aggregate) demand
further (1).
In short run may raise costs of production (purchase of machines) (1)
In the long run it could increase output (1) may introduce advances in
technology (1) increase efficiency / productivity (1) it could reduce costs
of production (1) reducing cost-push inflation (1).
Investment in human capital (1) raising workers’ skills (1).

PUBLISHED
3(d) Discuss whether or not older workers are paid more than young 8
workers.
Up to 5 marks for why they might be:

They have more experience (1) they are likely to have received more
training (1) they may have higher productivity (1) more skilled (1) more
reliable / make fewer mistakes (1) in higher demand (1) lower supply (1).
They may have been with the same employer for some time (1) and may
have been promoted (1).
Some older workers may be rewarded for staying with the same
employer / young workers may be at start of career (1) be paid a loyalty
bonus (1).
In some countries, the minimum wage may rise with age (1).
Up to 5 marks for why they might not be:

Some older workers in jobs requiring physical strength (1) may be less fit
/ young workers may be fitter (1).
Older workers may be less occupationally mobile (1) geographically
immobile (1) and so may not move to gain higher wages (1).
Young workers may be more up to date with advances in technology /
new methods / new ideas (1) their skills may be in higher demand (1).
Young workers may be in expanding industries (1).
Young workers may work more hours (1) may be better educated / more
qualified (1).

PUBLISHED
4(a) Identify two components of the HDI. 2 For education accept (adult) literacy.
• GDP (GNI) per head / income per head / average income

• education
• life expectancy
4(b) Explain how the proportion of a country’s resources devoted to the 4

primary, secondary and tertiary sectors change as its economy
develops.
A smaller proportion of resources are likely to be devoted to the primary

sector (1) increases in technology / productivity / education requires
fewer resources / resources move to more financially rewarding uses /
use of more machinery (1).
A greater proportion of resources are devoted to manufacturing at first
(1) and then a smaller proportion (1) the manufacturing sector becomes
more efficient (1).
The service sector continues to grow (1) in developed economies, most
labour is employed in the service sector (1).
Some developing countries’ tertiary sector has grown faster than
secondary sector – jumped a stage (1).

PUBLISHED
4(c) Analyse, using a demand and supply diagram, how a fall in the 6 S1
price of cotton would affect the market for cotton shirts. S2
price of
Up to 4 marks for the diagram: cotton
Axes correctly labelled – price and quantity or P and Q (1). shirts
Demand and supply curves correctly labelled (1).
Supply curve shifted to the right (1). P1
Equilibriums – shown by lines or e.g. E1 and E2 (1). P2
Up to 2 marks for written analysis:

A fall in the price of cotton will reduce the cost of producing cotton shirts
(1) price will fall / quantity will rise (1). D
Do not reward analysis marks for description of diagram e.g. O Q1 Q2
quantity changes from Q1 to Q2.
quantity of
cotton shirts

PUBLISHED
4(d) Discuss whether or not an increase in the size of a country’s gold 8

mining industry will benefit an economy.

It may provide more jobs (1) reduce unemployment (1).
It may increase output / cause economic growth (1) increase wages (1)
increase living standards (1).
Some of the gold may be exported (1) improve the current account
position (1).
The industry may experience (external) economies of scale (1) lower
average cost (1) example of an external economy (1).
It will be more beneficial if world demand is increasing (1).
May attract multinational companies to set up in the country (1).
Tax revenue may increase (1) enabling government to spend more on
e.g. infrastructure (1).

A rise in the supply of gold may reduce its price (1) reduce revenue (1)
reduce exports (1).
External costs may be created (1) damage to the natural environment /
pollution (1).
The industry may experience (external) diseconomies of scale (1) higher
average cost (1) example of an external economy (1).
Mining is a dangerous occupation (1) wages may be low as primary
sector (1) jobs may be unskilled (1).
Resource of gold may be depleted (1) stopping future generations being
able to take advantage of them (1).
It will be less beneficial if other gold producing countries are increasing
their output (1).

PUBLISHED
5(a) Identify two examples of land used in growing agricultural crops. 2 Note: land on its own is insufficient, but the area
of land or farmland can be rewarded.
• soil
• water
• natural fertiliser
• seeds
• weather
5(b) Explain why the concept of price elasticity of supply (PES) may be 4 Note:
useful to a government in deciding whether to subsidise the supply change is greater/smaller than price
production of a product. change (1)
supply changes by a greater/smaller
A subsidy is aimed at increasing supply / lowering price (1). percentage than price (2)
If supply is elastic, supply will change by a greater (1) percentage (1)
than price. Should subsidise production of the product (1).
If supply is inelastic, supply will change by a smaller (1) percentage (1)
than price. Should not subsidise production of the product (1).
5(c) Analyse why the demand for a product may be higher in one 6
country than in another country.
Incomes may be higher (1) allowing people to buy more of the product
(1).
There may be a larger population (1) more potential buyers (1).
The product may be more to the taste of people in that country (1)
example e.g. falafel is popular in the middle east (1).
The product may be more heavily advertised (1) which may increase the
attractiveness of the product (1).
Price may be lower (1) due to lower costs of production / government
subsidy / lower (indirect) taxes (1).
Price of substitutes may be higher (1) example (1).
Credit may be more available / interest rate lower (1) making it easier for
people to borrow to buy the product (1).

PUBLISHED
5(d) Discuss whether or not the government should influence the 8 Reward but do not expect reference to price
production of basic food items, such as bread or rice. controls.

The poor may spend a higher proportion of their income on food (1) a
subsidy on food (1) may reduce poverty (1) lower indirect tax may
reduce poverty (1) lower price (1) basic food items / bread / rice may be
regarded to be a basic necessity (1)
There may be market failure (1) bread may be overconsumed (1) this
may cause obesity (1) a tax will raise price (1) this may discourage
demand for basic food items / bread / rice (1) reduce obesity (1) it may
also reduce wastage (1).
Regulation may be needed (1) to ensure the basic food / bread / rice is
produced under clean conditions / with safe ingredients (1).
Basic food items / bread / rice may be produced by a monopoly (1)
which could use its power to restrict supply (1) push up price (1)
regulation may be need to prevent this (1).
Demand for basic food items / bread / rice may be inelastic (1) firms may
take advantage of this to push up price (1).

Market forces may produce an efficient output (1) the profit motive (1)
may encourage producers to respond to changes in consumer demand
(1) surpluses and shortages will be eliminated by changes in prices (1).
There may be a high level of competition in the industry (1) encouraging
producers to make basic food items / bread / rice of a high quality (1).
An indirect tax will be regressive (1) fall more heavily on the poor (1).
A subsidy will involve an opportunity cost (1) example (1).
Reducing an indirect tax will lower tax revenue (1) lowering
government’s ability to spend on e.g. healthcare (1).
Government discouragement of production of basic items may result in
more being imported (1) which will harm the balance of payments (1).

PUBLISHED
6(a) Identify the difference between an export and an import. 2
An export is sold to other countries / outflow of goods and services in

exchange for money / credit item in the balance of payments (1) an
import is purchased from other countries / inflow of goods and services
in exchange for money / debit item in the balance of payments (1).
6(b) Explain how a rise in the income of its main trading partners may 4
affect a country’s trade in goods balance.
A rise in income abroad will increase the countries’ ability to purchase

products (1) demand for this country’s exports may rise (1) particularly
luxury products / products without domestic substitutes (1) exports are a
credit item in the trade in goods balance (1) the trade in goods balance
may improve (1) may move from a deficit to a surplus / any deficit may
be reduced / any surplus may be increased (1).
The rise in income may be the result of the countries selling more goods
to this country (1) this may increase the country’s imports (1) imports are
a debit term (1) the trade in goods balance may move from a surplus to
deficit / any deficit may become larger / any surplus may get smaller (1).
6(c) Analyse how a rise in a country’s foreign exchange rate may affect 6 Reward but do not expect reference to PED.
its unemployment rate.
A rise in the exchange rate will make exports more expensive (1) imports
cheaper (1) demand for exports may fall / export revenue may decrease
(1) demand for imports may rise / import expenditure may rise (1) net
exports may fall (1) total (aggregate) demand may fall (1) output may
decline (1) demand for labour may fall (1) unemployment may rise (1)
cyclical unemployment (1).

PUBLISHED
6(d) Discuss whether or not a government should subsidise its exports. 8

A subsidy would lower costs of production (1) lower the price of exports
(1) this may make them more internationally competitive (1).
Some industries producing exports may be infant industries (1) may
need support before advantage can be taken of economies of scale (1).
Exports may rise (1) this may improve the current account / trade in
goods and services balance (1) raise GDP / increase economic growth
(1) increase employment / lower unemployment (1).

Some domestic firms may already be price competitive (1) and so do not
need a subsidy (1).
The subsidy may encourage some domestic firms to become inefficient
(1) not cutting their costs (1) and improving the quality of their output (1).
It may be regarded to be a form of trade protection (1) other countries
may retaliate (1) so exports may not increase (1).
There will be an opportunity cost involved (1) example (1).

PUBLISHED
7(a) Identify two characteristics of perfect competition. 2
• many buyers
• many sellers
• no barriers to entry (and exit)
• (firms are) price takers
• Identical / homogeneous product
• no attachment between buyers and sellers
• perfect knowledge
7(b) Explain two goals a business organisation may have. 4
Profit maximisation (1) making as much profit as possible / increasing

the gap between revenue and cost / rewarding entrepreneurs (1).
Growth / expansion (1) increasing the size of the firm by e.g. merging /
seeking to gain market power (1) to take advantage of economies of
scale (1).
Survival (1) during difficult times such as recession / when a firm is first
established the aim may just be to stay in the market (1).
Profit satisficing (1) achieving enough profit to keep shareholders’ happy
while following other objectives (1).
Social welfare (1) business organisations operating in the public sector
may e.g. be concerned about the environment / charging a low price to
help the poor (1).

PUBLISHED
7(c) Analyse the main reasons for the differences in the size of firms. 6 Maximum of 3 marks for a list-like approach.
Type of business organisation (1) state-owned enterprises and

multinational companies operate on a larger scale than sole traders (1).
Size of market (1) the market for some products is large / expanding (1)
example (1) while others are declining (1) example (1).
Some firms have more access to finance (1) public limited companies
can sell shares (1) sole traders cannot (1).
Some firms grow through merging (1) type of merger e.g. horizontal
merger (1).
Motives of owners (1) e.g. some prefer the firm to remain small so that
they can retain control / ownership (1).
Some firms may be subsidised (1) which may encourage them to
produce a higher output (1).
Some firms may be more profitable (1) can reinvest profits / internal
growth (1).
Length of time in the market (1) longer there, more time to grow (1).
Some firms may be able to take advantage of economies of scale (1)
example of an economy (1).
Some firms may experience diseconomies of scale (1) example (1).
Type of product / capital v. labour-intensive (1) e.g. aircraft have to be
produced on a large scale (1).

PUBLISHED
7(d) Discuss whether or not the use of supply-side policy measures by 8 Maximum of 5 marks if only one policy measure
a government will reduce firms’ average costs of production. discussed.

Education and training (1) should increase labour productivity (1) this
could reduce labour costs (1).
A cut in income tax (1) may reduce upward pressure on wages (1).
A cut in indirect taxes (1).
Privatisation (1) may make firms more efficient (1) especially if there is
competition in the market (1).
Deregulation (1) may reduce the cost of complying with rules and
regulations (1).
Subsidies (1) may enable firms to buy more efficient machinery (1) train
workers (1) may be able to take advantage of economies of scale (1).
Remove tariffs (1) enable firms to get raw materials at lower prices (1).
Spending on infrastructure (1) reducing transport costs (1).

Education and training may not be in the areas in demand (1) may not
increase workers’ skills (1) some workers who are educated / trained
may emigrate (1).
Wages of workers may rise by more than productivity (1) increasing
labour costs (1).
Privatised firms may become private sector monopolies (1) this will
reduce pressure on them to keep costs down (1).
Subsidies may be given to reduce unemployment / maintain employment
(1) additional workers may be less productive (1) may experience
diseconomies (1).
There may be corruption (1).

ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
1(a) Identify, using information from the extract, two industries that are in the 2
primary sector of the Icelandic economy.
• farming
• fishing
1(b) Explain, using information from the extract, two reasons for government 4
regulation of the fishing industry in Iceland.
Protect domestic fishermen (1) to ensure they have a stable income (1) to ensure
that jobs are preserved (1) can compete with foreign fishermen (1).
Protect the stock of fish (1) to ensure sustainability of fish stocks (1) for future
generations (1).
1(c) Explain, using information from the extract, two reasons, apart from changes 4
in employment, for Iceland’s high growth rate from 2002–2007.
• increased availability of bank loans (1) more borrowing (1) to fund consumption
(1) and to fund investments (1).
• increasing income of its major trading partners, including the European Union
and Norway (1) Iceland can now export more to their trading partners (1)
increase net exports / external demand / aggregate demand (1)
1(d) Calculate, using information from the extract, Iceland’s GDP in 2007. 2
$18.53 billion (2)

18.53 or working e.g. $17bn × 0.09 = $1.53bn (1)

PUBLISHED
1(e) Analyse, using Fig 1.1, the relationship between changes in the economic 5 No marks for a descriptive approach
growth rate and the unemployment rate over the period shown. e.g. identifying the growth rate or the
unemployment rate for specific years.
They both rose over the period (1) showing a positive relationship (1) unexpected (1)
evidence from the data e.g. the unemployment rose from approx. 3.4 to 5% (1) the
economic growth rate rose from 0.5 to 1.8% (1)
Unemployment rate was relatively constant from 2002 to 2008 (1) while economic
growth fluctuated (1). Unemployment was relatively stable from 2009 to 2014 (1).
Between 2007 and 2009 the fall in the economic growth rate (1) to a negative value /
recession (1) while there was a rise in the rate of unemployment (1).
From 2009 to 2014 economic growth increased (1) and unemployment fell (1) the
trends are moving in opposite directions (1) as would be expected (1) high economic
growth rate should create more jobs (1).
Between 2002 and 2004 there’s a significant increase in the economic growth rate
(1) while there was only a slight fall in the unemployment rate (1).
1(f) Explain, using information from the extract, whether the supply of Iceland’s 2
fish is price-elastic or price-inelastic.
It is price-inelastic (1) because the quantity of fish supplied tends to change by a

smaller percentage than the change in its price (1).

PUBLISHED
1(g) Discuss the advantages and disadvantages of the activities of commercial 5

banks to an economy.
Up to 3 marks for advantages to an economy:

Lending (1) to consumers (1) enabling them to increase consumption (1) raising their
living standards (1) and to firms (1) allowing them to invest (1) increase employment
(1) increase output (1) expand into international markets (1) improve the current
account of the balance of payments (1).
Attract MNCs (1) by providing a range of services to these companies (1).
Banks employ many people (1) keeping unemployment low (1)
Up to 3 marks for disadvantages to an economy:

May encourage saving (1) decreasing consumption/total demand (1)
Banks may fail (1) losing customers’ money (1) risking damage to the economy /
recession (1).
May lend to risky businesses (1) which may cause fluctuations in output (1).
May lend to individuals who cannot repay (1) pushing them into debt (1).
May charge high interest rates (1) to gain high profits (1) which will increase firms’
costs of production (1) and make it difficult for individuals to repay (1).
May lend for purchase of imports (1) worsening the current account (1)
Risk of inflation (1) if banks lend too much (1).

PUBLISHED
1(h) Discuss whether or not a growth in tourism is an advantage to a country such 6

as Iceland.
Up to 4 marks for why it might be:

Tourism is an export of services (1) bringing in foreign currency (1) improving the
current account balance (1).
Tourism may increase government tax revenue (1) this could be spent on e.g.
education (1).
Tourism increases the demand for goods and services (1) creating
employment/reducing unemployment (1) e.g. in hotels/restaurants/shops (1)
increases output / contributes to economic growth (1).
Tourism may attract MNCs/foreign investment (1) e.g. foreign hotel chains may set
up in the country (1).
More revenue from tourism may result in a rise in the exchange rate (1) this may
reduce the price of imports (1)
Less reliance on primary / secondary sector (1) benefits of diversification (1).

Tourism may create external costs (1) example e.g. pollution (1).
Tourism may deplete resources (1) e.g. water (1).
Tourism may place a strain on infrastructure, e.g. transport systems (1)
Tourism jobs may be low-paid (1) low skilled (1) seasonal (1).
Foreign firms may send profits home (1) foreign hotels may bring own employees
(1).
A high exchange rate may reduce exports / international competitiveness (1).
Tourism may increase demand in the economy (1) pushing up the prices the local
population have to pay / creating inflation (1).

PUBLISHED
2(a) Define a surplus on the current account of the balance of payments. 2
When the revenue from trade in goods and trade in services exported exceeds the
revenue from trade in goods and trade in services imported (2).
When the inflow from primary income and secondary income is higher than the
outflow of primary income and secondary income (2).
Exports greater than imports (1).
2(b) Explain two possible causes of low unemployment. 4
high levels of economic growth/GDP (1) output requires more workers (1)
high levels of education and training (1) acquire skills needed for jobs (1)
high levels of investment (1) high demand for workers (1)
high levels of consumer spending (1) more production / more labour (1)
high levels of exports (1) increasing demand for labour
high government spending / low taxes (1) to stimulate economic growth (1)
low interest rates (1) encouraging more consumption / investment (1)
2(c) Analyse how long-term unemployment can cause relative poverty. 6
Relative poverty is when household income is low compared to the average (median)
income in that country, e.g. less than 60% of average income (1)
Long-term unemployed have very low incomes (1) cannot afford items which
average households are able to (1) e.g. adequate housing, healthcare (1) may
depend on government benefits (1) may be unable to provide children with good
education (1) children may not be able to take up good jobs (1) productivity may be
lower (1) compared to those who are better educated (1).
Savings will be used up (1) reducing the ability to escape poverty (1)
Health deteriorates (1) reducing the ability to find work (1) depression may occur (1)
reducing the motivation to find work (1)

PUBLISHED
2(d) Discuss whether or not an increase in a surplus on the current account of the 8
balance of payments decreases unemployment.
Up to 5 marks why it may:

More exports (1) means more output is needed (1) more workers will be needed (1)
as demand for labour is a derived demand (1).
A surplus means more funds flowing into the economy (1) increasing total
(aggregate) demand (1) which could generate jobs (1)
Incomes increase (1) consumption may increase (1) increasing revenue of firms (1)
which could then be reinvested (1)
Up to 5 marks why it may not:

Exports may be capital-intensive (1) using less labour to produce exports (1).
A surplus in one country may create a deficit in another (1) other countries may not
be able to continue buying exports (1) other countries may impose protectionist
policies (1) to prevent future deficits (1).
An increase in a surplus may raise the exchange rate (1) reducing net exports (1)
increasing unemployment (1).

PUBLISHED
3(a) Define supply-side policy. 2
Policy which is designed to increase the total (aggregate) output / supply / productive
capacity of an economy (2).
Policy aimed at making markets work more efficiently (1) to encourage economic
growth (1).
3(b) Explain two functions of the stock exchange. 4
• raising capital for businesses (1) by selling shares to the investing public (1)
• mobilising savings for investment (1) through purchase of shares (1)
• funds are put into productive activities (1) in the hope of generating high returns
(1)
• government finance raising (1) for development projects (1)
• share prices as a general indicator (1) of the performance of the economy (1)
3(c) Analyse two possible conflicts between government aims. 6 Maximum of 4 marks if only one
conflict analysed.
Lower unemployment vs. price stability (1) lower unemployment means higher
incomes (1) increasing total demand (1) creating demand-pull inflation (1) lower
unemployment means less spare capacity (1) wage demands increase (1) wage-
price spiral (1).
Economic growth vs. price stability (1) production increases (1) faster than the
increase in resources (1) increase in total demand leads to higher prices rather than
increased output and employment (1).
Economic growth vs. environmental protection (1) output increases (1) consumption
increases (1) causing a rise in external costs (1) example e.g. pollution, destruction
of habitats (1).

PUBLISHED
3(d) Discuss whether or not infrastructure projects will benefit the economy. 8

Infrastructure projects will employ workers directly (1)
May help reduce firms’ production costs (1) example (1) increasing profits (1)
increasing output (1) increasing employment (1) encouraging investment (1)
increasing total (aggregate) demand (1)
Creates external economies of scale (1) reducing costs for firms within an industry
e.g. better transport servicing an industry (1) improving efficiency (1)
May attract MNCs to the country (1)

High cost of infrastructure projects (1) may need to raise taxes (1) or borrow large
amounts (1) opportunity costs (1) funds could have been spent on e.g. health care
(1).
External costs (1) e.g. pollution, habitat destruction (1)
Risk of inflation (1) due to increased government spending (1)
Short run costs may occur e.g. congestion (1) but long run benefits may arise e.g.
faster travel times (1)

PUBLISHED
4(a) Identify two motives for consumer spending. 2
• to satisfy needs e.g food, shelter

• to satisfy wants e.g. luxury goods
• fear of future price rises
• to gain satisfaction from that consumption
4(b) Explain two benefits a firm can gain by borrowing. 4
• it can pay running costs / unexpected expenses (1) to enable the firm to stay in
business (1)
• it can invest/purchase capital (1) to lower costs/improve efficiency (1) to increase
profits (1)
• it can improve products/add new products (1) by spending on R&D (1)
• it can spend on advertising (1) to increase demand/market share (1)
• in a recession, it can help to cover its costs (1) in order to stay in business, e.g.
paying wages, covering debts (1)
4(c) Analyse two consequences of a depreciating foreign exchange rate. 6 Maximum of 4 marks if only one
consequence analysed.
• price of exports decreases (1) quantity of exports demanded increases (1) value
of exports increases (1) net exports increase (1)
• price of imports increases (1) quantity demanded for imports decreases (1) value
of imports decreases (1)
• current account deficit decreases / surplus increases (1) total (aggregate)
demand increases (1) inflation increases (1)
• price of imported raw materials / semi-finished goods increases (1) cost of
production increases (1) price level increases / inflation (1)
• discourages savers from overseas (1) who fear losing money (1)

PUBLISHED
4(d) Discuss whether or not a fall in interest rates will benefit an economy. 8

Cost of borrowing decreases / borrowing increases (1) may cause increase in
consumption (1) investment (1) decrease in savings (1) total (aggregate) demand
increases (1) economic growth (1) reduces unemployment (1).
May increase spending on research and development (1) increase productivity (1)
increase potential growth (1).
Value of currency will fall (1) decrease price of exports (1) increase price of imports
(1) net exports increases (1).

May cause inflation (1) due to increased levels of borrowing / consumption / demand
(1)
Returns from savings decreases (1) those who rely on savings will suffer (1) e.g.
pensioners (1).
Value of currency will fall, increasing price of imports (1) decreases choice / reduce
purchasing power (1) decrease standards of living (1) cost-push inflation (1).
Could result in firms/individuals borrowing who would not be able to repay if the
interest rate rises (1) unsustainable economic growth (1).

PUBLISHED
5(a) Define public limited company. 2

A company whose shares are traded on a stock exchange (1) these shares can be
bought and sold by the public (1) the company has limited liability (1).
5(b) Explain two reasons for growth in average earnings. 4 2 marks could be awarded for an
accurately drawn demand and supply
• increase in demand for goods and services (1) increase demand for workers / diagram.
derived demand (1) an increase in demand would increase wages (1)
• increase in inflation (1) workers demand higher wages (1)
• trade union bargaining power (1) e.g. threat of industrial action (1)
• increased productivity of workers (1) increasing demand for labour (1)
• reduction in income tax (1) increasing disposable incomes (1)
• the legal minimum wage increases (1) the lowest paid earn more, increasing the
average (1)
5(c) Analyse, using a demand and supply diagram, how government subsidies help 6 S1
firms grow. S2
price

Axes correctly labelled – price and quantity or P and Q (1)
Demand and supply curves correctly labelled (1) P1
Shift in supply curve to the right (1) P2
Equilibriums – shown by lines or labels e.g. E1 and E2 (1)
Up to 2 marks for written analysis: D

Will lead to a decrease in cost of production (1) output increases / price will fall (1). O Q1 Q2
Profits / revenue of firms may increase (1) profits can be reinvested (1) increasing quantity
productivity (1) increasing competitiveness of firms (1).

PUBLISHED
5(d) Discuss whether or not trade protection supports the growth of domestic 8
firms.
Up to 5 marks for how it might:

Protectionism may increase the price of imports (1) making imports less desirable (1)
quantity of imports demanded decreases (1) quantity of domestic goods demanded
increases (1).
Protectionism may reduce the quantity of imports e.g. quotas (1)
An increase in demand for domestic goods may lead to an increase in revenue (1)
and profits (1) of domestic firms, encouraging them to hire more workers (1)
decreasing unemployment (1).
Trade protection can allow infant industries to grow / prevent sunset industries from
declining (1) which may enable then to take greater advantage of economies of scale
(1) making them more internationally competitive (1).
Up to 5 marks for how it might not:

Protectionism might lead to retaliation (1) other countries might put a protectionist
policy on domestically produced goods (1) increasing the price of the country’s
exports / reducing the quantity allowed (1) decreasing the demand for exports (1).
An increase in price of imported raw materials may increase some firms costs of
production (1) lowering profits (1).
Domestic substitute raw materials may be of a lower quality (1) which will reduce the
quality of the output of domestic firms (1) may lead to lower demand (1).
Trade protection may make domestic firms complacent/less efficent (1) may become
reliant on protection (1) less incentive to grow (1).

PUBLISHED
6(a) Define social cost. 2
Social cost is equal to the sum of private costs (1) and external costs (1).
Cost to the entire society (1).
6(b) Explain two reasons why a firm would want to specialise in producing only one 4
product.
• a firm can specialise in what it is best at producing (1) increasing efficiency /

productivity (1) achieve economies of scale (1) decrease cost of production (1)
leading to higher output / higher profits (1)
• increasing global demand (1) which would raise revenue (1)
• resources are well suited to the product (1) e.g. good climate (1)
• a firm can gain a good reputation in producing the product (1) specialisation may
improve the quality of the product (1) increasing demand for the product (1)
6(c) Analyse how the ability of firms to produce on a larger scale is beneficial to 6
consumers.
Producing on a larger scale may enable economies of scale (1) example (1) when
average costs decrease (1).
Price of the product may fall (1) enabling consumers to buy more of the product (1)
improving living standards (1).
Producing on a larger scale reduces shortages (1) increases the quantity of products
available to consumers (1).
Producing on a larger scale may enable more to be spent on R&D (1) increasing the
quality of products available to consumers (1).

PUBLISHED
6(d) Discuss whether or not the operation of a market economic system is harmful 8 Accept but do not expect reference to
to an economy. merit goods, demerit goods and public
goods.
Up to 5 marks for why it is:
Poor consumers will have little influence on what is produced (1) because they have
limited purchasing power / inability to afford products (1).
Monopolies may occur (1) charging high prices (1) producing low quality (1).
Products causing external costs will be overproduced (1) overconsumed (1) example
(1).
Products providing external benefits will be underproduced (1) and underconsumed
(1) example (1).
Income and wealth may be unequally distributed (1) e.g. those on fixed incomes
disadvantaged (1).

In theory there is consumer sovereignty (1) consumers determine what is produced
(1) firms respond to changes in consumer demand (1).
Competition between firms (1) and the profit motive (1) increases efficiency (1)
leading to low prices (1) and high quality products (1).
A variety of products may be produced / there may be choice (1).

PUBLISHED
7(a) Define labour. 2
The human factor of production (1) mental and physical effort (1) required for
production (1).
7(b) Explain two motives for saving. 4
• to gain interest (1) as a form of income / as a return on saving (1)

• for the future (1) e.g. for unexpected events, save for pensions (1)
• to purchase expensive items (1) e.g. cars, houses, furniture / items which can’t
be bought immediately (1)
• for children’s education (1) to improve social mobility (1)
7(c) Analyse the reasons for countries having different population growth rates. 6
Different birth rates (1) due to different levels of income (1) different levels of
education (1) different awareness of contraception / family planning (1)
Different death rates (1) because of different healthcare standards prevalance of
diseases (1) different availability of hospitals/doctors (1).
Different levels of immigration / emigration (1) better standards of living/job
opportunities to attract more immigrants/prevent emigrants (1).
Different levels of female labour force participation rates (1) more female labour force
participation, lower birth rates (1).
Different government regulations / incentives / disincentives (1) e.g. one-child policy
reducing population growth rates/tax breaks or allowances for couples with children
(1).
Different cultural/spiritual reasons (1) example (1)

PUBLISHED
7(d) Discuss whether or not a rise in the working-age population, as a percentage 8

of the total population, will be beneficial to a country.
Up to 5 marks why it might be:

Increase in working age population will increase the size of labour force / supply of
labour (1) increasing incomes (1) consumption (1) and increasing output / economic
growth (1).
Cost of labour may decrease (1) overall cost of production decreases (1) attracting
foreign investments / MNCs (1) increasing aggregate demand (1)
The working age population may spend more than other age groups (1).
It will reduce the dependency ratio (1) reducing pressures on government spending
(1).
Up to 5 marks why it might not be:

If birth rates are low, population might soon be ageing (1) leading to unsustainable
growth (1) decreasing future output (1).
If no jobs are available, unemployment will increase (1) example of problems
associated with unemployment (1).
Working-age people may be unskilled / have skills in the wrong areas (1) slows
More people working may cause increased external costs (1) e.g. pollution,
congestion (1).

ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
1(a) Identify, using information from the extract, two factors that 2
influence an individual’s choice of occupation.
• working hours / leisure time

• holidays
• job security / job insecurity
• wages
1(b) Explain, using information from the extract, an opportunity cost of 2

working.
Leisure time / holidays / time devoted to raising children / looking after

the elderly (1) opportunity cost is the (next) best alternative forgone (1).
1(c) Calculate, using information from the extract, the number of 2

Japanese workers who left work early on Premium Friday in
February 2017.
2.56m / 2 560 000 (2).

Correct working: 4% of 64m (66m – 2m) or 2,560 or version of 2.56 (1).
1(d) Explain, using information from the extract, why the size of Japan’s 4
population has fallen in recent years.
The birth rate has fallen (1) more than the fall in the death rate (1).
A fall in the birth rate means fewer children are being born (1) a reason
e.g. more women working / people working longer hours / job insecurity /
looking after elderly relatives (1).
A fall in the death rate means people are living longer (1).
If the birth rate falls by more than the death rate there may be a natural
decrease in population (1) actual decrease if natural decrease is more
than net immigration (1) extra number of older people is more than offset
by fewer babies (1).

PUBLISHED
1(e) Analyse, using Fig.1, the relationship between the average hours 5 Expected relationship may be explained in
worked and productivity. reverse e.g. long hours may make workers tired.
Generally, the shorter the hours worked the higher the productivity (1)
inverse relationship / negative relationship (1).
The expected relationship (1) workers will not be tired and so will be able
to produce more per hour / more leisure time may increase efficiency /
may be more motivated (1).
Two countries, France and Germany, have the shortest working hours
and the highest productivity (1). Country with the longest working hours,
Mexico, has the lowest productivity (1).
South Korea is an exception (1), long working hours but higher
productivity than Mexico / Russia which have shorter working hours (1),

PUBLISHED
1(f) Discuss whether or not a cut in income tax would stop deflation. Apply this example to all questions with the
command word DISCUSS
Up to 3 marks for why it might: (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(d))
A cut in income tax will increase disposable income / purchasing power
(1) this may increase spending (1) higher spending may encourage more Each point may be credited only once, on either
investment (1) higher total (aggregate) demand (1) may encourage firms side of an argument, but separate development
to raise prices/demand-pull inflation (1). as to how/why the outcome may differ is to be
Higher demand may encourage firms to expand (1) they may take on rewarded.
extra workers (1) reduce unemployment (1) they may pay higher wages
(1) increasing costs of production (1) causing cost-push inflation (1).
Generic example mark
Up to 3 marks for why it might not: Tax revenue may decrease 1
Consumers may lack confidence (1) and so not spend any more / may
save (1) may still delay purchases (1) they may spend on imports rather
...because of reason e.g. incomes 1
than domestic products (1).
may be lower.
Firms may lack confidence (1) and so not invest (1).
Any extra investment which takes place may reduce costs of production Tax revenue may increase 0
(1) and so prices may fall further (1). because incomes may be higher
Firms may have spare capacity (1) and so may be able to increase i.e. reverse of 1st argument
output without increasing average costs of production (1) and so prices
may not rise (1). Tax revenue may increase 1
Government tax revenue may fall (1) reducing government spending because of a different reason that
which may mean that total demand does not rise (1). is not the reverse of a previous
argument e.g. government
spending on subsidies may
stimulate the economy more than
spending on education.
Demand-pull inflation and/or cost-push inflation

may be shown on a diagram.

PUBLISHED
1(g) Explain, using information from the extract, why wage rises have 4
been low in Japan.
Trade unions have been concentrating on trying to achieve shorter

working hours (1) this may suggest they have not been pressing for wage
rises (1).
Higher demand for labour has been matched by higher supply (1) the
higher supply has come from immigration (1) and a higher proportion of
women in the labour force / people working past retirement age (1)
making it easier for firms to recruit workers without raising wages (1).
Long experience of deflation / low economic growth (1) may have
resulted in lower consumer spending / low profits / real wages may have
increased (1).
Job insecurity (1) less willing to press for wage rises (1).

PUBLISHED
1(h) Discuss whether or not Japan will benefit from employing more 6
migrant workers.

They may increase the size of the labour force (1) increase productive
capacity / potential output / economic growth (1).
They may increase total (aggregate) demand (1) and so generate more
jobs (1).
Japan’s population is falling (1) without a rise in the supply of labour,
there may be a shortage of workers (1) this may cause cost-push inflation
(1).
Migrant workers may have higher skills (1) new ideas / up to date with
technology (1) this could raise productivity (1) may work for lower wages
(1) lower costs of production (1) make the country’s products more
internationally competitive / lower prices (1).
Tax revenue may increase (1) enabling the government to spend more
on e.g. education (1).

Migrant workers may keep wage rises low (1) and so restrict increases in
living standards (1).
In some cases, migrant workers may replace domestic workers causing
some to be unemployed (1).
Migrant workers may need training (1) increase firms costs (1).
Migrant workers may bring their families with them (1) this may increase
pressure on e.g. housing, school and healthcare (1) may lead to
overpopulation (1).
Migrant workers may send money home (1) harming the current account
position (1).

PUBLISHED
2(a) Identify two types of business organisation that operate in the 2 Accept but do not expect partnership and private
private sector. limited companies.
• sole trader
• public limited companies
• cooperatives
• multinationals
2(b) Explain what effect more firms producing tyres would have on the 4 Accept a diagram as an alternative to the last
PED of individual firms’ tyres. mark
Will increase competition (1) more substitutes will be available (1) a rise
in the price of one firm’s tyres would cause people to switch to other
firms’ tyres (1) demand would become more elastic (1).
2(c) Analyse, using a demand and supply diagram, the effect of an 6

increase in demand for cars on the market for tyres.

Shift in the demand curve to the right (1).
Equilibriums correctly identified either by lines or by e.g. E1 and E2 (1).

Price of tyres will increase / quantity traded will rise (1).
Tyres are a complement of cars (1).
More tyres may be purchased by drivers / car firms (1).

PUBLISHED
2(d) Discuss whether a large firm will earn more profit per unit sold than 8 Accept an answer from the perspective of a small
a small firm. firm earning more/less profit.

May be able to take advantage of economies of scale (1) examples (2)
lower average cost (1) permitting a lower price to be charged raising
sales / enabling more profit to be made even if the price charged is the
same (1).
May have funds available to spend on advertising (1) create a brand
image / brand loyalty (1) allowing the firm to raise price (1).
May have more market power (1) may be able to keep competitors out of
the market/have high barriers to entry (1) allowing the firm to raise price
(1).

Large firm may experience diseconomies of scale (1) examples (2)
higher average cost (1).
Small firms may be subsidised by the government (1) lower average
cost/extra source of revenue (1).
Small firms may be producing a new product (1) for which there may be a
high demand (1).
Small firms may be in a niche market (1) consumers may be willing to
pay a high price (1).
Small firms may respond quicker to a change in demand (1) reducing
surpluses and shortages (1).
Small firms may provide a personal service / develop a personal contact
(1) increasing demand / enabling a higher price to be charged (1).

PUBLISHED
3(a) Identify two methods of trade protection other than tariffs. 2
• quotas
• embargoes
• voluntary export restraint
• red tape / bureaucracy / artificially high standards
• subsidies
3(b) Explain how market forces will eliminate a surplus and a shortage. 4 2 marks could be awarded for an accurately
drawn demand and supply diagram showing
A surplus will be eliminated by a fall in price (1) demand will rise / supply changes in price.
will fall (1).
A shortage will be eliminated by a rise in price (1) demand will fall /
supply will rise (1).
3(c) Analyse how improvements in education can affect the pattern of 6

employment.
May be more skilled workers (1) increase qualifications (1) workers may
seek better paid jobs (1) jobs with better working conditions (1).
There is likely to be a reduction in primary sector employment (1) an
increase in secondary / tertiary sector employment (1).
May be an increase in women in employment (1) if girls benefit from
improvements in education (1).
May increase employment of teachers (1) if e.g. class sizes are reduced
(1).
May encourage an increase in migrant workers (1) attracted by better
education for their children (1).

PUBLISHED
3(d) Discuss whether or not the imposition of import tariffs by a country 8

will reduce its unemployment.

Import tariffs may raise the price of imports (1) demand for imports may
fall (1) consumers may switch to domestic products (1) firms may
increase output (1) take on more workers (1).
Tariffs can protect infant industries (1) allow them to grow (1) and employ
more workers (1).
Tariffs can protect declining industries (1) reduce structural
unemployment (1).
Tax revenue may increase (1) example of higher government spending
that could reduce unemployment (1).

Other countries may retaliate (1) imposing tariffs on this country’s exports
(1) employment in the export industries may fall (1).
Tariffs on imported raw materials (1) will increase costs of production (1)
this may lead to higher prices of domestic products (1) causing a fall in
demand (1).
Imports may not have domestic substitutes (1) price of imports may still
be lower (1) so consumers may continue to buy imports (1) demand for
imports may be price inelastic (1).

PUBLISHED
4(a) Define a capital good. 2
A human-made good (1) used to produce other goods and services (1).
4(b) Explain two causes of an increase in a country’s HDI. 4
• an increase in GDP / GNI / income per head (1) raises the goods
and services people can consume / due to e.g. higher employment
(1)
• an increase in life expectancy (1) indicates better healthcare / due to
better healthcare / more investment in healthcare (1)
• an increase in education / mean and expected years of schooling (1)
increases job opportunities / quality of life / due to government
investing more in education (1)
4(c) Analyse, using a production possibility curve (PPC) diagram, the 6

effect of damaging weather on an economy.
consumer
Up to 4 marks for the diagram: goods
• axes correctly labelled in terms of two different products or types of
products (1)
• initial curve or downward sloping line is drawn to the axes (1)
• second curve or downward sloping line is drawn to the axes (1)
• An indication either by labelling or an arrow that the curve has shifted
inwards / left (1)

Bad weather will reduce the quantity of resources (1). O capital goods
The amount that can be produced with fewer resources will fall (1).

PUBLISHED
4(d) Discuss whether countries with a high Gross Domestic Product 8

(GDP) per head will have a faster rate of economic growth than
countries with a low GDP per head.

They are likely to have good education (1) good healthcare (1) this will
mean skills will be high (1) productivity will be high (1) there may be
advances in technology (1) reducing costs of production (1) exports may
increase (1).
Unemployment may be low (1) with most resources being used (1).
MNCs may be attracted to set up in the country (1) contributing to the
country’s output (1).
Foreign banks may be more willing to lend to the countries’ firms (1)
allowing them to expand (1).
High incomes are likely to mean high demand / high consumer spending
(1) encouraging firms to produce more (1).

Countries with a low GDP per head may discover raw materials (1) which
may be in high world demand (1).
People in poorer countries may have more drive to improve their living
standards (1) they may work harder (1).
Richer countries may have a lower rate of population growth or declining
populations (1) this may mean their labour forces are growing more
slowly (1) restricting their ability to produce more goods and services (1).
Other factors may influence economic growth (1) e.g. type of government
policies pursued / deficit on the current account of the balance of
payments (1).

PUBLISHED
5(a) Identify two supply-side policy measures. 2 Accept measures that could increase total supply
e.g. lower indirect taxes and reduced interest rate.
• a cut in income tax
• a cut in corporation tax
• a cut in unemployment benefit
• education
• training
• privatisation
• deregulation
• subsidy
• legislation to reduce trade union power
5(b) Explain two ways a government could reduce relative poverty. 4 Reward but do not expect reference to minimum
wage and price controls.
• progressive taxation / higher direct taxes (1) which takes a higher
proportion of the income of the rich (1)
• reduction of tax on basic foodstuffs / indirect taxes (1) benefiting
mainly the poor (1)
• state benefits given to the poor (1) increasing their purchasing power
/ living standards (1)
• education and training of the poor (1) increasing their earning
potential (1)
• provision of healthcare to the poor (1) increasing
productivity/reducing cost of medication (1)
• provision of subsidies to firms (1) reducing unemployment / reducing
prices (1)

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5(c) Analyse the reasons why small shops may be easy to set up. 6
They do not take much money to set up (1) costs initially will be low (1)
low fixed costs (1) it may be possible to borrow the money (1) or use
savings (1).
There may be government subsidies (1) designed to encourage the
growth of small firms/shops / lower costs of production (1).
Running a small shop does not require significant management skills (1)
people do not need a high level of education to run a small shop (1).
May be less paperwork involved / regulations (1) reducing time and effort
(1).

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5(d) Discuss whether or not firms will benefit from a fall in 8

unemployment.

A fall in unemployment will increase incomes (1) this is likely to increase
total (aggregate) demand (1) firms may sell more products (1) raise firms’
profits (1).
Having more workers will enable firms to increase their output (1) can
respond to rising demand (1).
Lower unemployment may increase consumer confidence (1)
encouraging them to spend more (1).
Tax revenue will rise (1) spending on unemployment benefit will fall (1)
government may spend more in ways that will benefit firms (1) e.g.
spending on training (1).

Firms may find it more difficult to recruit workers (1) they may not able to
fill some jobs (1) this may mean that output will be restricted/order not
filled (1).
Competition for workers may drive up wages (1) increasing firms costs
(1) lowering their profits (1).
Trade unions may become more powerful (1) leading to more strikes (1).
Less skilled workers may be employed (1) reducing productivity (1)
raising costs (1).
Shortage of workers may force firms to use more capital-intensive
production methods (1) increasing their costs (in the short run) (1).
Some firms may lose whilst others gain (1) example of a reason e.g.
differences in what is being produced (1).

PUBLISHED
6(a) Identify two reasons why market failure may occur. 2 Reward but do not expect: merit goods, demerit
goods, public goods and information failure.
The existence of external costs (1) and external benefits (1).
Abuse of monopoly power (1) advertising distorting choice (1). Inefficient
allocation of resources / not producing the right quantity / not producing
at the lowest possible cost (1).
6(b) Explain how resources are allocated in a mixed economic system. 4 Maximum of 3 marks for explaining how only one
sector allocated resources.
Resources in the public sector (1) are allocated by government
decisions/directives (1) products are produced by state-owned
enterprises resources are allocated to overcome market failure (1).
Resources in the private sector (1) are allocated by the price mechanism
/ market forces / demand and supply / firms / consumer sovereignty (1)
profit provides an incentive for firms to produce what consumers demand
(1).
6(c) Analyse how a high rate of inflation may harm the poor. 6
Inflation may raise the price of basic necessities (1) reducing purchasing
power of the poor (1) increasing absolute poverty (1).
Inflation may reduce the value of any savings the poor have (1) reducing
their ability to access e.g. healthcare, education and housing (1) reducing
job opportunities (1).
Inflation may reduce the country’s international competitiveness (1) lower
output (1) increase unemployment (1) making it more difficult for the poor
to gain jobs (1).
Inflation may reduce the purchasing power of state benefits (1) e.g.
pensions or unemployment (1).
The poor may be less likely to belong to trade unions (1) less ability to
raise wages (1).

PUBLISHED
6(d) Discuss whether or not increasing government spending will enable 8

a government to achieve its aims for the economy.

Government spending will increase total (aggregate) demand (1) this
may encourage firms to produce more (1) economic growth may increase
(1) deflation may be avoided (1) and unemployment may fall (1) the poor
may gain jobs (1) making income more evenly distributed (1).
Government spending on healthcare (1) may raise living standards / life
expectancy (1).
Government spending on education (1) may improve environmental
standards (1).
Government subsidies (1) may increase labour productivity (1) costs of
production may fall (1) lowering cost-push inflation (1) increasing
international competitiveness (1) improving the current account position
(1).
Government spending on state benefits (1) may reduce income inequality
(1) may raise living standards (1).

Higher government spending may cause inflation (1) if total supply does
not rise in line with total demand (1).
Some of the higher income created may be spent on imports (1) this may
increase a current account deficit (1).
An increase in government spending on unemployment benefits (1) may
increase voluntary unemployment (1).

PUBLISHED
7(a) State the formula used to calculate PED. 2
% change in quantity demanded divided by % change in price (2).

Change in demand divided by change in price (1).
7(b) Explain two reasons why the price of sugar may fall. 4
• demand may fall (1)

• supply may increase (1)
• a fall in income will lower demand (1) because of less purchasing
power (1)
• a fall in population will lower demand (1) as there will be fewer
consumers (1)
• a change in tastes will lower demand (1) as people may find sugar
less appealing (1)
• concern about health will lower demand (1) as consumers will switch
to other foods (1)
• a rise in the price of a complement (1) e.g. tea (1)
• a fall in the price of a substitute (1) e.g. sweeteners (1)
• reduction in costs of production will increase supply (1) as it is likely
to lead to higher profits (1)
• subsidies will increase supply (1) as they will give an incentive to
firms to produce more (1)
• a cut in indirect tax will increase supply (1) as it lowers costs (1)
• good weather conditions will increase supply (1) as less of the crop
will be lost (1)
• more firms in the market (1) increasing competition in the market (1)

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7(c) Analyse the possible reasons why a producer’s fixed cost may 6
increase.
Fixed costs are costs that do not alter with output (1) in the short run (1).
Rent may increase (1) landlords may decide to charge more for factories
and offices (1).
The amount charged for insurance may increase (1) insurance
companies may be seeking higher profits / their costs may have risen (1).
Interest paid on loans may increase (1) e.g. the central bank may have
increased the rate of interest (1).
A firm may have moved to a larger factory / changed its production
process / using more capital goods (1) leading to higher fixed capital
costs (1).
Inflation may occur (1) increasing e.g. the cost of workers with long-term
contracts (1).

PUBLISHED
7(d) Discuss whether or not a country will benefit from specialising in an 8 Reward but do not expect reference to absolute
agricultural product such as sugar. and comparative advantage.

It may increase efficiency/productivity (1) workers may be well trained in
sugar production (1) advantage may be taken of economies of scale (1)
lower cost (1) lower price (1) exports may increase / imports may fall (1)
improving the current account position (1).
The country may have the right climate (1) to give a good crop of sugar
beet/cane (1) economic growth may increase (1).
Agriculture may be labour intensive (1) creating employment for high
number of workers (1).
The country may gain a reputation for high quality agricultural products
(1) increasing demand (1).
May benefit if demand for the product is high (1).

Demand may fall (1) due to a change in tastes (1) rise in competitors (1).
Supply may be reduced (1) by bad weather or a disease (1).
Demand for manufactured good and for services tend to increase more
as income rises (1) larger profits tend to be earned on these products (1).
Diseconomies of scale may set in (1) Economies of scale tend to be
more significant in manufacturing (1).
Agricultural products tend to have more trade restrictions imposed on
them (1) making it more difficult to export them (1).
Market prices of agricultural products are more variable (1) farmers face
uncertainty in predicting income (1).
The country may become dependent on other countries for other
products (1).

ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED
1(a) Identify, from the extract, two primary sector industries. 2
• agriculture
• copper mining
• emerald mining
1(b) Calculate, using information from the extract, how many people in Zambia lived in 2
poverty in 2017.
• 9m (2).
• Correct working: 15 m × 60% (1).
1(c) Explain, using information from the extract, why Zambia had a high rate of 2
population growth in 2017.
• Birth rate exceed death rate / more people being born than dying (2).
• High birth rate / high natural increase (1).
• Birth rate 41.8 and death rate 12.4 (1).
1(d) Explain, using information from the extract, why a depreciation of the kwacha 4
harmed the Zambian economy.
• Inflation rate rose (1) from 10.1% in 2015 to 20.6% in 2016 (1).
• Growth rate fell (1) from 6.8% after 2014 (1).
• Depreciation is a fall in the value of the currency (1) import prices would have been
higher (1) increasing costs of production (1) leads to higher prices (1) demand for
higher wages (1) creating a wage-price spiral (1).
• Higher inflation may have reduced international competitiveness (1) reducing output
/ economic growth rate (1) leading to lower employment (1) and reduction in living
standards (1).

PUBLISHED
1(e) Analyse, using Fig.1.1, the relationship between copper output and revenue from 5 A pattern of analysis is expected in
the sale of copper. response to this type of question.
Expected relationship - a direct relationship would have been expected / moved in Do not reward simple statements
same direction / as copper output rose, revenue should have risen (1). (repetition) of the figures given in the table.
Evidence in support of unexpected relationship

• Does not support expected relationship / shows an inverse relationship (1).
• Between 2010–14 revenue rose (from 100 to 128) but output fell (from 100 to 90)
so prices rose (1).
• Between 2014–17 revenue fell (from128 to 90) but output rose (from 90 to 108)
which meant that prices fell (1).
• In 2014 copper revenue was highest 128 and output at its lowest 90, while in 2017
copper revenue was at its lowest 90 and output at its highest 108, so changes in
revenue were greater than changes in output of copper (1).
Analysis of inverse relationship:

• When output fell, price per unit may have risen more than fall in output, due to loss
of economies of scale causing average costs to rise (1).
• Price for Zambian copper affected by world market prices (1).
• Copper is likely to be inelastic in demand so prices rise by more than fall in output
increasing revenue (1).

PUBLISHED
1(f) Discuss whether or not a central bank should reduce commercial bank lending. 5 Apply this example to all questions with
the command word DISCUSS
Up to 3 marks for why it should: (1g, 1h, 2d, 3d, 4d and 5d)
• Lowering consumer expenditure / investment by firms (1) may reduce demand-pull Each point may be credited only once, on
inflation (1) making exports more competitive (1). either side of an argument, but separate
• May prevent households and firms getting into debt (1) that they cannot repay development as to how/why the outcome
banks (1) may avoid a financial crisis in the future (1). may differ is rewarded.
• May reduce spending on imports (1) improve the current account position (1).
Tax revenue may decrease 1
• It may reduce consumer expenditure (1) investment (1) this will lower total
(aggregate) demand (1) which may reduce economic growth (1). ... because of reason e.g. 1
• Some firms may go out of business (1) causing unemployment (1) results in poverty incomes may be lower.
(1).
• Firms may not keep up with advances in technology (1) reduce international Tax revenue may increase 0
competitiveness (1) harm the current account position (1). because incomes may be higher
• Households may not be able to borrow to pay for their everyday living / their i.e. reverse of a previous
children’s education / their higher education (1) lower their career prospects (1). argument.
Tax revenue may increase 1

because of a different reason i.e.
not the reverse of a previous
stimulate the economy more

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1(g) Explain, using information from the extract, two reasons why productivity may 4
have been low in Zambia.
• Low investment (1) e.g. fewer workers might be working with new advanced capital
equipment (1).
• Cut in the government spending on training (1) workers may be less skilled (1).
• People living in poverty / poor health (1) more time off work (1).
• Lack of infrastructure e.g. lack of roads / lack of school buildings (1) means greater
difficulty getting to work / gaining adequate education (1).
• Only 48% of the population work (1) less people in work (1).
• Life expectancy of only 52.5 years (1) lack of skills / experience (1).
1(h) Discuss whether or not building a new city will benefit an economy. 6
• Jobs will be created (1) reduce unemployment (1) higher total demand / economic
growth (1) creating higher income / less poverty (1).
• Better housing may be constructed (1) overcrowding may be reduced / less
homelessness (1) living standards may rise (1).
• MNCs may be attracted into the country (1) by improved facilities (1).
• Results in higher tax revenue (1) which government can spend on other objectives
e.g. education and health (1).
• It will involve an opportunity cost (1) money spent/resources used could have been
used to e.g. improve education and healthcare (1) may cause a budget deficit (1).
• It may cause external costs (1) e.g. damage the environment (1).
• People and firms may not want to move (1) new facilities will be wasted (1).
• Causes inflation (1) if already at or close to full employment (1).
• Pushes up prices (1) causing cost-push inflation (1).
• Depletes natural resources / raw materials (1) more dependent on imports (1).

PUBLISHED
2(a) Define tertiary sector and give an example of an industry operating in the tertiary 2
sector.
Services (1) e.g. banking (1).
2(b) Explain two reasons why farm workers may be low paid. 4
• high supply / easily replaced / lower productivity / labour intensive / low value
products (1) low skills/qualifications required (1).
• low demand (1) can be replaced by capital equipment (1).
• low bargaining strength (1) weak trade unions/low trade union membership (1)
2(c) Analyse how lower unemployment may cause inflation. 6
• More people in work (1) incomes may rise (1) as more people are earning wages /
higher purchasing power (1) this could increase spending (1) which may increase
total (aggregate) demand (1) without a rise in output / supply (1) causing demand-
pull inflation (1).
• There may be a shortage of workers/increased competition for workers (1) wages
may be raised (1) to attract workers (1) this increases the average cost of
production (1) firms raise prices to maintain profit margins (1) causing cost-push
inflation (1).

PUBLISHED
2(d) Discuss whether or not a country with high wage rates will have a high 8
unemployment rate.
• High wages may mean high cost of production (1) this may mean higher prices /
inflation (1) international competitiveness may be low (1) exports may fall (1)
imports may rise (1) net exports may fall (1) total (aggregate) demand may fall (1)
causing cyclical unemployment / firms may lay off workers (1).
• May encourage capital intensive production (1) particular industries may be driven
out of business by foreign competition (1) causing structural unemployment (1).
• High wages may motivate workers to work harder (1) making them feel appreciated
(1) causing productivity to be high (1) resulting in high demand for labour (1).
• Workers may be working with high value capital equipment (1) keeping cost per unit
low (1).
• High wages can mean high consumer spending (1) so total (aggregate) demand
may be high (1) resulting in higher demand for workers (1).
• Wages may rise above benefits (1) leading to less voluntary unemployment (1).
• Higher tax revenue (1) allows government to increase spending on reducing
unemployment e.g. training (1).

PUBLISHED
3(a) Identify the difference between a tax and a subsidy. 2
• A tax is a payment to the government (1) whereas a subsidy is a grant from the
government (1).
• A tax increases costs/prices (1) a subsidy reduces costs/prices (1).
• A tax reduces consumption / production (1) a subsidy increases consumption /
production (1).
• A tax is a cost for people / firms (1) a subsidy is a cost to the government (1).
• A tax is placed on demerit goods (1) a subsidy is given to merit goods (1).
3(b) Explain two reasons why demand for a product may be price-inelastic. 4
• The product may not have a substitute (1) consumers will not be able to switch to
rival products / example (1).
• The product may be a necessity (1) people will need to buy it even if price rises /
example (1).
• The product may take up a small proportion of income (1) people may not notice a
price rise / example (1).
• The product may be addictive (1) people cannot do without the product / example
(1).
• The purchase of the product cannot be postponed/there is only a short time period
(1) so people do not have time to find alternatives (1).
• Advertising changes tastes of consumer (1) making the product a “must have” (1).

PUBLISHED
3(c) Analyse, using a demand and supply diagram, the effect a report stating that 6 S
eating tomatoes is good for health will have on the market for tomatoes. price of
tomatoes
P2
Demand and supply curves correctly labelled (1). P1
Demand curve shifted to the right (1).
Equilibriums – shown by lines or e.g. E1 and E2 (1).
D2
Up to 2 marks for written analysis: D1
O Q1 Q2
The report will encourage people to eat more tomatoes (1) rise in demand leads to
shortages (1) a rise in price (1) and an increase in output of tomatoes (1). quantity of
tomatoes
The supply of tomatoes is likely to be relatively inelastic (1) and so an increase in
demand will be likely to have more impact on price than quantity (1).
Do not reward analysis marks for description of diagram e.g. price changes from
P2 to P1 or quantity changes from Q1 to Q2.

PUBLISHED
3(d) Discuss whether or not introducing more capital-intensive production methods 8

will increase a firm’s profits.
• Machines may introduce more advanced technology (1) increases productivity (1)
higher output means firm benefits from economies of scale (1) less workers means
lower labour costs (1) may reduce average costs / (1) may enable price to be lower
(1) revenue will rise (1) if demand is elastic (1).
• Better quality products could be produced (1) increasing demand (1).
• May increase international competitiveness (1) sell more exports (1).
• Machines may be expensive (1) workers may not be trained in their use (1) average
costs could rise (1) reducing gaps between revenue and cost (1).
• Machines may break down (1) consequences of breakdown e.g. interruptions in
supply (1).
• Initial set-up costs may be high (1) profits are reduced in short-run (1).
• A fall in price may cause revenue to fall (1) if demand is inelastic (1).
• Consumers may prefer handmade/personalised products (1) demand may fall (1).
• Labour may be in large supply (1) resulting in low wages (1).
• Government may subsidise firms to employ workers (1) to reduce unemployment
(1).

PUBLISHED
4(a) Identify the difference between economic growth and recession. 2
• Economic growth is an increase in GDP/output (1).

• Recession is a fall in GDP/output / negative economic growth (1).
4(b) Explain how the HDI compares living standards between countries. 4
• Measures output/income/material standard of living (1) GDP/GNI per head (1).

• Measures healthcare (1) life expectancy (1).
• Measures education (1) mean and expected years of schooling / literacy rate (1).
• Provides an index figure for each country (1) from 0 to 1 / divides countries into
very high, high, medium and low (1).
• Higher HDI means higher standard of living (1).
4(c) Analyse the effects of a rise in a country’s birth rate. 6 Reward but do not expect reference to the
optimum population.
• In the short run, fewer women may be able to work (1) which will decrease the size
of the labour force (1) more children (1) increases the dependency ratio (1) putting
pressure on the working population (1).
• In the longer run there will be more workers (1) this may decrease the dependency
ratio (1) population size may increase (1) increase output (1) encourage investment
(1).
• Government will have to devote more resources e.g. to primary education /
childcare / support families (1) this may mean fewer resources can be devoted to
e.g. improving living standards (1).
• Higher demand for industries related to young children e.g. baby clothes, child
minding (1) may reduce unemployment (1).
• Increase in population/ overpopulation (1) causes a strain on resources (1) fall in
• If birth rate still lower than death rate (1) will still have an ageing population (1).

PUBLISHED
4(d) Discuss whether or not parents should have to pay a fee to send their children to 8 Reward but do not expect reference to
school. education being a merit good.
Up to 5 marks for why they should:
• Some parents can afford to pay (1) some parents will work hard to pay (1) paying
may make them more prepared to demand good standards (1) would see
themselves as consumers (1).
• May result in more resources being devoted to education (1) teachers reive higher
pay (1) and motivated to work harder (1) parents demand high standards for their
money (1) improving outcomes (1).
• Education provides private benefits (1) in the form of higher pay (1) more career
choice (1).
• The government paying for education (1) involves an opportunity cost (1) e.g.
spending on healthcare (1).
• A fee may be charged for secondary education but not primary education (1) if it is
considered a basic level of education should be available to all (1) parents may
choose to pay for education if they think it will be of high quality (1).
Up to 5 marks for why they should not:
• Some parents may not send their children to school (1) some will not be able to
afford to (1) some may undervalue education (1) may reduce desire to have
children (1).
• Opportunity cost to parents (1) e.g. less spending on other goods / services (1).
• It would increase income inequality (1) price would take a higher percentage of the
income of the poor (1) less educated workforce (1) lower standard of living (1).
• Education provides external benefits (1) higher productivity (1) higher output/GDP
(1) these could be lost (1)
• The government may need to provide education free to ensure the right quantity of
education is consumed (1) that the poor have access to education (1).

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5(a) Define saving. 2
• Income (1) not spent / minus spending (1).

• Putting money in the bank (1) for future use (1).
5(b) Explain two benefits a country can gain from having a stock exchange. 4
• Provides a market for the sale of shares and bonds (1) encourages saving and
investment (1).
• Makes it easier for firms to grow / source of finance for firms (1) makes people
more willing to buy shares / facilitates mergers (1).
• Government able to raise funding through bonds (1) to support expenditure in
economy (1).
• May encourage MNCs to set up in the country (1) which can increase economic
growth / exports / employment (1).
• May encourage the setting up of other financial institutions (1) creating high-
skilled/well-paid jobs (1).
5(c) Analyse how firms may be affected by a rise in the rate of interest. 6
• It will increase the cost of borrowing (1) this may discourage firms from investing (1)
reducing their growth (1) may put up their prices (1).
• Firms may decide to save more (1) as the return will increase (1) the opportunity
cost of investment will rise (1).
• It may increase the cost of past loans (1) reducing firms’ profits (1).
• Demand for consumer goods may fall (1) as consumers will be discouraged from
borrowing (1) be encouraged to save (1) so lower demand will reduce firms’
revenue (1).

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5(d) Discuss whether or not an economy will benefit from its firms getting larger. 8
• To produce more (1) more workers may be employed (1) which may reduce
unemployment (1).
• Larger firms may be more price competitive/produce at lower average cost (1) due
to economies of scale (1) example (1) this may increase output (1) causing
economic growth (1) lower prices (1) it may also increase exports (1) improving the
current account position (1).
• More imported raw materials/capital goods may be purchased (1) worsening the
• Larger firms may have more market power (1) may be less efficient (1) may
experience diseconomies of scale (1) example (1) average costs may rise (1)
cause cost-push inflation (1) reducing exports (1) worsening the current account
position (1).

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6(a) Define wages. 2
• A payment (1) to a worker (1).

• Amount earned (1) by labour / employees (1).
• Reward (1) for labour (1).
6(b) Explain why the opportunity cost of becoming a teacher for one worker may be 4
greater than for another worker.
• Opportunity cost is the (next) best alternative (1) forgone (1).

• One worker may have earned more than another (1) and so would be giving up
more earnings (1).
• One worker may give up more non-wage benefits (1) example e.g. promotion
chances (1).
• One worker has further to travel to work / higher costs of travelling (1) loss of
leisure time / time with family / lower net income (1).
6(c) Analyse how an individual’s earnings are likely to change over her or his lifetime. 6
• At first an individual’s earnings are likely to be low (1) they will lack training /
experience (1) low qualifications / skills (1) unlikely to have been promoted (1).
• In early middle-age earnings may be higher (1) become more productive due to
higher skills / experience(1) adding value for employer (1) may have been
promoted (1) may work overtime (1) have higher expenses (1) e.g. purchase of a
house / paying to support children (1).
• In late-age before retirement (1) earnings may be high due to experience (1) but
may be low due to working part-time (1) being less productive (1) as being more
tired / less physically fit (1).
• At retirement (1) rely on pension / family for financial support (1).
• Gender discrimination may fall (1) so increasing a woman’s earnings (1).

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6(d) Discuss whether most people would prefer to work for a multinational company 8
(MNC) or a sole trader.
Up to 5 marks for why they might want to work for an MNC:
• An MNC may earn high profits (1) benefits from economies of scale (1) lower costs
enable them to pay high wages (1) may offer good fringe benefits (1) example (1)
better working conditions (1)
• An MNC may provide training (1) improving their skills (1) give the opportunity to
work with advanced technology (1) making it easier to get a well-paid job in another
firm (1) better reputation / status for employee (1).
• The firm may provide the opportunity of promotion (1) and possibly the opportunity
to work in another country (1)
• MNC more likely to provide stable employment (1) more likely to survive in
recession (1)
Up to 5 marks for why they might want to work for a sole trader:
• A sole trader may provide a friendlier environment (1) more contact with the
employer (1) less exploitation of worker’s rights (1) may have more say in decision-
making (1).
• There may be a greater sense of job security (1) as an MNC may pull out of the
country (1).
• A worker may gain more responsibility working for a sole trader (1) undertaking a
greater range of tasks (1).
• The sole trader’s business may be closer to the worker’s home (1) more convenient
/ lower costs of travelling to work (1).

PUBLISHED
7(a) Define a trade in services deficit. 2
• Imports of services being greater than exports of services (2).

• A deficit on a section of the balance of payments (1).
7(b) Explain two population problems a rich, developed country may experience. 4
• an ageing population (1) due to a falling death rate and birth rate / increasing
dependency / increasing the cost of healthcare and/or pensions (1).
• A decreasing population (1) a declining labour force (1) due to a falling birth rate /
increasing dependency (1).
• net immigration (1) putting pressure on schools/hospitals/housing (1).
7(c) Analyse how a move to freer international trade may benefit a country’s 6
producers.
• With lower tariffs (1) their exports will be cheaper (1) the volume of exports will not
be restricted by quotas (1).
• If producers are efficient (1) they will sell more abroad (1).
• Producers will be able to buy imported raw materials more cheaply (1) this will
reduce their costs of production (1) increase their profits (1).

PUBLISHED
7(d) Discuss whether or not the standard of living is higher in developed countries 8 Reward answers from the opposite
than in developing countries. perspective - developing countries have a
lower standard of living than developed
Up to 5 marks for why it might be: countries.
• Higher average income (1) enabling people to buy more goods and services (1)
spend money on healthcare (1) education (1) enabling people to live longer / be
more productive (1).
• Government tax revenue is likely to be higher (1) enabling the government to spend
more on e.g. pensions, healthcare (1).
• Some people’s living standards in developed countries are low/some people’s living
standards in developing countries are high (1) income is not evenly distributed (1).
• Working hours in some developed countries are high (1) leading to stress (1) less
leisure time (1).
• Environmental conditions are better in some developing countries (1) with less
pollution (1).

ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
1(a) Identify, using information from the extract, two reasons why a person 2 Difference between fourth and fifth bullet point
may have a low income. is where a country is not able to fund state
benefits, so people remain on low income.
• old
• sick
• unemployed
• being on state benefits
• being in need of, but not receiving state benefits in their country
1(b) Explain, using information from the extract, whether Russia has a 2
progressive, proportional or regressive income tax system.
Proportional (1) AND the same rate / people with different incomes paying
the same % / all paying 13% (1).
1(c) Calculate, using Table 1, what percentage of annual average income in 2

Costa Rica, a person would have if he receives UBI of $337.5 a month.
25% (2).
Correct working: $337.5 × 12 / $16 200 (1).
1(d) Analyse, using Table 1, the relationship between annual GDP per head 5 Countries must be named.
and life expectancy.
Generally, the higher the annual GDP per head, the longer the life
expectancy (1) e.g. rich people are likely to have better nutrition / healthcare
(1).
The two countries, Monaco and Finland, with the highest annual GDP per
head have the longest life expectancy (1). The country with the lowest
annual GDP per head, Mali, has the lowest life expectancy (1).
Russia or Costa Rica is an exception (1) e.g. Costa Rica has a lower
annual GDP per head but a higher life expectancy than Russia (1).

PUBLISHED
1(e) Explain an example of opportunity cost in the extract. 4
• Opportunity cost is the best alternative (1) foregone (1)

plus
• The opportunity cost of UBI (1) is the existing system of state benefits
(1)
or
• The opportunity cost of spending on unemployment benefits (1) is
spending on education / healthcare (1)
1(f) Discuss whether or not a monopoly will charge high prices. 5 Reward but do not expect reference to price
discrimination resulting in low prices for some
Up to 3 marks for why it might: consumers.
A monopoly is a single seller (1) has high market power (1) is a price maker
(1) demand for its product may be inelastic (1) due to lack of substitutes (1)
can raise revenue by raising price (1) may be seeking to maximise profit (1).
A monopoly may be inefficient (1) due to lack of competition (1) resulting in

higher costs and prices (1).

A monopoly may have low average cost of production (1) due to economies
of scale (1) example (1).
A monopoly may not be a profit maximiser (1) example of another objective

(1).
A monopoly may have a product with elastic demand (1) e.g. may be
producing a luxury (1).
A monopoly may be concerned that charging high prices will encourage

new firms to enter the market (1) reducing its market power (1).
A monopoly may fear government intervention (1) and keep prices low (1).
A monopoly may be government controlled (1) and charge low prices (1).

PUBLISHED
1(g) Explain, using information from the extract, two reasons why 4 Opposite arguments are also correct e.g.
someone from India with the same income as someone from Finland higher tax rates in Finland, etc.
may enjoy a higher living standard.
Lower prices in India (1) an Indian household may have greater purchasing
power / be able to buy more goods and services (1)
Colder weather in Finland (1) which is likely to increase people’s willingness

to spend / greater need to spend to keep warm (1)
Lower tax rates in India (1) greater purchasing power / higher disposable
incomes (1)

PUBLISHED
1(h) Discuss whether or not a government paying higher state benefits to 6 Apply this example to all questions with
the unemployed will reduce unemployment. the command word DISCUSS
Up to 4 marks for why it might: (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(d))
The unemployed will have a higher income (1) they may spend more (1)
total (aggregate) demand may increase (1) firms may expand (1) take on Each point may be credited only once, on
more workers (1). either side of an argument, but separate
development as to how/why the outcome may
Enables the unemployed to spend on education and training (1) and differ is to be rewarded.
improve their chances of getting a job (1).
Generic Example Marks
Unemployment benefit may become higher than the wages the low paid Tax revenue may decrease 1
may receive (1) this may encourage some people to stop working (1) (one mark)
increase voluntary unemployment (1).
...because of reason e.g. 1
Higher state benefits may be financed by increased taxation (1) total incomes may be lower
(aggregate) demand may not rise (1). (one mark)
Government spending money on education and training (1) may have Tax revenue may increase 0
greater impact on reducing unemployment (1). because incomes may be higher
i.e. reverse of 1st argument
(no marks)
because of a different reason 1

that is not the reverse of a
previous argument e.g.
government spending on
education

PUBLISHED
2(a) Define a floating foreign exchange rate. 2
The price of a currency (1) determined by market forces (1).
2(b) Explain two benefits a government may gain from the growth of the 4
private sector.
Higher tax revenue (1) private sector may be more efficient / private sector
may earn higher profits / higher tax revenue may be spent on e.g. education
(1).
Lower government spending on supporting state-owned enterprises (1)

spending could rise on other areas e.g. healthcare (1).
Increases employment / reduces unemployment (1) which is a government

objective / reduces government payments on unemployment benefits (1).
2(c) Analyse why a country with low costs of production may experience a 6 The analysis must be dynamic / about change.
decrease in its exports.
The foreign exchange rate may increase (1) leading to higher export prices
(1).
The quality of the products produced may fall (1) reducing demand (1).
Incomes abroad may have fallen (1) reducing foreigners’ ability to buy
exports (1).
There may be a rise in competition (1) with foreign firms having even lower
costs (1).
Producers may charge higher prices (1) leading to a fall in demand (1).
Foreign countries may implement protection measures (1) e.g. tariffs (1).

PUBLISHED
2(d) Discuss whether or not a government should prevent a fall in its 8

country’s foreign exchange rate.

A fall in the exchange rate would increase the price of imports (1) this will
increase the price of imported raw materials (1) this will increase costs of
production (1) inflation may occur (1).
A rise in the price of finished products (1) will reduce the goods and
services people can buy (1) reduce living standards (1).
A fall in the exchange rate may reduce confidence in the country (1) this
may reduce investment (1).
A lower exchange rate may increase debt repayments (1) making it more
difficult for firms and the government to pay back loans (1).
Higher government spending on e.g. state benefits (1) will increase

disposable income (1) some of this might be spent on imports (1).

A lower exchange rate will reduce the price of exports (1) more exports may
be sold (1) this combined with lower imports may improve the current
account balance (1).
Demand for domestic products may rise (1) this may increase output (1) so
cause economic growth (1) reduce unemployment (1).

PUBLISHED
3(a) When is a market in equilibrium? 2 2 marks could be awarded for an accurately

drawn demand and supply diagram showing
When demand equals supply / when there is no pressure for price to equilibrium.
change (2). When it is in balance (1).
3(b) Explain how a rise in the price of food would affect a country’s 4
consumer prices index (CPI).
CPI is a measure of inflation (1) Demand for food is inelastic / necessity

(1).
A rise in price of food would cause an increase in inflation / CPI (1). Food is
an item in the CPI (1) it has a relatively high weighting (1) people spend a
relatively high proportion on food (1) proportion declines as income rises
(1).
3(c) Analyse, using a demand and supply diagram, how bad weather is 6 S2
likely to affect the market for broccoli. S1
price of
broccoli
P2
P1
Supply curve shifted to the left (1).
Equilibriums – shown by lines or e.g. E1 and E2 (1).

Bad weather will destroy crops / reduce supply of broccoli / quantity traded D
falls (1). O Q2 Q1
Weather is an important influence on the supply of agricultural products / quantity of
cost of producing broccoli will rise / price will rise (1). broccoli

PUBLISHED
3(d) Discuss whether or not a higher inflation rate will benefit producers. 8

Producers may receive higher prices / revenue for their products (1) if costs
rise by less (1) profits will rise (1) may encourage investment (1) expand
the business (1).
Producers may be able to borrow more cheaply (1) the burden of past debts
will fall (1) if the rate of inflation is above the rate of interest (1).
An inflation rate may rise from a low or negative rate (1) and this would
provide a greater incentive for producers (1).
Higher inflation rate in other countries (1) will make this country’s products
more competitive (1).
If demand is inelastic (1) a rise in price will increase revenue (1).
Higher inflation will reduce the cost of borrowing (1).
Up to 5 marks it might not:

If cost of production rises (1) output may fall (1) firms’ profits may fall (1).
Producers may have to spend time adjusting prices (1) menu costs (1).
A lower and stable rate of inflation (1) may increase the confidence of
producers (1).
Producers may find it more difficult to export abroad / exports may fall (1)
lower revenue (1).
Producers may find it harder to assess relative prices (1) and so may make
inefficient decisions (1).

PUBLISHED
4(a) Define a loss. 2
Costs exceed revenue (2).

Insufficient revenue / costs too high (1).
4(b) Explain, giving examples, the difference between an internal economy 4

of scale and an external economy of scale.
Internal economy is the benefit a firm gains from itself (1) e.g. buying
economies (1).
External economy is the benefit a firm gains from the industry (1) e.g.
ancillary industries (1).
4(c) Analyse how a government could increase the supply of enterprise. 6
The government could spend more on education and training (1) this will
increase people’s skills (1) may increase their ability to start up or run a
business (1).
The government could cut the rate of the tax on profits (1) provide grants /
loans / subsidies (1) this would increase the incentive to be an entrepreneur
(1).
The government could sell off assets to the private sector / privatise (1)
increasing the opportunity to be an entrepreneur (1).
Relax immigration laws (1) immigrants may set up new businesses (1).

PUBLISHED
4(d) Discuss whether or not consumers would benefit from a firm changing 8
from being a public limited company to a public corporation (state-
owned enterprise).

A public corporation’s main goal may be social costs and benefits (1) may
be subsidised by the government (1) it may charge a low price (1) making it
more affordable (1).
A public corporation may be less likely to go out of business (1) ensuring

continuity of supplies (1).
A public corporation may take a longer-term view (1) investing in new

technology (1).
A public corporation may follow health and safety rules / regulations (1)
increasing the safety of products (1).

A lack of profit motive (1) may increase inefficiency (1).
A public corporation is likely to be a monopoly (1) the lack of competition (1)

may result in higher prices (1) lower quality (1).
A public corporation may lack funds to invest (1) during periods of recession
(1).

PUBLISHED
5(a) Identify two functions of money. 2
• Medium of exchange
• Store of value
• Unit of account (measure of value)
• Standard of deferred payments
5(b) Explain two reasons why a central bank may want to reduce 4 Allow explanation of why a high level of
borrowing. borrowing is bad for the economy, e.g.
implication that the central bank intervenes to
It may want to reduce the inflation rate (1) caused by too much demand correct this.
arising from borrowing (1).
To reduce disposable income (1) and reduce (demand-pull) inflation (1).
it may want to reduce a current account deficit (1) people may be spending
too much on imports (1).
Over lending by commercial banks (1) puts banking system at risk (1).
5(c) Analyse why skilled workers are usually paid more than unskilled 6 2 marks could be awarded for an accurately
workers. drawn demand and supply diagram showing
higher demand and lower supply.
The demand for skilled workers is likely to be higher (1) due to their higher
productivity / education (1) expectation of a higher rate of return / sales (1)
better quality goods and services (1) resulting in greater profits (1).
The supply of skilled workers is likely to be lower / more inelastic (1) due to
the shortage of people with skills / qualifications (1).
Skilled workers may have more bargaining power (1) harder to replace /
may cause more disruption by taking industrial action (1).

PUBLISHED
5(d) Discuss whether or not a rise in the rate of interest will reduce 8
economic growth.

It may discourage spending (1) as it would be more expensive to borrow (1)
more rewarding to save (1) this will lower total (aggregate) demand (1)
which could reduce firms’ output (1).
It may discourage investment (1) as more expensive to borrow (1) firms

decide to save the money (1).
Higher interest rate may cause exchange rate to rise (1) discouraging
exports / encouraging imports (1).

People / firms may still be prepared to borrow if they are optimistic about
the future (1) thinking they will be able to repay (1) because they expect e.g.
higher income in the future (1).
The rate of interest may still be low (1) and may be below the inflation rate
(1).
A higher rate of interest may reduce inflation (1) this could make domestic
products more price-competitive (1) and so increase exports (1).
Government spending (1) increased exports (1) may offset reductions in

consumption and investment resulting in higher economic growth (1).

PUBLISHED
6(a) Define a multinational company. 2
A firm that produces / operates (1) in more than one country (1).
A firm that has its headquarters in one country (1) but also produces /
operates in other countries (1).
6(b) Explain two disadvantages a worker could experience from 4

specialising.
Monotony / boredom / lower efficiency (1) doing the same task over and
over again (1).
Workers may not develop a range of skills (1) this may limit their earning
potential (1).
Workers may become dependent on other workers (1) this may reduce their
earning potential (1).
There may be a greater risk of unemployment (1) which could lead to lower
income / living standards / due to lack of wider skills (1).
6(c) Analyse how a change in the PED for its products may benefit a firm. 6 No marks for a definition of PED.
A more elastic demand (1) would mean that the firm could raise revenue (1) Allow one mark for explanation of elastic
by lowering price (1) profit would rise (1) if revenue rises by more than costs demand and one mark for explanation of
(1). inelastic demand.
A more inelastic demand (1) would mean the firm could raise revenue (1) by Analysis of change in elasticity of demand is
raising price (1) profit would rise (1) if a lower output increases the gap required.
between revenue and cost (1).

PUBLISHED
6(d) Discuss whether or not the government should subsidise the 8 Reward but do not expect reference to books
production of books. being a merit good / a positive externality.

A subsidy would increase the supply of books / reduce costs of production
(1) lower their price (1) and cause demand to rise (1).
More books being purchased may raise education standards / literacy (1)
increase productivity (1) raise output / result in economic growth (1).
A subsidy may reduce the price of school textbooks (1) reducing the cost of
education (1).
Some publishers may be making a loss (1) and may be in danger of going
out of business (1) this would cause unemployment (1).

Some book publishers may be making high profits (1) and so do not need a
subsidy (1).
The subsidy may encourage the book publishers to become inefficient (1)
not cutting their costs (1) and improving the quality of the books they
produce (1).
There will be an opportunity cost involved (1) e.g. spending on education

(1).
Waste of resources (1) e.g. growth of internet / e-books (1)
There may be an external cost (1) e.g. trees (1).
Certain books should not be subsidised (1) example (1).

PUBLISHED
7(a) Identify two fiscal policy measures. 2 Allow two different types of taxes or two
different areas of government spending, or a
• Government spending combination.
• Taxation
7(b) Explain two reasons why the unemployment rate may be higher in one 4
country than another.
Total demand may be lower (1) higher cyclical unemployment /

recession (1).
Lower labour mobility (1) causing structural unemployment (1).
Greater pace of technological advancement (1) replacing labour / causing

structural unemployment (1).
Greater voluntary unemployment (1) due to higher benefits (1).
Labour force growing faster than economy (1) creating shortage of jobs (1).
Lower education standards (1) means workers are less employable (1).
Labour market restrictions (1) may make employing workers more

expensive (1).

PUBLISHED
7(c) Analyse how supply-side policy measures may reduce unemployment. 6 These must be measures introduced by a
government.
Supply-side policy measures increase productive capacity within the
economy (1).
Education and training (1) could raise the skills of workers (1) labour
productivity could rise (1) firms may be encouraged to take on more
workers (1).
A cut in income tax (1) may increase total (aggregate) demand (1) causing
firms to produce more (1) and so take on more workers (1) it may also have
an incentive effect (1).
A cut in unemployment benefit (1) may encourage more of the unemployed

to take jobs (1) if wages are now higher than benefits (1).
Privatisation (1) could result in an expansion of firms (1) if they are more
competitive (1) and so they may take on more workers (1).
Subsidies (1) will lower costs of production (1) encouraging firms to expand
(1) employ more workers (1).
Trade Union reforms (1) may encourage firms to employ more workers (1)
e.g. cheaper / more flexible labour force (1).

PUBLISHED
7(d) Discuss whether or not a government should protect its country’s 8 Do not accept descriptions of the types of
industries from foreign competition. protection measures.

The industries might be infant industries (1) not able to take full advantage
of scale (1) and so not able to compete on price (1).
The industries may be declining industries (1) if they go out of business

quickly, unemployment may increase (1).
The industries may be facing dumping (1) which will make it difficult for
firms to compete against foreign producers selling at below cost price (1).
The government may want to reduce a current account deficit (1) caused by
imports exceeding exports (1) encourage economic growth (1) create more
jobs (1).

It may push up the price of imported products if tariffs are used (1) costs of
production may rise (1) causing inflation (1) consumers’ purchasing power
would fall (1).
It may reduce competition for domestic firms (1) this may reduce efficiency
(1) raise prices (1) reduce quality (1).
Other countries may retaliate (1) reduce exports (1).
Opportunity cost (1) e.g. resources could be used to support education /

healthcare / infrastructure (1).
Free trade may result in lower prices (1) greater variety for consumers (1).

ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond
the scope of the syllabus and mark scheme, referring to your Team Leader as appropriate
descriptors.

PUBLISHED
Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range
may be limited according to the quality of the candidate responses seen).

PUBLISHED
1(a) State a factor of production and identify an example of it from 2

the extract.
land (1) scarce land in Manhattan / New York (1).

labour (1) finance industry workers / wages (1).
capital (1) stock exchange (1).
enterprise (1) new business start ups (1)
1(b) Explain, using information from the extract, two causes of 4 Two causes must be explained for maximum marks.
economic growth in New York.
• good human capital (1) high skills / labour productivity (1)

• economic freedom encouraging business start-ups (1)
increased investment / innovation (1)
• strong finance/manufacturing growth (1) increased
investment/consumption/exports (1)
• education (1) improved skills (1) increased productivity/growth
of tertiary sector/greater GDP per capita (1) attracts students
who spend on local goods and services (1)
• falling unemployment (1) greater use of resources (1)
1(c) Calculate, using information from the extract, the total number 2 .
of workers in New York city.
2m (2).
Correct working 1.6m × 100/80, or 80% = 1.6m, or 20% = 0.4m (1).

PUBLISHED
1(d) Analyse, using Table 1.1, the relationship between average 5 A pattern of analysis is expected in response to this
weekly hours worked and average weekly wages. type of question.
Expected relationship – they would move in the same direction If there is no expected pattern of analysis, the following
(1). may be worthy of some reward, e.g.:
less hours worked will lead to workers becoming more
Reason for expected relationship – more hours to produce more productive; therefore earning more (1)
output (1).
Evidence in support of expected relationship - data does not

support expected relationship (1).
Evidence against expected relationship – wages increase (1)

hours fall / hours stay same (1) workers getting paid more per hour
(1).
1(e) Explain, using information from the extract, one reason for 2
differences in earnings between different jobs in New York.
• diiferent skills required / lower productivity (1) higher skill leads

to higher pay (1)
• discrimination (1) men paid more than women / male-
dominance in the financial sector leads to higher pay for men
(1)
• different industries (1) finance paid more than in education (1)

PUBLISHED
1(f) Explain, using information from the extract, the possible 4

negative effects of economic growth in New York.
• pay gap widening/inequality (1) creating more social tensions

(1) reducing productivity due to dissastisfaction (1)
• external costs / environmental problems (1) increased pollution
(1) lack of green, open space (1)
• risk of financial crisis / recession (1) bank runs/asset bubbles
bursting (1) lack of job security (1)
• more people move to New York for employment (1) increasing
the shortage of affordable homes (1) increasing housing prices
(1)

PUBLISHED
1(g) Discuss the advantages and disadvantages of a city having a 5 Apply this example to all questions with the
large tertiary sector. command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Up to 3 marks for advantages:
Generates economic growth (1) high value output (1). Each point may be credited only once, on either side of
Generates jobs (1) leading to low unemployment (1). an argument, but separate development as to how/why
Tertiary sector has high productivity (1) high pay (1) which can lead the outcome may differ is rewarded.
to increased consumer spending (1).
Encourages foreign investment (1) more capital spending (1) may Generic example mark
also encourage financial investment (1).
Less pollution (1) no need for factories which creates lots of Tax revenue may decrease« 1
external costs (1).
Low transport costs (1) not having to move raw materials (1).
because of reason e.g. incomes may be 1
Can export services (1) improve the current account of the balance
lower.
of payments (1).
More tax revenue (1) government can spend more on e.g. Tax revenue may increase because 0
healthcare (1). incomes may be higher i.e. reverse of a
previous argument.
Up to 3 for marks for disadvantages:
Limited job choices (1) no manufacturing/agricultural jobs (1). Tax revenue may increase because of a 1
Risk of specialising (1) overdependence on other economies (1). different reason i.e. not the reverse of a
Inequality (1) not all will be able to get jobs in high-paying services previous argument e.g. government
such as finance (1) need high qualifications to get high pay (1). spending on subsidies may stimulate the
Congestion/transport problems (1) overcrowding (1) high house economy more than spending on education.
prices/housing shortage (1).
Application can be made to the financial sector, but it is

not essential.

PUBLISHED
1(h) Discuss whether or not opening up to free trade benefits an 6

economy.

Opening up to free trade will increase choices from imports (1)
obtain products cannot produce (1) reduce prices (1) standards of
living increases (1).
More competition from imports (1) improve quality (1) increase
productivity (1).
Encourage more foreign investments (1) increase employment /
decrease unemployment (1) increase capital spending (1) increase
innovation (1)
May increase the opportunity of specialisation (1) increase exports
(1) increase GDP/GDP per capita/income (1).
Avoid retaliation (1) that can occur if trade restrictions are imposed
(1).
Up to 4 for marks for how it might not:

Domestic producers might be adversely affected (1) can’t compete
with foreign firms (1) who might be more cost competitive (1)
unemployment increases (1).
Increase imports (1) will increase current account of the balance of
payment deficit (1).
May become dependent on other countries (1) they may gain
monopoly power (1).
Free trade may involve the removal of tariffs (1) reducing
government revenue (1)

PUBLISHED
2(a) Define industry. 2
Firms (1) that produce the same product (1) example (1)
2(b) Explain two types of integration (merger). 4 Allow full marks if forward and backward vertical
integration is explained accurately.
• horizontal integration (1) firms from same industry and same
level of production integrate (1)
• vertical integration (1) firms from same industry but different
levels of production integrate (1)
• conglomerate integration (1) firms from different industries
integrate (1)
2(c) Analyse the advantages that an MNC has over a firm which 6
only produces domestically.
Set up in economies where labour costs are less (1) and raw
material costs are cheaper (1) which can give them cost advantage
in the international markets (1).
Greater market (1) easier access to foreign markets (1) greater
profits (1) fewer trade barriers (1) production set up in countries
which have lots of favourable trade agreements (1) bigger output
(1) economies of scale (1).
Reduction in risk (1) diversified markets (1).
Locate operations near the potential market (1) which results in
lower transportation cost (1).
Wider access to more skilled workers (1) more productive (1).

PUBLISHED
2(d) Discuss whether or not an economy benefits from firms which 8

are monopolies.

Monopolies can gain more profits (1) they will be able to reinvest
more (1) more choices from the company (1) total demand
increases (1) economic growth (1) expand production (1) employ
more workers (1) unemployment decreases (1) more R&D (1) more
innovation (1) higher quality (1) more productivity (1) more exports
(1) improved current account position (1).
Up to 5 marks for how it might not:

Lack of competition (1) complacency (1) less productivity (1) less
innovation (1) price is higher (1) inflation (1) exploitation of
consumers (1) less choice (1) lower quality (1).

PUBLISHED
3(a) Identify one example of a direct tax and one example of an 2

indirect tax.
Income Tax / Corporation Tax / National Insurance / Profit Tax (1).

Value Added Tax (VAT) / Goods and Services Tax (GST) / Sales
Tax / tax on product e.g. bar of chocolate (1).
3(b) Explain two reasons why a firm may become more capital 4 Accept making more profit may allow a firm to afford
intensive as it grows. more investment in capital.
• to increase output (1) capital more efficient/productive (1)

• to reduce costs (1) labour costs becoming relatively higher
than machines (1) increasing profits (1)
• may be able to take advantage of technical economies of scale
(1) specialist capital may become viable for a large firm (1)
3(c) Analyse, using a production possibility curve (PPC) diagram, 6

the possible effects of faster internet speeds for economic
growth.

• axes correctly labelled in terms of two different products or
types of products (1)
• the curve or downward sloping line is drawn to the axes (1)
• second curve or downward sloping line is drawn to the axes (1)
• an indication either by labelling or an arrow that the curve has
shifted outwards / right (1)

Faster internet speed increases productive capacity / the maximum
quantity of products that can be produced within a certain time
period (1) better communication infrastructure (1) e.g. labour can
work faster, capital is better (1) lower costs of production (1)
encourage more investments therefore increase financial capital (1)
increased productive capacity results in (potential) economic Do not reward analysis marks for description of
growth / cause economic growth (1). diagram e.g. PPC shifts to the right.

PUBLISHED
3(d) Discuss whether or not an economy would benefit from less 8

government regulation.
Up to 5 marks why it might:

More freedom (1) less red tape / bureaucracy (1) easier to set up
new firms (1) more competition (1) decrease cost of production (1)
decrease price (1) including exports (1) increase quantity
demanded (1) increase total revenue (1) increase profits (1) more
investments (1) increase demand for labour (1) less unemployment
(1) decrease current account deficit (1) increase aggregate demand
(1) increase economic growth (1).
More control over prices (1) resulting from removal of e.g. a
maximum price (1).
Up to 5 marks why it might not:

Less labour regulations would reduce job security (1) more
exploitation of workers (1) e.g lower wages / longer working hours
(1) more inequality (1).
Less environmental regulations would increase pollution (1) e.g. air
pollution / water pollution (1) health standards of society reduces
(1)
Less antitrust/anticompetitive regulations will create monopolies (1)
small firms can’t compete (1) higher prices (1).
Less protection of domestic firms from e.g. embargo (1) domestic
firms may go out of business (1).
Discourage consumption of harmful products (1) e.g. smoking ban
(1).
External costs may be ignored (1) e.g. air pollution, noise (1).
It may mean that there is less consumption of beneficial (merit)
goods (1) e.g compulsory state education (1)

PUBLISHED
4(a) Identify two non-wage factors that could affect an individual’s 2

choice of occupation.
• opportunity for promotion

• job security
• satisfactory work
• varied work
• pleasant working conditions
• fringe benefits
• location
• danger
4(b) Explain two causes of inflation. 4
• demand-pull inflation (1) increase in total demand/ lower

interest rate / increase business confidence / increase
consumer confidence / depreciation of the currency / lower
income tax / lower cost of borrowing / increase disposable
income / increase exports (1) increase in money supply (1)
• cost-push / increase in costs (1) increase price of commodities

/ increase cost of production / depreciation of the currency /
increase indirect taxes (1)
4(c) Analyse the impact of strikes on an economy. 6
Disrupted production (1) loss of output (1) decreased productivity

(1) less economic growth (1) increased cost of firms (1) reduced
profits (1) rising prices / inflation (1) unemployment (1).
Better working conditions of the workers (1) higher wages (1).
Exports decreasing (1) increase current account deficit / decrease
current account surplus (1).
Less investment by MNCs (1).
There may be capital investment to replace workers (1).

PUBLISHED
4(d) Discuss whether or not an increase in wages will reduce a 8 2 marks could be awarded for an accurately drawn
firm’s profit. Demand and Supply diagram.

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).
Prices will rise (1) if demand is elastic, revenue 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 skilled workers (1) this
will raise productivity (1) reduce costs of production (1) increase
profits (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).
Replace workers with machines (1) may leave costs unchanged
(1).

PUBLISHED
5(a) Define monetary policy 2
Policy to control the supply of money / demand-side policy (1) by

changing interest rates / influencing the price of money (1)
exchange rates / Quantitative Easing (1).
5(b) Explain two functions of money 4
• medium of exchange (1) avoids double coincidence of wants

needed in barter/enables people to buy and sell products (1)
• unit of account / measure of value (1) easy to compare value of
products / putting a value on products (1)
• store of value (1) for savings / future consumption / will not lose
value (1)
• standard of deferred payment (1) credit / instalments/enable
people to borrow and lend (1)
5(c) Analyse the consequences of an appreciating currency on the 6 Reward but do not expect reference to outcome will be
current account of the balance of payments of a country. influenced by PED.
An appreciation in the exchange rate means a rise in the value of

the currency (1) higher export prices (1) lower import prices (1)
increase quantity demand for imports (1) decrease quantity
demand for exports (1) increase value of imports (1) decrease
value of exports (1) may reduce net exports (1) current account
deficit increases / current account surplus decreases (1).

PUBLISHED
5(d) Discuss whether or not a reduction in taxes is beneficial for an 8 2 marks could be awarded for an accurately drawn
economy. Demand and Supply Diagram showing tax reduction
Up to 5 marks for why it is:

Reduction in taxes will attract investments (1) this creates new jobs
(1) this could also improve the productivity of the economy (1) as
there might be investments in R&D / technology (1) creating
economic growth (1)
Cut in income tax will increase disposable income (1) increase total
demand (1) lower unemployment (1)
Cut in corporation tax/indirect tax (1) may reduce costs of
production (1) inflation decreases (1).
Cut in tariffs will increase competition (1) improve e.g. product
quality (1).

Decreased government revenue (1) budget deficit (1) government
can’t spend on e.g. infrastructure (1) opportunity cost (1) foreign
investment might increase the value of the currency further (1)
exports become uncompetitive (1).
Reduction in indirect tax (1) may increase consumption of harmful
products/example (1) may reduce people’s health (1).
Reduction in tariffs may e.g. cause infant industries to go out of
business (1) increasing unemployment (1).
An increase in total (aggregate) demand may cause inflation (1)

PUBLISHED
6(a) Define Gross Domestic Product. 2
GDP measures the (total) output/income/expenditure (1) of a

country/economy (1).
6(b) Explain two ways in which more affordable medicines can 4 Accept higher HDI if linked to improved life expectancy
improve standards of living. (1).
• more people can have medicines (1) improve health (1) raise Do not accept birth control or birth rate explanation.
productivity / enable people to work / not off work sick (1)
• different choice of medicines (1) consumers can find what suits
them best (1)
• hospitals will have more medicines (1) easier to treat those
who are ill/reduce death rate (1)
• less spent on healthcare (1) can spend more on other things
that can improve standard of living such as education, holidays
(1)
• higher productivity (1) higher incomes (1)
6(c) Analyse how investment in research and development can 6

help a firm to grow in size.
More innovation (1) e.g. Faster machines (1) increase productivity

(1) decrease cost of production (1) decrease price of products (1)
increase demand (1) increase market share (1) increase profits (1)
more reinvestments (1).
New products produced (1) larger exports (1) enter new markets
(1) at start no direct competition (1) may be high demand (1).
More skilled workers needed (1) creating a bigger workforce (1)
Provide information (1) influence what is produced (1).

PUBLISHED
6(d) Discuss whether or not a reduction in imports is beneficial to 8

an economy.
Up to 5 marks for why it might be:

Reduction in imports may improve the trade in goods / trade in
goods and services balance (1) this will improve the current
account position / reduce a current account deficit (1) this may
reduce a country’s debts (1) avoid downward pressure on the
exchange rate (1).
Spending on imports may be replaced by spending on domestically
produced products (1) this would increase the country’s output /
cause economic growth (1) this would increase demand for labour
(1) raise employment / reduce unemployment (1) increase incomes
and living standards (1).
Fewer imports may enable infant industries to grow (1) may protect
declining strategic industries (1).
May prevent dumping (1) explanation of what is meant by dumping
(1)
Imports may be harmful products (1) might affect people’s health
(1).

Imports of capital goods / raw materials may decline (1) these
might be cheaper / lower quality than domestically produced capital
goods and/or raw materials (1) this will raise costs of production (1)
make the country’s products less internationally competitive (1)
lower output/reduce economic growth (1) worsen the current
account position (1) raise unemployment (1).
Fewer imports may reduce choice (1) reduce competition (1) may
raise prices (1) lower quality of people’s lives (1).
Exports may be falling by more than imports (1) so current account
position may be worsening (1).
Quantity of imports may be falling but value of imports may be
rising (1).

PUBLISHED
6(d) If the reduction is caused by protectionist measures (1) this would

reduce benefits of free trade (1).
Loss of tariff revenue (1) may be a major source of tax
revenue/reduce amount that can be spent on e.g. education (1).
Imports may be of beneficial products (1) not produced in the
country (1).

PUBLISHED
7(a) Define choice and provide an example. 2
Two or more different alternatives that an economic agent may

have OR the idea of sacrifice and opportunity cost (1) different
coloured bicycle helmets / any example (1).
7(b) Explain how the CPI is calculated. 4
CPI uses a basket of goods and services (1) weighted to account

for the proportion of income (1) spent by the average household (1)
found in a survey (1) uses a base year (1) for comparison (1) prices
around the country surveyed (1) various types of firms / sources
e.g. physical shops and also online (1) weights multiplied by price
changes (1).
7(c) Analyse the possible reasons for the increase in global 6 2 marks could be awarded for an accurately drawn
demand for bicycle helmets. Demand and Supply diagram.
Increase in popularity of cycling (1) helmets are complements to

bicycles (1) quantity demanded for bicycles increasing would
increase the demand for helmets (1).
Increase in environmental awareness (1) less driving (1) more
bicycles (1) thus, more demand for bicycle helmets (1).
Increase in health and safety awareness (1) dangers of cycling (1)
increased awareness of benefits of helmets (1).
Increase in income (1) bicycle helmet is normal good (1) YED
positive (1).
Increase subsidies for bicycles (1) decrease price of bicycles (1).
Increase demand for bicycles (1) increase demand for bicycle
helmets
Increase in population (1).
Reduction in price of helmets (1).

PUBLISHED
7(d) Discuss whether or not increasing sales of a product will be 8

beneficial to a firm.
Up to 5 marks why it will be:

Increase sales revenue/income (1) increase profits (1) allowing firm
to reinvest (1) into R&D (1) employ more labour (1) making new
products (1) better quality products (1) profits increase even more
(1).
Revenue may increase if PED is elastic (1) as demand will rise by a
greater proportion than price (1).
Economies of scale (1) as output increases and average cost falls
(1) efficiency arising from bulk buying / lower interest rates /
indivisibility / division of labour (1).
Up to 5 marks why it will not be:

Price might be lower (1) revenue is lower (1) profit is lower (1) sales
of product increase but sales of other products decrease (1) not
enough to offset each other (1).
Extra sales only achieved through higher costs of production (1)
e.g. advertising (1).
Diseconomies of scale (1) increase output and average costs
increases (1) due to control and coordination problems (1).

Cambridge IGCSE™
ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Students did not sit exam papers in the June 2020 series due to the Covid-19 global pandemic.
This mark scheme is published to support teachers and students and should be read together with the
question paper. It shows the requirements of the exam. The answer column of the mark scheme shows the
proposed basis on which Examiners would award marks for this exam. Where appropriate, this column also
provides the most likely acceptable alternative responses expected from students. Examiners usually review
the mark scheme after they have seen student responses and update the mark scheme if appropriate. In the
June series, Examiners were unable to consider the acceptability of alternative responses, as there were no
student responses to consider.
Mark schemes should usually be read together with the Principal Examiner Report for Teachers. However,
because students did not sit exam papers, there is no Principal Examiner Report for Teachers for the June
2020 series.
Cambridge International is publishing the mark schemes for the June 2020 series for most Cambridge
IGCSE™ and Cambridge International A & AS Level components, and some Cambridge O Level
components.

PUBLISHED
responses seen).

PUBLISHED
1 Components using point-based marking:

Point marking is often used to reward knowledge, understanding and application of skills. We
give credit where the candidate’s answer shows relevant knowledge, understanding and
application of skills in answering the question. We do not give credit where the answer shows
confusion. From this it follows that we:
a credit answers which are worded differently from the mark scheme if they clearly convey the
same meaning (unless the mark scheme requires a specific term)
b credit alternative answers/examples which are not written in the mark scheme if they are
correct
c credit answers where candidates give more than one correct answer in one
prompt/numbered/scaffolded space, where extended writing is required rather than list-type
answers. For example, questions that require n reasons (e.g. State two reasons…).
d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check
for evidence it is understood and not used wrongly.)
e DO NOT credit answers which are obviously self-contradicting or trying to cover all
possibilities, e.g. a scattergun approach to a question asking for n items
f DO NOT give further credit for what is effectively repetition of a correct point already credited
unless the language itself is being tested. This applies equally to ‘mirror statements’ (i.e.
polluted/not polluted).
g DO NOT require spellings to be correct, unless this is part of the test. However spellings of
syllabus terms must allow for clear and unambiguous separation from other syllabus terms
with which they may be confused (e.g. erosion/corrosion).
2 Presentation of mark scheme:

• Slashes (/) or the word ‘or’ separate alternative ways of making the same point.
• Semi colons (;) bullet points (•) or figures in brackets (1) separate different points.
• Content in the answer column in brackets is for examiner information / context to clarify the
marking but is not required to earn the mark
3 Calculation questions:
• The mark scheme will show the steps in the most likely correct method(s), the mark for each
step, the correct answer(s) and the mark for each answer.
• If working/explanation is considered essential for full credit, this will be indicated in the
question paper and in the mark scheme. In all other instances, the correct answer to a
calculation should be given full credit, even if no supporting working is shown.
• Where the candidate uses a valid method which is not covered by the mark scheme, award
equivalent marks for reaching equivalent stages.
• Where an answer makes use of a candidate’s own incorrect figure from previous working,
the ‘own figure rule’ (OFR) applies: full marks will be given if a correct and complete method
is used. Further guidance will be included in the mark scheme where necessary and any
exceptions to this general principle will be noted.
4 Annotation:
• For point marking, ticks are used to indicate correct answers and crosses to indicate wrong
answers. There is a direct relationship between ticks and marks.
• Other annotations will be used by examiners as agreed during standardisation, and the
meaning will be understood by all examiners who mark that paper.
• For levels of response marking, each level awarded should be clearly annotated on the script
the first time it is achieved.

PUBLISHED
PREPARATION FOR MARKING
1 Make sure that you have completed the relevant training and have access to the RM Assessor
Guide.
2 Make sure that you have read and understand the question paper, which you can download from
https://support.rm.com/ca
3 Log in to RM Assessor then mark and submit the required number of practice and standardisation
scripts. You will need to mark the standardisation scripts to the required accuracy in order to be
approved for marking live scripts. You may be asked to re-mark them, or to mark a second
sample, if you do not meet the required accuracy on your first attempt.
MARKING PROCESS
1 Mark strictly to the FINAL mark scheme, applying the criteria consistently and the general
marking principles outlined on the previous page.
2 If you are in doubt about applying the mark scheme, consult your Team Leader.
3 Mark at a steady rate through the marking period. Do not rush, and do not leave too much until
the end. If you anticipate a problem in meeting the deadline, contact your Team Leader
immediately and the Examiners’ Helpdesk.
4 Examiners will prepare a brief report on the performance of candidates to send to their Team
Leader via email by the end of the marking period. The Examiner should note strengths seen in
answers and common errors or weaknesses. Constructive comments on the question paper,
mark scheme or procedures are also appreciated.
MARKING SPECIFICS
Crossed out work
1 All a candidate’s answers, crossed out or not, optional or not, must be marked.
2 The only response not to be marked is one that has been crossed out and replaced by another
response for that exact same question.
3 Consequently, if a candidate has crossed out their response to an optional question and gone on
to answer a different optional question then both attempts must be marked. The higher mark will
be awarded by the system according to the rubric.
0 (zero) marks or NR (no response)

1 Award NR if there is nothing at all written in answer to that question (often the case for optional
questions).
2 Award NR if there is a comment which is not an attempt at the question (e.g. ‘can’t do it’ or ‘don’t
know’ etc.)
3 Award NR if there is a symbol which is not an attempt at the question, such as a dash or question
mark.
4 Award 0 (zero) if there is any attempt at the question which does not score marks. This includes
copying the question onto an Answer Booklet.
Annotation
1 Every question must have at least one annotation e.g. <NAQ> if it is an NR and <X> or <seen> if
0 marks are awarded.
2 Every mark awarded for a question (as shown in the mark input box to the right of the
screen) must be indicated by a correctly positioned tick on the script. The number in the
box below the tick annotation must be equal to the mark awarded in the input box.
3 Every page of a script must have at least one annotation e.g. <BP> for a blank page.

PUBLISHED
1(a) Calculate the total number of people over 60 years old in Greece in 1
2015.
27% × 10.8 million = 2.92 million
1(b) Explain what is meant by an unemployment rate of 24%. 2
Logical explanation which might include:

24% of the total labour force (1) is actively searching for jobs (willing and
able to work) but cannot find work/job (1)
1(c) Identify two reasons for the recovery of the European economies, 2
other than Greece.
successful supply-side policy measures (1)

improving global economy (1)
1(d) Explain the two supply-side policy measures being used by the Greek 4
government.

labour market reforms (1) making it easier to hire and fire workers / giving
workers more skills to enable them to take various jobs / making it easier for
workers to move from one place to another or one job to another (1)
Privatisation (1) increasing efficiency due to the profit-maximising motive (1)
1(e) Analyse how two of Greece’s population trends may have affected its 4
economy.
Coherent analysis which might include:

The Greek population has been falling ever since 2010 (1) resulting in a
smaller labour force (1).
Ageing population (1) increase in dependency ratio (1).
Emigration (1) loss of skilled workers (1).
1(f) Analyse the relationship between Greece’s GDP per head and its HDI 5
value.

Greece’s GDP per head has been falling from 2010–2015 (1) but HDI has
been increasing (1) negative relationship (1) data for GDP per head (1) data
for HDI value (1). This could be because of improving education (1) and
healthcare (1).
HDI consists of GDP per head / education / health (1) hence even though
GDP per head is falling this is more than offset by rise in education / health
(1).

PUBLISHED
1(g) Discuss whether or not having a strong foreign exchange rate is a 6

problem for Greece’s economy.

Tax revenue may decrease… 1
...because of reason e.g. incomes may be lower. 1
Tax revenue may increase because incomes may be higher i.e.
0
reverse of a previous argument.
Tax revenue may increase because of a different reason i.e. not
the reverse of a previous argument e.g. government spending on
1
subsidies may stimulate the economy more than spending on
education.
Up to 4 marks for why it might be a problem:

Strong foreign exchange rate will lead to high price of exports (1) decreasing
the quantity demanded for exports (1) decreasing value of exports (1) strong
foreign exchange rate will lead to low price of imports (1) increasing the
quantity demanded for import (1) increasing value of imports (1) decreasing
net exports (1) decreasing total demand (1) decreasing economic growth (1)
decreasing employment (1).
Up to 4 marks for why it might not be a problem:

Strong foreign exchange rate will lead to low price of imported raw
materials, machines / capital, or semi manufactured goods (1) this could
decrease cost of production (1) decreasing the price of domestically
produced goods (1) increasing demand / consumption / exports (1)
increasing total demand (1) increasing economic growth (1) increasing
employment (1)
1(h) Discuss whether or not a market economic system improves living 6

standards.
Up to 4 marks for why it does improve living standards:

Economic freedom (1) consumers and producers can make their own
decisions on what to consume and produce (1) no government intervention
enables more efficient allocation of resources (1) firms react to the wants of
consumers to gain profits for themselves then consumers are fairly likely to
get what they want and gain high levels of satisfaction from their income (1)
costs are lower and prices are lower (1) more affordable (1).
Up to 4 marks for why it does not improve living standards:

Instability and uncertainty (1) Unemployment especially when there is a
recession (1) high inflation could decrease affordability (1) monopolies
exploit consumers (1) workers paid low wages (1) pollution and other
external costs (1) Unequal distribution of income and wealth (1) under
provision of public goods (1).

PUBLISHED
2(a) State two functions of local government. 2
• providing public goods

• providing street lights
• local recreation activities
• cleaning
• waste collection and management
• infrastructure investment
• providing tax incentive
• zoning
• provision of low income housing
• supporting local businesses
2(b) Explain how a lower cost of living can encourage population growth. 4

Cheaper to bring up a child (1) education and healthcare cost lower or any
other example (2) parents don’t have to work so hard (1) more time to raise
children (1).
Lower cost of living could lower death rate (1) as healthcare is more
affordable (1) and people can live longer (1).
Lower cost of living could encourage net migration (1) cheaper to live in that
country (1).
2(c) Analyse the influences on the mobility of two factors of production. 6

Availability of proper infrastructure (1) to move from place to place (1) e.g.
trains / roads (1) whether it is affordable or not (1).
Cost of living differences (1) whether workers can afford to move to another
place (1) e.g. housing costs, cost of education (1).
Availability of information (1) on jobs elsewhere (1).
Tax rate changes (1) lower tax rates could encourage workers to move to
another country to take advantage of lower taxes (1) / entrepreneurs could
be encouraged to move to a lower tax economy (1).
Regulation changes (1) could limit movement of labour or capital (1).
Level of education (1) could make labour more occupationally mobile (1).
No reward for only identifying the factors of production.

Accept other relevant factors e.g. cultural differences (up to 3 marks each).

PUBLISHED
2(d) Discuss whether or not increased investment is beneficial to an 8

economy.
In assessing each answer, use the table opposite.

Level Description Marks
3 A reasoned discussion which accurately examines both 6–8
sides of the economic argument, making use of
economic information and clear and logical analysis to
evaluate economic issues and situations. One side of
the argument may have more depth than the other but,
overall, both sides of the argument are considered and
developed. There is thoughtful evaluation of economic
concepts, terminology, information and/or data
appropriate to the question. The discussion may also
point out the possible uncertainties of alternative
decisions and outcomes.
2 A reasoned discussion which makes use of economic 3–5
information and clear analysis to evaluate economic
issues and situations. The answer may lack some
depth and development may be one-sided. There is
relevant use of economic concepts, terminology,
information and data appropriate to the question.
1 There is a simple attempt at using economic definitions 1–2
and terminology. Some reference may be made to
economic theory, with occasional understanding.
0 A mark of zero should be awarded for no creditable 0
content.
Why it might be beneficial:

• Investment is the purchasing of capital goods which increase a
country’s productive capacity / supply-side capacity of the economy
• Investment increase total demand
• Investment increase demand for workers, decrease unemployment,
increase income
• Increase spending on research and development and increase
productivity
• Create economic growth
Why it might not be beneficial:

• Investments may lead to inflation (demand-pull) in the short run
• Investments on capital goods has an opportunity cost of consumer
goods production
• Investments sacrifices current living standards for future living
standards
• Foreign investments might be very uncertain – knows no loyalty – very
mobile.
• Capital goods may be a substitute for labour, which creates
unemployment.

PUBLISHED
3(a) State two benefits of free trade. 2
Any two from:

Increase choices, more competition, lower prices, more specialisation
3(b) Explain two reasons why governments levy taxes. 4

To be able to fund government spending (1) types of government spending
(1) to improve standards of living (1).
To be able to control inflation (1) fiscal policy (1) reducing total demand (1).
To reduce inequality (1) tax the rich and help the poor (1).
To discourage the consumption of demerit good (1), to improve allocation of
resources / reduce external cost (1) to change external costs to private
costs (1) e.g. reduce pollution (1).
To reduce imports (1) to protect home producers (1).
3(c) Analyse, using a production possibility curve (PPC) diagram, the 6

impact of higher labour productivity on an economy.

Axes correctly drawn (1)
Initial curve or line sloping downward drawn to the axes (1)
New curve or line sloping downward drawn to the axes (1)
Shift to the right indicated by arrow or lettering (1).
Up to 2 marks for coherent analysis which might include:

Higher labour productivity will increase output per worker (1) increase
productive capacity (1).

PUBLISHED
3(d) Discuss whether or not MNCs always benefit their host countries. 8
In assessing each answer, use the table below.

content.
Why they might:

• bring in more investment
• increase total demand and economic growth
• provide more employment opportunities
• bring in more foreign capital and more advanced machinery.
Why they might not:

• MNCs might exploit local workers, pay low wages / provide low quality
working environments
• most profits of MNCs not reinvested back into the domestic economy
but brought back to home country
• big MNCs may meddle with domestic policy making.

PUBLISHED
4(a) Define profit maximisation. 2
When a firm produces at the level of output (1) which makes the highest
profits for the firm (1).
When a firm produces where the gap between TR and TC (1) is largest (1).
Reward, but do not expect, produce at a point where MC = MR
4(b) Explain two types of mergers 4

Horizontal (1) when two or more firms from the same industry and the same
stage of production merge (1).
Vertical (1) when two or more firms from the same industry but different
stage of production merge (1).
Conglomerate (1) when two or more firms from different industries merge
(1).
Allow vertical forward and vertical backward as two separate points.
4(c) Analyse how fiscal policy can encourage firms to produce more. 6

Reduce corporation tax (1) could lead to more profits after tax (1) enabling
firms to invest more and expand (1).
Reduce income tax (1) could increase spending (1) raise total demand (1)
encouraging firms to produce more (1).
Increase government spending (1) such as increasing subsidies (1) could
lead to firms being able to expand production (1) decreasing cost of
production (1) decreasing prices (1) increasing demand for the firms’
products (1).

PUBLISHED
4(d) Discuss whether or not maximum prices are beneficial. 8

content.
Why maximum prices will be beneficial:

• More affordable products
• More choices for consumers
• Less poverty
• To prevent exploitation of consumers by producers – especially
monopolies
• Firms forced to become more efficient to be able to make profit.
Why maximum prices will not be beneficial:

• Producers will not want to supply that much
• Firms leave the market
• Could lead to shortage
• Black market creation
• Less choices for consumers
5(a) Define market failure. 2
Market failure is when the market mechanism / price mechanism / demand

and supply (1) does not lead to an efficient allocation of resources (1).

PUBLISHED
5(b) Explain two influences, other than weather, that could affect the 4
demand for a product.

Price of substitutes (1) If the price of substitutes increase, demand for the
product will increase or vice versa (1).
Price of complements (1) If the price of complements increase, demand for
the product will decrease or vice versa (1).
Expected future prices (1) if the price is expected to increase in the future,
demand for the product will increase now or vice versa (1).
Advertising (1) if there is a successful advertising campaign, demand will
increase (1).
Income (1) if income increases, demand will increase for a normal good or
vice versa (1).
Change in price (1) if price increases, demand will contract, vice versa (1).
5(c) Analyse the possible effects of a shortage of a product such as energy 6

on an economy.

Low supply (1) high prices (1) increase cost of production for firms (1). Cost-
push inflation (1) firms might try to cut cost (1) by firing workers (1) increase
unemployment (1).
Increase price of goods and services (1) decrease affordability (1) decrease
demand for goods and services (1) decrease standards of living (1).
More imports to address shortage (1) less production (1) leading to lower
growth rate (1).

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5(d) Discuss whether or not workers benefit from division of labour. 8

content.
Why it is a benefit:
• saves time
• increased skills
• increased productivity
• increased wages
Why it is not a benefit:

• increased boredom
• limited skills
• lack of motivation
• lack of occupational mobility
• overdependence on others

Cambridge IGCSE™
ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and some
Cambridge O Level components.

PUBLISHED
marking principles.




Rules must be applied consistently, e.g. in situations where candidates have not followed instructions or in the application of generic level
descriptors.



PUBLISHED
1(a) Calculate Turkey’s total output. 1
$320 billion
1(b) Identify two factors that affect borrowing in an 2

economy.
• interest rates
• confidence levels
• wages / incomes
1(c) Explain the relationship between the growth of 3

Istanbul’s service sector and its growth in total output.

Higher growth in service sector leads to higher total
economic growth (1). This is expected as countries
become more developed, the share of services
increases (1) and the share of primary sector
decreases (1). For example, in 2011, the service industry
grew most rapidly at 28.16% and the total economic growth
was 21.9% (1). However, although growth of service sector
was lowest in 2010 at 11.9%, total growth was 14.38% (1),
higher than in 2014 where growth of service sector was
higher (1).
1(d) Explain two reasons for Istanbul’s increased 4 One mark for each of two reasons identified and one mark for
population. each of two explanations.

People moving from rural areas to the city centre (1) e.g.
for higher wages / more employment opportunities / better
housing / low cost of living / good transport links (1).
Improved healthcare (1) longer life expectancy / lower
infant mortality / higher quality of life (1).

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1(e) Analyse how good transport links have contributed to 4

Istanbul’s economic growth.

Good roads could lead to reduction in commute time (1)
good roads / air transport leads to faster transport of goods
and services (1).
Workers can move easily / higher labour mobility (1)
More competition in the labour market (1) more competition
in the product market (1) could lead to fall in cost of
production (1) increase in productivity (1).
Easy to conduct business internationally due to good air
transport links (1) access to huge international market (1)
e.g. 1.5 billion people within a flight time of 4 hours (1) may
have attracted MNCs (1).
Contributed to the growth of the transport industry (1)
allowing transport firms to take greater advantage of
economies of scale (1).
1(f) Draw a demand and supply diagram to show the 4

effects on flights to Turkey of greater worries about
safety for tourists.

Axes correctly labelled – price and quantity or p and q (1)
Original demand and supply curves correctly labelled (1)
Demand curve shifts to the left (1)
Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or
by labelling equilibrium points as E1 and E2 (1).

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1(g) Discuss whether or not Istanbul benefits from 6 Apply this example to all questions with the command
investment by MNCs. word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d))
Up to 4 marks for why it may be beneficial: Each point may be credited only once, on either side of an
Increased investment leads to increased total demand (1) argument, but separate development as to how/why the
leads to economic growth (1). outcome may differ is rewarded.
Increase demand for workers in Istanbul (1) decreasing
unemployment rates (1) increasing incomes (1) and
increasing standards of living (1).
Bring new / better technology (1) increase productive 1
capacity / productivity (1) Tax revenue may decrease …
Increase variety of products on sale (1) produce new
products (1) ... because of reason 1
Increase tax revenue (1) allowing local government to e.g. incomes may be lower.
spend more on e.g. roads (1).
Tax revenue may increase because incomes may 0
Up to 4 marks for why it may not be beneficial: be higher i.e. reverse of a previous argument.
Replace domestically owned firms in Istanbul / decrease
demand for domestic firms (1) MNCs may be more efficient Tax revenue may increase because of a different 1
than domestic firms (1) leading to failure of domestic firms / reason
decrease demand for domestic firms (1) monopoly of i.e. not the reverse of a previous argument
MNCs (1). e.g. government spending on subsidies may
Profits leave the country (1) not reinvested stimulate the economy more than spending on
domestically (1). education.
MNCs may exploit workers (1) such as low wages (1) poor
working conditions (1).
MNCs may exploit environment (1) e.g. pollution (1).

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1(h) Discuss whether or not competition is beneficial for 6

airlines.
Up to 4 marks why it is beneficial:

Competition will lead to airline being forced to be more
efficient (1) productivity increase (1) use latest
technology (1) reduce wasteful spending (1) quality
increases (1) cost of production goes down (1) prices
become more affordable (1) increase in quantity demanded
(1) total revenue and profit increases (1).
Up to 4 marks why it is not beneficial:

Too much competition means less market share for each
airline (1) less quantity demanded (1) airlines may have to
advertise more (1) increase cost of production (1) total
revenue and profit decreases (1) airlines who can’t
compete may go bankrupt / leave the market (1).
Too much competition may result in the airline being
small (1) cannot take advantage of economies of scale (1).
An airline may not benefit from becoming more
competitive (1) because of brand loyalty (1) lower demand
for air travel (1).

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2(a) State two components of the current account. 2 Any two components.
Accept exports and imports for 1 mark.
Any two from:
• trade in goods
• trade in services
• primary income
• secondary income
2(b) Explain why inflation may fall even if there is an 4

increase in total demand.

There may have been an increase in total supply (1) which
may be greater than the increase in total demand (1).
There could be an improvement in productivity (1) better
technology / capital (1).
Costs of production could have gone down (1) e.g. lower
taxes / lower costs of raw material, stronger exchange
rates (1).
2(c) Analyse how a country’s current account deficit might 6

be reduced if its firms become internationally
competitive.

Being internationally competitive e.g. high productivity, low
inflation, low exchange rates (max 2) increases production
(1) reduces cost of production (1) decreases price of
exports (1) increases quality of exports (1) increases
demand for exports (1) increases value of exports / net
exports (1).
Imports relatively more expensive / other countries
products more expensive (1) lower relative quality of
imports (1) decreases imports (1).

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2(d) Discuss whether or not lower taxes on firms will be 8

Level Descriptors Mark
beneficial for an economy.
3 A reasoned discussion which accurately 6–8
In assessing each answer, use the table opposite. examines both sides of the economic
argument, making use of economic
Why it might be beneficial: information and clear and logical analysis
• will increase after tax profits to evaluate economic issues and situations.
• increase ability and incentive to invest One side of the argument may have more
• firms may expand output leading to higher employment depth than the other, but overall, both sides
and economic growth of the argument are considered and
• higher investment may increase innovation and developed. There is thoughtful evaluation
productivity which may improve the current account of economic concepts, terminology,
• will reduce cost of production. This may reduce information and/or data appropriate to the
inflation question. The discussion may also point
out the possible uncertainties of alternative
Why it might not be beneficial: decisions and outcomes.
• firms might not invest more and just keep the profits to
themselves 2 A reasoned discussion which makes use of 3–5
• government will get less revenue from firms, reducing economic information and clear analysis to
ability to spend to improve the economy evaluate economic issues and situations.
• may attract MNCs which may replace domestic firms The answer may lack some depth and
• capital goods may replace labour, causing development or may be one-sided. There is
unemployment relevant use of economic concepts,
• higher output may result in external costs e.g. terminology, information and data
pollution. appropriate to the question.
1 There is a simple attempt at using 1–2

economic definitions and terminology.
Some reference may be made to economic
theory, with occasional understanding.
0 A mark of zero should be awarded for no 0

creditable content.

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2(d) Example of L3 answer:
Lower taxes on firms will be beneficial for an economy, as

this will reduce the production costs for firms and increase
their profits. With greater profits, firms may invest in labour,
which will decrease unemployment, and allow the firm to
increase its output. With greater output, a firm’s exports
may increase, and this will improve the current account
position. Furthermore, lower taxes may allow for lower
prices as the reduced production costs may be passed on
to consumers. Also, lower taxes may allow a firm to
increase its wages which not only increase average
incomes, but also increase productivity and so economic
output.
On the other hand, low taxes may not be beneficial, as
firms may use their increased income for expansion, but
may also increase external costs such as pollution when
they do this. Furthermore, lower taxes may allow firms to
become monopolies, which will hurt competition and the
potential for new firms. Moreover, with increased income,
firms may choose to become capital-intensive rather than
labour-intensive, which would increase unemployment.
Principal Examiner comment:

Strong on one side and reasonable on the other side.

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3(a) State two sectors, other than the primary sector, in an 2 Reward but do not expect the quaternary sector.
economy.
Secondary sector (1)

Tertiary sector (1)
3(b) Explain two possible reasons for a fall in the price of a 4

product such as natural rubber.

Decrease in demand for natural rubber (1) emergence of
substitutes (1) decrease in future expected price or any
other relevant examples (1).
Increase in supply of natural rubber (1) due to increase in

number of producers / good yield / relevant example (1).
3(c) Analyse the influences on spending. 6
Income (1) higher income increases the ability to spend /

increases purchasing power (1).
The rate of interest (1) a change in the rate of interest
influences the proportion of income that is spent and
saved (1) and affects borrowing (1).
Confidence (1) people spend more when they are
optimistic (1) about future income / job security (1).
Wealth (1) people can spend some of their wealth (1) e.g.
sell shares (1) use it as collateral to borrow (1).
Inflation (1) spending may fall if prices rise more than
money wages (1) spending may rise as people seek to buy
products before they increase in price even further (1).
Expansionary fiscal / monetary policy may increase
spending (1).

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3(d) Discuss whether or not the growth of the primary 8

sector is beneficial to a country.
Why it is beneficial: information and clear and logical analysis
• can increase total output of the economy, increasing to evaluate economic issues and situations.
economic growth One side of the argument may have more
• can provide employment opportunities that are depth than the other, but overall both sides
accessible to all / requires low skill / requires low of the argument are considered and
technology developed. There is thoughtful evaluation
• could increase standards of living in rural areas of economic concepts, terminology,
• provide raw materials for secondary sector information and/or data appropriate to the
• could ensure that country has food security, reduce question. The discussion may also point
imports of necessities, if prices of primary sector out the possible uncertainties of alternative
products are high e.g. high oil price which this could decisions and outcomes.
bring huge export revenue to the country. This could
reduce current account deficit. 2 A reasoned discussion which makes use of 3–5
economic information and clear analysis to
Why it is not beneficial: evaluate economic issues and situations.
• productivity may be low in the primary sector, very low The answer may lack some depth and
value added development or may be one-sided. There is
• may be low wages and poor working conditions relevant use of economic concepts,
• overdependence on primary sector may restrict growth terminology, information and data
of secondary and tertiary sectors appropriate to the question.
• some primary industries may be disrupted by weather
conditions and natural disasters 1 There is a simple attempt at using 1–2
• supply and demand are inelastic so there may be economic definitions and terminology.
considerable price fluctuations Some reference may be made to economic
• natural resources e.g. copper may be depleted. theory, with occasional understanding.

creditable content.

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3(d) Example of an L1 answer:
Growth of the primary sector may benefit an economy

because it uses renewable and non-renewable resources.
It provides the raw materials needed by other sectors.
Consumers’ demands cannot be fulfilled without the
primary sector as it is needed to produce all goods and
services. It may not be as beneficial as other sectors as
wages are lower and natural resources may eventually
become depleted.

A few relevant identifications.

PUBLISHED
4(a) Define tariffs. 2
Tariffs are a tax (1) on imports/exports (1) which increase

the price of imported/exported goods (1).
4(b) Explain two non-tariff methods of protection. 4 Also accept other non-tariff barriers such as rules and
regulations, exchange controls, etc.
Quotas (1) quantitative restriction on the amount of imports One mark for each of two reasons identified and one mark for
that can enter a country (1). each of two explanations.
Subsidies (1) grants given to domestic firms to reduce
domestic cost of production and reduce demand for
imported goods (1).
Embargoes (1) total restriction on a certain product from a
certain country (1).
4(c) Analyse, using a production possibility curve (PPC) 6

diagram, the beneficial effects for a country of the
growth of its small and medium-sized firms.

Axes correctly labelled (1).
Initial curve drawn as a curve or downward sloping line to
the axes (1).
New curve drawn as a curve or downward sloping line to
the axes (1).

The growth of its small and medium-sized firms will lead to Also accept a tilt outward of the new PPC curve.
an increase in the number of firms in the economy (1) this
will increase productive potential / increase productive
capacity / cause economic growth (1).

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4(d) Discuss whether or not increased international trade 8

can promote economic growth. Level Descriptors Mark

examines both sides of the economic
Why it may:
information and clear and logical analysis
• increase size of the market for domestically produced
to evaluate economic issues and situations.
goods, increase exports, increase total demand
One side of the argument may have more
• firms can specialise and achieve economies of scale, depth than the other, but overall both sides
decrease cost of production, increase demand for of the argument are considered and
goods and services produced domestically developed. There is thoughtful evaluation
• increase competitive pressure (1) making firms more of economic concepts, terminology,
efficient (1) information and/or data appropriate to the
• increase access to products not available domestically, question. The discussion may also point
e.g. raw materials to produce other goods, increase out the possible uncertainties of alternative
output of an economy (1). decisions and outcomes.
Why it may not: 2 A reasoned discussion which makes use of 3–5
• Increase amount of imports, decrease total demand of economic information and clear analysis to
the economy evaluate economic issues and situations.
• domestic firms may not be able to compete causing The answer may lack some depth and
less revenue, less profits, more unemployment, development or may be one-sided. There is
• may result in shortages of e.g. rice in the domestic relevant use of economic concepts,
market terminology, information and data
• make the economy more subject to sudden changes in appropriate to the question.
demand and supply.

creditable content.

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Increased international trade may not benefit a country

because the country may be in a trade deficit as the cost of
a country’s imports exceed the total value of its exports.
Consumers may purchase more goods and services from
abroad than from domestic firms which may reduce
economic growth as they make less profit. The value of the
currency may fall eventually because more goods and
services are being imported instead of exported.

Limited on one side.

PUBLISHED
5(a) State the rewards for labour and capital. 2
Wages (1) for labour

Interest (1) for capital
5(b) Explain the two types of poverty. 4 One mark for identifying absolute poverty and one mark for
an explanation.
Logical explanation which might include: One mark for identifying relative poverty and one mark for an
Absolute poverty (1) is when someone cannot afford the explanation.
basic necessities of life (1) less than $1.90 per day at
PPP (1).
Relative poverty (1) is when someone earns less than is

needed to participate in the normal activities of society (1)
when there is inequality (1).
5(c) Analyse how firms can benefit from specialisation. 6

Improve skills of workers (1) save time (1) lead to invention
of new technology (1) increase productivity (1) raise
quality (1) decrease average cost of production (1)
decrease prices (1) increase demand (1) enable advantage
to be taken of economies of scale (1) increase profits (1).

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5(d) Discuss whether or not supply-side policy measures 8

can reduce unemployment. Level Descriptors Mark
In assessing each answer, use the table opposite. 3 A reasoned discussion which accurately 6–8
Why they can: argument, making use of economic
• decrease corporation / profit tax, more profits, more information and clear and logical analysis
investments, more demand for labour, reduction in to evaluate economic issues and situations.
cyclical unemployment One side of the argument may have more
• decrease interest rates, more borrowing, more depth than the other, but overall both sides
investment, more demand for labour, reduction in of the argument are considered and
cyclical unemployment developed. There is thoughtful evaluation
• decrease income tax, increase disposable income, of economic concepts, terminology,
more spending / demand for goods and services, more information and/or data appropriate to the
production, increase demand for labour question. The discussion may also point
• government subsidies can encourage firms to expand out the possible uncertainties of alternative
and take on more workers, reduce cyclical decisions and outcomes.
unemployment
• increase spending on education and training, increase 2 A reasoned discussion which makes use of 3–5
skills / productivity of labour, increase demand for economic information and clear analysis to
labour, decrease structural unemployment. evaluate economic issues and situations.
• provide more information on jobs / job centres, easier The answer may lack some depth and
for workers to find jobs, decrease frictional development or may be one-sided. There is
unemployment relevant use of economic concepts,
• reduce unemployment benefit to reduce the time terminology, information and data
workers are between jobs, decrease frictional appropriate to the question.
unemployment.
Why they cannot:
• may be a time lag
• more investments could lead to increased
technological development, less demand for workers 0 A mark of zero should be awarded for no 0
• education programmes not according to market needs creditable content.

PUBLISHED
5(d) • privatisation could lead to firms cutting amount of

workers
• decrease in minimum wage could decrease incentive
to work
• may be a lack of total demand.
Example of L2 answer:
Supply-side measures such as training and education can

help to reduce unemployment as they allow people to
become more skilled and therefore increase their
opportunities to become hired. Also, when a firm is
subsidised by the government, it may have more money to
invest in labour, and this would reduce unemployment.
Privatisation can also cause a reduction in unemployment,
as the private sector may be willing to invest more capital
to labour to increase its output and this would reduce
unemployment.
On the other hand, supply-side measures may not reduce
unemployment, because subsidies given to firms may
increase its capital, but this may be used to become more
capital-intensive rather than labour-intensive, which would
not reduce unemployment. Also, if people are trained and
educated, but gain skills that are not demanded, they may
remain unemployed and therefore unemployment would
not decrease. Privatisation may lead to firms becoming
more capital-intensive rather than labour-intensive, and this
would not reduce unemployment.

Reasonable on both sides.

Cambridge IGCSE™
ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
2020 series.
components.

PUBLISHED
responses seen).

PUBLISHED

correct

4 Annotation:

PUBLISHED
Guide.
MARKING PROCESS
MARKING SPECIFICS
Crossed out work

questions).
know’ etc.)
mark.
Annotation
3 Every page of a script must have at least one annotation e.g. <BP> for a blank page

PUBLISHED
1(a) Calculate Vietnam’s GDP per head in 2017. 1
$6900 (1).
1(b) Identify two rewards to factors of production. 2
Wages (1) profits (1).
1(c) Explain what happened to Vietnam’s foreign exchange rate between 2

2010 and 2017.
It fell/depreciated (1) more dong had to be given to buy one dollar (1).
1(d) Explain two benefits an economy may gain from having a young 4
labour force.
May be more flexible (1) switch from doing different tasks (1).
May be more mobile (1) able to switch from one job to another or from one
place to another place (1).
May be more up to date with advances in technology (1) more
productive/able to use advanced technology (1).
1(e) Analyse why Vietnam’s budget deficit may decline in the future. 4
High economic growth will raise incomes/wages rising (1) higher profits (1)
more revenue from direct taxes (1) higher incomes is likely to result in more
spending (1) more revenue from indirect taxes (1).
Tax rates may be increased (1) reducing the gap between tax revenue and
government spending (1).
Deregulation / privatisation may increase profits (1) resulting in higher
revenue from direct taxes /corporation tax (1).
1(f) Analyse the relationship between government spending on education 5

and the percentage of the labour force employed in the tertiary sector.
Generally the countries with the highest % spending on education have the
highest percentage employed in the tertiary sector and vice versa (1) up to
two examples e.g. Norway has the highest % spending and the highest %
employed in the tertiary sector, Bangladesh has the lowest % spending and
the lowest % employed in the tertiary sector (2) the main exception is
Vietnam – second highest % spending but lowest % employed in the tertiary
sector (1) there may be a time lag in this case (1).
It is the expected relationship as some tertiary jobs require high skills (1)
countries that can afford to devote a high percentage of resources to
education may have achieved a relatively high level of development (1) a
higher percent spent will create jobs in education (1).

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1(g) Discuss whether or not an increase in competition is likely to benefit 6

Vietnamese consumers.
Apply this example to all questions with the command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Each point may be credited only once, on either side of an argument, but separate
development as to how/why the outcome may differ is rewarded.

0

1
education.
Award up to 4 marks for logical reasons why it might, which may include:
• prices may be reduced to attract more consumers (1) making them
more affordable to consumers (1)
• choice will be increased in terms of sellers (1) and possibly in terms of a
greater range of products (1)
• quality may rise (1) with pressure being put on producers to produce
good products to attract consumers (1)
• producers may respond more fully to changes in consumer demand (1)
Award up to 4 marks for logical reasons why it might not, which may include:
• firms may be smaller (1), less able to take advantage of economies of
scale (1), so prices may be higher (1)
• firms may have less profit (1) and so spend less improving the quality of
the product (1)
• some firms may be MNCs (1), less concerned about causing external
costs (1)

PUBLISHED
1(h) Discuss whether or not the increase in borrowing is likely to have 6

caused inflation in Vietnam in 2017.
• higher consumer demand (1) and investment (1) will increase total
(aggregate) demand (1)
• higher total demand may cause demand-pull inflation/cause producers
to raise prices (1)
• government spending may rise, further adding to total (aggregate)
demand (1)
• the economy has very low unemployment/full employment (1) making it
difficult for supply to respond to higher demand (1)
• tax rates may rise (1) which may increase costs of production (1)
causing cost-push inflation (1)
• higher investment may reduce costs of production (1) lowering cost-
push inflation (1)
• higher consumer spending may enable firms to grow (1) and take
greater advantage of economies of scale (1)
• increased education (1) may raise labour productivity (1), reduce costs
of production (1) and lower cost-push inflation (1)
• privatised firms may be more efficient (1)
• more competition may reduce price rises (1)

PUBLISHED
2(a) State two benefits a country may gain from immigration. 2
One mark each for two from:

larger labour force, reduced dependency rate, higher demand, higher tax
revenue, more skilled workers, greater utilisation of resources.
2(b) Explain two consequences of deflation. 4
Output may fall (1) if due to lower demand firms will cut back production (1).
Unemployment may rise (1) fewer workers will be needed to produce fewer
goods and services (1).
Economic growth may decline / a recession may occur (1) due to lower total
(aggregate) demand (1).
Output may rise (1) if due to lower costs of production / advances in
technology (1).
Exports may increase (1) if domestic products have become more price-
competitive (1).
2(c) Analyse why children from low-income families may have low incomes 6
as adults.
Likely to receive less education (1) likely to have lower quality healthcare (1)
nutrition is likely to be poor (1) likely to gain fewer qualifications/skills (1) be
less productive (1) have fewer employment opportunities (1) may be in low
paid jobs (1) may be unemployed (1).

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2(d) Discuss whether or not a national minimum wage will reduce poverty. 8

content.
Why it might:
• is set above the equilibrium level, will raise the pay of the low-paid
• may reduce relative poverty by reducing the gap between high and low-
income earners
• may reduce absolute poverty by enabling low paid workers greater
access to basic necessities
• may raise employment, if it motivates workers and raises productivity
• may raise employment if it increases total (aggregate) demand.
Why it might not:

• may not have any impact if set below the equilibrium level
• unemployment may rise as it may increase firms’ costs of production
• will not help the poor who are unable to work
• may not reduce relative poverty if it results in other workers pressing
for, and getting, wage rises to maintain their wage differentials
• some receiving it may not be in poor households.
Reward, but do not expect, a national minimum wage diagram which shows
the effect on pay and employment.

PUBLISHED
3(a) Define a capital good. 2
Human-made good (1) used in production/used to produce other goods and

services (1).
3(b) Explain two challenges facing small firms. 4
Lack of finance/difficulty raising finance (1) banks may be more reluctant to

lend to small firms (1).
May not be able to take advantage of economies of scale (1) may have
higher average cost (1).
Not well known (1) difficult to attract consumers (1).
May face fierce competition from large firms (1) which may lower their
prices/spend more on advertising (1).
Risk of failure (1) due to inexperience of owners (1).
3(c) Analyse, using a demand and supply diagram, how a rise in income 6
may affect the market for gold.

Axes correctly labelled – price and quantity or p and q (1).
Demand curve shifted to the right (1).
Equilibriums – shown by lines P1, P2/Q1, Q2 or marking the equilibrium
points E1 and E2 (1).
Up to 2 marks for logical analysis:

An increase in income will increase people’s ability to buy gold/raise
purchasing power (1).
Price will rise/quantity traded will rise (1).

PUBLISHED
3(d) Discuss whether or not MNCs increase production and productivity in 8

their host countries.

content.
Why they might:

• may have high demand for their products
• may create demand for raw materials from domestic firms
• may bring new technology and working practices into the countries
• may train workers
• may pay higher wages which may motivate workers.
Why it might not:

• may drive some domestic firms of business
• may deplete natural resources, reducing output in the future
• may have long/unsociable working hours
• may generate external costs including pollution which may reduce the
health of workers.
Limit to level 2 if only production or productivity is considered.

PUBLISHED
4(a) Define macroeconomics. 2
The study of the whole economy (2).

Example of a macroeconomic topic e.g. unemployment/study of economics
on a large scale (1).
4(b) Explain two consequences to firms of unemployment. 4
Lower demand (1) lower revenue (1).

Lower ability to take advantage of economies of scale (1) due to lower
output (1).
Lower average costs (1) lower wages (1).
Less risk of industrial action (1) workers afraid of losing their jobs (1).
Greater ease of recruiting workers (1) reducing recruitment costs (1).
4(c) Analyse how tax cuts could increase exports. 6
Lower indirect taxes could reduce costs of production (1) could encourage
investment (1) use of more advanced technology/more efficient methods of
production (1) which could lower prices / make prices more internationally
competitive (1).
Lower income tax could motivate workers (1) raise productivity (1) lower
price of exports (1) raise quality of exports (1).
Lower taxes in other countries (1) e.g. a lower tariff will encourage
foreigners to purchase more exports (1).

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4(d) Discuss whether or not a current account deficit on its balance of 8

payments harms an economy.

content.
Why it might:
• income/demand is leaving the economy
• employment will be lower than it could be
• it may put downward pressure on the exchange rate
• the country will get into debt
• other countries may not be willing to lend to it / invest in the country.
Why it might not:

• deficit may be low / short term
• enables the country to consume more than it produces
• imports of raw materials and capital goods will increase output in the
future.

PUBLISHED
5(a) State two objectives of firms. 2

survival, social welfare, profit maximisation and growth.
5(b) Explain how a subsidy can correct market failure. 4
A payment to increase production (1) and lower price (1) can increase
consumption of merit goods (1) products with positive externalities (1) which
are under-consumed if left to market forces (1) can be paid to private sector
firms to produce public goods (1) would not be produced if left to market
forces (1).
5(c) Analyse, using a production possibility curve (PPC) diagram, the effect 6
of advances in technology on an economy.

Axes correctly drawn (1).
Initial curve drawn as a curve or a downward sloping line to the axes (1).
New curve drawn as a curve or a downward sloping line to the axes (1).
Up to 2 marks for logical analysis:

Advances in technology raise the quality of capital (1) increase productive
capacity (1).

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5(d) Discuss whether or not an increase in government spending will 8

reduce unemployment.

content.
Why it might:
• may raise total (aggregate) demand, encouraging firms to hire more
workers
• may be spent on education which may increase people’s skills
• may be spent on healthcare which may make people fitter and more
employable
• may be spent on subsidies to firms which will encourage them to
increase output and take on more workers.
Why it might not:

• if spent on unemployment benefits, it may encourage some people to
leave their jobs
• if there is full employment, it will just cause inflation
• spending on education may be ineffective e.g. develop the wrong skills
• higher total (aggregate) demand may encourage firms to use more
capital goods rather than labour.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
2020 series.
components.

PUBLISHED
responses seen).

PUBLISHED
Subject Specific Marking Principles (point-based marking)

correct

4 Annotation:

PUBLISHED
Guide.
MARKING PROCESS
MARKING SPECIFICS
Crossed out work

questions).
know’ etc.)
mark.
Annotation
3 Every page of a script must have at least one annotation e.g. <BP> for a blank page.

PUBLISHED
1(a) Calculate Pakistan’s trade in goods balance in 2017. 1
–$36.5bn (1).
1(b) Identify two possible causes of demand-pull inflation in Pakistan in 2

2017.
Any two from:

Higher government spending (1) higher consumer spending / rising
population (1) increased investment (1).
1(c) Explain the opportunity cost to Pakistan of producing consumer 2

goods.

Capital goods (1) resources that could have been used to produce capital
goods are being used to produce consumer goods / (next) best alternative
forgone (1).
1(d) Explain two reasons why education is a merit good. 4

People underestimate full benefit / private benefit (1) not appreciating health
and job opportunity benefits (1).
People not taking into account external benefits (1) e.g. better quality
products/larger quantity of products or economic growth (1).
1(e) Analyse why the children of poor families tend to receive less 4
education than the children of rich families.

The children of the poor may not attend school (1) they may have to work
(1) to help support their families (1).
Poor families are likely to have difficulty paying to have their children
educated (1) some schools in Pakistan are in the private sector (1) there
seems to be a lack of low-cost schools (1).
The children of the poor may leave school at a younger age (1) may miss
more school days due to ill health (1).
1(f) Analyse the relationship between GDP per head and imports per head. 5

Generally the countries with the highest GDP per head spend the most per
head on imports (1) examples e.g. Norway has the highest income per head
and the highest spending on imports per head and Haiti has the lowest
income and the lowest spending on imports (up to 2) exception: Russia has
a higher income per head than Mexico but a lower spending per head on
imports (1).
Expected relationship as income rises (1) people can afford more imports
(1).
The four countries with above average GDP per head spend above the
global average on imports (1).
The two countries with below average GDP per head spend more on
imports (1).

PUBLISHED
1(g) Discuss whether or not the supply of teachers in Pakistan is likely to 6

increase in the future.

0
1
education.
• education standards may rise (1) which may increase those qualified to
be teachers (1)
• working conditions may improve (1) with better buildings (1)
• population is increasing (1) which may increase the size of the labour
force (1).
• wages may not rise (1) teachers may switch to other jobs (1)
• teachers may emigrate to other countries (1)
• the qualifications required to be a teacher may increase (1) by more
than educational standards rise (1).
1(h) Discuss whether or not an increase in its import tariffs would be likely 6
to benefit the Pakistani economy.
• may reduce the trade deficit (1) by reducing demand for imports (1)
• tax revenue may increase (1) enabling the government to increase its
spending (1)
• may help protect infant industries (1) until they can take advantage of
economies of scale (1).
• demand for some finished imports may be price inelastic (1)
• demand for capital goods / raw materials may be inelastic (1)
• incomes may rise (1), leading to higher spending on imports (1)
• other countries may impose trade restrictions (1) reducing Pakistan’s
ability to export (1).

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2(a) Define external costs. 2
Harmful effects (1) on third parties (1).

Social costs – private costs (1).
2(b) Explain two influences on whether demand for a product is price- 4

elastic or price-inelastic.

Availability of substitutes (1) close substitutes will be likely to result in
demand being price-elastic (1).
Whether the product is a luxury or necessity (1) luxuries tend to have elastic
demand/necessities tend to have inelastic demand (1).
Proportion of income spent on the production (1) demand tends to be
inelastic if a small proportion is spent on it/ elastic if a high proportion is
spent on it (1)
Whether the purchase can be postponed (1) if so, demand is likely to be
elastic, if not inelastic.
Addictiveness of the product (1) addictive products are likely to have
inelastic demand (1).
Time period (1) demand tends to become elastic over time (1).
2(c) Analyse, using a demand and supply diagram, how a subsidy given to 6
producers could affect the market for electric cars.
price of S1
electric S2
cars
P1
P2
D1
O Q1 Q2
quantity of
electric cars

Supply curve shifted to the right (1).
Equilibriums – shown by lines P1 and P2 / Q1 and Q2 or equilibrium points
E1 and E2 (1).

A subsidy encourages firms to produce more/equivalent to a reduction in
costs (1).
Price will fall/quantity traded will rise (1).

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2(d) Discuss whether cars should be produced by the private sector or the 8
public sector.

content.
Why cars should be produced by the private sector:

• may be a more competitive market and so prices may be lower
• profit incentive may raise efficiency and encourage firms to produce
what consumers want and keep costs low
• may be higher investment which could improve quality and lower costs
• may be easier to raise finance as can sell shares
• may be forced to be efficient as may not be supported by the
government
Why cars should be produced by the public sector:

• a private sector monopoly may abuse market power and may restrict
supply and raise price
• public sector firm to charge low prices/prices below cost for cheap cars
to help the poor
• public sector firms may take into account external costs and
benefits/welfare
• the state may have more financial resources and be able to invest on a
larger scale.

PUBLISHED
3(a) State two functions of money, other than a store of value. 2

medium of exchange, measure of value (unit of account) and standard of
deferred payments.
3(b) Explain two advantages banknotes have as a form of money. 4

Generally acceptable (1) people are prepared to accept them in exchange
for products and to settle debts (1).
Portable (1) banknotes are light to carry around (1).
Divisible (1) notes of different denominations (1).
Recognisable (1) notes have distinct features on them known to the
population (1).
Limited in supply (1) the central bank prints a set number of notes (1).
Homogeneous (1) all banknotes of the same value are identical (1).
3(c) Analyse the influences on the mobility of workers. 6

Occupational mobility is influenced by education (1) the more qualifications
workers have (1) the more choice of jobs they will have (1).
Occupational mobility is influenced by training (1) the more skills workers
have (1) the easier they will find it to switch jobs (1).
Geographical mobility is influenced by the price/availability of housing (1)
The cheaper/more available housing is (1) the easier will workers find it to
work in other areas (1).
Geographical mobility is influenced by family ties (1) people may be
reluctant to move because children are at school/partners have job in a
particular area (1).
Mobility between countries will be influenced by immigration controls (1).

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3(d) Discuss whether or not a central bank should raise the rate of interest. 8

content.
Why it should:
• to reduce demand-pull inflation as a higher interest rate may encourage
to spend less as it may discourage borrowing and encourage saving
• to reduce borrowing if people and firms are building up unsustainable
debt
• to raise the exchange rate if there is downward pressure on a fixed
exchange rate
• to reduce a current account deficit if it is thought that lower spending will
reduce imports and may discourage exports.
Why it should not:

• it may increase cyclical unemployment by reducing total (aggregate)
demand
• it may reduce the economic growth rate as it may discourage
investment due to the higher cost of borrowing to purchase capital
goods
• it may raise the exchange rate and make exports less price competitive.

PUBLISHED
4(a) State two qualities of a good tax. 2

convenient, equitable, certain, efficient, flexible.
4(b) Explain two causes of a decrease in the death rate. 4

Rises in income (1) leading to better living standards (1).
Better education (1) resulting in e.g. better nutrition (1).
Better healthcare (1) due to e.g. advances in medical technology (1).
Reduction in crime/end of a war (1) fewer people dying violently (1).
of a decrease in population size on an economy.
capital
goods
O consumer
goods
Axes correctly drawn (1).
Initial curve drawn as a curve / line sloping downward to the axes (1).
New curve drawn as a curve / line sloping downward to the axes (1).
Shift to the left indicated by arrow or letter (1).

A decrease in population size may decrease the size of the labour force (1)
decrease productive capacity (1).

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4(d) Discuss whether or not an ageing population is a benefit to an 8

economy.

content.
Why it might:
• older people may be an economic asset through their knowledge and
experience
• the retirement age may be raised so that the labour force may increase
• in some countries, an increase in the average age of the population
may mean more people are in the labour force and may reduce the
dependency ratio
• may indicate a good standard of living increasing life expectancy.
Why it might not:

• may be an increase in the dependency ratio with a smaller proportion of
workers to support a higher proportion of retired
• any increased spending on healthcare and pensions will involve an
opportunity cost
• taxes may have to be increased to finance increased costs of
healthcare and pensions
• any shortage of workers may drive up wages and cause cost-push
inflation
• older workers may not be up to date with new technology and new
ideas

PUBLISHED
5(a) State two key questions about how resources are allocated. 2

What to produce, how to produce it, for whom / who gets what is produced.
5(b) Explain two fiscal policy measures that can be used to reduce poverty. 4

Rise in government spending on education (1) make it easier for people to
gain jobs / better paid jobs (1).
Rise in government spending on healthcare (1) providing a basic necessity /
increase productivity of workers (1).
Subsidise / free provision of food (1) providing a basic necessity / reduce
absolute poverty (1).
Subsidise / free provision of housing (1) helping those unable to afford
housing (1).
Increase in state benefits (1) e.g. paying more in unemployment benefit will
raise the income of some of the poor (1).
Use of progressive taxes / reduction of regressive taxes (1) reduce relative
poverty (1).
5(c) Analyse why a country may have low productivity. 6

Education may be low (1) and training may be low (1) workers may lack
skills (1).
Wages may be low (1) working conditions may be poor (1) reducing the
motivation of workers (1).
There may a lack of investment (1) workers working with out of date/low
quality capital goods (1).
Healthcare may be low (1) causing workers to be tired (1).

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5(d) Discuss whether or not mergers benefit an economy. 8

content.
Why they might:

• may enable the new firm to take greater advantage of economies of
scale, lower average cost and lower prices, resulting in lower inflation
• may enable the new firm to earn higher profits and spend more on
research and development and investment. This could raise the quality
of products and increase economic growth
• may enable the new firm to compete more effectively internationally
which could improve the current account position
• a vertical merger can increase the efficiency of production by co-
ordinating the production stages. This could increase productive
potential.
Why they might not:

• the new firm may experience diseconomies of scale, higher average
cost and higher prices. This may increase the inflation rate
• a horizontal merger will reduce competition which can increase prices,
reduce choice, lower efficiency and reduce quality. This may reduce
international price competitiveness which may harm the country’s
current account position. It could also lower the country’s economic
growth rate
• the new firm may rationalise and this may result in unemployment.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
marking principles.




descriptors.


PUBLISHED
1(a) Calculate the percentage of total world output of palm 1 Accept 60.
oil produced by Indonesia in 2017.
60% (1).
1(b) Identify two variable costs of producing palm oil. 2 If more than two are given, consider the first two only.
Accept ‘labour’, ‘workers’ or ‘wages’ for ‘casual labour’.
• fertilisers
• palm oil seeds
• casual labour
1(c) Explain one opportunity cost of conserving forests in 2

Indonesia.

Palm oil not produced / rice not produced / tourism lost as
a result of building fewer hotels / lost opportunity to
Norwegian government to spend on e.g. education (1)
(next) best alternative forgone (1).
1(d) Explain two external costs of the destruction of forests 4 One mark for each of two costs identified and one mark for
in Indonesia. each of two explanations.

Loss of wildlife habitats (1) extinction of species / harmful
effect on animals not involved in the economic decision (1).
Harmful gases/air pollution/pollution (1) unpleasant
atmosphere for local residents / illnesses / global
warming (1).

PUBLISHED
1(e) Draw a demand and supply diagram to show the effect 4

of a ban on burning stubble on the market for rice. price
S 2 S1
of rice
Supply curve shifted to the left (1). P2
Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or P1
D1
O Q2 Q1
quantity
of rice
For quantity label accept Q, quantity demanded, quantity

supplied.
Do not reward a completely macro diagram.

PUBLISHED
1(f) Analyse the relationship between countries’ GDP per 5 HDI now includes years of schooling but accept an idea that it
head ranking and HDI ranking. includes education - adult literacy rate was included in the old
measure.
Responses do not have to be in the format suggested but
Expected relationship: they should address the expected/normal relationship, offer
Generally, the higher the GDP per head ranking, the higher supporting evidence of that, highlight any exceptions to that,
the HDI ranking / positive relationship / direct and analyse the overall data.
relationship (1).
Supporting evidence:
The top country, the top two or top three countries with the
highest GDP per head ranking have the highest HDI
ranking (1) the country, two countries with the lowest GDP
per head ranking have the lowest HDI ranking (1).
Exception:
Cuba or Indonesia (1) supportive data – Cuba has a lower
GDP per head ranking than Indonesia but a higher HDI
ranking than Indonesia (1).
Analysis:
It is the expected relationship (1).
GDP is a component of HDI / HDI ranking influenced by
additional factors – education and/or life expectancy /
higher GDP per head enables more to be spent on
education and healthcare (1).

PUBLISHED
1(g) Discuss whether or not the immigration of workers 6 For an answer that examines the effects of migration of
would be likely to benefit the Indonesian economy. workers from Indonesia, a maximum of 2 marks.
Up to 4 marks why it might: Apply this example to all questions with the command
• may be skilled workers (1) who may be more word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d)).
productive (1)
• may be motivated to work harder (1) to improve quality Each point may be credited only once, on either side of an
of life (1) argument, but separate development as to how/why the
• bring in new ideas (1) improving production methods / outcome may differ is rewarded.
use advanced technology (1)
• may pay taxes (1) enabling the government to spend Generic example mark
more (1)
• fill vacancies left by Indonesians going to work abroad Tax revenue may decrease … 1
(1)
• increase size of labour force (1) increase productive ... because of reason 1
capacity (1) reduce dependency ratio (1) e.g. incomes may be lower.
• may increase exports / total (aggregate) demand (1)
may result in economic growth / increase output (1). Tax revenue may increase because incomes may 0
be higher i.e. reverse of a previous argument.
Up to 4 marks why it might not:
• population is already increasing (1) immigration may Tax revenue may increase because of a different 1
take it above the optimum level / lead to reason
overpopulation / put pressure on resources (1) i.e. not the reverse of a previous argument
• pressure may be put on housing / education / food (1) e.g. government spending on subsidies may
• may put downward pressure on wages (1) may replace stimulate the economy more than spending on
Indonesian workers / cause unemployment (1) education.
lowering living standards (1)
• may need training (1) increasing firms’ costs (1)
• may increase pollution (1)
• may send money home to relatives (1) may have to
import more e.g. rice (1) negative impact on the current
account of the balance of payments (1).

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1(h) Discuss whether or not the Indonesian tourism 6

industry will increase in the future.

• it is currently price competitive (1)
• if the exchange rate continues to fall (1), price of
tourism for foreign visitors will fall (1)
• it has natural tourist attractions (1) may preserve
forests (1)
• global economy is growing (1), incomes are rising (1)
enabling foreigners to afford more holidays (1)
• people coming from abroad to work in high paid jobs
may be skilled / highly motivated (1) raise quality of
tourism (1).
• Indonesian government may subsidise the tourism
industry (1) lowering costs of production (1).
• the industry may be promoted /advertised (1)
• air travel is falling in price (1) air travel is a complement
to holidays (1)
• foreign investment may be attracted into the industry
(1)

• pollution may discourage visitors (1) worried about
health (1)
• there are substitutes (1) Indonesia has competition
from neighbouring countries (1)
• natural areas of beauty may be destroyed (1) by e.g.
new palm oil plantations / natural disasters (1)
• net emigration (1) may mean there are not enough
workers (1).
• Covid-19 may continue to reduce tourism (1).

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2(a) Define trade in goods balance. 2 Accept exports (of goods) = imports of (goods) for 1 mark
Value of exports of goods / revenue earned from exports

minus value of imports of goods / expenditure on imports of
goods (2).
Exports minus imports (1) of goods / visible items (1).
2(b) Explain two benefits producers may gain from free 4 One mark for each of two benefits identified and one mark for
trade. each of two explanations.

Availability of larger/global market (1) may increase
revenue/profit (1).
Ability to produce on a larger scale / higher output (1) take
advantage of economies of scale (1) specialise (1).
Access to cheaper / better quality raw materials / raw
materials without tariffs imposed on them (1) lowering costs
of production/raising quality of products produced/lowering
price (1).
Access to advanced technology/ideas from abroad (1)
resulting in improved methods of production/new
products (1).
Increased competitive pressure (1) which may raise
efficiency (1).

PUBLISHED

diagram, the effect of an increase in unemployment on
an economy. capital
goods
Axes correctly labelled (1). A
Curve drawn as a curve or downward sloping line to the
axes (1). B
Two production points shown – one on or to left of PPC
and the other further to the left of the PPC (1).
Movement of the production point inwards indicated by
arrow or lettering (1).
Up to 2 marks for coherent analysis which might include: O

Unemployment means resources are not used (1) there is consumer
inefficiency (1) reduces output/GDP / causes a goods
recession (1).
For analysis, only accept a PPC shifted inwards if logical
justification is given i.e. an increase in unemployment may
cause some workers to leave the labour force –
‘unemployment causing unemployment’.

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2(d) Discuss whether or not an increase in the rate of 8

income tax will reduce inflation.
Why it might: information and clear and logical analysis
• reduce disposable income/purchasing power to evaluate economic issues and situations.
• consumer expenditure likely to fall One side of the argument may have more
• investment may fall depth than the other, but overall both sides
• total (aggregate) demand may fall of the argument are considered and
• demand-pull inflation may decrease developed. There is thoughtful evaluation
• higher government revenue may increase government of economic concepts, terminology,
spending on supply-side policy measures. information and/or data appropriate to the
question. The discussion may also point
Why it might not: out the possible uncertainties of alternative
• workers may seek higher wages decisions and outcomes.
• higher wages may increase costs of production
• cost-push inflation/wage-price spiral may occur 2 A reasoned discussion which makes use of 3–5
• higher tax revenue may increase government economic information and clear analysis to
spending evaluate economic issues and situations.
• higher government spending may offset lower The answer may lack some depth and
consumer expenditure leaving total (aggregate) development or may be one-sided. There is
demand unchanged relevant use of economic concepts,
• people may be very confident about the future so they terminology, information and data
cut back on savings rather than spending. appropriate to the question.


creditable content.

PUBLISHED
Due to an increase in the rate of income tax, inflation may

fall as disposable income will fall. People will have less
money to spend so they may spend less and total demand
will fall. A fall in demand will cause prices to fall as
producers will not be able to sell as many goods and
services. They will want to keep their market share.
Demand-pull inflation will decrease.
However, an increase in income tax may not cause
inflation to fall. Workers may force up the wage rate. Firms’
labour cost and costs of production will increase so firms
may push up prices to maintain profits. This can cause
cost-push inflation and a wage price spiral. Plus,
government revenue from high taxes will rise and
government spending may rise. This may offset the fall in
consumer expenditure and inflation may not fall.

Strong on both sides.
Example of L1 answer:
Inflation refers to the fall in the purchasing power of money.
Income tax is a payment to the government. The increase
in direct tax will definitely help the government. This may
help the government solve the problem of inflation and will
increase the purchasing power of money.

Definitions given but the answer does not explain why
inflation may, or may not, be reduced.

PUBLISHED
3(a) Define demerit good. 2
A product which is more harmful to consumers than they

realise / the government considers is more harmful (2).
It is over-consumed / overproduced (1) it creates external
costs (1).
A product that is harmful (1).
3(b) Explain the difference between an extension in 4 Up to 2 marks for diagram(s) showing the difference.
demand and an increase in demand.
Maximum of 2 marks for extension in demand and a
Logical explanation which might include: maximum of 2 marks for an increase in demand.
An extension in demand is caused by a change in the price
of the product (1) rise in quantity demanded (1) it is shown
by a movement along the demand curve (1).
An increase in demand is caused by a change in an
influence on demand other than a change in the price of
the product / means more is demanded at each and every
price (1) example of a cause of an increase in demand e.g.
rise in incomes (1) it is shown by a shift in the demand
curve (1).

PUBLISHED
3(c) Analyse the effects on income distribution and tax 6

revenue of an increase in indirect taxes.

Income is likely to become less evenly distributed (1)
indirect taxes are usually regressive (1) taking a larger
percentage of income of the poor (1).
Tax revenue likely to rise (1) will rise more on goods with
inelastic demand (1) e.g. food (1) may fall if demand falls
significantly (1).
If any extra tax revenue is spent on lower income
groups (1) e.g. welfare benefits (1) the effect on income
distribution is less certain / income may be more evenly
distributed (1).
Tax evasion and avoidance is less common in the case of
indirect taxes (1) though there may be informal markets (1).

PUBLISHED
3(d) Discuss whether or not a government should impose a 8

maximum price on food.
Why it should: information and clear and logical analysis
• may influence price and quantity purchased to evaluate economic issues and situations.
• if set below the equilibrium level, will reduce price One side of the argument may have more
• some people will be able to purchase food at a lower depth than the other, but overall both sides
price of the argument are considered and
• may reduce poverty – food is a basic necessity developed. There is thoughtful evaluation
• may stop monopoly food producers setting high prices. of economic concepts, terminology,
information and/or data appropriate to the
Why it should not: question. The discussion may also point
• if set above the equilibrium, it will have no effect out the possible uncertainties of alternative
• it set below the equilibrium, will result in shortages decisions and outcomes.
• some additional measure will have to be introduced to
ration out food 2 A reasoned discussion which makes use of 3–5
• some foods may be harmful to health and their economic information and clear analysis to
consumption should be discouraged evaluate economic issues and situations.
• may result in firms making losses and so reducing The answer may lack some depth and
quality of food or employment of workers development or may be one-sided. There is
• free market forces may result in a more efficient relevant use of economic concepts,
allocation of resources. terminology, information and data
appropriate to the question.


creditable content.

PUBLISHED
3(d) Example of L2 answer: The effect on price, quantity demanded and quantity supplied
may be shown on a diagram.
Government should impose a maximum price on foods.
Price is likely to fall and this will aid those in poverty. They
will be able to buy basic necessities easier and allow them
to spend on other things. Governments should not impose
a maximum price on food as it can cause businesses to
make a loss and need government subsidisation.

Reasonable on one side and limited on the other side.

PUBLISHED
4(a) State two functions of a commercial bank. 2 Internet banking alone is too vague.
Two from:
• lending
• accepting deposits
• allowing customers to make payments
• looking after valuables
• giving financial advice
• providing insurance
• exchanging foreign currency
4(b) Explain two reasons why emigration from a country 4 One mark for each of two reasons identified and one mark for
may increase. each of two explanations.
Reward answers that give an argument from the opposite
Logical explanation which might include: perspective but do not double award.
Rise in unemployment (1) people move abroad in search of Accept ‘static approach’ e.g. unemployment.
jobs (1).
Fall in income (1) seek higher wages abroad (1).
Lower living standards (1) e.g. healthcare may be better
abroad / less pollution (1).
Relaxation on immigration controls (1) making it easier to
move abroad (1).
Greater social unrest / outbreak of war (1) seek greater
security (1).
High inflation at home (1) seek lower cost of living (1).

PUBLISHED
4(c) Analyse the possible causes of a rise in the wages of 6

bank workers.

Demand for bank workers may increase (1) due to higher
demand for banking / this may result from more people
opening bank accounts/using the services of banks (1) may
also result from a rise in the productivity of workers (1)
more banks competing for the services of bank workers /
more competition for workers (1) higher wages paid to
retain bank workers (1).
Supply of bank workers may fall (1) qualifications may have
been increased (1) skills may have increased / may need
to be more skilled as working with more advanced
technology (1).
Bank workers may use trade union power (1) collective
bargaining and/or industrial action (1).
Banks may have earned large profits (1) may have
rewarded workers with bonuses (1) bonuses / high pay
may be used to motivate workers (1).
A higher national minimum wage (1) forcing banks to pay
some of their staff more (1).
Bank workers may work longer hours / may work overtime
(1).
Bank workers may be more experienced (1) more
productive / more skilled (1).
Inflation / higher income tax (1) purchasing power will fall
unless wages increased (1).

PUBLISHED
4(d) Discuss whether or not demand for cars will become 8

more price-elastic in the future.
Why it might: information and clear and logical analysis
• may be closer substitutes. Price of public transport and to evaluate economic issues and situations.
/or quality of public transport may fall making them One side of the argument may have more
closer substitutes depth than the other, but overall both sides
• may take up a larger proportion of income. Incomes of the argument are considered and
may fall developed. There is thoughtful evaluation
• price may rise. Demand becomes more price elastic as of economic concepts, terminology,
price rises information and/or data appropriate to the
• the number of firms producing certain types of cars question. The discussion may also point
may increase out the possible uncertainties of alternative
• time will give consumers more opportunity to search decisions and outcomes.
out lower prices.
2 A reasoned discussion which makes use of 3–5
Why it might not: economic information and clear analysis to
• may become more of a necessity. People may work evaluate economic issues and situations.
further from where they live The answer may lack some depth and
• may become easier to postpone purchase. If cars last development or may be one-sided. There is
longer, consumers may be able to delay buying relevant use of economic concepts,
replacements terminology, information and data
• people may have become used to driving – habit appropriate to the question.
forming. May be reluctant not to own and drive a car
• price of complements may rise, so that even if price of 1 There is a simple attempt at using 1–2
cars fall, people may not buy more cars. economic definitions and terminology.

creditable content.

PUBLISHED
4(d) Example of an L2 answer: Reward answers that give an argument from the opposite
perspective but do not double award.
Demand for cars may become more price-elastic. People
may be more willing to switch to substitutes. If bus
transportation reduced market prices, people may use
buses rather than buying cars when prices of cars rise.
On the other hand, cars may be price-inelastic in the future.
They may become more of a necessity if people find buses
and trains inconvenient. Cars also show a better standard
of living and many jobs require a car which makes having a
car a necessity therefore it becomes price-inelastic.

Reasonable on both sides.

PUBLISHED
5(a) Define wages. 2
A payment/reward (1) to labour/workers (1).
5(b) Explain two reasons, other than methods of protection, 4 One mark for each of two reasons identified and one mark for
why a country’s exports may fall. each of two explanations.

Lower incomes abroad (1) reduce the ability of foreigners
to buy the country’s exports / lower demand (1).
Rise in the foreign exchange rate (1) will make exports
more expensive (1).
Quality may fall (1) e.g. educational standards may have
declined (1).
Price may rise (1) due to inflation/higher costs of
production/lower productivity/making exports less
competitive (1).
Domestic demand may rise (1) products may be switched
from the export to the home market (1).
Lower output (1) reduce the ability of firms to export as
many goods and services / result of fewer resources (1).

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5(c) Analyse how a rise in investment could increase a 6

country’s economic growth rate.

More investment will increase total (aggregate) demand (1)
there will be more capital goods (1) these may be more
efficient / embody advanced technology (1) productive
capacity will increase / productivity rise (1) costs of
production may fall (1) prices may fall (1) quality may
rise (1) more products may be demanded by domestic
consumers (1) foreign buyers / more exports (1) output
may increase (1).
Higher investment may increase employment (1) raise
income (1).
Investment in human capital/education/healthcare (1) can
raise productivity (1).

PUBLISHED
5(d) Discuss whether or not a country should switch from a 8

fixed foreign exchange rate system to a floating
foreign exchange rate system. 3 A reasoned discussion which accurately 6–8
In assessing each answer, use the table opposite. argument, making use of economic
Why it should: to evaluate economic issues and situations.
• the government will not have to devote time and One side of the argument may have more
attention to maintaining the exchange rate and so may depth than the other, but overall both sides
use policy measures to e.g. reduce inflation of the argument are considered and
• fewer foreign exchange reserves would have to be developed. There is thoughtful evaluation
kept to maintain the exchange rate. These could be of economic concepts, terminology,
used to stimulate economic activity information and/or data appropriate to the
• exchange rate may be lower which may increase question. The discussion may also point
economic growth, lower unemployment and improve out the possible uncertainties of alternative
the current account position. decisions and outcomes.
Why it should not: 2 A reasoned discussion which makes use of 3–5

• a lower exchange rate may cause inflation economic information and clear analysis to
• fluctuations in the exchange rate may create evaluate economic issues and situations.
uncertainty. This may discourage investment and The answer may lack some depth and
reduce economic growth development or may be one-sided. There is
• may discourage MNCs from setting up in the country relevant use of economic concepts,
• a higher exchange rate could reduce economic growth, terminology, information and data
employment and harm the current account position. appropriate to the question.


creditable content.

PUBLISHED
A floating exchange rate changes with changes in demand

and supply. A country should switch from a fixed foreign
exchange rate system to a floating exchange rate system
as there will be no need to keep foreign reserves so it can
spend foreign reserves on something else. A country can
easily change monetary policy changing interest rate
without being worried. It can concentrate on other aims and
not the exchange rate. Floating exchange rate
automatically adjust current account of the balance of
payments as increase in demand for exports will increase
exchange rate reducing demand on exports.
A country should not switch from fixed foreign exchange
rate system to floating exchange rate as speculation could
say that the value of local currency will decrease so people
will sell it causing value to decrease as it will have lower
demand. The uncertainty about export and import prices
may discourage MNCs.

Strong on one side and reasonable on the other.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the March 2020 series for most Cambridge
IGCSE™, Cambridge International A and AS Level components and some Cambridge O Level components.

PUBLISHED
marking principles.



• marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the scope of the
syllabus and mark scheme, referring to your Team Leader as appropriate
• answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the question as
indicated by the mark scheme. The meaning, however, should be unambiguous.


Marks should be awarded using the full range of marks defined in the mark scheme for the question (however; the use of the full mark range may be limited
according to the quality of the candidate responses seen).

Marks awarded are based solely on the requirements as defined in the mark scheme. Marks should not be awarded with grade thresholds or grade descriptors in
mind.

PUBLISHED
1(a) Calculate India’s economic growth rate in 2017. 1
7% (1).
1(b) Identify two methods of protection. 2
One mark each for any two from:
• tariff
• quota
1(c) State why India is a mixed economy. 2
It has a private sector / private sector firms (1) and a public sector / public
sector firms /government intervention (1).
1(d) Explain why external costs cause market failure. 4
External costs are not considered (1) base decisions just on private costs
and benefits (1).
They cause harmful effects to third parties / negative side effects (1) they
result in overconsumption (1) and overproduction (1).
Their existence may mean that social costs exceed social benefits (1).
Examples of causes or costs: e.g. driving, pollution / environmental damage,
burning fields and mining (up to 2).
They result in a misallocation of resources / inefficient use of resources (1).

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1(e) Draw a demand and supply diagram to show the effects of a decrease 4
in the costs of production on the market for cars.

Supply curve shifted to the right (1).
Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the equilibrium
points E1 and E2 (1).

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1(f) Analyse the relationship between the size of countries’ primary sector 5
output and GDP per head.
Generally, the countries with the relatively smallest primary sectors have the
highest GDP per head / inverse relationship (1).
Evidence e.g. US has only 1% of output accounted for by the primary sector
and the highest GDP per head (1) another piece of supporting evidence e.g.
the two countries with the largest primary sectors have the lowest GDP per
head (1).
Exception is India/Philippines (1) India has a smaller relative sized primary

sector but a lower GDP per head (1).
This is the expected relationship as primary sector tends to decline as an

economy develops / often larger in developing economies / resources move
into secondary and then tertiary sectors (1) tertiary sector tends to generate
higher incomes / primary sector tends to generate lower incomes (1).

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1(g) Discuss whether or not increasing subsidies given to bus travel would 6 Apply this example to all questions with the
reduce pollution in India. command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
• subsidies reduce costs (1) increase supply (1) lower prices (1) raise Each point may be credited only once, on either
quality of bus travel (1) and cause demand to extend / higher demand side of an argument, but separate development
(1) as to how/why the outcome may differ is
• people using buses will reduce the volume of traffic/reduce congestion rewarded.
(1)
• buses use cleaner fuel (1). Generic example mark
Award up to 4 marks for logical reasons why it might not, which may include: Tax revenue may decrease… 1
• people may not switch from car to bus travel (1) price of cars may fall
(1) cost of producing cars is declining (1) other reason why e.g. more ...because of reason 1
comfortable / door to door (1). e.g. incomes may be lower.
• providers of bus transport may not pass on much of the subsidies in the
form of lower prices (1) Tax revenue may increase 0
• opportunity cost of using subsidies (1) could spend money on other because incomes may be higher
ways to reduce pollution e.g. education (1) i.e. reverse of a previous argument.
• economy is growing so incomes rising (1) both bus and car travel may
increase (1). Tax revenue may increase 1
because of a different reason
i.e. not the reverse of previous
argument
e.g. government spending on
education.
Reward application of subsidies to producers

and/or consumers.
Increase in supply, lower prices, extension in

demand may be shown on a demand and
supply diagram.

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1(h) Discuss whether or not India is likely to experience a deficit on the 6

current account of its balance of payments in the future.
• there was a deficit in 2016 and 2017 (1) and it was on an upward trend
(1)
• incomes are rising / economic growth is occurring (1) and so more
imports may be purchased both by consumers and by firms (1)
• it is expected that the exchange rate will rise (1) this may increase the
price of exports (1) and demand for exports may fall (1) price of imports
may fall (1) so demand for imports may rise (1)
• Indian trade restrictions may be reduced / Indian government promoting
free trade (1) which may increase imports (1).
• tax rates may be cut (1) with more disposable income (1) people may
buy more imports (1).
• there may be more foreign tourists (1) if pollution declines (1)
• lower tariff on imported raw materials / imported capital goods (1) may
reduce costs of production (1).
• other countries may remove their trade restrictions (1) allowing India’s
exports to rise (1)
• if the government does spend more on education (1) productivity may
rise (1) and India’s products may become more price and quality
competitive (1).
• MNCs may be attracted for a number of the reasons given (1) MNCs
may produce exports / import substitutes (1).
• Higher investment (1) may raise quality of exports / domestic products
(1) lower price of exports (1).
• Car production is rising (1) more cars may be exported / fewer cars may
be imported (1).

PUBLISHED
2(a) State the formula for calculating the price elasticity of supply (PES). 2
% change in quantity supplied

(2).
% change in price
OR
Percentage change in quantity supplied divided by percentage change in
price (2).
2(b) Explain how opportunity cost is different for economic goods and free 4 One mark for each of two differences identified
goods. and one mark for each explanation.
Economic goods have an opportunity cost (1) resources are used to

produce them / resources have alternative uses / if resources are used to
produce one economic good, they cannot be used to produce another good
/ in limited supply (1).
Free goods do not have an opportunity cost (1) resources are not used to
produce them / there is no restriction on their supply (1).

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of an increase in enterprise on an economy.

Initial curve drawn as a curve / downward sloping line to the axes (1).
New curve drawn as a curve / downward sloping line to the axes (1).
Enterprise is a factor of production / resource (1) there will be more risk

takers / decision makers / firms (1) more enterprise increases productive
capacity / potential / maximum output that can be produced / causes

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2(d) Discuss whether or not skilled workers are always paid more than 8 Accept responses from the viewpoint of why
unskilled workers. unskilled workers may be paid more.

Why they might be:
3 A reasoned discussion 6–8
• skilled workers may be in shorter supply as they may require training
which accurately
and qualifications
examines both sides of the
• skilled workers may be in inelastic supply and demand for them may be economic argument,
inelastic making use of economic
• skilled workers may be in higher demand as they will be more information and clear and
productive logical analysis to evaluate
• skilled workers may have stronger bargaining power economic issues and
• skilled workers may be more likely to work in the tertiary sector situations. One side of the
• Skilled workers may be more mobile. argument may have more
depth than the other, but
Why they might not be: overall both sides of the
• skilled workers may have less experience and may be in less promoted argument are considered
positions and developed. There is
• skilled workers may be in declining industries thoughtful evaluation of
• skilled workers may place more importance on non-wage factors when economic concepts,
deciding what jobs to do terminology, information
• skilled workers in poorer countries may have lower wages than some and/or data appropriate to
unskilled workers in richer countries. the question. The
discussion may also point
Example of a Level 3 answer: out the possible
Skilled workers may be paid more than unskilled workers as they have more uncertainties of alternative
qualifications and/or experience, so demand may be high compared to decisions and outcomes.
supply. Supply could be low due to long training required to learn skills, so
the labour market would be more competitive and skilled workers higher
paid. Demand for the products skilled workers provide may be higher, so
their pay could be higher due to higher derived demand. Also, they may
belong to stronger trade unions which have more bargaining power to
negotiate for higher pay.

PUBLISHED
2(d) It is also possible that unskilled workers could be higher paid. This is
because their work may be dangerous, e.g. miners, so the supply of workers Level Description Marks
willing to do the job may be lower and firms have to pay more to attract
workers. Long working hours (less leisure time) and poor working conditions
which makes use of
mean unskilled workers may be higher paid, and if the work is boring and
economic information and
very few people are willing to do the job. For example, cleaners in the US
clear analysis to evaluate
are paid much higher wages than cleaners in India as the number of people
economic issues and
willing to accept a job as a cleaner in the US is very low. There is even a
situations. The answer
possibility that unskilled workers could be paid higher than skilled workers.
may lack some depth and
development may be one-
sided. There is relevant
This is a strong L3 response. It is a two-sided answer with depth and logical
use of economic concepts,
links. For example, the candidate links qualifications and experience to
terminology, information
demand for and supply of workers, as well as linking demand for workers
and data appropriate to
with demand for the products they produce. The candidate discusses some
the question.
of the key influences on wage determination.
1 There is a simple attempt 1–2
at using economic
definitions and
terminology. Some
reference may be made to
economic theory, with
occasional understanding.
0 A mark of zero should be 0

awarded for no creditable
content.

PUBLISHED
3(a) Define total revenue. 2
The total income / money received (1) from a firm’s sales (1).
OR
Price (1) multiplied by quantity sold (1).
3(b) Explain two differences between capital and labour. 4 One mark for each of two differences identified
and one mark for each explanation.
Capital is a human-made resource / factor of production / machines (1)
labour is a human resource / factor of production / workers / type of worker
(1)
Capital is increased by investment (1) labour is increased by e.g. rises in
population (1)
The quality of capital is improved by advances in technology (1) the quality
of labour is improved by e.g. better education (1)
Capital is paid interest (1) labour is paid wages (1).
Capital can be a fixed cost (1) whereas labour can be a variable cost (1).
Capital can be a one-off investment (1) wages are paid regularly (1).
Labour tends to be mobile (1) capital tends to be immobile (1).
Capital can work for 24 hours (1) workers have breaks / work for less than
24 hours (1).

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3(c) Analyse the possible effects on consumers of a merger between two 6

paper-producing firms.
This would be a horizontal merger (1) it may enable the merged firm to take
greater advantage of economies of scale (1) so lower average costs of
production (1) which may lower prices (1) enabling consumers to buy more /
save more (1).
The merger may increase profits (1) allowing the merged firm to spend more
on e.g. R&D (1) gain new ideas (1) increase investment (1) consumers may
gain from a rise in the quality of the product (1) new products may be
produced(1).
The merger may reduce competition / result in a monopoly (1) which may
increase prices (1).
If the merged firm is a monopoly it may restrict supply / result in outlets
being shut down (1) making it more difficult for consumers to obtain the
product (1) may reduce choice (1) may result in diseconomies of scale (1).
A reduction in competitive pressure (1) may reduce the quality of the
product (1).

PUBLISHED
3(d) Discuss whether or not demand for coffee is likely to rise in the future. 8
Why it might:
which accurately
• incomes may rise increasing people’s ability to buy coffee
• price may fall (due to e.g. subsidies) increasing people’s willingness economic argument,
and ability to buy coffee making use of economic
• the quality of coffee may rise information and clear and
• population may increase. logical analysis to evaluate
economic issues and
Why it might not: situations. One side of the
• price of substitutes, such as tea / coffee produced by other countries, argument may have more
may fall so people may switch away from drinking coffee depth than the other, but
• there may be a health report suggesting that drinking coffee is harmful overall both sides of the
to health argument are considered
• the price of complements, such as milk, may rise and developed. There is
• taxes / tariffs may be imposed on coffee thoughtful evaluation of
• Less may be spent on marketing. economic concepts,
Example of a Level 2 answer: and/or data appropriate to
Coffee is an inelastic good which means the demand for it remains the the question. The
same irrespective of the price. The demand for coffee increases with time as discussion may also point
the population grows, so demand may be a constant growth. However, out the possible
demand may not rise in the future as there are alternatives to coffee. uncertainties of alternative
Education on the harmful effects of coffee has increased leading to less decisions and outcomes.
consumption of coffee, reducing the demand for it.

PUBLISHED
3(d) Principal Examiner comment:

The answer is two-sided but lacks depth. It starts with a confused statement Level Description Marks
on the meaning of a product having price-inelastic demand. It then correctly
identifies an influence on demand for coffee (population) and shows
which makes use of
understanding of how an increase in population will affect demand for
coffee. On side two, the influence of alternatives (substitutes) is accurate
and there is a clear link between education and reduced demand for coffee.
economic issues and
More discussion on, for example, changes in relative price or quality of
substitutes would have been appropriate.
the question.

at using economic
definitions and
terminology. Some

content.

PUBLISHED
4(a) Define gender distribution. 2
The number of males compared to the number of females in the population /

the ratio of males to females in the population (2).
The sex distribution / sex ratio (1).
4(b) Explain two benefits of a higher economic growth rate. 4 One mark for each of two benefits identified
Higher incomes / output (GDP) / spending (1) better living standards (1)
Reduced poverty (1) able to afford basic necessities / more goods and
services available (1)
Reduced unemployment (1) more jobs created (1)
Increased tax revenue (1) providing more funds to spend on
education/healthcare (1)
Higher confidence (1) increase investment (1).
Attract MNCs (1) due to higher total (aggregate) demand (1).
Higher exports (1) may exceed higher imports / may improve the current
Increase the country’s economic power (1) e.g. in trade negotiations (1).

PUBLISHED
4(c) Analyse the disadvantages of a rapidly growing population. 6
A rapidly growing population may deplete resources more quickly (1)

reducing the country’s ability to grow in the future / reduce the sustainability
of growth (1)
A rapidly growing population may take the population beyond the optimum
level / overpopulated (1) reducing income / GDP per head (1) may cause
overcrowding (1).
May be pressure on food supplies (1) pollution may increase (1) may put
pressure for government spending to rise (1).
A rapidly growing population will increase dependents (1) if due to a rise in
the birth rate (1) more resources will have to be devoted to providing e.g.
primary education (1) some parents may leave the labour force (1).
If the rise in population is due to a fall in the death rate (1) more pensions
may have to be provided (1) increased cost of healthcare (1) taxes may
have to be raised (1)
If the rise is due to net immigration (1) there may be an increased burden on
housing and healthcare (1).

PUBLISHED
4(d) Discuss whether or not a cut in the rate of interest will increase 8
investment. Level Description Marks

which accurately
Why it might:
economic argument,
• it may increase consumer spending as there will be less reward from
making use of economic
saving, which may encourage firms to increase their output
information and clear and
• it will reduce the cost of borrowing to purchase capital goods logical analysis to evaluate
• firms may be encouraged to invest rather than save economic issues and
• MNCs may be attracted into the country as investment will be cheaper. situations. One side of the
argument may have more
Why it might not: depth than the other, but
• the rate of interest may still be high / may be expected to rise in the overall both sides of the
future argument are considered
• firms may be pessimistic about the future and developed. There is
• firms may be working with spare capacity thoughtful evaluation of
• the cost of capital equipment may rise economic concepts,
• lower saving may reduce funds available for investment terminology, information
• banks may be reluctant to lend. and/or data appropriate to
the question. The
Example of a Level 2 answer: discussion may also point
A cut in the rate of interest will decrease the cost of taking out loans. This out the possible
will enable firms to borrow more and lead to them buying more capital goods uncertainties of alternative
which will increase investment. The return on saving would also reduce, decisions and outcomes.
encouraging firms to spend their money rather than save it as the
opportunity cost of spending would be lower. Lower interest rates might also
mean that consumer spending is greater so firms’ profits may increase
enabling them to expand.

This answer provides strong and relevant links, but it is clearly only one-
sided so can only achieve a maximum of L2.

PUBLISHED
4(d)

which makes use of
economic issues and
the question.

at using economic
definitions and
terminology. Some

content.

PUBLISHED
5(a) State two reasons for levying taxes. 2
One mark each for any two from:
• raise revenue
• redistribute income
• discourage consumption of demerit goods
• reduce imports
• reduce / influence total demand / influence economic activity / reduce
inflation.
5(b) Explain the difference between a progressive tax and a regressive tax. 4 One mark for each difference identified and one
mark for each explanation.
Logical explanation which might include: Maximum of 2 marks for progressive tax and
maximum of 2 marks for regressive tax.
A progressive tax takes a larger proportion (1) of the income of the rich / of
income as it rises (1) falls more heavily on the rich (1) make income more
evenly distributed (1) direct taxes are often progressive (1) example (1).
A regressive tax takes a larger proportion (1) of the income of those on low
income / falls as income rises (1) falls more heavily on those on low income
(1) make income less evenly distributed (1) indirect taxes are often
regressive (1) example (1).

PUBLISHED
5(c) Analyse how a cut in in the rates of corporation tax and income tax 6 A maximum of 4 marks if only corporation tax or
may influence the number of MNCs setting up in the country. income tax is considered.
Firms will be able to keep more of their profits (1) firms may be profit
motivated/seeking to maximise profits (1) MNCs will compare the profits
they can earn in a number of countries (1) lower corporation tax will enable
them to invest more / expand (1) pay higher dividends (1).
Lower income tax will increase disposable income (1) may increase demand
for consumer goods (1) increase the market for the MNCs products (1) may
reduce pressure for wage rises (1) may make workers more motivated and
so more productive (1).
Lower tax revenue may reduce a government’s ability to spend (1) on e.g.
education and healthcare (1) this may reduce labour productivity (1) which
may increase MNCs’ costs (1).

PUBLISHED
5(d) Discuss whether or not people in a high income country always enjoy 8
a higher living standard than those in a low income country. Level Description Marks

which accurately
Why they might:
economic argument,
• may be able to enjoy more / better quality goods and services
making use of economic
• may receive good healthcare and so enjoy long life expectancy information and clear and
• may enjoy good education and so have more choices logical analysis to evaluate
• working conditions may be better with less workers in jobs involving economic issues and
hard physical labour / more people working in the tertiary sector situations. One side of the
• may be able to save, providing security for the future. argument may have more
depth than the other, but
Why they might not: overall both sides of the
• income may be unevenly distributed and some people in the population argument are considered
may be living in poverty, some may be unemployed and developed. There is
• pollution levels may be higher in the country thoughtful evaluation of
• people may be working longer hours, having less leisure time, more economic concepts,
stressed terminology, information
• some of the products produced in high income countries may be and/or data appropriate to
demerit goods the question. The
• may be high cost of living discussion may also point
• may have high tax rate out the possible
uncertainties of alternative
Example of a Level 1 answer: decisions and outcomes.
Yes because people living in high income area will enjoy luxuries of life and
those living in low income country will get less opportunity to enjoy their life.

This answer is a maximum of L1. It only identifies that people in high income
countries are more likely to enjoy luxury products. There is no development
of links (analytical or evaluative discussion) in response to either side of the
question.

PUBLISHED
5(d)

which makes use of
economic issues and
the question.

at using economic
definitions and
terminology. Some

content.

Cambridge IGCSE™
ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
marking principles.




descriptors.



PUBLISHED
1(a) Calculate the external cost per kilometre of driving a 1 $ not necessary for 1 mark.
car in Manila in 2017.
$0.54 (1).
1(b) Identify two macroeconomic aims of the Philippine 2 Also accept raised labour productivity and low
government. unemployment.
Economic growth (1) full employment (1). If more than two are given, consider the first two only.
1(c) Explain one reason why traffic congestion can reduce 2

labour productivity.

Reduce health of workers / workers arriving tired /
stressed (1) this is likely to lead to more days of absence
from work / reduce their output per hour (1).
Late arrival to work (1) output per day declines / less
working time (1).
1(d) Explain how an increase in the mobility of Philippine 4

workers would be likely to affect unemployment in the
Philippines.

Greater geographical mobility (1) enables moving from
areas of unemployment to areas where there are job
vacancies / expanding industries such as computer, retail,
and education (1) will affect frictional unemployment (1)
take jobs overseas (1).
Greater occupational mobility (1) through education/training
enables moving into jobs requiring different
skills/qualifications (1) will reduce structural
unemployment (1).

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1(e) Draw a demand and supply diagram to show how a 4

rise in the price of car parking could affect the market
for cars in the Philippines.

Axes correctly labelled – price and quantity or p and q. (1).
Demand curve shifted to the left (1).
Equilibriums – shown by lines P1 and Q1 and P2 and Q2, or
Note: if diagram also shows shift in supply curve (e.g. will not
get new equilibrium point) it can still get 3 marks.

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1(f) Analyse the relationship between the countries’ 5 Responses do not have to be in the format suggested but
consumer expenditure and imports. they should address the expected/normal relationship, offer
supporting evidence of that, highlight any exceptions to that,
Coherent analysis which might include: and analyse the overall data.
Expected relationship:
Direct / positive relationship (1) generally countries with
higher consumer expenditure import more goods and
services (1). As income rises consumption rises for both
domestic and imported goods and services (1).
Evidence:
E.g. Brazil spends the most and imports the most and
Panama spends the least and imports the least (1)
supportive data (1).
Exception:
Argentina/Philippines (1) supportive data (1).
Analysis:
Trade restrictions reduce growth in imports (1) imports
include not only consumer goods, but also capital goods
bought by firms (1).

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1(g) Discuss whether or not the supply of enterprise is 6 Apply this example to all questions with the command
likely to increase in the Philippines. word DISCUSS (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d))
Up to 4 marks for why it might: Each point may be credited only once, on either side of an
• economy is growing / rising incomes / higher consumer argument, but separate development as to how/why the
spending (1) so likely to earn higher profit (1) outcome may differ is rewarded.
• well-educated population (1) ability to employ skilled
labour (1) attracts MNCs (1) Generic example mark
• greater skills (1) encourage workers to set up own
businesses (1) Tax revenue may decrease… 1
• population is growing (1) so more potential
entrepreneurs (1) larger markets (1) ...because of reason 1
• deregulation (1) so there may be more market e.g. incomes may be lower.
opportunities / less barriers to entry (1)
• the reduction of traffic congestion (i) will increase Tax revenue may increase 0
productivity of workers (1) raising opportunity to make because incomes may be higher
profits (1) i.e. reverse of a previous argument.
Up to 4 marks for why it might not: Tax revenue may increase 1

• some entrepreneurs may emigrate (1) because of a different reason
• high taxes (1) which may reduce the reward to i.e. not the reverse of a previous argument
entrepreneurs (1) e.g. government spending on subsidies may
• traffic congestion (1) can increase costs of production stimulate the economy more than spending on
(1) MNCs may be discouraged from entering the education.
country / reducing the supply of foreign entrepreneurs
(1)
• may not want to take the risk/stress of running own
business (1) prefer to stay as employee (1)
• growth rate is falling (1) less opportunities for
investment / new businesses (1)

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1(h) Discuss whether or not building more roads in Manila 6

will benefit the Philippine economy.

• reduce traffic congestion (1) lowering journey times /
transport costs (1) helps tourism (1)
• productivity may rise (1), reduce costs of production (1)
encourages higher output / economic growth (1)
• government expenditure on roads (1) leads to higher
employment (1) and higher spending / total
demand (1)
• MNCs may be attracted into the country (1) reducing
unemployment (1)
• lower average costs (1) may increase international
price competitiveness (1) increasing exports (1)
improving the current account position (1)

• shortage of land (1) opportunity cost in terms of how
the land is used (1)
• opportunity cost (1) could have been used for
education / health (1)
• government may have to raise taxes to fund the road
building (1) and taxes are already high (1)
• may increase the number of cars on the roads (1) may
not reduce traffic congestion in the long run (1)
• during the building process there will be disruption to
drivers and production (1)
• more roads lead to increase in negative
externalities (1) example (1) lowering standard of
living (1)
• rapid growth in population (1) land more expensive to
build roads (1)
• additional expenditure if at full employment (1) could
lead to demand-pull inflation (1)

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2(a) Define microeconomics. 2
Study/analysis of or focus on individual markets / economic

agents e.g. individuals, households, and firms (2).
Study of economics on a small scale, e.g. demand for cars
(1).
Demand and supply for individual products/markets (1).
2(b) Explain two causes of differences in economic 4 One mark for each of two causes identified and one mark for
development between countries. each of two explanations.
Logical explanation which might include: Allow reference to political instability and social unrest if
Resources – land/labour/capital/enterprise (1) affect linked to economic development.
productive capacity of a country (1).
Income (1) enabling people to consume more goods and
services (1).
Productivity (1) making better use of resources (1).
Higher international trade / exports (1) results in higher
output (1)
Size of primary sector (1) larger primary sectors may mean
lower incomes / hard working conditions (1).
Saving (1) which can influence the proportion of capital
goods produced/the extent to which people have a safety
net (1).
Investment (1) which may influence economic growth /
make work less physically demanding (1).
Education / literacy rates (1) which influence
choices/income/health (1).
Healthcare (1) which affects life expectancy / quality of
life (1).

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2(c) Analyse how a cut in the interest rate could reduce 6

poverty.

Cost of borrowing will fall / reward from saving will
decline (1) increase borrowing / demand for loans (1)
consumer spending will increase (1) firms may invest more
(1) output may rise (1) unemployed gain jobs / employment
may increase (1) incomes may rise / reduction in absolute
poverty (1).
The poor who have borrowed in the past (1) will have more
money to spend on basic necessities (1) spend on
education (1) improve skills (1) get better paid jobs (1)
reducing relative poverty (1).
Housing may be cheaper (1) making shelter more
accessible (1).
May enable some of the poor to borrow to start up small
businesses (1) and earn a higher income (1).
Cheaper for government to borrow (1) enabling it to spend
more on education/healthcare (1).

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2(d) Discuss whether or not government intervention will 8

correct the market failure caused by a demerit good.
Why it might:
• tax can be imposed/increased to evaluate economic issues and situations.
• this will raise price One side of the argument may have more
• consumers better informed about negative impact depth than the other, but overall, both sides
• demand would be expected to contract of the argument are considered and
• a minimum price could be imposed developed. There is thoughtful evaluation
• this again would be expected to reduce demand of economic concepts, terminology,
• restrictions could be imposed on the imports of demerit information and/or data appropriate to the
goods question. The discussion may also point
Why it might not: decisions and outcomes.
• demand may be price inelastic, some demerit goods
are addictive 2 A reasoned discussion which makes use of 3–5
• the government may set a tax too high or too low economic information and clear analysis to
• the rich may not be dissuaded by the tax evaluate economic issues and situations.
• producers may not pass on the tax to consumers The answer may lack some depth and
• a minimum price set below the equilibrium level would development or may be one-sided. There is
have no effect relevant use of economic concepts,
• a minimum price could result in a surplus which may terminology, information, and data
put downward pressure on price, encourage producers appropriate to the question.
to charge less than the minimum price
Example of Level 2 answer:
Government’s job is to keep the economy going in a
healthy way. Therefore, they try eliminating demerit goods
to increase the benefits for society as a whole. If there is
market failure caused by a demerit good it will be because
creditable content.
too many people are consuming them and causing total
benefit for society to fall.
Reward but do not expect provision of information.

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2(d) Government intervention such as increasing taxes for merit

goods will lower consumption and also with the money
collected from taxes they can make merit goods instead of
demerit goods. For example, if too many people consume
cigarettes and tobacco, the government can raise taxes for
tobacco and prices will rise. They can use the taxes
collected to make additional videos and tell people the bad
things that comes from smoking. Therefore, people will
consume less of these demerit goods.
However, demerit goods especially addictive things like
cigarettes will have a lot of people producing them since its
easy to make money. An increase in tax may cause
unemployment if they cannot sell as much as before so the
fixing of one market failure may cause another one to
appear.

This is reasonable on one side but limited on the second
side.
Example of a Level 1 answer:
Government intervention can cause a huge change in the

market of a demerit good. Increase in taxes for a demerit
good will reduce demand.

One method of government intervention identified.

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3(a) Define privatisation. 2 Allow denationalisation (2) only private firms (1).
The sale of state-owned assets / state-owned enterprises /

nationalised industries (1) to the private sector /
individuals (1).
3(b) Explain two causes of a fall in the birth rate. 4 One mark for each of two causes identified and one mark for
each of two explanations.
Rise in the cost of having children (1) e.g. children staying No mark for simply linking fall in birth rate with low income.
in education for longer (1).
Rise in the education of women (1) may be more likely to
enter employment/delay having children (1).
Rise in government provision of state pensions (1) less
need for couples to have children to support them in old
age (1).
Rise in access to contraceptives (1) making family planning
more effective (1).
Improvement in healthcare (1) reducing infant mortality (1).
Increase in state provision of welfare payments (1)
reducing the need to have children support parents in old
age (1).
Reduction in infant mortality (1) people having fewer
children in the expectation more will survive (1).
Ageing population (1) fewer people of child-bearing age
(1).
Education (1) e.g. higher cost of having children (1) women
may get married later (1).
More women working (1) may delay childbirth (1).
Government policy (1) e.g. placing a limit on number of
children (1).

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diagram, the effects of a decrease in the quantity of capital
capital goods in an economy. goods A
B
Initial curve drawn as a curve or downward sloping line to
the axes (1).
New curve drawn as a curve or downward sloping line to
the axes (1).
Shift to the left / pivot indicated by arrow or lettering (1).
Up to 2 marks for coherent analysis which might include: O B A

Capital goods are a resource / investment used to produce consumer
other goods (1). goods
Fewer capital goods / factors of production reduce potential
output / productive capacity (1).
Accept a PPC diagram that shows fewer capital goods and
the same quantity of consumer goods.
Accept Good A / Good B labelling on axis.
Note: movement along the existing PPC is incorrect.

So potentially only 2 marks for correctly labelled axes and
correct curve.

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3(d) Discuss whether or not a government should allow 8

monopolies.
Why it should:
• monopolies may be able to take advantage of to evaluate economic issues and situations.
economies of scale One side of the argument may have more
• may be able to experience lower average costs and depth than the other, but overall, both sides
charge lower prices of the argument are considered and
• may earn high profits and so be able to spend on developed. There is thoughtful evaluation
investment and research and development of economic concepts, terminology,
• may be able to produce high quality products information and/or data appropriate to the
• may be internationally competitive question. The discussion may also point
• maybe nationalised monopolies with welfare objectives out the possible uncertainties of alternative
Why it should not:
• maybe market failure/abuse market power 2 A reasoned discussion which makes use of 3–5
• may charge high prices economic information and clear analysis to
• may restrict output evaluate economic issues and situations.
• may become complacent The answer may lack some depth and
• may not improve quality development or may be one-sided. There is
relevant use of economic concepts,
Example of Level 3 answer: terminology, information, and data
Yes, the government should allow monopolies. It will appropriate to the question.
prevent duplication of goods due to unique products with
no close substitutes produced. This can reduce the 1 There is a simple attempt at using 1–2
wastage of resources. Monopolies can also benefit from economic definitions and terminology.
economies of scale as they produce in large quantities so Some reference may be made to economic
they can benefit from cost saving by negotiating favourable theory, with occasional understanding.
prices as a result of bulk buying. This can translate into
lower prices for consumers, increasing their ability to 0 A mark of zero should be awarded for no 0
consume more goods and services, boosting economic creditable content.
growth and their standard of living.

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3(d) Since it is possible for monopolies to earn supernormal

profits, they are more able to spend more on research and
development of their products, improving quality for
consumers.
No, they should not allow monopolies. Due to them being a
single seller, this allows them to exploit consumers by
charging higher prices as there is imperfect information and
they are the only firm in the market, consumers have no
choice but to buy the unreasonably priced products which
means consumers spend too much in the long run and may
even cause inflation to rise too. Monopolies may also
increase income inequality as the producer gains at the
expense of their consumers, especially those on lower
incomes, causing poverty for those on low incomes
especially if these products are essential goods and
services such as food and utilities.

This is a well thought out response with strong arguments
on both sides and several aspects analysed.
4(a) Define deregulation. 2
The removal of rules/regulation (2).

Less government intervention (1) to encourage
competition (1).
Actions making it easier for businesses to enter / operate in
an industry (1).
Supply-side policy (1) to increase competition (1).

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4(b) Explain two benefits consumers may gain from a 4 One mark for each of two benefits identified and one mark for
market economic system. each of two explanations.

Sovereignty (1) consumers decide what will be
produced (1).
Choice (1) there may be a number of firms producing a
product (1).
Low prices (1) competition may mean that firms have to
charge low prices to keep their customers (1).
High quality (1) the profit incentive may encourage firms to
raise quality to attract more consumers (1).
4(c) Analyse how education and subsidies can increase a 6

country’s economic growth rate.
Education/training may increase qualifications/skills (1)

raising the productivity of workers (1) increasing the
mobility of workers (1) attracts MNCs (1) reduces
unemployment (1) raising the quality (1) and quantity of
output (1).
Subsidies will lower firms’ costs of production (1)
encouraging firms to increase their production (1)
increasing supply (1) lowering price (1) a higher output is
likely to be bought and sold (1).
Subsidies for consumers e.g. education/health (1) may
help in gaining skills/jobs and being more productive (1).

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4(d) Discuss whether or not a reduction in a country’s trade 8

protection will reduce its current account surplus.
Why it might:
• lower tariffs will reduce price of imports to evaluate economic issues and situations.
• removal of quotas may result in more imports being One side of the argument may have more
purchased depth than the other, but overall, both sides
• removal of a ban/embargo will permit imports of the of the argument are considered and
product to enter the country developed. There is thoughtful evaluation
• import expenditure may rise of economic concepts, terminology,
• higher import expenditure may reduce the gap information and/or data appropriate to the
between export revenue and import expenditure question. The discussion may also point
• foreign firms may not have the capacity to supply more
products 2 A reasoned discussion which makes use of 3–5
• demand for imports may be price inelastic economic information and clear analysis to
• the quality of imports may have fallen evaluate economic issues and situations.
• other countries may also reduce their trade restrictions The answer may lack some depth and
• the exchange rate may fall, raising exports and development or may be one-sided. There is
reducing imports relevant use of economic concepts,
• export revenue may rise to match the higher import terminology, information, and data
expenditure appropriate to the question.
• may have large surplus on invisibles
Example of Level 2 answer: economic definitions and terminology.
The removal of quotas and tariffs on imports will make it Some reference may be made to economic
relatively cheaper to import into the country. More imports theory, with occasional understanding.
will come into the country reducing its current account
surplus. However, a reduction in a country’s trade
creditable content.
protection will show the country’s willingness to have
trading partners.

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4(d) As such, domestic firms will allocate more resources into

producing exports at relatively lower costs and better
quality so that they will be more competitive in the global
economy. Other countries may be attracted to these
exports and the demand for them will increase. Thus, the
demand for local currency will increase, causing the current
account surplus to increase. Thus, the current account
surplus may increase or decrease depending on the extent
of the fall in import prices and the rise in demand for
exports.

There is limited coverage of both sides.
5(a) State two functions, other than issuing banknotes and 2 Allow banker to the banks
coins, of a central bank.
Two from:
• manages monetary policy / sets the rate of interest
• manages the national debt
• controls the banking system
• banker to commercial banks
• banker to the government
• lender of last resort
• looks after reserves of gold and foreign currency

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5(b) Explain two reasons why workers in the tertiary sector 4 One mark for each of two reasons identified and one mark for
may be paid more than workers in the primary sector. each of two explanations.

Higher demand (1) due to e.g. higher productivity / more
profitable / expansion of tertiary industries (1).
Lower supply (1) due to e.g. higher
qualifications/skills/education needed (1).
Stronger bargaining power (1) due to stronger trade unions
/ professional organisations (1). Primary sector workers
can be replaced by capital equipment (1) so bargaining
strength is weak (1).
More favoured by government policy (1) e.g. increased
government spending on education/healthcare (1).
Tertiary sector workers are mainly found in developed
countries where wages / cost of living is generally high (1)
whereas primary sector workers are mainly found in
undeveloped countries were wages / cost of living are
generally low (1).
Lower value of goods and services being provided in
primary sector (1) lower pay for primary sector workers (1).
5(c) Analyse the advantages for firms of using division of 6

labour.

Division of labour involves workers specialising (1) this can
increase output / increase productivity (1) costs of
production may be reduced (1) e.g. lower costs of
training (1) e.g. less equipment needed (1).
Specialisation can increase quality (1) lower costs can
enable to charge lower prices (1) demand may rise (1)
revenue/profits may increase (1).

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5(d) Discuss whether or not deflation will benefit an 8

economy.
Why it might:
• if due to lower costs of production, may be more to evaluate economic issues and situations.
internationally competitive One side of the argument may have more
• improve the current account position depth than the other, but overall, both sides
• may increase purchasing power if incomes do not fall of the argument are considered and
• may raise living standards developed. There is thoughtful evaluation
• may increase economic growth and employment of economic concepts, terminology,
information and/or data appropriate to the
Why it might not: question. The discussion may also point
• if due to lower total demand may result in a recession out the possible uncertainties of alternative
• consumers may postpone purchases decisions and outcomes.
• investment may fall
• firms may reduce output, reducing demand for raw 2 A reasoned discussion which makes use of 3–5
materials economic information and clear analysis to
• unemployment may rise evaluate economic issues and situations.
The answer may lack some depth and
Example of Level 3 answer: development or may be one-sided. There is
When an economy undergoes deflation, the general price relevant use of economic concepts,
level in the economy falls resulting in goods and services in terminology, information, and data
the country becoming cheaper. This results in a higher appropriate to the question.
demand for the country’s goods and services from both
those living in the country and abroad. The revenue from 1 There is a simple attempt at using 1–2
exports will increase due to greater international demand economic definitions and terminology.
resulting in a current account surplus. Lower prices may Some reference may be made to economic
improve standard of living for consumers as more can be theory, with occasional understanding.
bought than before.
creditable content.

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5(d) However, an economy may not benefit from deflation as a

prolonged deflation may result in unemployment. Firms
may lose confidence in future sales as consumers wait for
prices to fall further. Lower output may result in less
employment further reducing demand and causing a
recession. The government may have to intervene by
cutting taxes and interest rates to encourage increased
consumption.

This is a concise answer with reasonable argument for the
benefits and a strong answer for why there may not be
benefits.
Example of Level 1 answer:

Deflation makes prices of goods and services to be low
which will entice consumers to buy more as prices are
cheaper than before.

A basic understanding of deflation without any discussion
of whether or not it is beneficial to the economy.

Cambridge IGCSE™
ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the May/June 2021 series for most Cambridge

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marking principles.
descriptors.

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Social Science-Specific Marking Principles
(for point-based marking)

• Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer
shows relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer
shows confusion.
From this it follows that we:
a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark
scheme requires a specific term)
b DO credit alternative answers/examples which are not written in the mark scheme if they are correct
c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended
writing is required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …).
d DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used
wrongly.)
e DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities
f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested.
This applies equally to ‘mirror statements’ (i.e. polluted/not polluted).
g DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and
unambiguous separation from other syllabus terms with which they may be confused (e.g. Corrasion/Corrosion)

• Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark
(except Accounting syllabuses where they indicate negative numbers).

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• The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark
for each answer
• If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all
other instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown.
• Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent
stages.
• Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be
given if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any
4 Annotation:
• For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct
relationship between ticks and marks. Ticks have no defined meaning for levels of response marking.
• For levels of response marking, the level awarded should be annotated on the script.
• Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners
who marked that paper.

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1(a) Calculate the value of Nigeria’s exports of goods in 2017. 1 $ is not essential.
$43.1bn
1(b) Identify two examples of capital goods. 2
Two from:
• [delivery] vehicles
• machines
• [office] equipment
1(c) Explain whether Nigeria had a budget deficit or a budget 2

surplus in 2017.
• budget deficit (1)

• government spending exceeded tax revenue (1)
• government spending was $19.5bn and tax revenue was
$12.9bn (1)
1(d) Explain how government spending on training may 4

increase tax revenue in the long run.

• Training may increase skills of workers (1) raise
productivity (1) raise wages / incomes (1) increase job
opportunities / employment / reduce unemployment (1)
increase income tax revenue (1).
• Higher wages may increase spending / demand (1)
increase indirect tax revenue (1).
• A more productive labour force may reduce costs of
production (1) raise profits (1) increase corporation tax
revenue (1).

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1(e) Analyse how living standards in Nigeria compare with 4

the living standards in Ethiopia in 2017.

• Nigeria’s higher GDP per head (income) (1) suggests
Nigerians may have been able to enjoy more goods and
services (1).
• Nigeria has a lower life expectancy (1) suggesting poorer
healthcare (1).
• Nigeria has a higher average number of years spent at
school (1) suggesting the labour force may be more
educated (1).
• Nigeria has a higher percentage of underweight five-year
olds (1) suggesting poor nutrition / income inequality (1).
• Overall comment: Nigeria’s income per head and
average years spent at school suggests a higher living
standard but life expectancy and percentage of five years
underweight suggests a lower living standard (1).

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1(f) Analyse how a government could encourage firms to 5

increase their investment.

• Reduce the rate of interest (1) making it cheaper to
borrow (1) encouraging borrowing as consumer spending
is likely to rise (1).
• Lower corporation tax (1) increasing the funds available
to invest (1) increasing the incentive to invest as return
from investment would rise (1).
• Create greater economic certainty / confidence (1) by
e.g. keeping inflation low and stable / not changing
government spending and taxation frequently (1) making
it easier for firms to plan / it can take time to get a return
from investment (1).
• Provide subsidies/grants/loans (1) decreasing cost of
investments (1) encouraging MNCs (1).
• Raise tariffs (1) increasing demand for home produced
goods (1).
• Less government regulation/policies (1) reduces costs for
firms (1) more willing to invest (1).

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1(g) Discuss whether or not an increase in Nigeria’s 6 Apply this example to all questions with the command
population will benefit its economy. word DISCUSS
(1(g), 1(h), 2(d), 3(d), 4(d) and 5(d))
Award up to 4 marks for why it might:
• Fall in death rate (1) may indicate improved healthcare Each point may be credited only once, on either side of an
(1). argument, but separate development as to how/why the
• Total (aggregate) demand will increase (1) may enable outcome may differ is rewarded.
existing firms to expand / increase output (1) new firms to
set up (1) attract MNCs (1). Generic example Mark
• Labour force may increase (1) causing total (aggregate)
supply to increase / raise productive capacity (1) Tax revenue may decrease… 1
increase output / GDP (1).
• May move country towards optimum population (1) if ...because of reason e.g. incomes may be 1
there are unused resources (1). lower.
• Net immigration will increase labour force (1) and reduce
dependency ratio (1) Tax revenue may increase because 0
• More tax revenue (1) can be spent on improving e.g., incomes may be higher i.e. reverse of a
public services (1). previous argument.
Award up to 4 marks for why it might not: Tax revenue may increase because of a 1
• Birth rate is rising (1) will increase dependency (1) different reason i.e. not the reverse of a
resources which may have increased economic growth previous argument e.g. government
may have to be devoted to rearing the children (1). spending on subsidies may stimulate the
• Labour force may fall in the short run (1) to look after the economy more than spending on education.
children (1).
• Pressure will be put on the environment (1) there may be
more pollution (1) causing overcrowding / poor health (1).
• If food output cannot be increased (1) may be more
malnourishment/famine / poverty (1) more food is
required / food may have to be imported (1) food prices
may increase (1).

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1(g) • Population is rising but age structure may be changing

(1) as there is net emigration of young people (1) may
result in reduction in labour force (1).
• [Opportunity] cost for government (1) which has to spend
on health/education rather than infrastructure (1).
• Increase in output to meet demand (1) results in faster
usage of resources in country (1) and shortages (1).

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1(h) Discuss whether or not an increase in Nigeria’s import 6

tariff on rice would increase the output of Nigerian rice.

• A higher tariff may raise the price of imported rice (1)
may reduce demand for / consumption of imported rice
(1) may cause Nigerians to demand more home-
produced rice as it is cheaper (1) effect would be greater,
the greater the elasticity of demand for the import of rice
(1) may enable Nigerian rice farmers to raise their price /
make more profit (1).
• A tariff may raise government tax revenue (1) some of
this could be used to subsidise Nigerian rice farmers /
modernise farming methods and so raise productivity (1).
Award up to 4 marks for why it might not:

• Nigerian farmers are less productive than Asian
competitors (1) have high(er) costs of production (1)
Nigerian price may still be higher even with the higher
import tariff (1).
• The supply of Nigerian rice may be price-inelastic (1) so
even if Nigerian farmers could sell their rice for more,
they may have difficulties adjusting supply (1).
• More Nigerian rice will not be sold if quality is poor (1)
consumers my prefer the varieties of rice produced in
other countries (1) other countries retaliate by imposing
higher tariffs (1) current account surplus may be reduced
(1).
• Increase in import tariffs may be small (1) making little
difference to import prices and consumption (1).
• Not enough resources/ factors of production e.g., farmers
(1) to produce more rice in Nigeria (1).

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2(a) Identify the two types of costs that make up social cost. 2
Private costs (1)
External costs (1).
2(b) Explain two causes of a shift to the right in the demand 4 One mark each for each of two causes identified and one
curve for fish. mark each for each of two explanations.

• Rise in the price of a substitute for fish (1) people will
switch away from buying e.g. chicken to buying fish (1).
• Fall in the price of a complement for fish (1) people will
buy more of the complement (1).
• A rise in income (1) people will be able to afford to buy
more fish (1).
• A report stating eating fish is good for health / changes in
tastes (1) people may buy more fish to try to increase
their life expectancy (1).
• Increase in population size (1) more people to buy fish
(1).
• A successful advertising campaign (1) may persuade
more people to buy fish (1).

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2(c) Analyse how cleaning up pollution could benefit an 6

economy.

• Will reduce external costs (1) improve health / less
sickness (1) raise quality of life / standard of living (1).
• Less (government) spending on healthcare (1) more can
be spent on other priorities e.g., education (1).
• Cleaning up pollution may create jobs / employment (1)
reduce unemployment (1) may attract MNCs (1) increase
in incomes (1) reduction in poverty (1).
• Recycling of some of the material collected (1) could
increase the country’s output (1) less use of non-
renewable resources (1).
• Better working conditions (1) productivity of labour could
increase (1) reduce costs of production (1) increase
output (1) reduce unemployment (1) reduce inflation (1).
• Improve the environment (1) Increase tourism (1)
increase exports of services (1) improve the current
• Reduction in ocean pollution (1) will improve fish stock
(1) improve quality of fish (1) greater catches of fish (1)
leading to rise in incomes / revenue / GDP (1).

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2(d) Discuss whether or not countries specialising benefits 8 Reward but do not expect reference to absolute and
consumers. comparative advantage.

Why it might: 3 A reasoned discussion which 6–8
accurately examines both sides of
• countries may specialise in what they are best at the economic argument, making
producing use of economic information and
• output may rise clear and logical analysis to
• greater availability evaluate economic issues and
• costs of production may fall situations. One side of the
• prices may fall argument may have more depth
• quality may rise than the other, but overall both
• better paid jobs increasing purchasing power of sides of the argument are
consumers considered and developed. There
is thoughtful evaluation of
Why it might not: economic concepts, terminology,
information and/or data appropriate
• a country may gain a monopoly of production, raising to the question. The discussion
price and lowering quality may also point out the possible
• choice may be reduced / greater reliance on imports uncertainties of alternative
• other countries’ producers may have lower health and decisions and outcomes.
safety standards
• supply problems may affect a particular country, cutting 2 A reasoned discussion which 3–5
off supplies makes use of economic information
• trade disputes may cut off supplies and clear analysis to evaluate
economic issues and situations.
The answer may lack some depth
and development may be one-
sided. There is relevant use of
economic concepts, terminology,
information and data appropriate to
the question.

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2(d)

economic definitions and
terminology. Some reference may
be made to economic theory, with
0 A mark of zero should be awarded 0

for no creditable content.

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3(a) Define cyclical unemployment. 2 Nothing for a fall in demand for a product.
• Workers without jobs (1)

• due to a lack or fall in total (aggregate) demand (1)
• more people unemployed than there are job vacancies
(1)
• in a recession / economic downturn (1).
3(b) Explain two ways a firm could increase the productivity 4 One mark each for each of two ways identified and one
of its workers. mark each for each of two explanations.

• Raise wages / performance related pay / commissions
(1) increase motivation of workers (1).
• Provide training (1) increase workers’ skills / efficiency
(1).
• Division of labour by firm (1) enables greater
specialisation (1)
• Buy capital goods / invest (1) workers will be working
with better equipment (1).
• Reduce working hours (1) workers may feel fresher /
more alert (1).
• Improve working conditions (1) reduce stress (1).
• Subsidise workers’ healthcare (1) making them fitter /
fewer days lost through illness (1).
• Working from home (1) reduce stress from travelling (1).

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3(c) Analyse the advantages of a low rate of inflation. 6 ‘Increasing employment / lowering unemployment’ can
only be credited once.
• Low inflation means prices are still rising (1) but not a
high rate (1).
• May stop purchasing power being reduced too much /
wages may keep pace with inflation (1).
• May increase international price competitiveness (1) as
may be below the inflation rate of other countries (1)
increasing exports (1) reducing imports (1) improving the
• May create greater certainty / stability (1) as costs may
not be rising significantly (1) encouraging firms / MNCs to
invest (1) increasing output / GDP (1) increasing
employment / lowering unemployment (1).
• May encourage saving (1) as real value may be
maintained (1) provide funds for investment (1).
• It may raise profit (1) if demand-pull (1) encouraging
firms to expand (1) increasing employment / lowering
unemployment (1).
• May stop a random redistribution of income (1) protecting
savers (1).
• Low menu costs (1) reduce pressure on firms’ costs of
production (1).

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3(d) Discuss whether or not a fall in a country’s 8

unemployment rate will reduce poverty in that country.
3 A reasoned discussion which 6–8
In assessing each answer, use the table opposite. accurately examines both sides of
the economic argument, making
Why it might: use of economic information and
• increase the income of those who gain jobs clear and logical analysis to
• absolute poverty may be reduced with more people being evaluate economic issues and
able to buy basic necessities situations. One side of the
• tax revenue may rise argument may have more depth
• the government could spend more on benefits for the than the other, but overall both
poor sides of the argument are
• the government could spend more on education, considered and developed. There
reducing future poverty is thoughtful evaluation of
Why it might not: information and/or data appropriate
• jobs may be part-time, low-paid, at national minimum to the question. The discussion
wage may also point out the possible
• jobs may be seasonal uncertainties of alternative
• relative poverty may increase if extra jobs are gained by decisions and outcomes.
the well-paid
• the unemployment rate may fall but unemployment may 2 A reasoned discussion which 3–5
rise if there are more people in the labour force makes use of economic information
• may be more retired people living in poverty and clear analysis to evaluate
• sick and disabled people may not be able to get out of economic issues and situations.
poverty The answer may lack some depth
• unemployment is only one of a number of factors and development may be one-
affecting poverty sided. There is relevant use of
• absolute poverty may remain economic concepts, terminology,
the question.

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3(d)



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4(a) Define the labour force. 2
• Those who are economically active (2).

• Those willing (1) and able to (work) (1).
• The employed (1) and the unemployed (1).
4(b) Explain two causes of an ageing population. 4 One mark each for each of two causes identified and one
mark each for each of two explanations.
• A fall in the death rate / increase in life expectancy (1)
resulting from better healthcare / better nutrition / higher
income / better lifestyles (1).
• A fall in the birth rate (1) resulting from higher cost of
raising children / fall in child benefit / increase in women
working / increase in use of family planning / fall in infant
mortality / reduction in need for children to support
parents due to provision of state pensions or healthcare
(1).
• Rise in net emigration of mainly young-aged people (1)
resulting from higher incomes abroad / increase in job
opportunities abroad (1).

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4(c) Analyse how a fall in the value of a country’s foreign 6

exchange rate could reduce a deficit on the current
account of its balance of payments.

• Foreign exchange rate is the price / value of one
currency in terms of another currency or currencies (1) a
fall in the value of a foreign exchange rate means that
the domestic currency buys less foreign currency /
depreciates (1).
• A fall will reduce price of exports (1) raise demand for
exports (1) increase export revenue (1) money flows into
country which will reduce Balance of Payments deficit (1)
if demand is elastic (1).
• Increase price of imports (1) reduce demand for imports
(1) reduce import expenditure (1) reduces the money
flows out of the country which reduces the Balance of
Payments deficit (1) if demand is elastic (1).

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4(d) Discuss whether or not an economy will benefit from an 8

increase in consumer expenditure.
clear and logical analysis to
• may increase total (aggregate) demand which may evaluate economic issues and
encourage firms to expand situations. One side of the
• cause economic growth argument may have more depth
• reducing cyclical unemployment than the other, but overall both
• raise tax revenue enabling the government to spend sides of the argument are
more on education and healthcare considered and developed. There
• eliminate / reduce deflation is thoughtful evaluation of
• raise inflation to the inflation target rate economic concepts, terminology,
Why it might not: to the question. The discussion
may also point out the possible
• may cause demand-pull inflation especially if economy is uncertainties of alternative
at full capacity decisions and outcomes.
• may increase spending on imports
• may divert exports to the home market 2 A reasoned discussion which 3–5
• may cause a deficit on the current account of the balance makes use of economic information
of payments and clear analysis to evaluate
• may reduce long run economic growth as resources may economic issues and situations.
be diverted away from producing capital goods The answer may lack some depth
• may increase the consumption of demerit goods and development may be one-
the question.

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4(d)



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5(a) Identify two industries, other than agriculture, that 2

operate in the primary sector.
Two from e.g.: Mining, fishing, forestry, oil extraction
5(b) Explain two possible disadvantages to an economy of a 4 One mark each for each of two disadvantages identified
fall in its agricultural output. and one mark each for each of two explanations.

• Shortage of food / famine (1) may have to import more
food (1) export less food (1) worsen the current account
position (1).
• Price of food may rise (1) may increase poverty / might
worsen health (1).
• Less food production (1) unemployment may increase (1)
if lack of labour mobility / structural unemployment (1).
• May result in migration from rural to urban areas (1)
putting pressure on resources in urban areas (1).
• Economic growth / GDP will fall (1) if lower agricultural
output is not offset by rise in output of secondary and
tertiary sectors (1).
5(c) Analyse how a central bank could avoid deflation. 6
• Deflation is a fall in the price level (1).

• The central bank could lower the rate of interest (1)
reduce return from saving (1) encourage borrowing (1)
encourage a rise in consumer expenditure (1)
encouraging firms to raise their prices (1).
• It could increase the money supply (1) increasing bank
lending (1) increasing investment (1).
• Expansionary monetary policy (1) increases total
(aggregate) demand (1) causing prices to rise (1).

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5(d) Discuss whether or not a firm should have growth as its 8

main objective.
Why it should: use of economic information and
• may increase market share clear and logical analysis to
• may increase market power evaluate economic issues and
• may increase profits / keep shareholders happy situations. One side of the
• may enable the firm to take greater advantage of argument may have more depth
economies of scale than the other, but overall both
• may increase pay and job security of managers / sides of the argument are
directors considered and developed. There
• may make it more difficult for another firm to take it over is thoughtful evaluation of
as will involve a greater cost economic concepts, terminology,
Why it might not: to the question. The discussion
• if demand is falling, survival may be a more appropriate may also point out the possible
main objective uncertainties of alternative
• if demand is limited e.g. a niche market, growth may be decisions and outcomes.
an unlikely objective
• profit maximisation as an objective, if successful, will 2 A reasoned discussion which 3–5
provide the funds for growth in the longer run makes use of economic information
• state-owned enterprise may have social welfare as an and clear analysis to evaluate
objective economic issues and situations.
• growth may result in diseconomies of scale The answer may lack some depth
• growth may put pressure on workers which could lower and development may be one-
productivity / result in higher labour turnover sided. There is relevant use of
• may make it more attractive for a firm to take it over economic concepts, terminology,
the question.

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5(d)



Cambridge IGCSE™
ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

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marking principles.
descriptors.

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shows confusion.
(a) DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark
(b) DO credit alternative answers/examples which are not written in the mark scheme if they are correct
(c) DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended
(d) DO NOT credit answers simply for using a ‘key term’ unless that is all that is required. (Check for evidence it is understood and not used
wrongly.)
(e) DO NOT credit answers which are obviously self-contradicting or trying to cover all possibilities
(f) DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested.
(g) DO NOT require spellings to be correct, unless this is part of the test. However spellings of syllabus terms must allow for clear and

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for each answer
stages.
4 Annotation:

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1(a) Calculate, in $s, the contribution of the fishing industry to 1 Accept 2.2 bn.
Morocco’s GDP in 2017.
$ sign not essential.
$2.18 billion / $2 180 000 000
1(b) Identify two macroeconomic aims, other than balance of 2

payments stability, that the Moroccan government could
achieve through the Blue Economy.
• Economic growth/sustainable economic

growth/development/output
• Create employment/ lower unemployment/ full employment
• Reduce poverty
• Improve livelihoods / improve living standards / improve quality
of life
1(c) Explain why an increase in the global demand for fish could 2
reduce a deficit in Morocco’s current account of its balance of
payment.

Increase in global demand could lead to an increase in demand for
Moroccan fish / more sales of Moroccan fish / increase supply of
Moroccan fish (1) increasing exports (1) creating an inflow of
money / raising export revenue (1) improve trade in goods
balance/trade balance (1) balance out imports / exports may now
equal imports / reduce gap between exports and imports (1).

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1(d) Explain two causes of poverty amongst fishermen. 4 One mark for each cause identified and one mark
for each explanation.
Low wages (1) cannot afford necessities (1) such as food and One mark for unemployment.
proper housing (1) high supply / low demand for fishermen (1).
Structural unemployment (1) fishermen might not have the skills to

take up other jobs (1) after the decline in the fishing industry in their
area (1).
Seasonal unemployment (1) may not be possible to catch fish

throughout the year (1) instability of income (1).

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1(e) Analyse whether GDP per head always increases when the 4
percentage (%) contribution of the primary sector increases.
Overview
No / not always (1) if % contribution of the primary sector
increases, GDP per head is lower (1).
Supporting evidence e.g. Pakistan/India/Morocco have a high %

contribution and low GDP per head (1), Germany has the lowest %
contribution but second highest GDP per head (1) comparison e.g.
Germany has a higher GDP per head than India but a smaller
contribution from the primary sector (1).
Exception
There is an exception/on the other hand (1) e.g. Australia – higher
% contribution than Germany, but higher GDP per head or e.g.
Malaysia – higher % contribution than Bulgaria, but higher GDP (1).
Comments
High-income countries tend to have more resources concentrated
in the secondary and tertiary sectors/tertiary sector (1) incomes
tend to be higher in the secondary and tertiary sectors / lower in the
primary sector (1).

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1(f) Analyse how regulation of fishing could ensure economic (5) Also allow an approach based on how overfishing
growth is sustained for future generations. may threaten sustainable economic growth.

Regulation could prevent people from overfishing (1) regulation is
backed up by law / fines may be imposed (1) gives time for fish to
breed / recover form overfishing (1) so that future generations will
still have access to fish stock / maintain fish stocks (1) this means
that future generations will still be able to generate revenue from
fishing (1) which could lead to increased or sustained
investment/consumption/exports (1) ensuring high total demand (1)
Regulation on fishing could also help coastal tourism (1) protect the
environment (1) increase revenue from tourism (1) as people visit
areas of natural beauty (1).

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1(g) Discuss whether or not subsidies to fishermen could help the 6 Apply this example to all questions with the
Moroccan economy. command word DISCUSS
Award up to 4 marks for logical reasons why it could, which might (1g, 1h, 2d, 3d, 4d and 5d)
include:
• subsidies will decrease cost of production (1) and enable Each point may be credited only once, on either
Moroccan fishermen to use better technology / capital / / side of an argument, but separate development as
equipment / enable them to take advantage of economies to how/why the outcome may differ is rewarded.
of scale / engage in research & development (1)
• increase their productivity (1) lead to an increase in supply Generic example Mark
/ output (1) price of Moroccan fish would decrease (1) this
will increase competitiveness of Moroccan fishermen (1) Tax revenue may decrease 1
increase demand (1) create jobs / increase employment /
reduce unemployment (1) increase exports / reduce because of reason e.g. incomes may 1
imports (1) improve the current account balance (1). be lower.
• increase revenues/income of fishermen (1) investments /
consumption (1) increase total demand (1) leading to Tax revenue may increase because 0
economic growth (1). incomes may be higher i.e. reverse of
a previous argument.
Up to 4 marks how subsidies to fisherman could not help the
Moroccan economy: Tax revenue may increase because of 1
• opportunity cost for the government (1) may result in a a different reason i.e. not the reverse
budget deficit (1) less spending on education / healthcare of a previous argument e.g.
(1) decrease overall productivity of the economy (1) less government spending on subsidies
economic growth (1). may stimulate the economy more than
• subsidies may lead to complacency (1) may become spending on education.
depended on subsidies (1) fishermen may not use the
subsidies efficiently (1) may result in overfishing (1) may
increase pollution / external costs (1).
• Fishing industry only contributes 2% of GDP (1) even if it
expands may not increase the country’s output
significantly (1).
• Competitiveness may not increase (1) prices might not
decrease (1) other governments may subsidise their
fishermen (1).

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1(h) Discuss whether or not a reduction in trade protection by 6

other African countries would be beneficial for Morocco.
Award up to 4 marks for logical reasons why it might be beneficial,

which might include:
• less protectionism will decrease the price of Moroccan
exports (1) increase exports (1) improve current account
balance (1)
• less protectionism will allow Morocco to specialise more /
enable it to concentrate on what it is best at producing (1)
• demand for labour is derived demand (1), demand for
domestic workers will increase (1) therefore
unemployment decreases (1) income increases / poverty
decreases (1) consumption of good and services can
increase (1) more total demand (1) economic growth (1)
• inflation may fall (1) lower cost of imported raw
materials/imported capital goods (1).
Award up to 4 marks for logical reasons why it might not be

beneficial, which might include:
• decreased protection might lead to other countries
products decreasing in price as well (1), Moroccan goods
may decrease in competitiveness (1) decrease the
demand for Moroccan goods (1) increase in imports (1)
• infant/sunrise industries may go out of business (1) unable
to compete as not able to take full advantage of
economies of scale (1)
• sunset/declining industries may go out of business (1)
likely to have high costs of production (1)
• decrease the demand for workers (1) as less is produced
(1) unemployment increases (1) less income (1)
consumption of goods and services decrease (1)
decreased total demand (1) less economic growth (1).

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2(a) Identify two indicators of living standards. 2 Accept other valid indicators of living standards.
Two from e.g.: Accept GDP per head.

Real GDP per head
Human Development Index (HDI)
healthcare
education
2(b) Explain how a decrease in borrowing could reduce the chance 4

of high inflation.

Decrease in borrowing means people’s purchasing power would
reduce / less money to spend (1) would lead to less consumption /
less spending (1) or investment (1) this could lead to a decrease in
total demand (1).
Bank lending would be reduced (1) the money supply may be

reduced / less money in circulation / less money in the economy.
(1) price of goods and services will remain low / stop prices rising
(1) less demand-pull inflation (1).

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2(c) Analyse how economic growth conflicts with balance of 6

payments stability.

Economic growth may benefit from higher spending (1) whereas
balance of payments stability does not (1). Less balance of
payment stability because economic growth leads to higher income
(1) higher employment (1) increases spending/consumption (1)
increase the demand for goods and services (1) including imported
goods (1) reducing net exports (1) increase trade deficit / reduce
trade surplus (1).
Economic growth could increase demand for imported raw

materials (1) imported capital goods (1).
Economic growth could lead to demand-pull inflation (1) wage rises

(1) increase price of exports (1) reduce competitiveness of exports
(1).

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2(d) Discuss whether or not having a lower GDP will be a 8 Accept discussion of low GDP.
disadvantage to an economy.
Why it might be a disadvantage: accurately examines both sides of
• lower income and lower purchasing power, lower the economic argument, making
standards of living use of economic information and
• lower investment as less demand for goods and services, clear and logical analysis to
less production evaluate economic issues and
• lower healthcare and education standards situations. One side of the
• lower levels of employment argument may have more depth
• may be lower exports than the other, but overall both
• lower tax revenue sides of the argument are
• may result in deflation considered and developed. There
Why it might be an advantage: economic concepts, terminology,
• less production leads to less environmental problems information and/or data appropriate
• less work could lead to less stress to the question. The discussion
• less income leads to less imports, better current account may also point out the possible
balance uncertainties of alternative
• less income leads to less inflation decisions and outcomes.
• GDP per head could rise if population fallen more than
GDP 2 A reasoned discussion which 3–5
makes use of economic information
and clear analysis to evaluate
the question.

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2(d)



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3(a) Define structural unemployment. 2
Workers without jobs (1)
Unemployment due to a change in the structure of the economy /

change in demand and supply conditions / decline of some
industries (2) lack of the appropriate skills (1) lack of labour mobility
(1).
3(b) Explain two causes of low productivity. 4 One mark for each cause identified and one mark
for each explanation.
Poor education and training (1) leading to lack of skills / Lack of specialisation is too vague.
qualifications (1).
Poor technology (1) slower or less output per capital / labour input
(1).
Poor management (1) waste of resources (1).
Lack of investment (1) capital older/slower/out-of-date (1).
Emigration of skilled workers (1) output of unskilled workers who

are left is lower (1).
Poor working conditions (1) making it difficult for workers to do their

jobs efficiently (1).
Low pay (1) which may demotivate workers (1).

Long working hours (1) making workers tired (1).

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3(c) Analyse how higher government spending and tax cuts can 6 Maximum of 4 marks for only higher spending OR
lead to a fall in cyclical unemployment. tax cuts

Higher spending on e.g. unemployment benefits / education /
infrastructure / healthcare (1) could lead to higher demand for
goods and services (1) increased demand for goods and services
leads to higher revenues/profits for firms (1) increased investments
(1) increasing output (1) increased demand for workers to produce
the output (1).
Tax cuts such as income tax cuts (1) increased disposable income
(1) increase consumer expenditure (1) increased demand for goods
and services (1) higher revenues/profits for firms (1) increased
investments (1) increasing output (1).
Tax cuts such as corporation tax cuts (1) increased after tax profits
(1) increased investments (1) increasing output (1).
Tax cuts such as indirect tax cuts (1) decrease cost of production
(1) increased supply / output (1).

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3(d) Discuss whether or not competition between firms in the same 8

industry is always a disadvantage to workers.
Why it might be a disadvantage use of economic information and
• more competition between firms means firms try to be clear and logical analysis to
more efficient, which could lead to lower job opportunities / evaluate economic issues and
greater instability of employment situations. One side of the
• there may be greater use of short-term employment argument may have more depth
contracts than the other, but overall both
• more competition between firms could push down the sides of the argument are
wages of the workers. considered and developed. There
• more competition between firms could lead to workers is thoughtful evaluation of
being exploited e.g. overtime work, worse working economic concepts, terminology,
conditions. information and/or data appropriate
to the question. The discussion
Why it might be an advantage may also point out the possible
• more competition between firms would lead to firms uncertainties of alternative
training workers to be more productive decisions and outcomes.
• increased productivity leads to higher wages
• increased productivity could lead to more investments – 2 A reasoned discussion which 3–5
leading to more demand for workers makes use of economic information
• more competition between firms could lead to lower prices, and clear analysis to evaluate
which benefits workers who are also consumers economic issues and situations.
• lower prices could lead to more demand, which increases The answer may lack some depth
the demand for workers as well and development may be one-
• greater efficiency could result in higher revenue some of sided. There is relevant use of
which may be spent improving working conditions economic concepts, terminology,
• more competition between firms could lead to them raising information and data appropriate to
wages and / or improving working conditions to attract the the question.
best workers
• more competition between firms gives more opportunities
for workers to switch jobs.

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3(d)



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4(a) Define investment. 2

Investment is spending (1) on capital goods (1) to increase output
(1).
4(b) Explain two causes of a shift of a product’s demand curve to 4 One mark for each cause identified and one mark
the left. for each explanation.
Logical explanation which might include: No mark for stating demand falls because of a rise
Decrease in price / rise in quality of substitutes (1) increased in price.
demand for substitutes (1).
No diagram is required. No marks for a diagram.
Increase in price of complements (1) decrease demand for
complements (1).
Decrease in income (1) decrease in purchasing power (1).
Changing trends / tastes (1) decrease popularity (1).
Changing seasons (1) changing demand (1).
Decrease in population size (1) fewer people to buy the product (1).
Rise in the rate of interest (1) less able to borrow to buy the product
(1).

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4(c) Analyse, using a production possibility curve diagram (PPC), 6

the effect of increased investment in both education and the
health sector.

Axes correctly labelled with different goods or services (1).
Initial curve drawn as a curve / line sloping downward to the axes

(1).
New curve drawn to the right as a curve / line sloping downward to

the axes (1).
Accept education on one axis and health on the
Shift indicated by arrow or letters (1). other.
Up to 2 marks for written comments: Accept any other two relevant categories e.g.
Increased investments in education and healthcare leads to better manufactured and agricultural goods.
health/qualification / higher quality resources (1) better technology
(1) increased productivity (1) better quality Accept a pivot out if education and health is on one
workforce/skills/qualification (1) may be more resources (1) axis and other goods on the other.
increase productive capacity / the maximum quantity of products
that can be produced within a certain time period / create economic
growth (1).

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4(d) Discuss whether consumers would benefit more from 8

healthcare being provided by the private sector or the public
sector. 3 A reasoned discussion which 6–8
In assessing each answer, use the table opposite. the economic argument, making
use of economic information and
Why private sector is better: clear and logical analysis to
• profit maximising objective will lead to higher efficiency. evaluate economic issues and
• lower costs. situations. One side of the
• more choice argument may have more depth
• private firms will try to compete than the other, but overall both
• could lead to higher quality sides of the argument are
• private sector more likely to be able to raise funds considered and developed. There
• private sector investment will lead to less opportunity cost is thoughtful evaluation of
for public sector – leading to more spending on other economic concepts, terminology,
industries e.g. education / government do not have to raise information and/or data appropriate
taxes to fund healthcare services to the question. The discussion
may also point out the possible
Why public sector is better: uncertainties of alternative
• private sector investment leads to market failure such as decisions and outcomes.
merit goods
• public sector cares more about the wellbeing of the people 2 A reasoned discussion which 3–5
• could lead to higher quality provisions makes use of economic information
• public sector may produce on a larger scale and take and clear analysis to evaluate
advantage of economies of scale economic issues and situations.
• public sector may not charge for services whereas private The answer may lack some depth
sector will or public sector may charge a lower price. and development may be one-
the question.

PUBLISHED
4(d)



PUBLISHED
5(a) Define economic development. 2 Increase in GDP is not sufficient.
When there is an increase in standards of living of the people of a

country / quality of life / economic welfare (2).
Increase in income per head / average income/GDP per head /

education / healthcare / HDI (1).
The process by which low-income economies become high-income

economies (1).
Movement from primary towards the secondary and tertiary sectors

(1).

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5(b) Explain two reasons why children in rural areas may receive 4 One mark for each cause identified and one mark
less education than those in cities. for each explanation.

Low income (1) cannot afford to go to school (1).
Poor infrastructure (1) cannot get to school / no schools (1).
Have to work on the family farm (1) no time to go to school (1).
Parental attitude (1) they do not see benefit of education (1).
Low tax revenue in rural areas (1) government spending on schools

lower (1).
Difficult to recruit teachers (1) poor housing / long distance to travel

/ low wages (1)
Lack of schools (1) difficult to get materials to build schools / may

be insufficient children (1).
Parents have not been educated (1) don’t see the value in (paying
for) education (1)

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5(c) Analyse the advantages of selling a product which is price- 6 Award up to 2 marks for a diagram that shows price
inelastic in demand. rising and total revenue rising, but do not reward
twice.
Price-inelastic demand means when price increases, quantity
demanded falls by a less than proportionate amount or vice versa
(1). Relevant example (1).
When demand is price-inelastic, price and revenue move in the

same direction (1).
PED of less than one (1) may indicate lack of competition /

substitutes (1) necessities often have inelastic demand (1)
Firms can increase prices (1) total revenue increases (1) may
increase in profits (1) if revenue rises faster than cost (1).
Less market volatility (1) stability of income/revenue (1) making it

easier to plan (1).

PUBLISHED
5(d) Discuss whether or not an increase in the level of savings is 8

beneficial for an economy.
Why an increase in the level of savings may be beneficial: use of economic information and
• increase in savings could provide more funds for firms to clear and logical analysis to
borrow to invest evaluate economic issues and
• could lead to more future expenditure for consumers on situations. One side of the
things such as education argument may have more depth
• increase in firms’ productivity due to higher investments than the other, but overall both
• increase in future standards of living / income for sides of the argument are
consumers considered and developed. There
• savings for old age / rainy day for consumers is thoughtful evaluation of
• may reduce the need to borrow and so reduce the risk of economic concepts, terminology,
debt information and/or data appropriate
• may reduce inflation to the question. The discussion
• may reduce spending on imports and so improve the may also point out the possible
current account of the balance of payments uncertainties of alternative
Why increase in the level of savings may not be beneficial:
• increase in savings will lead to lower spending by 2 A reasoned discussion which 3–5
consumers, lower total demand and lower economic makes use of economic information
growth now and clear analysis to evaluate
• lower expenditure on goods and services by consumers economic issues and situations.
which leads to less profits for firms and less government The answer may lack some depth
tax revenue and development may be one-
• increase in savings may reduce the incentive for firms to sided. There is relevant use of
invest economic concepts, terminology,
• increase in savings may be a sign of lower confidence in information and data appropriate to
the economy the question.
• may reduce total demand an increase unemployment

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5(d)



Cambridge IGCSE™
ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED


shows confusion.
wrongly.)


PUBLISHED
for each answer
stages.
4 Annotation:
Examiner annotations
Uncertain what the candidate means – an illogical line of thought
Benefit of the doubt
Blank page
Caret – a word is missing.
Confused
Cross

PUBLISHED
L Nothing creditworthy
Level 1
Level 2
Level 3
Maximum mark on one side.
NAQ
Not established – a statement made without any support
Repetition
SEEN
Tick – a credit worthy point
Too vague

PUBLISHED
1(a) Calculate, in $, the total exports of Laos to China in 2017. 1 Accept 1.18 or 1.2 billion.
1.1832 billion / 1 183 200 000.
1(b) Identify two roles of commercial banks. 2 Accept loan / lending
Helps local entrepreneurs to borrow money (1).

Encourages households to save / enables households to save (1).
1(c) Explain how access to seaports may benefit an economy. 2
Enables an economy to take full advantage of international trade /

take greater advantage of international trading opportunities (1)
enables immigration of skilled workers (1)
Can export and import goods (1) goods can be transported more
cheaply (than by rail or air / over longer distances) / may encourage
specialisation (1) increases consumer choice (1).
May encourage investment (1) attract MNCs (1) create economic
growth (1)
1(d) Explain two benefits of the free market reforms introduced by the 4 One mark each for each of two benefits identified
government of Laos. and one mark each for each of two explanations.
The free market reforms have enabled Laos to sell their abundant raw Accept improved infrastructure.
materials internationally (1) increases export revenue / improves
current account balance / creates employment / encourages firms to
expand / increases GDP (1).
Encourages foreign investment (1) may lower costs of production /
increases total demand / improves current account balance / creates
employment / increase tax revenue (1).

PUBLISHED
1(e) Analyse the impact of improved education on the economy of 4

Laos.
Increased adult literacy rate (1) better skills/qualifications (1) increase

productivity (1) / increase productive capacity / total supply (1)
increase demand for labour (1) reduce unemployment / raise
employment (1) raise wages (1) reduce poverty (1).
More attractive for entrepreneurs / new businesses / investment (1)
increase output / GDP (1) leading to higher living standards (1).
Improvements in technology (1) due to workers having higher IT skills
(1)
Increase the consumption of merit goods / decrease the consumption
of demerit goods (1)
1(f) Analyse the relationship between a country’s Ease of Doing 5

Business ranking and its GDP per head.
Expected relationship:
Positive / direct (1) if ease of doing business (EDB) rank is high, GDP
per capita is high (1).
Supporting evidence:
Singapore has the highest EDB rank and GDP per capita is highest
(1) Timor-Leste has the lowest EDB rank and GDP per capita is the
lowest (1).
Exception:
Brunei / Malaysia (1) has lower EDB rank than Malaysia but higher
GDP per head (1). Alternatively South Korea / Brunei (1) Brunel has
lower EDB rank but higher GDP per head (1).
Analysis:
The greater the ease of doing business, the more investment there is
likely to be (1) higher investment is likely to increase GDP (1).

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1(g) Discuss whether or not strict rules and regulations benefit an 6 Apply this example to all questions with the
economy. command word Discuss (1(g), 1(h), 2(d), 3(d),
4(d) and 5(d))
Award up to 4 marks for logical reasons why they might, which could
include: Each point may be credited only once, on either
side of an argument, but separate development
• Environmental rules (1) e.g. cap on carbon emission, tax on as to how/why the outcome may differ is
polluting industries (1) reduce market failure (1) reduce external rewarded.
costs (1) e.g. could decrease pollution / protect natural resources
(1) less health problems for the society (1) better standards of Generic example mark
living (1).
• Anti-competition rules (1) e.g. restrictions on monopoly power (1) Tax revenue may decrease… 1
improved consumer choice / lower prices / better quality (1)
foreign companies will not dominate the market (1) opportunities
...because of reason e.g. incomes 1
for domestic firms to develop (1) increased future economic
may be lower.
growth (1).
• Restrictions on imports (1) may protect domestic industries / allow Tax revenue may increase 0
growth of domestic industries (1). because incomes may be higher
• Bans e.g. prohibiting smoking in public places (1) may reduce i.e. reverse of a previous
market failure / reduce external costs (1). argument.
• Labour market legislation (1) protecting workers’ rights (1).
Award up to 4 marks for logical reasons why they might not, which because of a different reason i.e.
could include: not the reverse of a previous
• Strict regulation discourages business (1) Laos ranks one of the spending on subsidies may
lowest in the World Bank’s Ease of Doing Business index (1) lack stimulate the economy more than
of investment / MNCs discouraged (1) lower productivity (1) lack spending on education.
of competition (1) lack of employment opportunities (1) decreased
total demand (1) decreased economic growth / lower GDP (1)
lower standards of living (1).

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1(g) • Bureaucracy / red tape increases the time and effort of doing
business (1) increases cost of production (1) lowers profit (1).
• Rules and regulations may lack clarity (1) causing them to be
implemented incorrectly (1)
• Takes time for the government to administer rules and regulations
(1) opportunity cost of government spending (1).
• Import restrictions reduce competition (1) may result in higher
prices (1) lower quality (1)
1(h) Discuss whether or not a slowdown of China’s economy will be 6

harmful to the economy of Laos.
Award up to 4 marks for logical reasons why it might, which might

include:
• China is Laos’s largest trading partner / 58% of Laos’s exports are
sold to China (1) China slowing down will lead to less demand for
Laos’s exports (1) less export revenue / worsen current account
(1) less total demand (1) less economic growth (1) may not be
able to buy more, irreplaceable imports (1).
• China is the largest source of foreign investment into Laos (1)
less foreign investments will lead to less job creation (1) less
employment / higher unemployment (1) lower standards of living
(1).
Award up to 4 marks for logical reasons why it might not, which might
include:
• Reduce dependence on China (1) find new markets and investors
(1) other countries’ economies could be expanding (1) which
could generate more exports (1) and jobs (1).
• May lead to fewer environmental problems (1) less pollution (1)
higher standard of living (1).
• Domestic investors and firms could fill the gap (1) more
employment (1) higher GDP (1).

PUBLISHED
2(a) Define redistribution of income. 2
Transfer of income from some individuals (1) to others (1).

Tax taken from the rich (1) is spent on the poor (1).
Progressive / regressive taxation (1)
2(b) Explain two reasons why governments redistribute income. 4 One mark each for each of two reasons identified
and one mark each for each of two explanations.
• Reduce poverty (1) higher purchasing power (1) afford basic
necessities (1) e.g. healthcare / education / proper housing (1).
• Reduction in poverty reduces social problems / waste of
resources (1) as poverty may create e.g. poor health / reduce
productivity (1).
• To promote equity / greater equality of income (1) reducing the
gap between rich and poor (1)
• To increase incentives if redistribute from poor to rich (1) may
increase effort / enterprise (1)
2(c) Analyse the economic effects of a reduction in a country’s export 6

of services.

As export of services decreases, total exports will decrease (1) total
demand decreases (1) less inflation (1) lower economic growth / lower
GDP (1).
Less export of services, less demand for service workers (1) less job
opportunities / higher unemployment (1). Higher current account
deficit / less current account surplus (1) reduces ability to buy imports
(1) lower standards of living (1).

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2(d) Discuss whether or not supply-side policy measures encourage 8

firms to operate in an economy. Level Description Marks
In assessing each answer, use the table opposite. accurately examines both
sides of the economic
Why they might encourage firms: argument, making use of
• Makes it easier to hire and fire workers might lower costs of economic information and
employing workers to firms. clear and logical analysis to
• Better skills could increase productivity. evaluate economic issues
• Encouraging more workers into the labour market could increase and situations.
the supply of workers.
• Reduction in trade union power can reduce cost / make it easier One side of the argument
to start a business. may have more depth than
• Lower direct taxes will encourage more firms to start up. the other, but overall both
• Deregulation will reduce barriers to operate in an economy. sides of the argument are
• Privatisation will allow private firms to invest in the economy. considered and developed.
• Subsidies will give firms an incentive to stay in the country.
There is thoughtful evaluation
Why they might not encourage firms: of economic concepts,
• Less job security could decrease productivity, increasing cost of
and/or data appropriate to the
production for firms.
question. The discussion may
• Costs of hiring workers might still be lower elsewhere.
also point out the possible
• Supply side measures (e.g. labour market reforms) may take a
long time before the effects on the economy are apparent
• Lower direct taxes may reduce the government’s ability to spend
on education / training which will increase firms’ cost of production
• Deregulation may enable other firms to engage in unfair practices
• There may be a fear that subsidies might be withdrawn and if
there is a fall in demand MNCs will not want to stay in the country
anyway
• Other governments may be giving larger subsidies

PUBLISHED
2(d) Level Description Marks

makes use of economic
information and clear
analysis to evaluate
economic issues and
situations.
The answer may lack some

depth and development may
be one-sided.
There is relevant use of

economic concepts,
terminology, information and
data appropriate to the
question.
1 There is a simple attempt at 1–2
using economic definitions
and terminology. Some
content.

PUBLISHED
3(a) Define finite resource. 2 No mark for an example
A resource is an aid to production (1) which is limited in supply (1) it

cannot be replaced over time / fast enough / will run out (1) to keep
pace with consumption (1).
3(b) Explain the difference between private and external benefits. 4 Maximum 3 marks for only explaining 1 type of
benefit.
Private benefits are enjoyed by the producer (1) and consumer (1) first
and second parties (1) of a product, example e.g. revenue for the
producer / satisfaction for the consumer (1).
External benefits are enjoyed by a third party (1) not directly involved
in the production (1) or consumption process (1) example (1)
3(c) Analyse, using a demand and supply diagram, the effects on the 6
world price of oil of the discovery of new reserves of oil. (6)

Original demand and supply curves correctly labelled (1).
New supply curve shifted to the right (1).
Equilibriums – shown by lines P1, P2 / Q1, Q2: or marking the
equilibrium points E1 and E2 (1).

Discovery of new oil will enable an increase in supply (1) price will be
lower (1).

PUBLISHED
3(d) Discuss whether or not the fall in the price of a product is a 8 Level Description Marks
disadvantage to an economy. 3 A reasoned discussion which 6–8
accurately examines both
In assessing each answer, use the table opposite. sides of the economic
argument, making use of
Why it might be a disadvantage: economic information and
• It depends on size of fall in price and elasticity of demand for the evaluate economic issues
product and situations.
• It depends upon the importance of the product to the economy /
how dependent on it One side of the argument
• If demand is price inelastic, decrease in total revenue e.g. basic may have more depth than
items / necessity, cannot cover the costs, firms may go out of the other, but overall both
business, less employment opportunities sided of the argument are
• Less profits, discourages investment, reduces economic growth considered and developed.
• Less export revenue, may increase current account deficit
• Fall in price may be due to cheaper imports, domestic firms lose There is thoughtful evaluation
out. of economic concepts,
• The product may be a demerit good which previously was terminology, information
overconsumed. and/or data appropriate to the
• If the product is part of a deflationary situation, there could be question. The discussion may
recession / unemployment also point out the possible

PUBLISHED
3(d) Why it might not be a disadvantage: Level Description Marks

• Depends on size of fall and whether it is short or long term makes use of economic
• If demand is elastic, increase in total revenue e.g. luxury goods / information and clear
many substitutes analysis to evaluate
• Increase choices and affordability of product – better living economic issues and
standards situations. The answer may
• Fall in the price of a raw material may lower cost of production, lack some depth and
reducing inflation and increasing economic growth development may be one-
• The product may be a merit good which previously was under- sided. There is relevant use
consumed of economic concepts,
• It may make a basic necessity more affordable – low income terminology, information and
groups may be better off data appropriate to the
• It may be the result of an increase in productivity / a government question.
subsidy 1 There is a simple attempt at u 1–2
• It may make the product more internationally competitive, sing economic definitions and
improving the current account position. terminology. Some reference
may be made to economic
theory, with occasional
understanding.
content.

PUBLISHED
4(a) Define total revenue. 2 No mark for producing their products
Total amount of money earned by firms (1) for selling their products
(1).
Price times quantity (2), P × Q (2)
Total costs plus profit (2).
4(b) Explain two causes of inflation. 4 One mark each for each of two causes identified
and one mark each for each of two explanations.
Demand-pull inflation (1) increase in total demand (1) e.g. increase in Full marks may be awarded for a detailed
consumption / increase in investment / government spending / net explanation of two causes of one type of inflation.
exports (1) e.g. cut in income tax / decrease interest rate / increase
employment / increase in the money supply (1).
Cost-push inflation (1) increase in costs of production (1) e.g. increase
in wages / raw material cost / profit margin / tariffs (1) e.g. wages may
rise more than productivity / fall in exchange rate would increase raw
material costs (1).
4(c) Analyse how an increase in interest rate could reduce total 6

demand in an economy.

Increase in interest rate will lead to an increase in the cost of
borrowing (1) there will be less borrowing (1) less consumption /
spending (1) less investments (1)
An increase in interest rate will lead to an increase in the returns from
savings (1) there will be more savings (1) less consumption / less
spending (1)
An increase in interest rate may attract an inflow of money from other
countries into the country’s banks (1) leading to an appreciation of the
currency (1) leading to increase in price of exports / decrease in price
of imports (1) increase exports / decrease imports (1) decrease net
exports (1)

PUBLISHED
4(d) Discuss whether or not an appreciation of a country’s domestic 8 Level Description Marks
currency will have negative effects on its economy. 3 A reasoned discussion which 6–8
Why appreciation will have a negative impact: economic information and
• Price of exports will be higher – decrease export revenue. evaluate economic issues
• Price of imports will be lower – increase import spending. and situations.
• Decrease demand for domestic products – decrease demand for
labour. One side of the argument
• Decrease current account surplus / increase current account may have more depth than
deficit. the other, but overall both
• Lower economic growth. sided of the argument are
considered and developed.
Why appreciation will not have a negative impact:
There is thoughtful evaluation
• Price of imports cheaper – increase affordability of imports – of economic concepts,
increase standards of living. terminology, information
• Price of imported raw materials / machinery lower – lower cost of and/or data appropriate to the
production – lower final price. question. The discussion may
• PED for exports and imports might be inelastic. also point out the possible
• May encourage foreign investment as there may be increased
confidence in the country’s future economic prospects

PUBLISHED

economic issues and
situations. The answer may
lack some depth and
sided. There is relevant use
of economic concepts,
question.
1 There is a simple attempt at u 1–2
sing economic definitions and
terminology. Some reference
understanding.
content.

PUBLISHED
5(a) Define market disequilibrium. 2
When quantity demanded does not equal quantity supplied (2).

When there are shortages (1) or surpluses (1) of a product.
5(b) Explain the difference between labour-intensive and capital- 4

intensive industries

Labour-intensive industries rely more on human labour (1) i.e. workers
(1) low-cost labour may be available (1) example of industry (1)
Capital-intensive industries rely more on capital (1) i.e. machines (1)
capital more efficient / cheaper than labour (1) example of industry
5(c) Analyse how trade unions could increase economic 6

development.

Trade unions could help engage in collective bargaining on wages (1)
higher wages (1) leads to higher purchasing power of workers (1).
May increase motivation of workers (1) increase output (1).
Better working hours (1) improved working conditions (1) protect
workers’ rights (1) better health and safety (1) more job security (1)
leads to higher standards of living (1) higher life expectancy (1).
Increased productivity / efficiency of workers (1) decreases cost of
production (1) decrease final price of goods and services produced in
the country (1) increase competitiveness (1) higher output / economic
growth (1).
May help with training (1) raise quality of output (1).

PUBLISHED
5(d) Discuss whether or not high government spending can help a 8 Level Description Marks
government achieve its macroeconomic aims. 3 A reasoned discussion which 6–8
Why high government spending can help a government achieve its economic information and
macroeconomic aims: clear and logical analysis to
evaluate economic issues
• economic growth – increase total demand and situations.
• full employment/low unemployment – increase demand for
workers through more government infrastructure projects One side of the argument
• government spending on education may raise workers’ skills and may have more depth than
so lower unemployment the other, but overall both
• balance of payments stability – through subsidies for producers sided of the argument are
• redistribution of income – through spending on social welfare. considered and developed.
Why high government spending cannot help a government achieve its There is thoughtful evaluation
macroeconomic aims: of economic concepts,
• increased total demand could lead to increase demand-pull and/or data appropriate to the
inflation question. The discussion may
• too much government spending could lead to less private also point out the possible
investments uncertainties of alternative
• overreliance of government subsidies could lead to complacency decisions and outcomes.
• high spending on social welfare could discourage the unemployed
from trying to find jobs
• may be accompanied by higher taxes which could be a
disincentive to effort and enterprise
• may increase budget deficit which could reduce confidence in the
economy.

PUBLISHED

economic issues and
lack some depth and
question.
1 There is a simple attempt at u 1–2
sing economic definitions and
understanding.
content.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
teachers.
Cambridge international will not enter into discussions about these mark schemes.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED


shows confusion.
wrongly.)

PUBLISHED
for each answer
stages.
4 Annotation:

PUBLISHED
Blank page
Confused
Cross
Level 1
Level 2
Level 3
NAQ

PUBLISHED
Repetition
SEEN
Too vague

PUBLISHED
1(a) Calculate, in $, Air India’s loss in 2018. 1 7 × 10 to the power 8.

7 × 10ˆ8.
0.7bn, 700m, 700 000 000.
1(b) Identify two substitutes for air travel. 2 For ‘ships’ accept water travel.
Trains (1) ships (1).
1(c) Explain one characteristic that suggests that Air India 2

was a monopoly in 1994.
Share of the market was 100% (1) only firm / share above
25% of the market / share above 40% / a complete/pure
monopoly / no competition (1).
Able to set price (1) a price-maker (1).
1(d) Explain two reasons why a government may privatise an 4 One mark each for each of two reasons identified and one
industry. mark each for each of two explanations.

Raise (tax) revenue (1) which could be spent on e.g.
education, healthcare / increase government spending (1).
Increase efficiency / may perform better in the private sector /
higher productivity (1) introduce a profit motive / increase
output/GDP / reduce costs of production (1).
Increase competition (1) lower price / increase quality /
increase choice (1).
Industry may be loss making / costly to run (1) reduce need to
use tax revenue to finance industry / tax revenue can be used
for other purposes e.g. education / increase government
spending / reduce national debt / tax rates might be cut (1).

PUBLISHED
1(e) Analyse how India’s position on the current account of 4 Up to 2 marks maximum for idea of size of current account
its balance of payments in 2017 compares with the other balance without reference to deficit or surplus e.g. China
four countries. has the largest current account balance and India the
lowest.
Coherent analysis which might include: So maximum of 2 marks without reference to deficit/s or
Brazil, India and Kenya had a current account deficit (1) while surplus/es.
China and Russia had a current account surplus (1).
India’s current account deficit is the largest in terms of $s (1) No marks for writing about a budget balance.
but the second largest in % terms (1).
China’s current account had a larger impact on its economy
in terms of $s (1) and Kenya’s in percentage terms (1).
Russia’s current account surplus is larger than China’s in
terms of % of GDP (1).
China has the largest surplus in $s (1).
1(f) Analyse how a successful airline industry can promote 5

economic growth.
Coherent analysis which might include;

May increase number of tourists (1) raise revenue from
tourism / increase the size of the tourist industry (1) may
increase exports / imports / increase the ease of movement of
people and goods into and out of the country (1).
May attract more MNCs (1) these will increase the country’s
output/GDP (1) introduce new technology / new methods of
production (1).
May lower costs of production (1) raising firms’ profits (1)
providing the incentive/finance to expand (1) increase the
country’s output/GDP (1).
May increase employment (1) raise incomes (1) increase total
demand (1) increase tax revenue (1) more could be spent on
e.g. education (1).
May increase (geographical) mobility of labour (1) making it
easier for expanding firms to recruit workers (1).

PUBLISHED
1(g) Discuss whether the Indian government should increase 6 Apply this example to all questions with the command
the tax on airline fuel. word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Award up to 4 marks for why it should:
• Raise revenue (1) can be used to finance e.g. education /
training of pilots / increase government spending (1) Each point may be credited only once, on either side of an
burden more likely to fall on the rich / may enable tax on argument, but separate development as to how/why the
basic necessities to be reduced (1). outcome may differ is rewarded.
• May reduce market failure (1) air travel causes external
costs / social cost exceeds social benefit (1) air/noise Generic example mark
pollution (1) a tax may reduce air travel / lower demand
for air travel (1) by raising price (1) encourage people to Tax revenue may decrease … 1
switch to other forms of transport (1).
... because of reason e.g. incomes may be 1
Award up to 4 marks for why it should not: lower.
• Will increase airlines’ costs / reduce airlines’ profits /
cause a loss (1) airlines’ other costs are rising (1) difficult Tax revenue may increase because incomes 0
for them to cover higher costs / raise prices (1) due to may be higher i.e. reverse of a previous
elastic demand / price sensitive demand (1) may go out argument.
of business (1) may discourage investment (1) causing
unemployment (1). Tax revenue may increase because of a different 1
• May reduce tourism in the country (1) harming the reason i.e. not the reverse of a previous
current account position (1). argument e.g. government spending on
• Airline fuel is already highly taxed (1) may be difficult to subsidies may stimulate the economy more than
tax further (1). spending on education.
• Ait travel is safer than car travel in many countries (1) so
injuries may increase if there is a switch between the two
(1).

PUBLISHED
1(h) Discuss whether more people will apply to be pilots for 6 Note: some points may be given in reverse e.g. education
Indian airlines in the future. standards may rise.
Award up to 4 marks for logical reasons why they might:

• Introduction of new technology (1) will make the job
easier (1)
• Improved staff training (1) improve/increase skills (1)
improve motivation / satisfaction (1)
• improve working conditions (1) airlines want to retain
staff (1)
• More routes are being flown / size of industry is
increasing (1) demand for pilots may increase / more job
opportunities (1) may raise wages (1).
• More fringe benefits may be provided (1) example (1).
• Being a pilot is a highly regarded occupation in many
countries (1).
Award up to 4 marks for logical reasons why they might

not:
• There may not be more people qualified to become pilots
(1) education standards may fall / qualifications may be
high (1).
• Period of training may increase / cost of training may
increase (1).
• Other jobs may offer higher wages / better working
conditions / wages of pilots may fall (1) example of other
jobs (1).
• Advances in technology may reduce the need for pilots
(1) may increase skills needed (1).
• Increased tax on fuel may reduce the size of the airline
industry (1) causing people to expect fewer job
opportunities / unemployment of pilots (1).
• Price of substitute forms of transport may reduce (1)
lowering demand for pilots (1).

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1(h) • Job may require workers to be away from their families

(1) people may want to stay close to home (1).
• Working hours may be unsociable (1) people may want
to spend more time with their families (1).
• May be considered in some cases to be a risky job (1).
2(a) Define a free good. 2 No marks for an example.
No opportunity cost (1) a good that takes no

resources/factors of production to produce / naturally
abundant in supply / does not use scarce resources (1).
2(b) Explain, with examples, the difference between the 4 For tertiary sector, it is not sufficient to just have the sector
secondary sector and the tertiary sector. which sells products as this is only part of the sector.
Logical explanation which might include: But for the tertiary sector example accept the sale of a
Secondary sector covers manufacturing (and construction) / product e.g. the sale of jewellery.
converts primary products into finished goods (1) e.g. car
industry (1).
Tertiary sector covers services / final stage of production (1)
e.g. insurance (1).

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2(c) Analyse, using a production possibility curve (PPC), the 6 Nothing for higher output, higher GDP as this is uncertain.
effect of an increase in the quality of its resources on an
economy.

Axes correctly labelled with different outputs (1).
Initial curve drawn as a curve / line sloping downward to the
axes (1).
New curve drawn as a curve / line sloping downward to the
axes (1).
Shift indicated by arrow or letter (1).

Better quality resources will increase productivity (1) enable
more of both types of goods to be produced (1) with a given
quantity of resources (1) increase productive potential /
productive capacity / total supply (1) cause economic growth
(1).

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2(d) Discuss whether or not a fall in a country’s birth rate will 8

benefit an economy.
Why it might: information and clear and logical
• reduce the number of dependents analysis to evaluate economic issues
• fewer workers away from work to bring up children and situations. One side of the
• enable resources to be used to increase economic argument may have more depth than
growth / raise living standards the other, but overall, both sides of the
• reduce pressure on the environment argument are considered and
• move towards the optimum population developed. There is thoughtful
evaluation of economic concepts,
Why it might not: terminology, information and/or data
• reduce the size of the labour force in the longer term appropriate to the question. The
• reduce labour mobility discussion may also point out the
• create an ageing population possible uncertainties of alternative
• reduce size of markets decisions and outcomes.
2 A reasoned discussion which makes 3–5

use of economic information and clear
analysis to evaluate economic issues
and situations. The answer may lack
some depth and development may be
one-sided. There is relevant use of
information and data appropriate to the
question.
1 There is a simple attempt at u sing 1–2

Some reference may be made to
economic theory, with occasional
understanding.

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2(d)
0 A mark of zero should be awarded for 0

no creditable content.
3(a) Identify two determinants of price elasticity of supply. 2 Accept weather.
Two from:
• ability to store
• level of stocks
• perishability
• production time
• level of spare capacity
• cost of altering supply
• time period under consideration – short/long run
3(b) Explain two advantages to an economy of ending child 4 One mark each for each of two advantages identified and
labour. one mark each for each of two explanations.

Enable children to be educated (1) raise productivity /
workers’ skills / literacy rates / long run economic growth (1).
Improve children’s health (1) increase life expectancy / raise
Reduce cycle of poverty (1) children will later gain higher paid
jobs (1).
Raise wages (1) due to reduced supply of cheap labour (1).
Remove international bans / encourage more foreign tourists
(1) increase exports (1).
Increase job opportunities for adults (1) lower unemployment
/ increase employment of adults (1).

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3(c) Analyse how average cost can change as output 6 Nothing for reference to causes of changes in total costs
increases. e.g. employing more workers will increase wages paid.
Average cost may fall due to economies of scale (1) example

of an economy of scale e.g. financial economy (1)
explanation of the example (up to 2 marks) e.g. banks may
charge lower interest rates (1) reducing firms’ cost of
borrowing (1).
Another example e.g. buying economy (1) explanation of the
example (up to 2 marks) e.g. able to buy in bulk (1) and
receive a discount (1).
Higher output may enable fixed costs to be spread over a
larger output (1) which may reduce average fixed costs (1)
whether average total cost will fall will depend on what
happens to average fixed cost plus average variable cost (1).
Average cost may rise due to diseconomies of scale (1)
example e.g. managerial economy (1) explanation of the
example (up to 2 marks) e.g. difficulty of keeping control of a
large organisation (1) leading to more mistakes / poor
decision making (1).
Another example e.g. poor labour relations (1) explanation of
the example (up to 2 marks) e.g. lack of contact between
workers and managers (1) may be strikes (1).

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3(d) Discuss whether or not an economy would benefit from 8

allocating more of its resources to agriculture.
• specialisation may increase efficiency, raise output, analysis to evaluate economic issues
increase exports and situations. One side of the
• may improve the current account of the balance of argument may have more depth than
payments the other, but overall, both sides of the
• imports of food may be reduced, reduced reliance on argument are considered and
other countries for basic necessities developed. There is thoughtful
• health and safety standards may be maintained evaluation of economic concepts,
• the industry is labour intensive in some countries and so terminology, information and/or data
may reduce unemployment appropriate to the question. The
discussion may also point out the
Why it might not: possible uncertainties of alternative
• wages in the industry tend to be relatively low decisions and outcomes.
• the supply of agricultural products can fluctuate
significantly due to changes in weather conditions 2 A reasoned discussion which makes 3–5
• opportunity cost of fewer resources for manufacturing use of economic information and clear
goods and for services analysis to evaluate economic issues
• demand for manufactured goods and for services tend to and situations. The answer may lack
rise more as income increases some depth and development may be
• agriculture uses up considerable amounts of water. one-sided. There is relevant use of
question.

understanding.

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3(d)

4(a) Identify two of the three resource allocation decisions. 2
Two from:
• what to produce
• how to produce
• who to produce for

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4(b) Explain two reasons why households may save less even 4 One mark each for each of two reasons identified and one
though their income has increased. mark each for each of two explanations.

Fall in the rate of interest (1) which would reduce the return
from saving / spend/borrow rather than save (1).
Inflation (1) spend more now before prices rise further / may
reduce the real rate of interest (1).
Increase in confidence about the future (1) less motive to
save for hard times / less concerned will experience
unemployment or fall in income (1).
Fall in range, number or reliability of financial institutions (1)
which would reduce the safe places to save (1).
Greater consumption opportunities / spend more / higher
living standards (1) with the introduction of new products /
lower prices / may be able to afford private education /
healthcare (1).
Increase in taxes (1) reducing disposable income (1).
Rise in family size (1) increasing household expenses (1).
Rise in debt (1) may reduce ability of households to e.g. to
put money into a savings account (1).
Change in social attitudes (1) due to e.g. change in age of
households (1).

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4(c) Analyse how a trade union may benefit its members. 6

A trade union may negotiate with employers (1) to raise
wages (1) improve working conditions (1) example (1)
increase fringe benefits (1) example (1) through collective
bargaining (1) and sometimes industrial action / strikes (1).
A trade union may settle disputes between the employer and
the workers (1) e.g. over changes in working practices (1)
protect workers’ rights (1).
A trade union may seek to protect the employment of its
members (1) in some cases negotiate favourable redundancy
terms (1).
A trade union may negotiate / put pressure on the
government (1) to e.g. raise a national minimum wage or
reduce the retirement age (1).
In some countries, trade unions provide benefits and services
to members (1) e.g. training services (1).

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4(d) Discuss whether or not a fall in its foreign exchange rate 8

will improve a country’s macroeconomic performance.
• export prices will fall and import prices will rise analysis to evaluate economic issues
• demand for exports may rise and demand for imports and situations. One side of the
may fall argument may have more depth than
• domestic output will increase, economic growth may rise the other, but overall, both sides of the
• more workers may be employed, reducing argument are considered and
unemployment developed. There is thoughtful
• a deficit on the current account of the balance of evaluation of economic concepts,
payments may be reduced or a surplus increased terminology, information and/or data
• may encourage foreign investment if it is thought assets appropriate to the question. The
can be bought more cheaply. discussion may also point out the
possible uncertainties of alternative
• rise in price of imported capital goods and raw materials
may increase costs of production, causing cost-push 2 A reasoned discussion which makes 3–5
inflation use of economic information and clear
• higher total (aggregate) demand may cause demand-pull analysis to evaluate economic issues
inflation, especially if the economy is working close to full and situations. The answer may lack
capacity some depth and development may be
• demand for exports and imports may be price inelastic, one-sided. There is relevant use of
causing export revenue to fall and import expenditure to economic concepts, terminology,
rise – in such a case may benefit more from a rise in the information and data appropriate to the
exchange rate question.
• trade restrictions imposed by other countries may
prevent the country from exporting more products 1 There is a simple attempt at u sing 1–2
• may discourage foreign investment due to a lack of economic definitions and terminology.
confidence in the country’s future economic prospects. Some reference may be made to
understanding.

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4(d)

5(a) Identify two ways a government could reduce income 2 Accept higher taxes on high incomes and lower taxes on
inequality. low incomes but do not accept increasing taxes on
incomes as this is TV.
Two from:
• progressive taxation Redistributing income is TV – could be redistributing from
• state benefits the poor to the rich.
• spending on state education / training
• spending on state healthcare
• equal pay legislation
• minimum wage
5(b) Explain two advantages of a market economic system. 4 One mark each for each of two advantages identified and
one mark each for each of two explanations.
Consumer sovereignty (1) with consumers deciding what Nothing for no taxes.
goods and services are produced (1).
Low prices (1) due to competition (1).
High quality (1) due to innovation (1).
Consumer choice (1) variety of products produced (1).
Greater efficiency (1) due to the profit motive (1).
Automatic adjustment to changes in demand and supply /
quick response to changes in demand and supply (1) via
changes in price / with use of the price mechanism / increase
consumer satisfaction (1).

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5(c) Analyse why life expectancy may decrease. 6

Incomes may fall (1) lowering living standards / reducing
access to basic necessities (1).
Reduction in healthcare (1) e.g limited access to medication
(1).
Reduction in education (1) people may lead less healthy lives
(1) more smoking (1) more ‘junk food’ (1) less exercise (1).
Rise in poor nutrition / malnutrition (1) eating more low-quality
food / people not having enough food (1).
More pollution (1) making people more susceptible to
diseases (1).
May be spread of new diseases / pandemics (1) wars / civil
unrest (1).
Climate change (1) may result in more natural disasters (1).
More people employed in jobs with poor working conditions /
more dangerous jobs (1) resulting in more sickness /
accidents (1).

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5(d) Discuss whether or not supply-side policy measures can 8 Only accept lower interest rates, if linked to increasing total
reduce inflation. supply.

Why they might: 3 A reasoned discussion which accurately 6–8
• they may increase total (aggregate) supply, reducing examines both sides of the economic
cost-push inflation argument, making use of economic
• they can allow total (aggregate) demand to increase information and clear and logical
without causing inflation analysis to evaluate economic issues
• education and training can increase labour productivity, and situations. One side of the
reducing labour costs argument may have more depth than
• a cut in direct taxes may increase the incentive to be the other, but overall, both sides of the
more productive and more innovative argument are considered and
• labour market reforms may reduce power of trade unions developed. There is thoughtful
and reduce rise in wages evaluation of economic concepts,
• subsidies can lower costs of production terminology, information and/or data
appropriate to the question. The
Why they might not: discussion may also point out the
• privatisation does not always increase competition and possible uncertainties of alternative
so does not always lower prices decisions and outcomes.
• education and training can be expensive, may be in
areas that are not in demand and will have a time lag 2 A reasoned discussion which makes 3–5
• cuts in income tax may increase total (aggregate) use of economic information and clear
demand as well as total (aggregate) supply analysis to evaluate economic issues
• resource limitations / unable to increase productive and situations. The answer may lack
capacity due to e.g. limited land available some depth and development may be
• inflation may be caused by rise in price of raw materials one-sided. There is relevant use of
which have no domestic substitute e.g. oil economic concepts, terminology,
question.

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5(d)

understanding.


Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

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marking principles.
descriptors.

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shows confusion.
wrongly.)

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for each answer
stages.
4 Annotation:

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1(a) Calculate Chile’s agricultural output in 2017. 1 Accept $11.8bn and $12bn.
$ is not essential.
$11.76bn / $11 760 000 000 / $11 760m (1).
1(b) Identify two disadvantages of a country 2 One mark each for each of two disadvantages.
specialising. Rely on a small number of industries is not sufficient.
Two from:
• demand may fall / new competitors may appear
• supply/output may fall / diseases / natural
disasters / bad weather may affect agricultural
output / costs may rise
• non-renewable resources may run out
• structural unemployment may occur
• reliance on imports no longer produced by home
country / overdependency on other countries
1(c) Explain one reason why demand for cherries is 2 In terms of close substitutes, also accept: fall in price will cause
price-elastic. some people to switch towards this product and away from rival
products.
A luxury product (1) they do not have to be purchased /
not essential / not a necessity (1). One mark for the reason identified and one mark for the
Has close substitutes (1) example / rise in price will explanation.
cause some people to switch to rival products (1).
A candidate who writes a luxury product and has close
substitutes and no more has identified two reasons, so just one
mark.
If a candidate identifies one of the two reasons but does not

explain it and then identifies the second reason and explains it,
the second reason can be taken and with the explanation, 2
marks.

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1(d) Explain how Chile’s population structure differs 4 Accept for the first and second points other relevant age ranges
from Haiti’s population structure. e.g. over 60, under 10.
Logical explanation which might include: Accept longer life expectancy for lower death rate and shorter life
Chile has a higher proportion of its population aged expectancy for higher death rate.
over 65 / Haiti a lower proportion aged over 65 (1).
Note that each country overall has more females than males, so
Chile has a lower proportion of the population aged not a difference.
under 15 / Haiti has a higher proportion aged under 15
(1).
Chile is likely to have a lower birth rate / Haiti is likely to

have a higher birth rate (1).
Chile likely to have a lower death rate / Haiti is likely to

have a higher death rate (1).
Chile’s population pyramid indicates a relatively high

level of development/high income country / Haiti’s
population pyramid indicates a relatively low level of
development/low income country (1).
Chile’s population pyramid is less pyramid shaped /

more stationary / constrictive / bulges out in the middle
/ more egg-shaped / Haiti’s is more pyramid shaped /
more expansive (1).
Lower dependency ratio in Chile / higher dependency

ratio in Haiti (1).
Higher proportion of population of working age in Chile

/ lower proportion of population of working age in Haiti
(1).
Higher population size in Chile / lower population size

in Haiti (1).

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1(d) Chile has a higher average age / older population /

Haiti has a lower average age population / younger
population (1).
1(e) Analyse why China buys most of its cherries from 4 Free trade agreement on its own is not sufficient.
Chile.

Chile has high production standards (1) cherries are
likely to be of a high quality (1).
China does not impose tariffs on Chilean cherries (1)
may keep their price low (1).
1(f) Analyse why Chilean astronomers are paid more 5 Also accept an approach based on an analysis of why Chilean
than Chilean farm workers. farm workers are paid less than Chilean astronomers. This may
include reference to immigrant farm workers who may be
Coherent analysis which might include: prepared to accept relatively low wages and Chilean farm
Most astronomers have a university degree (1) high workers being replaced by capital equipment / more replaceable
cost of training/ long period of training (1) well qualified than astronomers.
/ well educated / high level of knowledge (1) highly
productive / highly skilled / efficient (1) in short supply
(1) high demand (1) more inelastic demand (1) more
inelastic supply (1).
Most work in the public sector (1) government may be
more willing / able to pay higher wages (1) public
sector workers are more likely to belong to a trade
union (1) have stronger bargaining power (1).

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1(g) Discuss whether or not Chilean consumers would 6 Apply this example to all questions with the command word
benefit from more government intervention in the DISCUSS
economy. (1(g), 1(h), 2(d), 3(d), 4(d) and 5(d))
Award up to 4 marks for why they might: Not taking lower taxes, lower subsidies or reduced immigration
• evidence of market failure (1) controls as a form of government intervention.
• merit goods may be underproduced (1) as under-
consumed (1) Each point may be credited only once, on either side of an
• demerit goods may be overproduced (1) as argument, but separate development as to how/why the outcome
overconsumed (1) may differ is rewarded.
• external costs could be reduced (1) external
benefits may be increased (1) external costs / Generic example mark
external benefits are not taken into account by the
private sector (1) Tax revenue may decrease … 1
• public goods may not be produced (1) no profit
incentive to make them (1) as there can be free ... because of reason e.g. incomes may be lower. 1
riders (1)
• inequality (1) poor consumers may lose out / there Tax revenue may increase because incomes may be
0
may be poverty (1) resources may not be devoted higher i.e. reverse of a previous argument.
to producing what the poor need (1) may not be
able to afford prices charged (1) Tax revenue may increase because of a different
• government subsidies (1) can lower prices (1) reason i.e. not the reverse of a previous argument e.g.
1
• government could set maximum prices (1) lower government spending on subsidies may stimulate the
prices of necessities (1) economy more than spending on education.
• government could control (private sector)
monopoly power (1) prevent abuse of market
power (1)
• government investment in education (1) could
lower prices / raise quality of output (1).
Award up to 4 marks for why they might not:

• government failure may occur (1) e.g. government
may lack information (1).
• market forces can provide wide choice of products
(1) may be consumer sovereignty (1)

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1(g) • profit incentive (1) industries may respond to

changes in consumer demand (1)
• efficient industries (1) prices may be low (1) quality
may be high (1)
• government intervention in the form of
nationalisation (1) may reduce competition (1).
• government taxes / tariffs / regulation / minimum
wages (1) may increase costs (1) raise prices (1)
• maximum prices could reduce availability of
products (1)
• government limits on immigration (1) may reduce
availability of products / raise prices (1)

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1(h) Discuss whether or not the Haitian economy would 6 For an approach which discusses whether or not the Haitian
benefit from fewer of its people working in Chile. economy benefits from its people working in Chile, award a
maximum of 3 marks.
• wages may be low in Chile (1) work involves
unskilled labour (1)
• employment may be rising in Haiti (1) the country
could keep more of its skilled workers (1)
• larger labour force / more workers (1) higher total
demand (1) increase GDP / increase economic
growth / increase productive potential (1) increase
living standards (1) increase exports (1)
• rise in the numbers employed in Haiti could
increase tax revenue (1) may enable more
spending on e.g. education (1)
• fewer parents may leave behind dependent
relatives (1) reduce burden on the government (1)
• jobs could be found in other countries (1)
Award up to 4 marks for why it might not:

• wages may be higher in Chile (1) fewer emigrant
workers may send money home (1) living
standards may be lower (1) lower spending (1)
• less money coming into the country (1) may
increase a current account deficit (1)
• job opportunities may be higher in Chile (1)
unemployment may rise in Haiti (1)
• if unemployment rises in Haiti, cost of
unemployment benefits may rise (1) opportunity
cost / higher taxation (1)
• opportunities to gain new skills may be reduced (1)
these skills could be brought back into the country
(1)

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1(h) • may reduce pressure to invest / spend on capital

equipment (1) reduce advances in technology /
reduce increases in efficiency / productivity (1)
• may increase overcrowding / overpopulation (1)
increase external costs / pollution (1) pressure on
resources (1).

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2(a) Identify two basic necessities, other than housing. 2 Accept any relevant basic necessity e.g. heating or electricty.
Two from e.g.: If more than two examples given, only consider the first three.
Food, water, clothing, healthcare and education.
2(b) Explain how frictional unemployment differs from 4 Up to 2 marks for each type of unemployment.
cyclical unemployment.

Frictional unemployment arises from people being in
between jobs (1) may be waiting for a better paid job /
may be seasonally unemployed / may have worked on
a short-term contract / may lack information about
vacancies (1) may exist even when there is full
employment / may be self-correcting (1).
Cyclical unemployment is caused by a lack of total
(aggregate) demand (1) more people unemployed than
there are job vacancies (1) may arise from a recession
/ economic downturn (1) may need government action
to reduce it (1).
Frictional unemployment would be reduced by a rise in
labour mobility (1) cyclical unemployment would not be
(1).
Frictional unemployment may be short term (1) cyclical
unemployment may be long term (1).

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2(c) Analyse why the children of the rich tend to 6 Note the focus here is on the children of the rich so no marks for
become rich adults. e.g. the children of the poor may lack education.
Coherent analysis which might include: Reference to highly skilled / productive or efficient may be linked
The children of the rich tend to receive a good to education, healthcare or nutrition but can only be credited
education (1) may not have to take part-time jobs / not once.
have to help in family business when studying / not
have to leave school early (1) become well qualified /
well educated / gain high level of knowledge (1)
become highly skilled / productive / efficient (1) find it is
relatively easy to find employment / get a good job (1)
well-paid (1).
The children of the rich tend to receive good health
care (1) good nutrition (1) have good housing (1)
unlikely to miss time at school (1) unlikely to miss time
at work (1) income will be high (1).
The children of the rich tend to have high expectations
(1) apply for better jobs (1).
The children of the rich may inherit e.g. property (1)
may gain income from e.g. inherited property /
business / savings (1).
Rich parents may have connections with e.g. bosses of
major employers (1) more likely to gain high paid work
(1).

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2(d) Discuss whether a government should provide 8

subsidies to families to spend on housing.
Why it might: information and clear and logical analysis to
• will increase the spending power of families who evaluate economic issues and situations. One
receive it side of the argument may have more depth
• may increase quantity supplied than the other, but overall both sided of the
• may give low-income families access to a basic argument are considered and developed.
necessity, reducing poverty There is thoughtful evaluation of economic
• may enable families to spend more on e.g. concepts, terminology, information and/or data
education appropriate to the question. The discussion
• may increase employment / reduce may also point out the possible uncertainties
unemployment, creating jobs building housing / of alternative decisions and outcomes.
increase labour mobility
• may increase quality of housing and so improve 2 A reasoned discussion which makes use of 3–5
health economic information and clear analysis to
evaluate economic issues and situations. The
Why it might not: answer may lack some depth and
• rich can already afford housing development may be one-sided. There is
• some families may not spend it on housing relevant use of economic concepts,
• may be inflationary, demand increasing for terminology, information and data appropriate
housing and e.g. furniture, carpets to the question.
• opportunity cost
• taxes may be raised to finance subsidy 1 There is a simple attempt at u sing economic 1–2
• building more houses may result in environmental definitions and terminology. Some reference
damage may be made to economic theory, with

creditable content.

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3(a) Define enterprise. 2
Risk bearing (1) setting up / owning a business (1) key

decision making / organisation of the other factors of
production (1) profit incentive / profit is the reward (1).
3(b) Explain the influence of opportunity cost on 4

consumers’ decisions.

Opportunity cost is the (next) best alternative (1)
forgone / sacrificed (1).
Consumers have limited income / time (1) have to
make choices (1) cannot have everything they want (1)
if buy more of one product may have to buy less of
another / example of what product may be given up to
buy another product (1).

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3(c) Analyse why a firm may become more capital- 6

intensive.

The cost of capital may fall / the price of labour may
rise (1) lowering costs of production (1) making the firm
more price-competitive (1) may increase profits (1).
Advances in technology (1) may improve the quality of
capital (1) making it more productive / efficient (1) may
increase the quality of products produced (1) raise
demand for the products produced (1).
Firms may want to reduce human error / more
consistent quality / uniform products (1) reduce
wastage (1).
Firms may want to avoid disruption to production (1)
caused by industrial action / strikes / sickness (1)
capital equipment does not need to take breaks / can
work 24 hours a day (1).
There may be a shortage of labour (1) making it difficult
to recruit workers (1).
A government may reduce taxes on capital goods (1)
provide subsidies (1) the rate of interest may be
reduced (1) making capital goods more affordable (1).
The firm’s output may rise (1) reducing the average
fixed cost of capital / benefiting from economies of
scale (1).

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3(d) Discuss whether inflation harms a country’s 8

industries.
Why it might: information and clear and logical analysis to
• may increase costs of production evaluate economic issues and situations. One
• may reduce competitiveness, lowering sales at side of the argument may have more depth
home and abroad than the other, but overall both sided of the
• may upset industrial relations, workers pressing for argument are considered and developed.
wage rises There is thoughtful evaluation of economic
• may make it difficult to plan concepts, terminology, information and/or data
• may discourage savings which can reduce funds appropriate to the question. The discussion
available for investment may also point out the possible uncertainties
• corporation tax may be moved into a higher tax of alternative decisions and outcomes.
bracket
• may be menu costs / shoe leather costs 2 A reasoned discussion which makes use of 3–5
economic information and clear analysis to
Why it might not: evaluate economic issues and situations. The
• may be demand-pull inflation with demand for the answer may lack some depth and
firm’s products increasing development may be one-sided. There is
• may be low and stable relevant use of economic concepts,
• may enable a firm to reduce the real cost of any terminology, information and data appropriate
debt to the question.
• may enable the firm to cut the real cost of wages
• may be lower than other countries’ inflation rates 1 There is a simple attempt at using economic 1–2
definitions and terminology. Some reference
• may not be foreign substitutes
may be made to economic theory, with
• some industries may have inelastic demand

creditable content.

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4(a) Define birth rate. 2 Not sufficient to have just number of births.
The number of births per thousand of the population (1)

in a year (1) live births (1)
4(b) Explain two causes of an increase in the quality of 4 One mark each for each of two causes identified and one mark
labour in a country. each for each of two explanations.

Improvements in education (1) qualifications /
knowledge (1).
Improvements in training (1) increasing skills (1).
Improvements in healthcare (1) making workers
physically/mentally stronger (1).
Increases in pay (1) raising motivation (1).
Improvements in nutrition (1) enabling workers to work
harder / concentrate more (1).
Reduction in working hours / length of working day (1)
keeping workers fresher / enabling them to concentrate
more (1).
Improvements in working conditions (1) raising
motivation / enabling workers to work harder /
concentrate more (1)
Immigration (1) of skilled workers (1).
Experience (1) becoming more familiar with tasks (1).
Specialisation (1) become more familiar with one task /
‘practice makes perfect’ (1).

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4(c) Analyse how a rise in the interest rate could cause 6

a recession.

A higher interest rate would increase the cost of
borrowing (1) reduce borrowing (1) reduce the
spending power of people who have borrowed in the
past (1) increase saving (1) consumer expenditure /
spending may fall (1) investment may fall / may
discourage MNCs (1) unemployment may increase /
employment may fall (1) total demand may fall (1) the
output of goods and services / GDP may fall (1) if
output falls over a period of two quarters / six months
there will be a recession (1).
A higher interest rate may encourage more people to
buy the currency (1) to put money into the country’s
financial institutions (1) raising the value of the foreign
exchange rate (1) raising the price of exports (1)
lowering demand for exports (1) reducing the price of
imports (1) increasing demand for imports (1).

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4(d) Discuss whether or not MNCs improve the 8 Help avoid a recession = one relevant identification.
economic performance of the host countries in
which they operate.
In assessing each answer, use the table opposite. 3 A reasoned discussion which accurately 6–8
Why they might: argument, making use of economic
• may bring in new technology and methods of information and clear and logical analysis to
production, increasing economic growth evaluate economic issues and situations. One
• may create new jobs, may reduce unemployment side of the argument may have more depth
• may add to exports, reducing a current account than the other, but overall both sides of the
deficit / increasing a current account surplus argument are considered and developed.
• may create more competition / have greater There is thoughtful evaluation of economic
efficiency, lowering inflation concepts, terminology, information and/or data
• may increase tax revenue, enabling the appropriate to the question. The discussion
government to spend more on e.g. education and may also point out the possible uncertainties
healthcare of alternative decisions and outcomes.
Why they might not: 2 A reasoned discussion which makes use of 3–5
• may drive out domestic producers, leaving the economic information and clear analysis to
country’s output unchanged evaluate economic issues and situations. The
• may employ workers from their home country answer may lack some depth and
• may import capital equipment and raw materials development may be one-sided. There is
from their home countries relevant use of economic concepts,
• may deplete non-renewable resources, reducing terminology, information and data appropriate
sustainable economic growth to the question.
• may provide only low-skilled, low-paid jobs to
locals 1 There is a simple attempt at using economic 1–2
• send profits back to home country definitions and terminology. Some reference
• may cause external costs e.g. pollution may be made to economic theory, with

creditable content.

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5(a) Identify two functions of money. 2 Note: a description of the function gets the mark e.g. money can
be used to buy and sell products, may be used to trade.
Two from:
Medium of exchange, store of value, standard of Nothing for characteristics of money,
deferred payments, unit of account / measure of value.
5(b) Explain two reasons why commercial banks may 4 One mark each for each of two reasons identified and one mark
want to merge. each for each of two explanations.
Logical explanation which might include: Nothing for increase revenue.

Greater market power/share (1) eliminating a
competitor / providing a greater range of services (1).
More opportunity to take advantage of economies of
scale (1) lower costs of production / higher profit /
example e.g. share ATMs (1).
May enable the merged bank to operate in more than
one country / become a multinational company (1)
access to new market (1).
Become better known (1) large banks may be more
likely to have a brand image (1).
May enable rationalisation (1) eliminate duplication /
rase efficiency (1).
Survival (1) may have been loss making / at risk of
going out of business (1).

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5(c) Analyse how a fall in a country’s foreign exchange 6

rate could increase employment.
A fall in a country’s foreign exchange rate will lower the

price of exports (1) raise the price of imports (1) make
domestically produced products more price competitive
(1) reduce demand for imports (1) increase demand for
exports (1) increase total demand (1) raise firms’
revenue and/or profits (1) encourage firms to increase
output (1) take on more workers (1).

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5(d) Discuss whether or not it is an advantage to keep a 8 Accept an answer based on the advantages that large firms have
firm small. over small firms.

Why it might: 3 A reasoned discussion which accurately 6–8
• flexible, less people to consult, more in touch with examines both sides of the economic
consumers argument, making use of economic
• may be able to provide more personal attention information and clear and logical analysis to
• may receive government subsidies evaluate economic issues and situations. One
• may be able to concentrate on a niche market side of the argument may have more depth
• may have good labour relations than the other, but overall both sides of the
• may avoid diseconomies of scale argument are considered and developed.
There is thoughtful evaluation of economic
Why it might not: appropriate to the question. The discussion
• may not be able to take advantage of economies may also point out the possible uncertainties
of scale of alternative decisions and outcomes.
• may be driven out of business by larger
competitors 2 A reasoned discussion which makes use of 3–5
• may be difficult to raise finance economic information and clear analysis to
• risk of being taken over by a larger firm evaluate economic issues and situations. The
• may have difficulty recruiting highly skilled workers answer may lack some depth and
• may not have the resources to survive a fall in development may be one-sided. There is
demand relevant use of economic concepts,
terminology, information and data appropriate
to the question.
1 There is a simple attempt at using economic 1–2

definitions and terminology. Some reference
may be made to economic theory, with

creditable content.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the March 2021 series for most Cambridge

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marking principles.
descriptors.

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shows confusion.
wrongly.)


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for each answer
stages.
4 Annotation:

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1 Make sure that you have completed the relevant training and have access to the RM Assessor Guide.
2 Make sure that you have read and understand the question paper, which you can download from https://support.rm.com/ca
3 Log in to RM Assessor then mark and submit the required number of practice and standardisation scripts. You will need to mark the
standardisation scripts to the required accuracy in order to be approved for marking live scripts. You may be asked to re-mark them, or to mark
a second sample, if you do not meet the required accuracy on your first attempt.
MARKING PROCESS
1 Mark strictly to the FINAL mark scheme, applying the criteria consistently and the general marking principles outlined on the previous page.
3 Mark at a steady rate through the marking period. Do not rush, and do not leave too much until the end. If you anticipate a problem in meeting
the deadline, contact your Team Leader immediately and the Examiners’ Helpdesk.
4 Examiners will prepare a brief report on the performance of candidates to send to their Team Leader via email by the end of the marking
period. The Examiner should note strengths seen in answers and common errors or weaknesses. Constructive comments on the question
paper, mark scheme or procedures are also appreciated.
MARKING SPECIFICS
Crossed out work
2 The only response not to be marked is one that has been crossed out and replaced by another response for that exact same question.
3 Consequently, if a candidate has crossed out their response to an optional question and gone on to answer a different optional question then
both attempts must be marked. The higher mark will be awarded by the system according to the rubric.

1 Award NR if there is nothing at all written in answer to that question (often the case for optional questions).
2 Award NR if there is a comment which is not an attempt at the question (e.g. ‘can’t do it’ or ‘don’t know’ etc.)
3 Award NR if there is a symbol which is not an attempt at the question, such as a dash or question mark.
4 Award 0 (zero) if there is any attempt at the question which does not score marks. This includes copying the question onto an Answer
Booklet.
Annotation
1 Every question must have at least one annotation e.g. <NAQ> if it is an NR and <X> or <seen> if 0 marks are awarded.
2 Every mark awarded for a question (as shown in the mark input box to the right of the screen) must be indicated by a correctly
positioned tick on the script. The number in the box below the tick annotation must be equal to the mark awarded in the input box.

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1(a) Calculate the number of Germans aged over 65 in 2017. 1 Accept 17.8 m and 18 m.
17.82m / 17 820 000 (1).
1(b) Identify two measures of living standards. 2 If more than two are given, consider the first two.
Two from:
• GDP per head / average income
• HDI
• quality of education / education
1(c) Explain one cause of globalisation. 2 One mark for the cause identified and one mark for the
explanation.
Fall in transport costs (1) reducing costs of exporting and
importing / increasing international trade (1).
Improvement in communications (1) due to advances in
technology / increasing growth in MNCs / encouraging
consumers to buy from other countries / enabling branches in
different countries to keep in touch (1).
1(d) Explain two advantages of an increase in the 4 One mark each for each of two advantages identified and one
occupational mobility of labour. mark each for each of two explanations.
Logical explanation which might include: Do not credit ‘more skilled’ more than once.
Lower unemployment / increase employment (1) workers
losing one job will find another job more quickly / find another
job more easily / maybe more skilled / reduce frictional
unemployment / reduce structural unemployment (1).
Higher output / higher GDP / economic growth (1) firms
experiencing higher demand will be able to expand more
quickly / more elastic supply / quicker adjustment to changes
in market conditions / workers may be able to multitask /
change roles / may be more skilled / fewer unfilled vacancies
/ greater use of resources / fewer idle resources (1).

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1(e) Analyse why the price of German luxury cars may have 4
increased in 2018.

Increase in demand (1) rise in incomes (1) people buy more
luxury cars as they get richer / luxury cars become more
affordable (1). rise in price of US luxury cars (1) these are
substitutes to German luxury cars (1). Fall in the price of
petrol / gas (1) petrol / gas is a complement to cars (1) firms
can raise revenue / profits by increasing price (1).
Decrease in supply (1) rise in wages (1) increasing costs of
production (1).

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1(f) Analyse whether the strength of German trade unions 5

increased from 2013–2016.
Overview
Trade union membership fell (1) unemployment fell and / or
wages rose (1).
Analysis of why trade union strength may have fallen

Trade union members represented a smaller proportion of
labour force / proportion fell from 42.7% to 39.3% / number of
members fell by approx. 5.6% (1).
Fewer members so funds of / subscriptions to trade unions
may have fallen (1) reduces ability to take industrial action /
reduces collective bargaining strength (1).
Lower unemployment / higher wages may mean workers feel
less need to join a union (1).
Analysis of why trade union strength may have increased

Lower unemployment / higher wages may be the result of
successful collective bargaining (1) firms would have found it
more difficult to replace members asking for better wages /
better working conditions / firms may be reluctant to dismiss
staff (1) industrial action would have more effect / collective
bargaining power may be stronger (1).
Output / profits / demand for products may have increased (1)
Comments.
Other factors may have influenced trade union power e.g.
government trade union legislation (1).
Other factors may have influenced wages / unemployment
e.g. national minimum wage / higher output /more skilled
labour force (1).

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1(g) Discuss whether or not an ageing labour force will 6 Apply this example to all questions with the command
reduce productivity. word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Award up to 4 marks for why it might: Each point may be credited only once, on either side of an
• May discourage investment (1) workers will have argument, but separate development as to how/why the
less capital equipment to work with (1). outcome may differ is rewarded.
• Older workers may find it more difficult to adapt to
new technology (1) may resist change (1) there may Generic example Mark
not be the time to train them (1) may be less mobile
(1). Tax revenue may decrease… 1
• Older workers may be less fit (1) less able to do
manual work (1) may have time off sick (1) may have ...because of reason e.g. incomes may be lower. 1
less energy / get tired (1) work slower (1).
Tax revenue may increase because incomes may 0
Award up to 4 marks for why it might not: be higher i.e. reverse of a previous argument.
• May encourage investment because of shortage of
workers / desire to rely less on labour / help workers Tax revenue may increase because of a different 1
(1). reason i.e. not the reverse of a previous argument
• Older workers may have more experience (1) built e.g. government spending on subsidies may
up more skills / qualifications (1) may need less stimulate the economy more than spending on
training / have received more training (1) may train education.
young workers (1) make fewer mistakes / produce
better quality output (1).
• May be more reliable (1) e.g. better punctuality (1).
• May stay with the employer longer / lower rate of
labour turnover (1).

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1(h) Discuss whether or not immigration will increase a 6 Increase in the size of the labour force linked to why it might.
country’s budget surplus.
Award up to 4 marks for reasons why it might:

• May increase size of the labour force (1) quality of
the labour force may rise (1) employment may rise
(1) more people with incomes (1) higher tax revenue
(1) more income tax / direct tax revenue (1) more
spending / higher total demand (1) more indirect tax
revenue (1) higher profits may increase corporate
tax revenue (1).
Award up to 4 marks for reasons why it might not:

• Some immigrants may be dependents (1) some may
be unemployed (1) increase government spending
on state benefits / unemployment benefits (1)
pensions (1).
• The government may have to spend more on
education (1) healthcare (1) housing / infrastructure
(1).
• Labour force / population may not increase if
matched by emigration (1),
• Larger population size may result in the government
having to spend more on measures to reduce
pollution (1).

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2(a) Define economic growth. 2 Allow one mark for higher income / average income / GDP
per head.
An increase in the country’s / economy’s output (2).
An increase in real (1) GDP (1) over time (1).
An increase in output (1).
An increase in a country’s / economy’s productive capacity
(2).
An increase in productive potential (1).
2(b) Explain the possible opportunity cost to India of 4

exporting more textiles.

Opportunity cost is the (next) best alternative (1) forgone (1).
Textiles that have been exported might have been sold on the
home market (1) may have increased choice (1) lowered
price (1).
Resources may have been moved to producing the textile
exports / resources used to produce textiles could have been
used to produce other products (1) output / exports of other
products may have been reduced (1) these products may
provide more revenue / lose revenue from not exporting these
products (1).

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2(c) Analyse how higher government spending could 6 A maximum of 3 marks for a list-like approach.
increase economic growth.
Higher government spending can increase total (aggregate)

demand / government spending is a component of GDP (1).
Higher government spending on education and training /
healthcare / infrastructure (1) can raise productivity / skills /
efficiency / quality of labour (1) attract MNCs (1) increase
productive potential (1) lower costs of production (1) increase
employment / reduce unemployment (1) lower prices (1)
increase output (1) increase exports (1).
Government spending on benefits (1) will increase
purchasing power of the poor (1) raising consumer
expenditure (1).
Increased government subsidies (1) could reduce costs of
production (1) increase investment (1) increase profits (1)
provide an incentive for firms to produce more (1).

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2(d) Discuss whether or not a government can reduce 8

unemployment without increasing inflation. Level Description Marks

Why it might:
• workers who have been unemployed for some time
to evaluate economic issues and
may accept jobs without a rise in wages
situations. One side of the argument may
• government spending on education and training may have more depth than the other, but
increase both total (aggregate) demand and total overall both sides of the argument are
(aggregate) supply / may reduce costs of production considered and developed. There is
• government subsidies may encourage firms to thoughtful evaluation of economic
produce more and take on more workers and lower concepts, terminology, information and/or
prices data appropriate to the question. The
• tax revenue may be raised to finance any increase in discussion may also point out the
government spending possible uncertainties of alternative
• government may reduce trade union power which decisions and outcomes.
could encourage employers to take on more workers
2 A reasoned discussion which makes use 3–5
Why it might not: of economic information and clear
• may increase total (aggregate) demand causing analysis to evaluate economic issues
demand-pull inflation and situations. The answer may lack
• inflation more likely to occur if economy is initially some depth and development may be
close to full employment one-sided. There is relevant use of
• may increase wages and costs of production, economic concepts, terminology,
causing cost-push inflation information and data appropriate to the
• cuts in taxes may not lead to higher consumer question.
expenditure and investment if there is a lack of
confidence
• government may instruct central bank to lower
foreign exchange rate which could increase price of
imports

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2(d) Example of L3 Answer

Yes, a government can reduce unemployment without Level Description Marks
increasing inflation. If the government spends money on
training and education more people would be skilled enough
to do jobs and firms would hire more people due to the return
from greater productivity. This would also increase the
productive potential of the economy as it would enable firms
understanding.
to produce more goods per worker. Hence unemployment
could reduce without inflation as it would be accompanied
with an increase in the productive potential of the economy
creditable content.
and greater output. Also, if there is spare capacity in the
economy due to under-utilisation of resources, the increased
income due to lower unemployment would not lead to inflation
as there would be room for better, more efficient utilisation of
resources. Hence a rise in the price level can be avoided by
greater productive potential.
However, if the economy is operating close to full capacity, a
reduction in unemployment could cause inflation if the rise in
income and the money supply rise is greater than the
increase in productive potential, Government spending to
reduce unemployment might cause a much greater rise in
total demand. This could lead to demand-pull inflation. It may
also lead to cost-push inflation if the unemployment rate is so
low firms have to compete for workers leading to a wage-
price spiral. Workers tend to take up a greater proportion of
costs of firms. Hence scarcity of workers could cause the
costs of firms to greatly increase and so the total supply
would reduce leading to cost-push inflation.

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2(d) Example of an L2 answer

Yes, the government can reduce unemployment without
increasing inflation by using supply-side policy measure. This
includes providing education and training to workers. Due to
this the efficiency of workers who will be able to produce
better quality goods in large amount reducing the average
costs to the firm. This will also help in reducing the selling
price or keeping it the same which might not cause inflation.
Although if using measures like expansionary fiscal or
monetary policy will raise the demand for workers, offering
them higher wages could add to firms’ average cost hence
selling price might increase, causing inflation. Also, by using
supply-side policy measure the improved skills and
productivity will want them to charge higher wages to hire
them. This will increase the average cost and the selling price
of the firm, causing inflation.
Example of an L1 answer
Yes government can reduce unemployment without
increasing inflation by attracting more MNCs. By keeping
policies such as this, the amount of people you have to
employ is increased. By providing subsidy of jobs, providing
financial help to firms which are in a loss so that they can
reduce the chances of increasing the rate of inflation when
employing more workers.

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3(a) Identify one difference between land and labour. 2 For human resource / people not accepting workers.
Land is a natural resource (1) labour is a human resource / Accept raw materials for natural resource,
people (1).
Reward for land is rent (1) reward for labour is wages (1).
Land is likely to be more geographically immobile than labour
(2).
Land may be more occupationally mobile than labour (2).
Land may be in more fixed supply / scarcer than labour (2).
3(b) Explain two reasons why demand for a product may be 4 One mark each for each of two reasons identified and one
price-inelastic. mark each for each of two explanations.

Lack of close substitutes (1) not able to switch to other
products if the price of the product rises (1).
A necessity (1) difficult to do without (1).
Takes up a small part of income (1) change in price will not
be significant (1).
Addictive (1) people find it difficult to stop consuming it (1).
New trend (1) brand loyalty being enforced by advertising (1).
Time / short period of time (1) may take time to find an
alternative (1).

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3(c) Analyse why households in one country may borrow 6 Accept an approach that analyses why households in the
more than households in another country. other country borrow less.
Coherent analysis which might include: A maximum of 3 marks for a list-like approach.
A lower interest rate (1) reduces the cost of borrowing (1). This might be in the form of e.g. lower, interest rate, more
Financial institutions may have more funds available to lend confidence and more culturally acceptable to borrow.
in one country (1) making it easier to borrow (1). Or
Households / financial institutions may be more confident that In the form of e.g. difference in interest rates, differences in
they can repay (1) employment / income may be rising in one confidence, differences in cultural acceptability of borrowing.
country (1).
Borrowing may be more socially acceptable in one country (1)
people may not mind getting into debt (1).
Younger households (1) may be less worried about debt (1).
Rise in unemployment / fall in GDP / recession in one country
/ lower income (1) may result in borrowing to buy basic
necessities (1).
Inflation (1) borrowers will gain if the rate is higher than the
rate of interest (1).

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3(d) Discuss whether or not a government should encourage 8

more people to cycle. Level Description Marks

Why it should:
• reduce external costs
• improve the environment situations. One side of the argument may
• improve people’s health have more depth than the other, but
• reduce traffic congestion overall both sides of the argument are
• may reduce need to import petrol considered and developed. There is
thoughtful evaluation of economic
Why it should not: concepts, terminology, information and/or
• may involve costs e.g. building cycle paths data appropriate to the question. The
• may result in unemployment in car industry discussion may also point out the
• may lead to more imports of bicycles possible uncertainties of alternative
• market forces will result in the most efficient decisions and outcomes.
allocation of resources
2 A reasoned discussion which makes use 3–5
Example of an L3 answer of economic information and clear
External benefits are benefits enjoyed by the third party who analysis to evaluate economic issues
are neither involved in production or consumption of goods and situations. The answer may lack
and services. The private benefit of cycling, enjoyed by some depth and development may be
cyclists, is their fitness will increase. But government can one-sided. There is relevant use of
enjoy a more healthy labour force which means it can result economic concepts, terminology,
in better quality of goods and services, which can be exported information and data appropriate to the
to increase export revenue. Moreover, cycling increases question.
fitness, which could also mean that the government will not
have to spend more on healthcare. This finance can be used
somewhere else, like infrastructure. Lastly, increased cycling
would mean that pollution levels will decrease, which not only
promotes sustainability, but also reduces external costs such
as traffic and noise.

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3(d) However. If cycling is promoted, the government will have to

build cycling parks and parking, increasing the costs and Level Description Marks
opportunity cost as same money could be used for retraining
and reskilling. In addition, if the land is used for cycling parks,
opportunity cost will be high as land is scarce, and it could be
used for housing. Finally, since cycles are 2-wheelers, they
are less safe than cars. So, chances of accidents rises. This
understanding.
means the government will have to spend more on
healthcare, which can reduce a budget surplus. Less cars
may be bought and lower car production could increase
creditable content.
unemployment.
If people in Netherlands buy cycles to commute, external
costs such as pollution will be lower which means people will
fall less ill and less money will be needed for healthcare.
Lower pollution in a country means that tourists might also be
attracted. If more people bought cycles in a country like
Netherlands there will be less congestion on roads which
might improve productivity.
However, if the government does encourage cycling, it means
that they will also have to spend building leisure parks and
bike paths across the country which might outweigh costs
such as pollution. Sale of low-priced cycles means that the
government might also generate less indirect tax e.g. VAT,
decreasing the surplus of the government.
They should as cars are polluting the world. If people are
riding bikes it is good for their health and there will be fewer
accidents and they will lose weight. But the government will
have to build cycle parks and this will cost money.

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4(a) Identify two qualities of a good tax. 2
Two from:
• certainty / easy to understand / people know how
much to pay
• convenience / easy to pay
• economy / cheap to collect
• efficiency / not harm performance of markets
• equity / fair / based on ability to pay
• flexibility / easy to change
4(b) Explain two reasons why governments tax cigarettes. 4 One mark each for each of two reasons identified and one
mark each for each of two explanations.
To raise revenue (1) demand for cigarettes is price-inelastic /
smoking is addictive / to spend on e.g. education (1).
To discourage consumption / to discourage production (1)
they are a demerit good / cigarettes are more harmful than
smokers realise / they cause health problems (1).
To reduce external costs / they create external costs (1)
impose a cost on third parties / cause pollution / health
problems for non-smokers (1).
To improve the current account position (1) cigarettes may be
imported (1).

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4(c) Analyse how a central bank could reduce inflation. 6 Accept but do not expect reference to increasing reserve /
liquidity ratio (1).
A central bank could use contractionary monetary policy (1). Maximum of 3 marks for a list-like approach.
A central bank could increase the rate of interest (1) increase
saving (1) reduce borrowing (1) reduce consumer
expenditure (1) reduce total (aggregate) demand (1) reduce
demand-pull inflation (1).
A central bank could reduce the money supply (1) print less
money / sell government bonds (1) restrict bank lending (1)
fewer loans may reduce investment (1) reduce consumer
expenditure (1).
Raising the exchange rate (1) may reduce the price of
imports (1) lowering cost-push inflation (1).
One effect of a lower interest rate might be to lower costs of
production (1) reduce cost-push inflation (1).

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4(d) Discuss whether or not an increase in government 8

subsidies will reduce a deficit on the current account of Level Description Marks
the balance of payments.
Why it might:
• reduce costs of production
• lower prices, making products more internationally have more depth than the other, but
competitive overall both sides of the argument are
• export revenue may rise considered and developed. There is
• import expenditure may fall thoughtful evaluation of economic
concepts, terminology, information and/or
Why it might not: data appropriate to the question. The
• firms may not lower prices discussion may also point out the
• firms may be encouraged to be inefficient possible uncertainties of alternative
• demand for exports may not rise if quality is poor decisions and outcomes.
• demand for exports and imports may be price-
inelastic 2 A reasoned discussion which makes use 3–5
• other countries may retaliate by imposing trade of economic information and clear
restrictions / giving subsidies analysis to evaluate economic issues
• subsidies to consumers can increase demand for and situations. The answer may lack
imports and divert exports to the home market some depth and development may be
• subsidies to producers may increase demand for one-sided. There is relevant use of
imports of raw materials and capital goods economic concepts, terminology,
Example of an L3 answer question.
An increase in government subsidies would reduce a deficit in
the current account of the balance of payments as domestic
firms could use the subsidy to lower the price of its goods,
improve quality and hence make its products more
internationally competitive. This would increase exports of the
country’s products. It would also reduce imports as citizens
would substitute the imported products with the more
competitive domestically made goods.

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4(d) The increased government subsidies may also allow firms to

make more profits and households to save more. The profits Level Description Marks
and extra savings may be invested abroad. This would
increase the primary income on return on investments would
come from abroad back to the home country. This would also
reduce a current account deficit.
On the other hand, government subsidies may not reduce the
understanding.
current account deficit if domestic industries become
dependent on them and don’t actually improve their methods
of production and lower costs. This would not make their
creditable content.
products more internationally competitive and demand for
exports would not increase. It may not also improve the deficit
in the short run if firms use the subsidies to import raw
materials and capital goods from abroad. However, on the
long run it would lead to better products and lower pricing,
making the products of domestic firms more internationally
competitive.
Current account deficit means import expenditure is more
than export revenue. This happens when export prices are
higher than import prices. Providing subsidies to producers
can cause them to lower prices and export more. It can also
increase firms’ confidence and they may invest more.
However, sometimes subsidy may increase imports. A
subsidy may make firms more inefficient and produce lower
quality products. The subsidy may also be given to firms
making products not in demand and so the firms will not have
the potential to grow.
Government subsidy refers to an incentive provided by the
government to producers. Governments can reduce deficit on
the current account of the balance of payments by increasing
the total supply, it will also result in an increase in GDP and
promote economic growth.

PUBLISHED
5(a) Define a mixed economic system. 2
One with a public / government sector (1) and a private sector

/ use of market forces (1)
One which makes use of the price mechanism (1) and
government directives (1).
5(b) Explain the difference between a point inside a PPC and 4 Maximum of 2 marks for point inside and a maximum of 2
a point outside a PPC marks for point outside.

A point inside indicates unemployed resources (1) inefficient
use of resources / wasted resources (1) output is below
potential output (1) an attainable point (1).
A point outside is unattainable (1) not enough resources /
beyond productive potential / only achievable with more
resources / only achievable with better quality resources / not
achievable with current resources / will be possible with future

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5(c) Analyse why an actor may decide to become a teacher. 6 Maximum of 3 marks for a list-like approach.

Wage rate may be higher (1) enable more goods and
services to be purchased (1) higher living standards (1)
demand for teachers may increase (1).
Greater job security (1) actors often experience
frictional/casual unemployment (1).
More sociable/convenient working hours (1) may fit in more
with having children (1) teachers may also enjoy longer
holidays (1).
Working conditions may be better (1) may be a safer
environment (1) may have better pensions (1).
May find they are better qualified / suited to be a teacher (1)
more likely to be successful in the career (1).
May gain more job satisfaction (1) enjoy helping children
learn (1).

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5(d) Discuss whether all monopolies have low costs of 8

production. Level Description Marks

Why some have:
• may earn high profits and so may have incentive to
reinvest
• may be small e.g. a local monopoly / low total costs have more depth than the other, but
• may be large and so may experience economies of overall both sides of the argument are
scale considered and developed. There is
• state-owned monopolies may be subsidised thoughtful evaluation of economic
concepts, terminology, information and/or
Why some do not: data appropriate to the question. The
• lack of competition may reduce pressure to keep discussion may also point out the
costs low possible uncertainties of alternative
• may be small so do not benefit from economies of decisions and outcomes.
scale
• may be large so experience diseconomies of scale / 2 A reasoned discussion which makes use 3–5
high average costs of economic information and clear
• may be producing in a country with a high inflation analysis to evaluate economic issues
rate and situations. The answer may lack
some depth and development may be
Example of an L3 answer one-sided. There is relevant use of
Monopolies are firms that dominate the market for a particular economic concepts, terminology,
product. They supply 100% of the market and usually there information and data appropriate to the
are no substitutes to the product it supplies. There is no question.
competition for a monopoly.
A monopoly may not have a low cost of production as it may
allocate resources inefficiently. Monopolies do have any
competition as they may simply produce low quality products
and earn large profits without working hard to lower costs of
production.

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5(d) A monopoly will usually require a large scale of production to

operate and may soon grow too large and face diseconomies Level Description Marks
of scale. It may have supply constraints pushing up the cost
of production. It may be subject to labour diseconomies as
the workers feel alienated in such a large enterprise leading
to extra cost of labour disputes. All this could promote
increased costs of production. Furthermore, governments
understanding.
may implement regulations that the monopoly must rigidly
follow increasing the cost of production at each step.
However, monopolies may be able to maintain a low cost of
creditable content.
production as it grows. It can benefit from economies of
scale. The advertising cost will be spread over a large base,
lowering costs. Banks will provide loans easily due to
available collateral and suppliers will also reduce costs as
they can deliver bulk orders lowering their transport costs.
These internal economies of scale help monopolies keep low
costs of production.
Monopolies may invent new production methods,
technologies and invest in R & D to keep their costs low to
compete with international firms. They may also try to be
efficient if there are high fines or high taxes in the economy.
Example of L2 answer
Monopolies might have low cost of production since the
benefit from greater economies of scale such as purchasing
economies which means buying in bulk and receiving
discounts from the supplier. Another economies of scale
could be technical economies which is investing with more
capital goods, increasing the productive capacity and
reducing average cost.

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5(d) Although having higher economies of scale, there may be

diseconomies of scale like managerial diseconomies, which
means firms having problems in management of the
company, which means firms having problems in
management of the company, this will reduce productivity and
hence increasing cost of production. Another diseconomy
could be communication problems which might occur
between the entrepreneur, the workers and the managers.
Monopolies are single firms where they don’t have any other
competitors. They might lose money often because it is very
tough job to run a monopoly company. They could have low
cost of production because if they produce more the price
might be the same but if the consumers doesn’t want the
products would go to waste.

Cambridge IGCSE™
ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
components.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED


shows confusion.
wrongly.)


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for each answer
stages.
4 Annotation:

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Uncertain what the candidate means – Maximum mark on one side.

an illogical line of thought
Benefit of the doubt NAQ
Blank page Not established – a statement made without any support
Caret – a word is missing. Repetition
Confused SEEN
Cross Tick – a credit worthy point
Nothing creditworthy Too vague

L
Level 1
Level 2
Level 3

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1(a) Calculate the number of obese people in the UK in 2016. 1 Accept 18 million.
18.2 million/18 200 000/18.2 × 106
1(b) Identify two reasons why the demand for vegan food has 2 One mark each for each of two reasons.
increased in the UK.
Two from:
• (concerns about) health
• (concerns about) obesity
• (compassion for) animal welfare
• rise in income/getting richer/higher standard of living
• advertising of vegan products
• less consumption of meat
1(c) Explain one external benefit that may arise from eating 2 One mark for the external benefit identified and one mark
less meat. for the explanation.
Healthy/less obese people (1) are more productive/higher

output/live longer/government can spend more on education
and raise skills (1).
Improved environment/air/water quality (1) less greenhouse

gases/pollution/people sick (1).

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1(d) Explain how food consumption in Senegal differed from 4 Accept a response from the viewpoint of the US e.g. US
the US in 2015. citizens ate more meat.
Senegalese citizens consumed fewer calories (1) consumed

less than the recommended amount/US consumed more than
the recommended amount (1).
Senegalese may have suffered malnourishment (1) US may

have suffered from obesity (1).
Senegalese had a healthier diet (1) e.g. more fruit and

vegetables (1).
A higher proportion of the Senegalese diet consisted of

cereals/grains (1) because it was cheap (1).
Senegalese citizens consumed less meat (1) because it was

expensive/low incomes (1).
Senegalese citizens consumed less sugar and/or sweeteners

(1).
Senegalese consumed a higher proportion of fruit and/or

vegetables (1).
Senegalese consumed less added fats and/or oils (1).

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1(e) Analyse how an increase in labour mobility could 4

improve the performance of a country’s trade in goods.
Labour markets will become more efficient (1) workers

become more skilled (1) workers will move more easily
between industries/become more occupationally
mobile/respond quickly to changes in demand (1).
Workers can move more easily from one place to

another/become more geographically mobile (1).
If demand for a product rises (1) it will be easier to recruit new

workers/fill vacancies (1) more can be produced/supplied (1)
less need for imports (1) import expenditure could fall (1)
more can be exported (1) export revenue could rise (1).

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1(f) Analyse how an increase in meat consumption could 5

benefit African economies.
May reduce malnutrition/make people healthier (1) make

workers more productive/efficient (1) improve quantity/quality
of output (1) lower costs of production (1) more competitive
internationally (1) exports increase/imports reduce (1)
Increase demand for vets and transport firms (1) increase

number of meat processing firms (1) greater investment by
firms (1) will increase output (1) raise employment (1) raise
incomes/standard of living (1).
Reduces government spending on health care (1) can spend

more on education/unemployment benefits/infrastructure
increasing skill levels/productivity (1).

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1(g) Discuss whether or not an increase in Senegalese 6 Apply this example to all questions with the command
government spending will stop the country experiencing word DISCUSS
a recession. (1g, 1h, 2d, 3d, 4d and 5d)
Award 1 mark for explanation of recession. Each point may be credited only once, on either side of an
argument, but separate development as to how/why the
Award up to 4 marks for logical reasons for why it might, outcome may differ is rewarded.
Generic example Mar
• Government spending part of total (aggregate) demand k
(1) may increase total (aggregate) demand (1) may offset
fall in consumer expenditure (1) this may encourage Tax revenue may decrease 1
firms to produce more/attract new firms to set up (1)
employ more staff/lower (cyclical) unemployment (1) earn because of reason e.g. incomes may be 1
more income (1) purchase more goods and services (1). lower.
• Government spending on Tax revenue may increase because 0

education/training/healthcare infrastructure (1) improves incomes may be higher i.e. reverse of a
productivity (1) make products more internationally previous argument.
competitive (1) increasing total (aggregate) demand (1)
raising output (1). Tax revenue may increase because of a 1
different reason i.e. not the reverse of a
• Government subsidies (1) will lower costs of production previous argument e.g. government
(1) encouraging firms to produce more (1). spending on subsidies may stimulate the
economy more than spending on education.
Award up to 4 marks for logical reasons for why it might not,
• May not be great enough to offset fall in investment (1)

business confidence may be low (1). firms may not
increase output after being given government subsidies
(1)

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1(g) • Consumer expenditure may fall (1) investment may not

rise (1) exports may fall (1)
• if consumer confidence is low (1).
• May be global recession (1) exports may fall (1).
• If taxes are raised to pay for the increase in government
spending (1) government borrows (1) effect on total
(aggregate) demand may be small (1).
Higher spending on education/health/infrastructure may not

result in increased workforce/greater productivity (1).

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1(h) Discuss whether or not emigration would reduce poverty 6

in Senegal.
Award up to 4 marks for logical reasons for why it might,

• Workers’ remittances may increase/emigrants may send

money home to Senegal (1) working abroad may enable
them to provide more financial support for their families
(1) than working at home (1) if wages are higher abroad
(1)
• Unemployment may fall (1) if potential emigrants could
not gain work at home (1)
• Increase ability of people to gain skills/work experience
(1) increasing their ability to earn more (1) can share
those skills with workers when they return to Senegal (1)
• Emigration may move the country towards the optimum
population (1) if the country lacks resources (1) this could
increase income per head (1) increasing ability to
purchase basic necessities (1)
Award up to 4 marks for logical reasons for why it might

not, which might include:
• Skilled workers may leave the country (1) reducing

output (1) discouraging MNCs (1) reducing jobs (1)
reducing income (1)
• There will be fewer people to pay taxes (1) lower tax
revenue available to spend to reduce poverty (1) e.g. on
education (1)
• May be more dependents on the government (1) if
parents leave children and elderly relatives behind (1)
• Fewer workers in the population (1) will make it harder to
finance state pensions (1) may reduce income of
pensioners (1)

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2(a) Identify two reasons why a country may have more 2

women than men in its population.
Two from:
• women living longer

• more girls being born
• fewer female emigrants or male immigrants
• more female immigrants or male emigrants
• more men killed in wars
2(b) Explain two advantages of raising the retirement age. 4 One mark each for each of two advantages identified and
one mark each for each of two explanations.
Reduction in pensions paid (1) money could be spent for

other purposes e.g. infrastructure (1).
Increase in size of the labour force/(1) increase in

output/productive potential/GDP/reduction in firms’ wage
costs (1).
Reduction in size of dependency ratio (1) less burden on

working population (1).
Rise in tax revenue/improve budget position (1) government

can spend more on e.g. public sector wages (1).
May increase health of the old (1) work may be mentally

challenging (1).
People can work longer (1) and earn more income/enjoy

higher living standards (1).
Older people have greater skills/more years of training (1)

can raise productivity/pass on skills to younger workers (1).
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2(c) Analyse how the price mechanism answers the three key 6
resource allocation questions.
Definition of price mechanism e.g. where forces of demand

and supply determine the prices of goods and services (1) in
a market economy (1).
What to produce (1) the price mechanism acts a signal/the

price mechanism acts as an incentive on what to produce (1)
rations goods and services (1) price will rise for products in
higher demand (1) encouraging more to be made (1).
How to produce (1) e.g. more labour-intensive/more capital-

intensive methods of production will be used (1) if wages
fall/if cost of capital goods fall (1).
Who to produce for (1) those whose services are most in

demand will have the highest income (1) will be able to buy
the most (1)

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2(d) Discuss whether or not indirect taxation can reduce 8

market failure. Level Description Marks
In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8
Why it might: the economic argument, making
• demerit goods are overconsumed and cause external clear and logical analysis to
costs evaluate economic issues and
• demerit goods and other products causing external costs situations. One side of the
can be taxed argument may have more depth
• indirect taxation on demerit goods can discourage their than the other, but overall, both
consumption sides of the argument are
• merit goods are under-consumed and create external considered and developed. There
benefits is thoughtful evaluation of
• indirect tax revenue can be used to subsidise or produce economic concepts, terminology,
merit goods information and/or data appropriate
• public goods would not be produced by the private sector to the question. The discussion
as they have the characteristics of non-rival and non- may also point out the possible
excludable uncertainties of alternative
• indirect tax revenue can be used to finance the decisions and outcomes.
production of public goods
Why it might not: makes use of economic information
• difficult to measure external costs economic issues and situations.
• demerit goods may be overtaxed, changing from being
overconsumed to being under-consumed
• demand for some demerit goods is price inelastic
• indirect taxes may fall more heavily on the poor
• demand may just shift to imports if other countries do not the question.
impose indirect tax or have lower tax rates
• tax revenue may not be used to promote the
consumption of merit and public goods

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2(d)


3(a) Identify two ways unemployment is measured. 2
• claimant count/claiming benefits

• labour force survey/ILO measure/without a job and
seeking work
• formula for the unemployment rate/number of
unemployed divided by labour force × 100/through the
unemployment rate
• total labour force minus those currently employed
3(b) Explain two ways an increase in wages can cause 4 One mark each for each of two ways identified and one
inflation. mark each for each of two explanations.
Logical explanation which might include: Allow 1 mark if refer to prices rise but no mention of
Increase in wages may increase total (aggregate) demand-pull or cost-push inflation
demand/consumption (1) causing demand-pull inflation (1).
Increase in wages may increase costs of production (1)

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3(c) Analyse, using a production possibility curve (PPC), the 6

opportunity cost to an economy of producing more
consumer goods.
Axes correctly labelled with capital/consumer goods (1).
Curve drawn as a curve/line sloping downward to the axes

(1).
Movement along the curve/along the axes (1).
Reduction in capital goods/increase in consumer goods

shown by numbers or letters or arrows (1).
Opportunity cost is the (next) best alternative forgone (1)

resources used to produce consumer goods cannot be used
to produce capital goods (1).
Producing more consumer goods now may mean fewer

consumer goods in the future (1) as there may be fewer
capital goods to make them (1).

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3(d) Discuss whether or not an increase in foreign MNCs will 8 For level 3, an answer must look at both sides of
reduce a deficit on the current account of the balance of whether a deficit on the current account would be
payments of a host country. reduced.
In assessing each answer, use the table opposite. Level Description Marks
Why it might: 3 A reasoned discussion which 6–8

• MNCs tend to export a relatively high proportion of their the economic argument, making
output use of economic information and
• may produce at a low cost of production/be efficient clear and logical analysis to
• may be internationally competitive evaluate economic issues and
• may produce products that were previously imported situations. One side of the
• may bring in new technology argument may have more depth
than the other, but overall, both
Why it might not: sides of the argument are
considered and developed. There
• may buy raw materials and capital goods from their home is thoughtful evaluation of
countries economic concepts, terminology,
• MNC may send profits back to home country information and/or data appropriate
• workers/managers may send remittances back to home to the question. The discussion
country may also point out the possible
• may eliminate firms in the host country that had a good uncertainties of alternative
export record decisions and outcomes.
• may deplete non-renewable resources reducing the
ability to export in the long run
the question.

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3(d)


4(a) Identify two benefits of free trade. 2
Two from:
• higher output/growth
• higher income/living standards
• more employment/more jobs
• more choice/access to other markets
• lower price
• greater ability to take advantage of economies of
scale/greater efficiency/specialisation
• drives competition
• better quality goods
• stronger global co-operation

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4(b) Explain two differences between a floating foreign 4 One mark each for each of two differences identified and
exchange rate and a fixed foreign exchange rate. one mark each for each of two explanations.
A floating exchange rate is determined by market forces (1) a

fixed exchange rate is set by the government/central bank
(1).
A floating exchange rate can change on a day-to-day basis

(1) whereas a fixed exchange does not often change in value
(1).
A rise in the value of floating exchange rate is an appreciation

/ a fall in the value of a floating exchange rate is a
depreciation (1) a rise in the value of a fixed exchange rate is
a revaluation/a fall in value of a fixed exchange rate is a
devaluation (1).
A floating exchange rate does not require a central bank to

buy and sell the currency (1) a fixed exchange rate needs
reserves of foreign currency to maintain it (1).

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4(c) Analyse how a change in the pattern of employment in a 6 Allow up to 3 marks for why wages may change due to
country may change its average wage. changes in demand and supply with reference to a
particular industry.
Note: answers must address a change in pattern of
A higher proportion of skilled workers (1) due to better employment
education/training (1) will raise the average wage/skilled
workers tend to be highly paid (1).
An increase in proportion of workers in the tertiary

sector/smaller proportion of workers in the primary sector (1)
example of industry/as economy develops there tends to be
more workers in the tertiary sector/fewer in the primary sector
(1) will tend to increase the average wage (1).
A greater proportion of women workers (1) change in social

attitudes/anti-discrimination legislation (1) may increase the
average wage (1).
A higher proportion of workers in the public sector (1) may be

better training / may be more fringe benefits/may be more job
security (1) may increase/reduce the average wage (1).
A larger proportion of workers in the formal economy (1) more

likely to be represented by a trade union/will have legal rights
(1) may increase the average wage.
Age (1) older workers may be more experienced/in promoted

posts (1) may be better paid (1).

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4(d) Discuss whether or not a government should stop firms 8

merging. Level Description Marks
In assessing each answer, use the table opposite. 3 A reasoned discussion which 6–8
Why it should: the economic argument, making
• will have greater market share clear and logical analysis to
• may abuse greater market power evaluate economic issues and
• may become complacent situations. One side of the
• consumers may experience higher prices and lower argument may have more depth
quality than the other, but overall, both
• may engage in rationalisation sides of the argument are
• may increase unemployment considered and developed. There
• may experience diseconomies of scale is thoughtful evaluation of
Why it should not: information and/or data appropriate
to the question. The discussion
• may innovate more may also point out the possible
• may provide consumers with lower prices and higher uncertainties of alternative
quality decisions and outcomes.
• may be more international competitive
• may improve current account position
• may increase economic growth and clear analysis to evaluate
• may experience economies of scale economic issues and situations.
the question.

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4(d)



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5(a) Define division of labour. 2
Workers specialising (1) in particular tasks / repeating the

same task (1).
Breaking down production into different / separate tasks (1)

using different workers for the different tasks (1).
5(b) Explain two reasons why a loss-making firm may 4 One mark each for each of two reasons identified and one
continue to produce. mark each for each of two explanations.
Logical explanation which might include: Reward but do not expect reference to predatory pricing.
May not expect the loss to last (1) may think demand will
rise/costs will fall in the future (1).
May be subsidised by the government (1) to e.g. promote

social welfare/encourage consumption of merit
goods/increase exports/respond to dumping by other
countries (1).
May lower prices to drive out competitors/increase market

share (1) raising price when successful (1).
May accept losses in short-term (1) in order to expand in

long-term (1)
May have high retained profits (1) to allow for downturns in

demand/cover the losses (1).
May be a new firm (1) in the process of growth/trying to
survive (1).
A firm’s main objective may not be profit maximisation (1) e.g.

growing market share/charity/provides public goods (1).

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5(c) Analyse the advantages that consumers may gain from a 6

competitive market.
Wide choice of producers (1) producing a similar product (1).
Efficiency (1) better quality (1) greater choice of products (1)

firms may innovate (1) as firms try to gain a larger share of
the market (1).
Lower price (1) as firms try to beat competition (1) increasing

consumers’ purchasing power/standard of living (1).
Raise consumer sovereignty (1) firms may respond quickly to

changes in consumer demand (1).

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5(d) Discuss whether or not an increase in a country’s 8

manufacturing output will increase its economic Level Description Marks
development.
Why it might:
evaluate economic issues and
• increase products available for households
situations. One side of the
• increase capital goods enabling greater capacity argument may have more depth
• may raise incomes/profits than the other, but overall, both
• create employment sides of the argument are
• may promote growth of the other two sectors – greater considered and developed. There
demand for raw materials and greater demand for is thoughtful evaluation of
services e.g. insurance economic concepts, terminology,
• may mean firms are getting larger – economies of scale, information and/or data appropriate
reduced average costs, increased exports to the question. The discussion
• likely to have a higher value added than primary sector may also point out the possible
• greater stability in income than primary sector uncertainties of alternative
Why it might not:
• may create pollution/reduce open spaces makes use of economic information
• jobs may have poor working conditions and clear analysis to evaluate
• employment may not rise if capital-intensive methods are economic issues and situations.
used The answer may lack some depth
• opportunity cost/less resources used in primary and/or and development may be one-
tertiary sectors sided. There is relevant use of
• wages may be lower than tertiary sector economic concepts, terminology,
• may reduce natural resources available for future information and data appropriate to
the question.
• goods produced may be of poor quality/inefficiently
produced/uncompetitive

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5(d)



Cambridge IGCSE™
ECONOMICS 0455/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge IGCSE, Cambridge International A and AS Level and Cambridge Pre-U components, and some

PUBLISHED
marking principles.
 the specific content of the mark scheme or the generic level descriptors for the question
 the specific skills defined in the mark scheme or in the generic level descriptors for the question
 the standard of response required by a candidate as exemplified by the standardisation scripts.
 marks are awarded for correct/valid answers, as defined in the mark scheme. However, credit is given for valid answers which go beyond the
 marks are awarded when candidates clearly demonstrate what they know and can do
 marks are not deducted for errors
 marks are not deducted for omissions
 answers should only be judged on the quality of spelling, punctuation and grammar when these features are specifically assessed by the
descriptors.

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PUBLISHED

 Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer
shows confusion.
wrongly.)

 Slashes (/) or the word ‘or’ separate alternative ways of making the same point.
 Semi colons (;) bullet points (•) or figures in brackets (1) separate different points.
 Content in the answer column in brackets is for examiner information/context to clarify the marking but is not required to earn the mark

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 The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark
for each answer
 If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all
 Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent
stages.
 Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be
4 Annotation:
 For point marking, ticks can be used to indicate correct answers and crosses can be used to indicate wrong answers. There is no direct
 For levels of response marking, the level awarded should be annotated on the script.
 Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners

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Common examiner annotations on 0455/2281/0987 and 2286
Uncertain what the candidate means – an MAX

illogical line of thought
Benefit of the doubt Not answered question
Blank page Not established – a statement made

without any support
Confused SEEN
Highlight Too vague
Level 1
Level 2
Level 3

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1(a) Calculate the number of births in Cyprus in 2019. 1
12 240 (1)
1(b) Identify two indicators of living standards. 2 Do not reward GDP
GDP per head / per capita (1).

HDI (1).
Life expectancy / healthy people (1).
Proportion of people in primary sector (1).
Level of education / qualifications (1).
1(c) State why the global market for grapes was in disequilibrium 2
in 2019.
Bad weather / failure of the grape harvest (1) there was a

shortage (1) which means demand exceeded supply (1).
1(d) Explain two reasons why more well-educated workers tend to 4 One mark for each of two reasons identified and one
work past retirement age than less-educated workers. mark for each explanation.

Well-paid / good work benefits (1) which provides an incentive to
work for longer / high job satisfaction / enter workforce late (1).
Healthy (1) and so more able to work for longer / remain
productive (1).
Work in jobs which do not require physical strength / less tiring (1)
older workers tend to be less strong / allows them to continue
working as long as remain fit (1).

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1(e) Analyse how a rise in a country’s retirement age is likely to 4

affect its government’s budget.

A rise in the retirement age / less people retired will reduce the
cost of pensions (1) may reduce government spending /
government may spend on alternatives e.g., infrastructure,
education or health (1).
More people in work will increase incomes / businesses expand
production (1) raise direct tax revenue (1) spending will increase
(1) raise indirect tax revenue (1).

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1(f) Analyse the relationship between inflation rates and current 5 Do not accept current account balance is high or low.
account balances. Answers need to refer to size of surplus or deficit.
Coherent analysis which might include: Simply using data without explanation is description
rather than analysis.
Overview:
Generally, an inverse relationship / the lower the inflation rate, the
higher the current account surplus or the higher the inflation rate,
the higher the current account deficit (1).
Supporting evidencemax of 2 marks

Mongolia has the highest inflation rate (1) and the largest current
account deficit (1)
Mongolia / Kenya / Nepal have the highest inflation rates (1) all
have a current account deficit (1).
Iceland / Slovenia have a low rate of inflation (1) but have a
current balance of payments surplus (1)
Exception:
Cyprus lowest inflation rate (1) but a current account deficit / 3rd
highest current account deficit (1).
Comments:
Most of the table shows the expected relationship. (1) Low
inflation rates may make products more price competitive / high
inflation rates may make prices less price competitive (1)

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1(g) Discuss whether or not, after 2019, Cyprus’s production 6 Apply this example to all questions with the
possibility curve (PPC) is to shift to the right. command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Award up to 4 marks for logical reasons why it might, which
may include: Each point may be credited only once, on either side
of an argument, but separate development as to
Quantity / quality of resources may have increased (1) retirement how/why the outcome may differ is rewarded.
age may have increased (1) people living longer (1) so labour
force is likely to have increased (1).
Generic example Marks
Investment may have increased (1) due to low interest rates (1) Tax revenue may decrease 1
more capital goods would increase productive capacity (1).
Award up to 4 marks for logical reasons why it might not, because of reason e.g., incomes may be 1
which may include: lower.
Quantity and quality of resources may have decreased (1) land Tax revenue may increase because 0
quality is decreasing (1) which will reduce the productivity of land incomes may be higher i.e., reverse of a
(1). previous argument.
Tax revenue may increase because of a 1

Entrepreneurs may emigrate (1) reducing the supply of enterprise
different reason i.e., not the reverse of a
/ skilled workers (1).
previous argument e.g., government
spending on subsidies may stimulate the
Birth rate is falling (1) size of workforce may fall in future (1)
economy more than spending on education.
Covid19 may have reduced productivity (1).
For recognising that any of these reasons could result in PPC
shifting to the left / stay unchanged (1).

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1(h) Discuss whether or not adopting capital-intensive production 6

will benefit consumers.

may include:
It may reduce costs of production / more efficient / may result in

economies of scale (1) lower costs may reduce prices (1).
It may avoid disruption to supply (1) as no industrial action /

strikes (1).
It may be quicker / faster (1) to respond to changes in consumer

demand (1)
It may raise quality (1) as absence of human error (1).
Award up to 4 marks for logical reasons why it might not,

which may include:
Products may be standardised / lack variety (1) individual wants

may not be met (1).
Capital equipment may break down / costly to maintain (1)

causing delays in production (1).
Initial high cost of capital equipment (1) may push up prices (1).

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2(a) Define foreign exchange rate. 2
The price / value of a currency (1) in terms of another currency /

currencies (1).
2(b) Explain two reasons why the value of a country’s exports 4 One mark for each of two reasons identified and one
may be greater than the value of its imports. mark for each explanation.
Price of exports may be lower than price of other countries’

products (1) due to e.g., devaluation / depreciation / weaker
currency / higher productivity / lower inflation (1).
Quality of exports may be higher than the quality of other

countries’ products (1) due to e.g., more investment / better
education / specialisation (1).
Incomes abroad may have increased (1) enabling foreigners to

buy more of the country’s products (1).
Protective measures (1) restrict imports / subsidise domestic firms

or exports (1).
May have high value exports e.g., oil (1) with high (global)
demand (1).
Recession / low demand at home (1) results in fewer imports /

encourages firms to export (1).

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2(c) Analyse how an increase in income tax can affect a country’s 6

inflation rate.
One mark for a simple explanation that an increase in income tax

can reduce the rate of inflation
An increase in income tax will reduce disposable income /

purchasing power (1) this may reduce consumer spending (1)
lower total demand (1) this may encourage firms to reduce prices
/ reduce price rises (1) lower demand-pull inflation (1).
Increase in income tax may encourage workers to press for wage

rises (1) increase costs of production (1) cause cost-push inflation
(1).
Income tax revenue can be used to provide e.g., subsidies to

certain goods and services (1) reducing prices (1).

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2(d) Discuss whether or not governments should aim for a high 8

rate of economic growth. Level Description Marks
3 A reasoned discussion which 68

Why it should:
 economic growth can raise incomes
 higher incomes can raise living standards evaluate economic issues and
 economic growth can reduce unemployment situations. One side of the
 economic growth can increase tax revenue allowing the argument may have more depth
government to spend more on e.g., education. than the other, but overall, both
sides of the argument are
Why it should not: considered and developed. There
 may deplete non-renewable resources which can reduce is thoughtful evaluation of
future growth economic concepts, terminology,
 may result in pollution information and / or data
 may put other demands on workers who may have to appropriate to the question. The
work long hours discussion may also point out the
 may lead to a deficit on current account of the balance of possible uncertainties of alternative
payment decisions and outcomes.
 may result in greater inequality
 risk of inflation 2 A reasoned discussion which 35
the question.

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2(d)
1 There is a simple attempt at using 12


3(a) Identify two influences on what products a person buys. 2 Accept any reasonable example.
Two from e.g.:

Price (1) income (1) tastes / habit / culture (1) advertising (1)
availability (1) social media / influencers (1) quality (1)
government regulations/ laws (1) age (1).
3(b) Explain two ways a government could decrease the 4 One mark for each of two ways identified and one
consumption of demerit goods. mark for each explanation.
Impose an (indirect) tax / tariff on goods (1) raise the price (1).
Provide information (1) about harmful effects (1).
Ban / regulate (1) to stop or reduce the availability of the product
(1).
Set minimum price above market price (1) raise prices (1).
Import quota (1) restricts availability for purchase (1).

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3(c) Analyse why workers may join a trade union. 6 Award no marks for examples of industrial action
Understanding of role of trade union (1) to gain greater bargaining

power (1) through industrial action (1) to negotiate with employers
(1) for higher wages (1) better working conditions / health & safety
(1) fringe benefits (1).
To represent them (1) in disputes with employers (1) e.g., to
protect their rights (1) against unfair dismissal / discrimination (1)
increase job security (1) compensation for work injuries (1).
To gain greater influence on the government (1) to e.g., increase
a national minimum wage (1) increase job opportunities (1).
Unions may provide services to members (1) training courses (1)
improving health and safety (1) benefits e.g. discounts at gyms
(1) financial and legal advice (1).

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3(d) Discuss whether or not tertiary sector workers are paid more 8
than primary sector workers.
In assessing each answer, use the table opposite. 3 A reasoned discussion which 68
Why they might be: sides of the economic
 may be more skilled / qualified argument, making use of
 may be more productive economic information and
 tertiary products may have higher value added clear and logical analysis to
 tertiary products may have higher demand, so industries evaluate economic issues and
may have greater ability to pay higher wages. situations. One side of the
argument may have more
Why they might not be: depth than the other, but
 may be less likely to belong to a trade union overall, both sides of the
 some workers may be in lower paid jobs e.g., cleaners argument are considered and
 some tertiary sector firms / occupations may be declining developed. There is thoughtful
 some may be less experienced evaluation of economic
 some may not be in promoted posts concepts, terminology,
 primary sector products may have higher value added information and / or data
e.g., oil appropriate to the question.
 primary sector workers in a developed country may be The discussion may also point
paid more than tertiary workers in an undeveloped out the possible uncertainties
country. of alternative decisions and
 primary jobs may be more dangerous e.g., mining outcomes.

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3(d)

information and clear analysis
to evaluate economic issues
and situations. The answer
economic concepts,
question.
1 There is a simple attempt at 12

using economic definitions and
understanding.

content.
Note: accept approach that discusses why primary

sector workers may be better paid.
Define privatisation. 2 Award 1 mark for an understanding of the private

sector
Privatisation is the sale of state-owned / public sector firms /
public sector assets (1) to the private sector / investors / Accept change / movement / turned from public to
individuals (1). private sector

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4(d) Explain the difference between absolute and relative poverty. 4 No mark for stating those in relative poverty can meet
their basic needs but not their wants.
Absolute poverty is a lack of basic necessities (1) e.g., food,

clothing or housing / e.g. $1.90 a day (1).
 Relative poverty is being poor in comparison to other

people (in their country) (1) example of a measure such
as less than 60 of average income / not able to
participate fully in normal activities in their country (1).
4(d) Analyse how specialisation can benefit firms. 6 Maximum of one mark for any number of examples of
economies of scale.
Note that some students only write about division of
Understanding of specialisation of a firm / workers become skilled labour which is not the question but some of the
at producing a particular product (1) lower cost of production (1) features also apply to specialisation of firms.
gain a good reputation / high quality of good or service (1)
increase demand (1) increase output (1) raise revenue (1)
increase profit (1).
May enable firms to gain advantage of economies of scale (1)

example (1) become (internationally) competitive (1).
Easier to mechanise / improve technology (1) speeds up / faster

production / become more efficient (1).
5(a) Identify the reward to labour and the reward to land. 2
Wages (1) rent (1).

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5(b) Explain how an increase in a worker’s income can affect their 4 No marks for causes of higher income.
mobility of labour.
An increase in income will enable a worker to spend more on their

education (1) increasing occupational mobility (1).
Higher income will make housing more affordable (1) increasing
geographical mobility (1).
Higher income will make high-tech products more affordable (1)
enabling a worker to be better informed (1) increasing both
occupational and geographical mobility (1).
Higher incomes may discourage a worker from changing jobs /
may be content with current job (1) may be satisfied with income
level (1) reducing geographical and occupational mobility (1).
Higher incomes make it easier to afford car / use public transport
(1) increases geographical mobility (1).

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5(c) Analyse, using a demand and supply diagram, how a greater 6 Note
awareness of the health benefits of eating fruit will affect the
market for fruit.
Up to 4 marks for D & S diagram:

Axes correctly labelled–price and quantity or p and q (1).
New demand curve shifted to the right (1).
Equilibriums–shown by lines P1 and Q1 and P2 and Q2 or
equilibrium points E1 and E2 (1).
Up to 2 marks for written analysis which might include:

Greater awareness of health benefits will encourage more people
to eat / demand fruit (1)
Raise price / raise quantity traded (1).
Note: Axes do not have to be labelled price of fruit

and quantity of fruit to get mark.
No marks for stating price changes from P1 to P2 or
quantity changes from Q1 to Q2.
To get first mark in written analysis they must refer to
fruit.

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5(d) Discuss whether or not a market economic system benefits 8

an economy.
Why it might: sides of the economic
 profit incentive and competition may increase efficiency argument, making use of
 wage differentials may encourage effort economic information and
 price may be low and quality high clear and logical analysis to
 country’s products may be internationally competitive evaluate economic issues and
 economic growth may be high situations. One side of the
 consumer choice may be high argument may have more
 consumer sovereignty may be high depth than the other, but
overall, both sides of the
Why it might not: argument are considered and
 risk of market failure developed. There is thoughtful
 public goods will not be provided evaluation of economic
 demerit goods are overconsumed and merit goods and concepts, terminology,
under-consumed information and / or data
 problem of pollution and other external costs appropriate to the question.
 unemployment may be high as lack of co-ordination The discussion may also point
 some countries may lack the support structures e.g., out the possible uncertainties
legal system to enforce property rights to allow market of alternative decisions and
forces to work efficiently. outcomes.
 monopolies can be created

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5(d)

information and clear analysis
to evaluate economic issues
and situations. The answer
economic concepts,
question.

understanding.

content.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
Cambridge International is publishing the mark schemes for the February/March 2022 series for most
components.

0455/22 Cambridge IGCSE – Mark Scheme February/March 2022
PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED

shows confusion.
wrongly.)


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for each answer
stages.
4 Annotation:

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1 Make sure that you have completed the relevant training and have access to the RM Assessor Guide.
2 Make sure that you have read and understand the question paper, which you can download from https://support.rm.com/ca
3 Log in to RM Assessor then mark and submit the required number of practice and standardisation scripts. You will need to mark the
standardisation scripts to the required accuracy in order to be approved for marking live scripts. You may be asked to re-mark them, or to mark
a second sample, if you do not meet the required accuracy on your first attempt.
MARKING PROCESS
1 Mark strictly to the FINAL mark scheme, applying the criteria consistently and the general marking principles outlined on the previous page.
3 Mark at a steady rate through the marking period. Do not rush, and do not leave too much until the end. If you anticipate a problem in meeting
the deadline, contact your Team Leader immediately and the Examiners’ Helpdesk.
4 Examiners will prepare a brief report on the performance of candidates to send to their Team Leader via email by the end of the marking
period. The Examiner should note strengths seen in answers and common errors or weaknesses. Constructive comments on the question
paper, mark scheme or procedures are also appreciated.
MARKING SPECIFICS
Crossed out work
2 The only response not to be marked is one that has been crossed out and replaced by another response for that exact same question.
3 Consequently, if a candidate has crossed out their response to an optional question and gone on to answer a different optional question then
both attempts must be marked. The higher mark will be awarded by the system according to the rubric.

1 Award NR if there is nothing at all written in answer to that question (often the case for optional questions).
2 Award NR if there is a comment which is not an attempt at the question (e.g. ‘can’t do it’ or ‘don’t know’ etc.)
3 Award NR if there is a symbol which is not an attempt at the question, such as a dash or question mark.
4 Award 0 (zero) if there is any attempt at the question which does not score marks. This includes copying the question onto an Answer
Booklet.

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Examiner annotations on 0455/2281/0987 and 2286
Blank page
Confused
Cross
Level 1
Level 2
Level 3
NAQ

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Repetition
SEEN
Annotation
1 Every question must have at least one annotation e.g. <NAQ> if it is an NR and <X> or <seen> if 0 marks are awarded.
2 Every mark awarded for a question (as shown in the mark input box to the right of the screen) must be indicated by a correctly
positioned tick on the script. The number in the box below the tick annotation must be equal to the mark awarded in the input box.

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1(a) Calculate the number of Bermudian workers who were unemployed in 1

2018.
2345 (1).
1(b) Identify two reasons why demand for holidays in Bermuda may be 2 If more than two reasons are given, consider
price-elastic. the first three,
Luxury (not a necessity) (1) expensive / high price (1).
1(c) State two reasons why a foreign MNC may want to operate in 2 If more than two reasons are given, consider
Bermuda. the first three,
Any two from:

Tax haven / no corporation tax (1)
High GDP per head (1)
High import tariffs (1)
High literacy rate / skilled workers / educated workers (1)
Low inflation (1).

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1(d) Explain two reasons why Bermuda has higher level of economic 4 One mark each for each of two reasons
development than many other countries. identified and one mark for each of two
explanations.
Large tertiary sector (1) jobs in the tertiary sector tend to be better paid / If more than two relevant reasons are
have better working conditions (1). identified, consider the first three and take the
High literacy rate (1) a higher literacy rate will tend to increase two which gain the highest marks.
employability / provide more choices / increase quality of jobs obtained /
increase pay / increase skills / produce better quality products / may Note: no mark for high GDP, low
suggest a good level of education / raise productivity / increase output (1). unemployment or just e.g. population growth.
Low population growth (1) a lower population growth may mean that
dependency ratio may be low / less stress on resources / more resources
can be devoted to e.g. investment (1).
High GDP per head (1) a higher GDP per head can increase living
standards / result in high consumer expenditure (1).
High life expectancy (1) which can reflect good health care / may mean
high quality labour (1).
1(e) Analyse the role of the Bermudian Monetary Authority (BMA). 4 Maximum of 2 marks for recognising functions
(including carrying out the functions of a central
Coherent analysis which might include: bank) from the source material.
Carries out (most) of the functions of a central bank (1).
Acts as banker to the government (1) receives tax payments / enables
government to make payments / manages national debt / allows
government to borrow and lend (1).
Holds the country’s reserves of foreign currency (1) may use reserves to
influence the value of Bermuda’s currency / buy / sell currency (1).
Carries out the government’s monetary policy / keeps inflation low (1) by
changing interest rate / money supply (1).

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1(f) Analyse the relationship between GDP per head and life expectancy. 5 No marks for just stating the figures e.g.
Monaco has a GDP per head of approximately
Coherent analysis which might include: $185 000 and a life expectancy of 90 years and
Eswatini has a GDP per head of approximately
Overview $4000 and a life expectancy of 58.
Generally, a positive relationship / the higher the GDP per head, the longer
the life expectancy (1).
Supporting evidence
Evidence in terms of an individual country or group of countries e.g.
Monaco has the highest GDP per head and the longest life expectancy or
e.g. the three countries with the highest GDP per head have the longest
life expectancy (1) evidence in terms of another country or group of
countries e.g. Eswatini has the lowest GDP per head and the lowest life
expectancy or e.g. Argentina, Bahamas and Eswatini have the lowest GDP
per head and the lowest life expectancy (1).
Exception
Argentina or Bahamas (1) not in same order / reason for why difference
may exist (1).
Comments
Higher income allows more to be spent on healthcare (1) better healthcare
reduces illness / reduces death rate (1).

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1(g) Discuss whether or not Bermudian government policy measures 6 Apply this example to all questions with the
designed to reduce unemployment would increase the inflation rate. command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Award up to 4 marks for logical reasons why they might, which may
include: Each point may be credited only once, on
Expansionary fiscal and/or monetary policy measures (1) example of a either side of an argument, but separate
measure (1) could increase total demand / increase spending (1) higher development as to how/why the outcome may
total demand could cause demand-pull inflation (1) if total (aggregate) differ is rewarded.
demand exceeds total (aggregate) supply / there is limited or no spare
capacity (1).
Shortage of unemployed workers / lower unemployment could push up
wage rates / incomes (1) higher output could push up costs of raw Tax revenue may decrease… 1
materials (1) and cost of capital goods (1) higher costs of production (1)
could cause cost-push inflation (1).
Award up to 4 marks for logical reasons why they might not, which may incomes may be lower.
include:
Supply-side policy measures (1) could raise productivity (1) example of a Tax revenue may increase 0
measure (1) higher productivity could reduce costs of production (1) total because incomes may be higher
supply could increase to match higher total demand / productive i.e. reverse of a previous
potential/capacity could increase (1) avoid / reduce cost-push inflation (1). argument.
Expectations of future inflation could be low (1) resulting in e.g. lower wage
claims (1).
because of a different reason
Unemployment rate is at 7% (1) not at full employment (1) unemployed
i.e. not the reverse of a previous
workers may be willing to work at existing wage rates (1) there is some
spare capacity (1).
Inflation rate is low (1) and so expectations of inflation may be low (1).
stimulate the economy more
Expansionary demand-side policy measures may just result in higher
savings (1).

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1(h) Discuss whether or not higher indirect taxes can reduce the market 6 Examples of demerit goods may be rewarded
failure caused by demerit goods. in why might or why might not.
Award up to 4 marks for logical reasons why they might, which may
include:
Demerit goods are more harmful than consumers realise / are harmful /
consuming less would make people healthier (1) they usually have
negative external costs (1) examples include fast food, alcohol and
tobacco (1).
Demerit goods are overconsumed (1) and overproduced (1) higher indirect
taxes will impose an extra cost / raise cost of production (1) which may
lower output / supply (1) be likely to raise price (1) which is likely to reduce
consumption (1) lower consumption/lower output/lower supply may move
output to a point where social costs equal social benefits (1).
May raise tax revenue (1) which can be spent on campaigns to reduce e.g.
smoking (1).
Award up to 4 marks for logical reasons why it might not, which may
include:
It may be difficult to change consumers’ behaviour / spending patterns (1)
some demerit goods are addictive (1) those with high incomes may not be
affected by a rise in price (1) demand for demerit goods may be inelastic
(1).
Producers may not pass on price rise to consumers / products may be sold
on an illegal market (1) to avoid fall in demand (1).
It can be difficult to determine the output of demerit goods which will avoid
market failure. (1) the output where social cost will equal social benefit (1).

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2(a) Define frictional unemployment. 2
Workers in between jobs / caused by a delay between workers moving

from one job to another job (1) temporary / short term unemployment (1)
Seasonal / casual / search / voluntary unemployment (1)
Unemployment that exists when there is full employment (1).
2(b) Explain why an infant industry may need protection. 4

New industries (1) need time/potential to grow / to survive / to establish
themselves / to build up a reputation / lack resources (1) need time to take
advantage of economies of scale / may be competing with foreign firms
which are more able to take advantage of economies of scale (1)
economies of scale lower costs / foreign firms may have lower costs (1).
Lower costs may reduce price the infant industry can charge (1) make the
infant industry more competitive / be able to compete / foreign firms may
be more competitive / foreign firms may drive the infant industry out of
business (1).
The growth of infant industry may increase employment / elimination may

increase unemployment (1) growth of infant industry may reduce
imports/increase exports/promote domestic products / elimination of infant
industry may increase imports/reduce exports (1) growth of infant industry
may increase economic growth / elimination of infant industry may reduce

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2(c) Analyse how a fall in a country’s foreign exchange rate could reduce 6 Accept imports exceed exports for
a deficit on the current account of its balance of payments. understanding of a deficit on the current
account of the balance of payments for the first
Coherent analysis which might include: mark.
Deficit occurs when debit items including imports on the current account of
the balance of payments exceed credit items including exports (1).
Fall in the exchange rate would reduce price/value of the currency /
depreciation/devaluation has occurred (1) this would reduce the price of
exports (1) increase price of imports (1) make exports more competitive /
imports less competitive (1) demand for exports is likely to rise / exports
increase (1) increase export revenue / money flowing into the country (1)
demand for imports is likely to fall / imports reduce / switch from imports to
domestically produced products (1) reduce import expenditure / reduce
money flowing out of the country (1) increase net exports (1) if demand is
price-elastic (1).
Value of remittances/money sent home may rise (1) increasing secondary
income (1).

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2(d) Discuss whether or not a reduction in income tax will end a 8 Accept a discussion of a cut in personal
recession. income tax and/or corporate income tax.

Why it might: 3 A reasoned discussion 6–8
• increase disposable income which accurately
• increase consumer expenditure examines both sides of
• increase investment (spending on capital goods) the economic
• increase total (aggregate) demand argument, making use
• increase employment of economic
• raise GDP. information and clear
and logical analysis to
Why it might not: evaluate economic
• lack of confidence issues and situations.
• people save more One side of the
• more could be sold from stocks / inventory argument may have
• workers may work fewer hours keeping disposable income unchanged more depth than the
• people may spend more on imports other, but overall both
• people may still delay spending if prices are falling sides of the argument
• may reduce tax revenue and government spending on e.g. education. are considered and
developed. There is
thoughtful evaluation of
economic concepts,
terminology,
information and/or data
appropriate to the
question. The
discussion may also
point out the possible
uncertainties of
alternative decisions
and outcomes.

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2(d)

which makes use of
economic information
and clear analysis to
evaluate economic
issues and situations.
The answer may lack
some depth and
development may be
one-sided. There is
relevant use of
economic concepts,
terminology,
information and data
appropriate to the
question.
1 There is a simple 1–2

attempt at using
economic definitions
reference may be made
to economic theory,
with occasional
understanding.
0 A mark of zero should 0

be awarded for no
creditable content.

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3(a) Define diseconomies of scale. 2
Higher average costs of production (1) as a result of a larger scale of

production / growing too large / internal diseconomies of scale affect a firm
whereas external diseconomies of scale affect an industry (1).
3(b) Explain two reasons why a high-income household may borrow more 4 One mark for each of two reasons identified
than a low-income household. and one mark for each explanation.
Logical explanation which might include: Note: the focus here is on households not
Banks may be more willing to lend to them (1) more confident of being firms.
repaid (1).
Banks may charge a low interest rate (1) as a high-income household may Nothing for just high-income households spend
borrow a larger amount (1). more.
High-income households may be more confident of being able to repay the
loan / able to repay the loan quickly (1) may expect income to rise / have
greater job security (1).
High-income households may have significant wealth / assets (1) able to
offer collateral (1).
High-income households may borrow for a big-ticket items/luxuries (1) e.g.
to buy an expensive house, expensive car, to pay for children’s education /
to increase/maintain status / living standards (1).

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3(c) Analyse, using a diagram, the effect of an increase in output on 6 Do not reward a demand/supply/demand and
average fixed cost (AFC) and total fixed cost (TFC). supply or PPC diagram.

Axes correctly labelled: costs and output (1)
TFC horizontal line (1).
AFC downward sloping (1).
Curves correctly labelled: TFC / FC and AFC (1).
Up to 2 marks for coherent written analysis which might include:

A higher output will have no effect on total fixed cost / fixed costs do not
change with output in the short run / fixed costs have to be paid even when
output is zero (1).
Average fixed cost will fall with output / as the same cost figure is divided
by a higher output / AFC is TFC divided by output (1).

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3(d) Discuss whether or not the introduction of a national minimum wage 8

will reduce poverty.
In assessing each answer, use the table opposite. which accurately
Why it might: examines both sides of
• low-paid workers may be better paid the economic
• higher income may enable people to buy basic necessities argument, making use
• reduce absolute poverty of economic
• pay gap between high-income and low-income workers may be information and clear
reduced, lower relative poverty and logical analysis to
• higher pay may increase spending, creating more jobs and income evaluate economic
• higher tax revenue may enable the government to spend more on issues and situations.
reducing poverty One side of the
• higher wages may increase productivity which could encourage firms argument may have
to hire more workers. more depth than the
other, but overall both
Why it might not: sides of the argument
• may be set below current low pay and so have no effect are considered and
• may result in some workers losing their jobs developed. There is
• unemployed will have lower income thoughtful evaluation of
• may discourage MNCs operating in the country economic concepts,
• does not help people who are poor because of age, unemployment or terminology,
sickness information and/or data
• may result in inflation, leaving purchasing power/real wages appropriate to the
unchanged. question. The
discussion may also
uncertainties of
and outcomes.

PUBLISHED
3(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
relevant use of
economic concepts,
terminology,
appropriate to the
question.

attempt at using
to economic theory,
with occasional
understanding.

be awarded for no
creditable content.

PUBLISHED
4(a) Identify two reasons why immigration may increase. 2 Accept e.g. higher income on its own. If
mention e.g. lower income must link to other
Two from: countries /abroad.
• higher income / better living standards (in the country) / lower income
abroad
• more job opportunities (in the country) / fewer job opportunities abroad
• better working conditions (in the country) / worse working conditions
abroad
• better education (in the country) / worse education abroad
• better healthcare (in the country) / worse health care abroad
• lower cost of living / higher cost of living abroad
• lower taxes / higher taxes abroad
• lower immigration controls
• wars / famine / political unrest / natural disasters abroad.

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4(b) Explain two consequences of unemployment. 4 One mark for each of two consequences
identified and one mark for each explanation.
Lower output / lower GDP / lower economic growth / producing below full
capacity (1) inefficient use of resources / unused resources / lower exports
(1).
Lower income / lower wages / lower GDP per head (1) causing a rise in
poverty / reduction in ability to buy basic necessities / fall in living
standards / lower development (1).
Lower total (aggregate) demand (1) lower inflation / deflation (1).
Lower tax revenue (1) from (direct and indirect taxes) due to lower income
/ reduction in government spending (1).
Increased government spending on unemployment benefits (1) opportunity
cost / spending less on e.g. healthcare (1).
Reduction in household spending on education / healthcare (1) reduce
living standards / life expectancy (1).
Unemployed workers may lose skills / become out of date with new
technology (1) make it more difficult to gain employment (1).
Unemployed workers may experience depression / low self-worth (1)
worsen health (1).
Possibility of a rise in crime (1) government may have to spend more on
reducing crime / crime lowers people’s quality of life (1).

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4(c) Analyse why more women may join a country’s labour force. 6

Rise in pay (1) better job opportunities (1) due to a fall in discrimination (1)
change in social attitudes (1).
Improvements in education for girls (1) more female graduates / higher
literacy (1) higher productivity / skills (1) higher demand for women workers
(1).
Rise in tertiary sector employment (1) higher proportion of women
employed in the tertiary sector (1).
Fall in birth rate (1) reduction in dependents / dependency ratio (1) rise in
availability of childcare (1) making it easier to combine work and
parenthood (1).
Increase in population size (1) more women available to seek work (1).
Reduction in male workers (1) due to e.g. emigration of male workers (1).
Rise in part-time employment / increase in holidays / rise in flexible hours /
increase in opportunity to work from home (1) allowing women to combine
work with bringing up a family (1).
More women may need / want to support their families financially (1) due to
e.g. rise in cost of living / male workers losing their jobs / increase in
divorce 1).
May be government measures to encourage women to join the labour
force (1).
Rise in job security (1) improvement in working conditions / fringe benefits
(1).

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4(d) Discuss whether or not a government should encourage an increase 8

in saving.
examines both sides of
Why it should: the economic
• will reduce spending which can reduce demand-pull inflation argument, making use
• lower spending may reduce imports, improving the current account of economic
balance information and clear
• will provide finance for investment and logical analysis to
• will provide a ‘safety net’ for households and firms evaluate economic
• may be used to finance children’s education and/or family’s healthcare issues and situations.
• may provide income when retired. One side of the
argument may have
Why it should not: more depth than the
• may result in a recession other, but overall both
• will reduce total demand which can decrease economic growth sides of the argument
• may cause (cyclical) unemployment are considered and
• incomes may be too low for people to be able to save developed. There is
• may reduce tax revenue from indirect taxes. thoughtful evaluation of
economic concepts,
terminology,
appropriate to the
question. The
discussion may also
uncertainties of
and outcomes.

PUBLISHED
4(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
relevant use of
economic concepts,
terminology,
appropriate to the
question.

attempt at using
to economic theory,
with occasional
understanding.

be awarded for no
creditable content.

PUBLISHED
5(a) Define the economic problem. 2
Finite/limited resources (1) unlimited/infinite wants (1).

Wants exceeding resources (2).
Scarcity (1).
5(b) Explain whether land is mobile. 4

Most land is geographically immobile (1) fixed in one place / cannot move
from one place to another place (1).
Some forms of land e.g. wildlife can be moved from one place to another
(1).
Land is occupationally mobile (1) capable of changing its use / e.g. land
can be used for farming or housing (1).

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5(c) Analyse the causes of a shift to the right in the supply curve of 6 Note: no marks for a diagram.
chocolate.

A shift to the right of the supply curve means that more will be supplied at
each and every price / supply has increased due to a non-price
factor/influence (1).
Lower costs of production (1) due to any cause (other than tax or subsidy)
e.g. lower wages / higher productivity / lower transport costs (1).
Subsidy (1) providing an additional income / effectively lowering costs /
providing a financial incentive (1).
Advances in technology (1) increasing output per unit of resource /
increase efficiency / raise productivity of capital (1)
Good harvest of cocoa / raw material (1) perhaps due to improvement in
weather conditions / improvements in fertilisers (1) reducing price of raw
material (1) increasing supply of raw material (1).
Lower tax on chocolate / lower indirect tax / lower corporate tax (1) making
it more profitable to produce (1).
Fall in price/rise in cost of production/ fall in profitability of another product
produced by chocolate firms (1) encouraging the switch of some resources
to chocolate production (1).

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5(d) Discuss whether or not consumers would benefit from a firm 8

becoming a monopoly.
Why they might: the economic
• a monopoly may have lower average costs of production due to argument, making use
economies of scale of economic
• lower costs of production may result in lower prices information and clear
• a monopoly may have larger profits which can be spent on R&D and logical analysis to
• higher R&D can improve the quality of the product evaluate economic
• may be a state-owned monopoly which seeks to increase social issues and situations.
welfare. One side of the
argument may have
Why they might not: more depth than the
• monopoly may use market power to increase price other, but overall both
• lack of competition may reduce pressure to improve quality sides of the argument
• consumers will have less choice are considered and
• there may be a lack of availability if the monopoly restricts supply to developed. There is
drive up price thoughtful evaluation of
• a monopoly may have higher average costs due to diseconomies of economic concepts,
scale. terminology,
appropriate to the
question. The
discussion may also
uncertainties of
and outcomes.

PUBLISHED
5(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
relevant use of
economic concepts,
terminology,
appropriate to the
question.

attempt at using
to economic theory,
with occasional
understanding.

be awarded for no
creditable content.

Cambridge IGCSE™
ECONOMICS 0455/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
These general marking principles must be applied by all examiners when marking candidate answers. They should be applied alongside the specific
content of the mark scheme or generic level descriptors for a question. Each question paper and mark scheme will also comply with these marking
principles.
descriptors.

PUBLISHED

PUBLISHED


 Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer shows
relevant knowledge, understanding and application of skills in answering the question. We do not give credit where the answer shows
confusion.
a DO credit answers which are worded differently from the mark scheme if they clearly convey the same meaning (unless the mark scheme
requires a specific term)
c DO credit answers where candidates give more than one correct answer in one prompt/numbered/scaffolded space where extended writing is
required rather than list-type answers. For example, questions that require n reasons (e.g. State two reasons …).
wrongly.)
f DO NOT give further credit for what is effectively repetition of a correct point already credited unless the language itself is being tested. This
applies equally to ‘mirror statements’ (i.e. polluted/not polluted).


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 The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark for
each answer
 If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all other
instances, the correct answer to a calculation should be given full credit, even if no supporting working is shown.
 Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent stages.
 Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be given
if a correct and complete method is used. Further guidance will be included in the mark scheme where necessary and any exceptions to this
general principle will be noted.
4 Annotation:
 Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners who
marked that paper.

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Common examiner annotations on 0455/2281/0987 and 2286


without any support
Confused SEEN
Highlight Too vague
Level 1
Level 2

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Level 3

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1(a) Calculate Europe’s percentage contribution to the global total eSports 1 % sign not essential.
revenue in 2019.
30%
1(b) Identify two conditions of demand for eSports. 2
 Increasing incomes
 Decrease in the price of technology needed to participate in this sport
1(c) Explain how a change in social attitudes would lead to greater 2

participation by women in the labour force.
Acceptance that women are equal to men / that it is acceptable for women
to work (1) and that their role is not only as a home maker (1) childcare is
not just female role (1).
It is more acceptable for women to be educated / there is more

encouragement for women to study (1) which increases their job
opportunities (1).
Women feel more comfortable / accepted at work (1) more jobs will be open
to women (1.) Wages paid to women may rise (1) eSports are no longer
seen as a male-only sport (1).

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1(d) Explain two differences between private sector investment and public 4 For the 2nd mark for public sector
sector investment. investment, accept any of the
macroeconomic objectives as the reason
Private sector investments are investments made by firms (1) while the why public sector investment is made.
public sector investments are investments made by the government (1).
Private sector investments are made to maximise profits (1) while public
sector investments are made to maximise welfare of society (e.g. provide
employment) (1).
Private sector investments made based on private costs and benefits (1)
while public sector investments are made based on social costs and
benefits (1).
Profits from private sector investment go to shareholders (1) profits from

public sector investment go to public spending e.g. health care (1)
The aim of private sector investment is to be more competitive / gain market

share (1) the aim of public sector investment is to improve macroeconomic
performance (1).
Private sector investment may be financed by retained profits/entrepreneurs

(1) public sector investment may be financed by tax revenue (1).

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1(e) Analyse how the development of eSports in Malta can help the 4
government achieve its macroeconomic aims.
Economic growth is indicated (1) as eSports is part of the service sector that
contributes 90% of Malta's GDP (1) development of eSports in Malta can
increase Malta’s GDP (1) Unemployment may be reduced / employment
increased (1) because it will be able to attract investments (1) creating more
jobs (1) from building infrastructure (1) and more professional e-sports
players (1)
Current account may also be improved by more inflow of money (1) from
increased expenditure on exports (1) of services / tourism (1).
Tax revenues may increase (1) enabling the government to increase

spending on e.g. education (1).

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1(f) Analyse the relationship between GDP per head and the proportion of 5 Give BOD if answer states GDP alone and
females in the labour force. not GDP per head.
Overview:
Generally, GDP per head is higher when the proportion of females in the
labour force is higher / positive relationship between GDP per head and
proportion of females in the labour force (1).
Supporting Evidence: (up to 2 marks)

Yemen has the lowest female labour force participation rate and also the
lowest GDP per head (1) Luxembourg has the highest female labour force
participation rate and the highest GDP per head (1) Yemen, Saudi Arabia,
and Bangladesh have the 3 lowest figures for both female participation rate
and GDP per head (1) Luxembourg, France and Malta have the 3 highest
figures for both female participation rate and GDP per head (1)
Exception:
However, exception is Saudi Arabia / Bangladesh (1) Saudi Arabia has a
lower female labour force participation rate but higher GDP per head than
Bangladesh (1).
Comments:
This is because higher female labour force participation rate means there
are higher quantities of labour which is a factor of production / more labour
is available to contribute to the growth of the economy (1) increased
availability of education for women will positively affect GDP (1)

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1(g) Discuss whether or not specialisation at a national level is harmful to 6 Apply this example to all questions with
an economy. the command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
Award up to 4 marks for logical reasons why it might be harmful, which
might include: Each point may be credited only once, on
Specialisation could lead to overdependence on a specific industry / danger development as to how/why the outcome
of over-specialisation (1) if this industry fails (1) e.g. if there is a fall in may differ is rewarded.
demand / revenue from eSports, the whole Maltese economy could be
adversely affected (1).
Specialisation makes it difficult for the workers to retrain to other industries Tax revenue may decrease… 1
(1) danger of structural (1) unemployment (1).
Specialisation might lead to diseconomies of scale (1) where long run incomes may be lower.
average costs increase as output increases (1).
Resources may become exhausted (1) making industry unsustainable (1) because incomes may be higher
i.e. reverse of a previous
Award up to 4 marks for logical reasons why it might not be harmful, which argument.
might include:
Specialisation leads to increase in efficiency (1) increased competitiveness because of a different reason
(1) as the economy focuses on what they do best (1), they will be able to i.e. not the reverse of a previous
produce more (1) and at a better quality (1) lower cost (1). argument e.g. government
Specialisation enables workers to become highly trained / skilled (1) and stimulate the economy more
increase their productivity (1) leading to higher incomes (1) and demand for than spending on education.
their labour (1).
Specialisation could help the economy achieve economies of scale (1) Reward but do not expect reference to
where long-run average cost falls as output increases (1). comparative/absolute advantage.

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1(g) Specialisation enables countries to trade more with other countries (1)
increased export earnings can enable countries to afford more imports as
well (1) leading to increased choices (1) higher standards of living (1).
As output increases and trade increases, governments receive more tax

revenue (1)

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1(h) Discuss whether or not government investment in education and 6

training will help the Maltese economy.
Award up to 4 marks for logical reasons why it could, which might include:
Government investment in education and training will enable more students

to gain access to e.g. higher education / create a more educated labour
force (1) which will enable them to increase their skills (1) productivity /
efficiency (1) and enable them to get jobs in the future (1) reducing
unemployment (1) increase incomes (1) which would increase consumption
/ total demand (1) and output / GDP (1)
Organising work placements for Maltese students will enable students to

gain work experience (1) further increasing their skills (1) and help firms
develop (1) with new ideas / extra help (1) at low cost (1) increasing output
(1) and economic growth (1).
Tax from incomes of those employed (1) will improve public finances (1)
Bringing in professionals from other countries to train Maltese students

could introduce more expertise (1) helping to transfer new skills (1).
May contribute to the growth of the tertiary sector (1) increase development
(1).
A more educated labour force may attract MNCs (1) more efficient
production (1).
Award up to 4 marks for why it could not, which might include:
Investment in education and training is expensive (1) using public finances

(1)

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1(h) opportunity cost for the government (1) less spending on government
projects such as Healthcare (1) could decrease overall productivity of the
economy (1) less economic growth (1).
Education and training might not be successful (1) work placements might
not teach students the right skills needed in the future / scholarship
schemes misused or not given out fairly / foreign professionals might not be
able to transfer knowledge effectively (1).
Education and training can take a very long before it impacts the economy
(1) scholarship schemes usually at least 3 years for a degree level course
(1).
In the short run, it could reduce the size of the labour force (1) reduce output
/ lower productive potential (1).
There may be emigration of skilled workers (1) other countries gaining the
benefits (1).

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2(a) Define free trade. 2
Free trade is when countries export and import between each other /
countries exchange goods and services (1) without any restrictions /
protection (1) such as tariffs or quotas (1).
2(b) Explain two possible causes of better healthcare. 4 One mark for each of two causes identified
 More government expenditure on healthcare (1) e.g. on hospitals /

training / due to higher tax revenue (1)
 Higher incomes (1) can spend more on healthcare (1)
 Better / more hospitals (1) better quality service / less waiting time (1)
 Better (health) training / education (1) more qualified / specialised /
doctors (1)
 Better medical technology (1) better machines / life-saving equipment
(1)
 Easier access to medicine (1) more affordable (1)

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2(c) Analyse why few MNCs may choose to locate in a particular region. 6 Accept answers that analyse why MNC's
may choose to locate in a region (rather
Coherent analysis which might include: than few choosing to locate there).
The region may have higher cost of production / inflation (1) than other
regions. e.g. higher cost of labour / land (1) reduces potential profit (1).
May also be higher taxation e.g. corporation tax (1) which may reduce the
incentive of an MNC to locate in the region (1).
May be more regulations e.g. labour laws (1) which may make it more
difficult for an MNC to locate in that region / which may increase costs (1).
May be a lack of skilled workers (1) due to poor education (1) may reduce
productivity (1).
May be low/lack of demand (1) limiting the revenues and profitability of the
MNC (1).
May be a lack of subsidies (1) which would reduce the incentive of an MNC
to locate in the region (1).
May be a lack of resources e.g. raw materials, labour (1)
Major competitors may have already located in that region (1)
The region may have corrupt government(s) (1) causing political instability /
war (1)
It may be outside a free trade area, e.g. the EU (1) unable to gain benefits
(1)

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2(d) Discuss, whether or not, inflation is always a disadvantage to an 8

economy.
Why it might be a disadvantage: the economic argument,
 lower purchasing power for consumers – lower standards of living making use of economic
 lower price competitiveness of exports – lower exports / high imports information and clear
 higher cost of production – lower profits and logical analysis to
 lose value of savings and lenders lose value of lending evaluate economic
 difficult for consumers, firms, and governments to plan for the future. issues and situations.
 shoe leather costs, menu costs One side of the
 may discourage investment as may be difficult to plan argument may have
 those on fixed incomes may lose more depth than the
other, but overall both
Why it might be an advantage: sides of the argument
 borrowers may benefit – value of debt decreases are considered and
 may encourage investment as may be cheaper to borrow developed. There is
 may be a sign that an economy is growing thoughtful evaluation of
 may be demand-pull inflation – increasing firms’ revenue / employment economic concepts,
 if inflation is low and stable – it is better than prices decreasing terminology, information
(deflation) and/or data appropriate
 may be lower than other countries’ inflation rates to the question. The
discussion may also
uncertainties of
alternative decisions and
outcomes.

PUBLISHED
2(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
relevant use of economic
concepts, terminology,
appropriate to the
question.

at using economic
definitions and
terminology. Some
to economic theory, with
occasional
understanding.

awarded for no
creditable content.

PUBLISHED
3(a) Identify two internal economies of scale. 2
Purchasing / buying (1) managerial (1) technical (1) financial (1) risk-bearing
(1) labour (1) marketing (1)
3(b) Explain two methods of protection in international trade. 4 One mark for each of two methods identified
 tariffs (1) are taxes on imports / which would increase the price of
imports (1)
 import quotas (1) are quantitative limitations on imports / reducing
supply of imports (1)
 subsidies (1) are grants given to domestic producers (1) to reduce price
of domestic products and exports / enable them to compete with foreign
goods (1)
 embargoes / bans (1) are total restrictions on a product from a country /
total restrictions on particular products / usually for political / social
reason (1)

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3(c) Analyse, using a demand and supply diagram, the effects of higher 6
quality products, on the market for jewellery.
Axes correctly labelled – price and quantity or p and q (1)
Original demand and supply curves correctly labelled (1)
Demand curve shifts to the right (1)
Equilibriums – shown by lines; P1, Q1 and P2, Q2; or equilibrium points E1

and E2 (1).

Higher quality products will encourage more people to buy jewellery (1)
price / quantity will be higher (1).

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3(d) Discuss, whether or not, protection in international trade benefits an 8

economy.
Why it might be a benefit: the economic argument,
 reduce imports – reduce current account deficit making use of economic
 helps infant industries grow – increase competitiveness in the future information and clear
 helps maintain sunset industries – ensures employment and logical analysis to
 develop specialisation evaluate economic
 help strategic industries – such as defence issues and situations.
 restrict imports of demerit goods – such as alcohol One side of the
argument may have
Why it might not be a benefit: more depth than the
 increase in the price of goods and services – inflation - decreasing other, but overall both
purchasing power of consumers sides of the argument
 retaliation – difficult to export goods and services to other countries are considered and
 increase in cost of production if firms require raw materials / semi- developed. There is
manufactured goods from other countries thoughtful evaluation of
 complacency – low quality domestic goods and services economic concepts,
 may cause unemployment e.g. in industries relying on imported terminology, information
products and/or data appropriate
 if PED is less than one it may not be effective to the question. The
 may encourage smuggling discussion may also
uncertainties of
outcomes.

PUBLISHED
3(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
appropriate to the
question.

at using economic
definitions and
terminology. Some
occasional
understanding.

awarded for no
creditable content.

PUBLISHED
4(a) Define GDP per head. 2 Award 2 marks if correct formula given i.e.
GDP per head = Total GDP / Population
Total output / income / expenditure (1) divided by population / per person
(1).
4(b) Explain how a country with more imports of goods than exports of 4
goods can still record a surplus on the current account of its balance
of payments.
Export prices may be high (1) import prices may be low (1) export revenue
may exceed import expenditure (1).
Current account consists of trade in goods, trade in services, primary

income, and secondary income (1). Therefore, even if there are more
imports of goods than exports of goods, which creates a trade of goods
deficit (1) if the other three components have a surplus (1) then the overall
current account will have a surplus (1). This is likely to be the case if there is
a high level of income from investments abroad (1) exports of services (1) a
lot of transfer payments (1) such as inflow of aid to a country (1) incomes of
nationals working abroad / remittances (1).

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4(c) Analyse the causes of market failure. 6
Market failure is when market forces cause an inefficient allocation of

resources (1).
Demerit goods (1) example (1) imperfect information (1) where consumers
may not know about the actual costs (1).
Merit goods (1) example (1) consumers may not know about actual benefits
(1).
External costs (1) costs to the third party (1) not considered by consumers
and producers (1) therefore goods are overproduced or overconsumed (1).
External benefits (1) benefits to the third party (1) not considered by
consumers and producers (1) goods are underproduced and under-
consumed (1).
Public goods (1) non-rivalry (1) and non-excludable (1) free rider problem
(1) people want to consume but don’t want to pay for it (1) no profit incentive
for firms (1) goods are underprovided by the market (1).
Abuse of monopoly power (1) when firms have no competitors (1) they will
push up prices (1) or reduce quality (1).
Factor immobility (1) where labour cannot move from one job to another (1)
or to take up a job somewhere else (1) leads to structural unemployment (1)

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4(d) Discuss, whether or not, having a large primary sector is a 8

disadvantage to an economy.
Why primary sector is a disadvantage: the economic argument,
 lack of value added – low price, low income – low standards of living making use of economic
 unstable prices – unstable income information and clear
 low productivity – low income and logical analysis to
 high tariffs – difficult to export evaluate economic
 specialisation in any one sector is risky issues and situations.
 unsustainable – natural resources could be exhausted One side of the
argument may have
Why primary sector is an advantage: more depth than the
 provides employment, especially low skilled in developing countries other, but overall both
 provides employment, e.g. high skilled in Saudi Arabian oil sides of the argument
 produces high value added exports, e.g. gold in S. Africa are considered and
 produces exports with inelastic demand, e.g. oil developed. There is
 low start-up costs, low barriers to entry, e.g. farming thoughtful evaluation of
 may be better than other countries at producing primary products economic concepts,
 may be able to diversify with money earned from primary sector terminology, information
 could reduce inequality between urban and rural areas and/or data appropriate
to the question. The
discussion may also
uncertainties of
outcomes.

PUBLISHED
4(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
appropriate to the
question.

at using economic
definitions and
terminology. Some
occasional
understanding.

awarded for no
creditable content.

PUBLISHED
5(a) Define monetary policy. 2
Supply of money (1) interest rates / foreign exchange rates (1) affecting total
demand / inflation (1)
5(b) Explain, using an example, the influence of opportunity cost on 4 Don't reward examples using personal
government decision-making. consumption e.g. tea / coffee
Opportunity cost is the (next) best alternative (1) forgone / given up /

sacrificed (1)
Governments (always) consider opportunity cost when making a decision on

spending money (1) to maximise the welfare of society (1).
Governments have to make a choice as they have a limited income/budget

(1).
For example, if the government spends on building a new hospital (1) the
opportunity cost may be a new school (1) as the government thinks that the
opportunity cost of building a new a new hospital is lower than building a
new school (1).

PUBLISHED
5(c) Analyse the reasons why trade union membership has reduced in 6
some countries.
Improved working conditions (1) improved wages (1) in a country may have
reduced the need for trade unions to negotiate them / have made unions
more reluctant to take industrial action (1).
High unemployment (1) fear of losing jobs (1).
Capital intensive production (1) fewer workers available to join trade unions
(1)
Government measures against trade unions (1) have reduced the ability of
trade unions (1) to influence wages (1) and working conditions (1).
Changes in the pattern of employment (1) more self-employed / part-time

employed / gig economy / zero hours contract (1) more people working in
the private sector (1) where trade union membership has traditionally been
low (1).
Globalisation (1) and growth of MNCs (1) has increase competition amongst
labour (1).
Dissatisfaction over trade unions (1) the high fees for joining trade unions
(1) not wanting to take strike action (1) different political views (1)
disincentivises people from joining (1).
Government introduction of health and safety regulations (1) and minimum

wages (1) reduced the key reasons for the existence of trade unions (1).
Removal of mandatory trade union membership (closed shops) (1) means

that membership is reduced because it is now voluntary (1)

PUBLISHED
5(d) Discuss whether or not supply-side policy measures always promote 8

economic growth
Why supply-side policy measures are effective in promoting economic the economic argument,
growth: making use of economic
 education and training – increase productivity of labour information and clear
 lower direct taxes – increase incentive to work (reduction in income tax) and logical analysis to
and increase incentive to invest (reduction in corporation tax) evaluate economic
 subsidies - reduce business costs and encourage investment issues and situations.
 deregulation – reducing red tape / barriers to entry which could lead to One side of the
an increase in number of firms and increase competition argument may have
 privatisation – put in profit-maximisation incentive for private firms to more depth than the
invest and innovate and be more productive other, but overall both
 reducing trade union power – increases incentive to work harder. sides of the argument
are considered and
Why supply-side policy measures are not effective in promoting economic developed. There is
growth: thoughtful evaluation of
 takes a long time for it to have an impact on the economy economic concepts,
 reduces the revenues for government (e.g. cutting taxes) terminology, information
 opportunity cost for government and/or data appropriate
 subsidies can lead to over-reliance on them to the question. The
 could lower the quality of goods and services (race to the bottom) and discussion may also
welfare of society point out the possible
 lack of total demand. uncertainties of
outcomes.

PUBLISHED
5(d)

which makes use of
evaluate economic
The answer may lack
some depth and
development may be
one-sided. There is
appropriate to the
question.

at using economic
definitions and
terminology. Some
occasional
understanding.

awarded for no
creditable content.

Cambridge IGCSE™
ECONOMICS 0455/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PUBLISHED
marking principles.
descriptors.

PUBLISHED

PUBLISHED

 Point marking is often used to reward knowledge, understanding and application of skills. We give credit where the candidate’s answer
shows confusion.
wrongly.)


PUBLISHED
 The mark scheme will show the steps in the most likely correct method(s), the mark for each step, the correct answer(s) and the mark
for each answer
 If working/explanation is considered essential for full credit, this will be indicated in the question paper and in the mark scheme. In all
 Where the candidate uses a valid method which is not covered by the mark scheme, award equivalent marks for reaching equivalent
stages.
 Where an answer makes use of a candidate’s own incorrect figure from previous working, the ‘own figure rule’ applies: full marks will be
4 Annotation:
 Other annotations will be used by examiners as agreed during standardisation, and the meaning will be understood by all examiners

PUBLISHED
Common examiner annotations on 0455/2281/0987


without any support
Confused SEEN
Highlight Too vague
Level 1
Level 2
Level 3

PUBLISHED
1(a) Calculate Bhutan’s GDP in 2018. 1 Accept the figure without the $ sign.
$2.6 bn / $2600 m / $2 600 000 000 / 2.6  10⁹ (1).
1(b) Identify two indicators that are in both the World 2 If more than two indicators are given, consider the first
Happiness Index and the Human Development Index. three.
Life expectancy (1) GDP per head (1).
1(c) State why Bhutan’s 2018 government budget is likely to 2

have increased total demand in Bhutan.
Government spending was greater than government revenue

(1) there was a budget deficit (1) of $70 m (1) the government
may have used expansionary fiscal policy (1).
1(d) Explain two reasons why someone may prefer to work in 4 One mark for each of two reasons identified and one
the tertiary sector rather than in the primary sector. mark for each explanation.
Note there is a degree of ‘mix and match’ here. For
Logical explanation which might include: example, working hours or manual work can be taken
Better working conditions / non-wage factors (1) e.g. working as a development of working conditions.
inside / not having to work in wet weather / less stress / more Accept an answer that explains the disadvantages of
job satisfaction / fringe benefits (1). working in the primary sector e.g. may prefer to work in
Shorter working hours (1) permitting more leisure time (1). the tertiary sector as working hours are longer in the
Type of work / less physically demanding / not manual work primary sector.
(1) less risk to health / less tiring / less dangerous / fewer
accidents / may lack physical strength (1).
Better paid (1) enabling more goods and services to be
purchased / higher standard of living / as may require more
qualifications / skills/training / value added may greater in the
tertiary sector / tertiary sector may be expanding / primary
sector contracting / may be higher demand for tertiary
workers (1).

PUBLISHED
1(e) Analyse how investment in capital goods and education 4 Up to 3 marks for analysis on investment in capital
can increase New Zealand’s productivity. goods and up to 3 marks for investment in education.
Note only credit increase efficiency once.
Higher investment in capital goods will enable workers to
work with better equipment (1) more output per worker /
worker hour (1).
New capital goods may incorporate advances in technology /
be of higher quality (1) result in innovation (1) can work for
long hours (1).
Higher investment in education can enable more children to
be educated / children to be educated for longer / improve
quality of education / increase knowledge (1) increase
workers’ skills / qualifications (1) enable workers to use more
advanced technology (1).
Investment in capital goods and/or education can enable
capital goods/ workers to work at a faster rate (1) be more
efficient (1) make fewer mistakes / less wastage (1).

PUBLISHED
1(f) Analyse the relationship between GDP per head and net 5 There may be an implied comparison e.g. generally
migration. countries with a high GDP per head have net
immigration. New Zealand has a GDP per head of
Coherent analysis which might include: approx. $55 000 and net immigration of about 40,00
Overview whereas Kenya has a GDP per head of $2,000 and net
Generally, the countries with higher GDP per head have net emigration of about 50 000 (1 mark).
immigration / net migration / the countries with lower GDP per
head tend to have net emigration / positive/direct relationship For explanation of exception, do not accept that Kenya
(1). has ‘lower net migration’ / Mozambique has ‘higher net
Supporting evidence migration’ – a misinterpretation of the figure.
Up to 2 marks for two pieces of supporting evidence e.g.
 New Zealand has the highest GDP per head and the
highest net immigration / net migration / highest positive
migration (1)
 Cyprus has the second highest GDP per head and the
second highest net immigration / net migration / positive
migration (1)
 the four countries with the highest GDP per head, all
have net immigration / positive net migration (1)
 the two countries with lowest GDP per head both have
net emigration / negative net migration (1)
Exception
Exception is Kenya or Mozambique (1) Kenya has higher
GDP per head but higher net emigration than Mozambique
(1).
Comments
Higher GDP per head may encourage people to move to the
country to increase their living standards / income / people
who migrate into the country may be high skilled / lower GDP
per head may encourage people to emigrate to increase their
living standards/income (1) other influences e.g. immigration
controls / size of population / wars / political instability (1).

PUBLISHED
1(g) Discuss whether or not enterprise is likely to have 6 Apply this example to all questions with the
increased in New Zealand after 2019. command word DISCUSS
(1g, 1h, 2d, 3d, 4d and 5d)
may include: Each point may be credited only once, on either side of
High labour productivity / high-skilled workers (1) may keep an argument, but separate development as to how/why
costs down (1) and increase profits (1) which will motivate the outcome may differ is rewarded.
more people to be entrepreneurs (1).
Higher investment / better quality capital goods (1) may
increase the number of firms / result in expansion of firms (1)
and the opportunities to become entrepreneurs (1). Tax revenue may decrease… 1
Investment in education / better quality education (1) may
increase the people with the skills to become entrepreneurs / ...because of reason e.g., incomes may be 1
increase risk taking ability (1). lower.
Higher government spending on mental health / child poverty
/ pollution (1) may increase workers’ skills / increase workers’ Tax revenue may increase because incomes 0
health / increase workers’ productivity (1) higher government may be higher i.e., reverse of a previous
subsidies (1) reduce firms’ costs of production (1) higher argument.
government spending may increase total demand (1).
Higher economic growth (1) may have created more Tax revenue may increase because of a 1
opportunities / greater confidence / higher total demand (1). different reason i.e., not the reverse of a
Net immigration may have continued (1) and some previous argument e.g. government
immigrants may have been entrepreneurs / may set up new spending on subsidies may stimulate the
firms (1) more people in the country may raise total demand economy more than spending on education.
(1).
Cut in income tax rates (1) could increase demand (1) firms’
revenue / profits (1) create greater profit incentive (1).

PUBLISHED
1(g) Award up to 4 marks for logical reasons why it might not, Accept tax revenue may have increased for tax may
which may include: have increased for why it might not Reward recognition
Uncertainty / lack of confidence (1) reason e.g. there may that tax revenue may rise without a rise in tax rates or
have been a recession / negative economic growth / unclear with a fall in tax rates.
what may happen to GDP (1) which could have resulted in
the reward to enterprise declining (1) may think there is a
greater risk of running / setting up a firm (1).
Corporation tax may have increased / tax may have
increased (1) which would reduce retained profits / amount of
profit that can be kept (1).
Government attempts to reduce pollution / poverty / improve
mental health (1) may increase firms’ costs of production and
reduce profits (1) may have an opportunity cost (1) less
spending on something that could increase enterprise (1) e.g.
reduction is spending on education (1).

PUBLISHED
1(h) Discuss whether or not a cut in income tax rates will 6 Rise in income is not sufficient – need idea of
increase living standards. disposable income.

may include:
Will increase disposable income (1) increase ability to buy
goods and services / increase purchasing power (1) buy
basic necessities / reduce absolute poverty (1) may be able
to fulfil more wants / buy more luxuries (1).
May increase spending (1) increase total demand (1) reduce
unemployment / increase employment (1) increase output /
increase economic growth (1).
May increase saving (1) and so provide a safety net (1).
May encourage investment (1) which may lower costs of
production (1) reduce prices (1).
May be able to buy more merit goods / better quality
education/healthcare (1) increase health / life expectancy (1).
May increase the incentive to work (1) may earn more in work
than on unemployment benefits (1).
May enable people to work fewer hours (1) enjoy more
leisure time (1).

PUBLISHED
1(h) Award up to 4 marks for logical reasons why it might not,

which may include:
Tax revenue may fall (1) may result in a cut in government
spending (1) on e.g. education / health care / mental
healthcare / child poverty / pollution / unemployment benefit
(1) poor may be most reliant on public services (1).
It may increase congestion as people buy more cars (1) may
lead to pollution (1).
It may increase depletion of non-renewable resources as
consumption increases (1).
It may benefit mostly the rich / poor may not benefit / will not
benefit the unemployed (1) and so not everyone may enjoy
higher living standards (1).
People may spend on demerit goods (1) higher spending
which could reduce health / life expectancy (1).
Higher spending / demand may increase prices / cause
inflation (1) leave purchasing power unchanged / reduce

PUBLISHED
2(a) Identify two forms of money. 2 Do not accept credit cards, debit cards or cheques.
Two from: coins (1) bank notes / paper money (1) bank If more than two forms are given, consider the first
deposits / accounts (1) digital money (1). three.
Accept cash instead of coins and/or bank notes/paper
money for 1 mark.
Also accept commodity money, fiat money/legal tender
and fiduciary money.
Reward but do not expect identification of reserves at
the central bank.
Also accept examples of items that have been used as
money e.g., salt, gold.
Accept a currency as alternative to either coins or paper
money.
2(b) Explain two functions a central bank performs for its 4 One mark for each of two functions identified and one
government. mark for each explanation.

The central bank acts as a banker for the government (1) it
accepts tax payments to the government / provides facilities
for the government to make payments / manages the national
debt / lends to the government (1).
It operates the government’s monetary policy (1) e.g.
changing interest rates / to influence inflation (1).
It holds reserves of foreign currency (1) to influence the
foreign exchange rate (1).
It manages the government’s debt (1) issuing government
securities / paying interest on government securities (1).
It issues bank notes (1) influencing the money supply (1).
It may regulate commercial banks / banking system (1) to
ensure they act responsibly (1).
It acts as a lender of last resort (1) lending to commercial
banks / to prevent banks going out of business / a financial
collapse (1).

PUBLISHED
2(c) Analyse why a government may have lower 6 Accept an answer from the viewpoint of why
unemployment as its main aim. unemployment may be harmful e.g., a government may
want lower unemployment as unemployment reduces
Coherent analysis which might include: economic growth.
Unemployment may be at a high level (1) unemployment is
an inefficient use of resources / waste of resources (1) not
working at full capacity (1).
Lower unemployment would increase output / economic
growth (1) raise incomes / GDP per head (1) increase living
standards (1) reduce poverty / more able to buy basic
necessities (1) may reduce the crime rate (1) may increase
exports (1).
Lower unemployment will increase total demand / increase
consumer spending / increase spending (1) increase tax
revenue (1) lower government spending on unemployment
benefits (1) increase the government’s ability to spend on
(e.g. education) / reduce budget deficit / government
spending on unemployment benefits involves an opportunity
cost (1).
Lower unemployment may reduce the chances of workers
losing skills (1) being in work keeps workers up to date with
e.g. advances in technology (1).

PUBLISHED
2(d) Discuss whether or not inflation will harm producers. 8

 may increase costs of production – cost-push inflation – use of economic information and
reducing profit clear and logical analysis to
 may reduce international competitiveness evaluate economic issues and
 may cause menu costs situations. One side of the
 may cause shoe leather costs argument may have more depth
 may make it difficult to plan ahead. than the other, but overall, both
Why it might not: considered and developed. There
 may be demand-pull inflation, increasing firms’ revenue is thoughtful evaluation of
 may be low and stable economic concepts, terminology,
 may be lower than other countries’ inflation rates, information and/or data
increasing price competitiveness appropriate to the question. The
 may enable them to reduce real wages discussion may also point out the
 may increase tax revenue, some of which may be spent possible uncertainties of
on e.g. subsidies alternative decisions and
 cost of debt may fall / may be cheaper to borrow (in real outcomes.
terms)
 some producers may be making products with inelastic
demand.

PUBLISHED
2(d)
2 A reasoned discussion 35
which makes use of
economic issues and
lack some depth and
question.

using economic definitions

content.

PUBLISHED
3(a) Define a production possibility curve. 2 Nothing for a diagram,

A diagram showing maximum output / possible combinations
(1) of two types of products / of capital and consumer goods
(1) with given resources / given technology / in a given time
period (1) shows opportunity cost (1).
3(b) Explain why demand for soap is more price-inelastic than 4

demand for a luxury brand of perfume.

Soap is more essential / necessary than a luxury brand of
perfume (2) OR soap is a necessity (1) luxury brand of
perfume does not have to be purchased / not essential / a
want (1).
Soap has fewer substitutes than a luxury brand of perfume
(2) OR soap does not have close substitutes (1) whereas a
luxury brand of perfume may have close substitutes (1).
Soap is likely to take up a smaller proportion of income than a
luxury brand of soap (2) OR soap is likely to take only a small
proportion of income (1) whereas a luxury brand of perfume is
likely to take up a large proportion (1).
It is harder to delay the purchase of soap than the purchase
of a luxury brand of perfume OR the purchase of soap cannot
be delayed (1) while the purchase of a luxury brand of
perfume can be (1).

PUBLISHED
3(c) Analyse, using a demand and supply diagram, how an 6

increase in income will affect the market for a luxury
brand of perfume.

D and S diagram:
New demand curve shifted to the right (1). Written analysis
Equilibriums – shown by lines or equilibrium points (1). An increase in income will cause an increase in
demand for luxury perfume is not sufficient for a mark.
Up to 2 marks for written analysis which might include: Reward but do not expect reference to a luxury brand of
Luxury perfume will be more affordable / greater purchasing perfume being a normal good.
power / luxury perfume will take a smaller proportion of
income / more will be demanded at the same price (1) price
will rise / quantity traded will increase (1).

PUBLISHED
3(d) Discuss whether or not the public sector should be 8

responsible for the supply of all internet services.
In assessing each answer, use the table opposite. accurately examines both sides
of the economic argument,
Why it might: making use of economic
 government may charge a low price information and clear and logical
 enable poor to gain access to the internet, help children analysis to evaluate economic
with education issues and situations. One side
 government may base decisions on social costs and of the argument may have more
benefits depth than the other, but overall,
 government can control what is on the internet both sides of the argument are
 may be more able to take advantage of economies of considered and developed.
scale There is thoughtful evaluation of
 avoidance of wasteful duplication economic concepts, terminology,
 government may take a longer-term view on investing. information and/or data
appropriate to the question. The
Why it might not: discussion may also point out the
 opportunity cost – could have spent the money on e.g. possible uncertainties of
healthcare alternative decisions and
 private sector may invest more outcomes.
 private sector may be more efficient / have lower costs of
production
 profit incentive may encourage private sector to raise
quality
 private sector may make decisions quicker.

PUBLISHED
3(d)
information and clear analysis to
situations. The answer may lack
some depth and development
may be one-sided. There is
information and data appropriate
to the question.

understanding.

content.

PUBLISHED
4(a) Define dumping. 2 Accept the sale of a product at a low price.

The sale of a product at less than cost price (1) in a foreign
country (1) to gain a larger market share (1) to get rid of
surplus stock / to prevent price falling on the domestic market
(1).
4(b) Explain two reasons why a country’s foreign exchange 4 One mark for each of two reasons identified and one
rate may depreciate. mark for each explanation.
A common response may be an increase in the supply
Logical explanation which might include: of the currency (1) to buy more imports (1); A decrease
Inflation / fall in productivity (1) may make domestic products in demand for the currency (1) if less exports are sold
less internationally competitive / reducing net exports / (1). Total = 4.
reducing exports / increasing imports (1).
Income at home may rise (1) increasing demand for imports /
diverting products from the home market (1).
Incomes abroad may have fallen (1) reducing demand for
exports (1).
The rate of interest may have fallen (1) discouraging an inflow
of funds from other countries / encouraging an outflow of
funds to other countries (1).
There may be speculation that the currency will fall in value
(1) selling the currency before it falls in value (1)
Inward foreign direct investment may fall / outward fdi may
increase (1) due to changes in economic activity (1).
A central bank/government may sell the currency (1) to
increase exports / reduce imports / improve the balance of
payments (1).
Increase in supply of currency (could be shown by a diagram)
(1).
Decrease in demand for the currency (could be shown on a
diagram) (1).

PUBLISHED
4(c) Analyse how a MNC could reduce poverty in a host 6

country.

A MNC could increase employment / create job opportunities
(1) some of the unemployed could gain jobs / unemployment
could fall (1).
It may pay higher wages / incomes may rise (1) increasing
workers’ ability to buy products / buy basic necessities (1).
It may provide accommodation (1) and healthcare for workers
(1).
It may provide infrastructure (1) making e.g. transport/energy
more affordable (1).
It may provide training / invest in education (1) enabling
people to earn higher wages in the long run (1).
It may sell products at a cheaper price (1) enabling more
goods and services to be purchased (1).
It may pay taxes to the government / tax revenue may rise (1)
enabling the government to spend on measures to reduce
poverty (1).

PUBLISHED
4(d) Discuss whether or not a very low birth rate would be a 8

cause for concern for a government.
 may create an ageing population clear and logical analysis to
 may reduce size of the labour force in the future evaluate economic issues and
 may increase dependency ratio situations. One side of the
 may reduce tax revenue argument may have more depth
 may take population below the optimum level. than the other, but overall, both
Why it might not: considered and developed. There
 may maintain the size of the labour force in the short run is thoughtful evaluation of
as parents do not have to leave the labour force economic concepts, terminology,
 may reduce overcrowding information and/or data
 may reduce pollution appropriate to the question. The
 may reduce depletion of non-renewable resources. discussion may also point out the
possible uncertainties of
outcomes.

PUBLISHED
4(d)
some depth and development may
be one-sided. There is relevant
terminology, information and data



PUBLISHED
5(a) Define supply. 2 Allow one mark in total for amount produced or amount
Willingness to sell a product (1) and ability to sell a product sold. Need idea of selling / making available to
(1). consumers for full two marks.
Supply at a given price / in a given time period (1).
5(b) Explain two ways a government could increase the 4 One mark for each of two ways identified and one mark
consumption of merit goods. for each explanation.
Can accept lower price as a development of a subsidy
Logical explanation which might include: for a mark and lower price as another mark if given as a
Provide information/education (1) about the benefits of merit development of indirect taxes or maximum price.
goods / consumers may be unaware of full benefits (1).
Provide merit goods free / direct provision (1) e.g. education
and healthcare / nationalise industries producing merit goods
(1).
Subsidise the production of merit goods (1) to lower prices
(1).
Subsidise the consumption of merit goods (1) by e.g.
providing vouchers (1).
Set a maximum price / price ceiling (1) to make merit goods
more affordable / to lower price (1),
Pass laws / introduce regulation (1) to make consumption of
merit goods compulsory (1).
Remove / cut indirect taxes on merit goods (1) to make them
more affordable / to lower price (1).

PUBLISHED
5(c) Analyse how the level and pattern of household 6 Reward but do not expect:
spending may change when GDP decreases.  reference to inferior and normal goods.
 dissaving.
Coherent analysis which might include:  Nominal GDP may fall but real GDP may rise if
Spending may decrease (1) as households may have less there is deflation
income (1) less able to buy goods and services / lower
Lower GDP may reduce confidence / create greater
uncertainty (1) encouraging people to save more (1).
May borrow less (1) may be concerned cannot repay (1).
May expect prices to fall further (1) delay purchases (1).
Spending may not decrease if households think the decrease
is temporary (1) may borrow (1) as interest rates may be
lower (1) may use past saving to finance spending (1).
May spend a higher proportion on basic necessities (1) less
on luxuries/wants (1).
May spend a higher proportion of income (1) as saving may
fall by more than spending (1).
Households may spend less on imports (1) imports may be
higher in price / lower in quality (1).
GDP may decrease but GDP per head may rise (1) if
population falls by more than GDP (1).

PUBLISHED
5(d) Discuss whether or not a firm will benefit from an 8

increase in its output.
 may increase average revenue, if higher output is result use of economic information and
of higher demand clear and logical analysis to
 profits may rise if average revenue raises more than evaluate economic issues and
average cost situations. One side of the
 may be able to make greater use of spare capacity argument may have more depth
 higher output may increase a firm’s market power than the other, but overall, both
 greater advantage may be taken of technical, marketing sides of the argument are
managerial, labour and risk bearing economies of scale. considered and developed. There
Why it might not: economic concepts, terminology,
 average revenue may fall, higher output may reduce information and/or data
price appropriate to the question. The
 not all of the higher output may be sold / may be a lack of discussion may also point out the
demand possible uncertainties of
 diseconomies of scale may be experienced  managerial alternative decisions and
/ communication problems may occur / labour relations outcomes.
may decline
 growth achieved by vertical merger may lead to problems
of co-ordination.

PUBLISHED
5(d)
some depth and development may
be one-sided. There is relevant
terminology, information and data



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Private tutorials for Economics and

IGCSE Economics 0455

READ THESE INSTRUCTIONS FIRST

This document consists of 5 printed pages, 3 blank pages and 1 Insert.

Answer this question.

1 Crisis in the ice cream market

Fig. 1 The costs of producing ice cream for one firm

© UCLES 2018 0455/22/M/J/18

Table 1 GDP per head and HDI in selected countries in 2015

Country GDP per head (US$) HDI

Argentina 22 400 0.836

Bangladesh 3 600 0.570

Cuba 10 200 0.769

Egypt 11 500 0.690

Ghana 4 300 0.579

Madagascar 1 500 0.510

(a) Identify two fixed costs of production in Fig. 1. [2]

(g) Discuss whether or not a market system benefits consumers. [6]

© UCLES 2018 0455/22/M/J/18 [Turn over

Answer any three questions in this section.

(a) What may be the opportunity cost of building an airport? [2]

(a) Define a substitute and give an example. [2]

© UCLES 2018 0455/22/M/J/18

(a) Identify two causes of an ageing population. [2]

(b) Explain why the price of housing may increase. [4]

(a) Define commercial bank. [2]

(c) Analyse what can cause deflation. [6]

(a) Define import tariff. [2]

(b) Explain two benefits of an increase in world output. [4]

(c) Analyse how a recession may reduce a country’s imports. [6]

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© UCLES 2018 0455/22/M/J/18

© UCLES 2018 0455/22/M/J/18

© UCLES 2018 0455/22/M/J/18

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1 India’s high-technology industry

India has a number of expanding industries including construction, engineering, healthcare

Economic growth rate (%) Change in investment (%)

© UCLES 2018 0455/22/F/M/18

(c) Analyse how a government can encourage enterprise. [5]

Answer any three questions in this section.

(a) Define resources. [2]

(a) Define fixed cost. [2]

(b) Explain why traffic congestion is an external cost. [4]

© UCLES 2018 0455/22/F/M/18 [Turn over

(a) Define subsidy. [2]

(b) Explain two disadvantages of inflation. [4]

(a) Define state-owned enterprise. [2]

(c) Analyse how a monopoly could benefit consumers. [6]

(a) Define depreciation of a currency. [2]

© UCLES 2018 0455/22/F/M/18

(a) Define mixed economy. [2]

© UCLES 2018 0455/22/F/M/18

© UCLES 2018 0455/22/F/M/18

© UCLES 2018 0455/22/F/M/18

© UCLES 2018 0455/22/F/M/18

READ THESE INSTRUCTIONS FIRST

This document consists of 5 printed pages, 3 blank pages and 1 Insert.