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OLEVEL ECONOMICS
TOPICAL PASTPAPERS
ASIF FAROOQ
CONTENTS
1. SYLLABUS…………………………………………………………………………………………………04
2. FORMULA SHEET…………………………………………………………………..………………….22
3. TOPICAL PASTPAPERS (STRUCTURED)…………………………………………………......27
1. BASIC ECONOMIC PROBLEM…………………………………………………………………………………………….28
2. FACTORS OF PRODUCTION……………………………………………………………………………………………….29
3. OPPORTUNITY COST…………………………………………………………………………………………………………32
4. PRODUCTION POSSIBILTY CURVE………………………………………………………………………………………35
5. ECONOMIC SYSTEMS………………………………………………………………………………………………………..39
6. FREE MARKET FAILURE and GOVT. INTERVENTION…………………………………………………………..41
7. DEMAND & FACTORS AFFECTING DEMAND………………………………………………………………………46
8. SUPPLY & FACTORS AFFECTING SUPPLY……………………………………………………………………………48
9. EQUILIBRIUM and PRICE DETERMINATION……………………………………………………………………….49
10. ELASTICITIES of DEMAND & SUPPLY……………………………………………………………………………….54
11. SOCIAL COSTS and BENEFITS…………………………………………………………………………………………..59
12. PRIVATE and PUBLIC EXPENDITURE………………………………………………………………………………..63
13. MONEY, BANKING and STOCK EXCHANGE………………………………………………………………………65
14. CHOICE of OCCUPATIONS and WAGE DETERMIINATION…………………………………………………70
15. LABOUR and TRADE UNION…………………………………………………………………………………………….75
16. MOTIVES for SPENDING, SAVING and BORROWING……………………………………………………….78
17. TYPES of BUSINESS STRUCTURES…………………………………………………………………………………….81
18. PRODUCTIVITY and COST of PRODUCTION……………………………………………………………………..86
19. PROFIT MAXIMISATION & OTHER GOALS of FIRMS…………………………………………………………90
20. MONOPOLY and PERFECT COMPETITION……………………………………………………………………….91
21. ECONOMIES & DISECONOMIES of SCALE…………………………………………………………………………93
22. GROWTH of FIRMS and INTEGRATION……………………………………………………………………………95
23. GOVT. AIMS and CONFLICTS……………………………………………………………………………………………98
24. GOVERNMENT ECONOMIC POLICIES…………………………………………………………………………….100
25. TAXATION…………………………………………………………………………………………………………………….103
26. INFLATION and PRICE INDICES………………………………………………………………………………………106
27. UNEMPLOYEMENT……………………………………………………………………………………………………….112
28. GDP, GROWTH and RECESSION…………………………………………………………………………………….116
29. STANDARD OF LIVING and HDI……………………………………………………………………………………..119
30. DEVELOPING and DEVELOPED ECONOMIES………………………………………………………………….123
31. POPULATION…………………………………………………………………………………………………………………125
32. SPECIALISATION……………………………………………………………………………………………………………133
33. BALANCE of PAYMENTS………………………………………………………………………………………………..135
34. EXCHANGE RATE…………………………………………………………………………………………………………..139
35. INTERNATIONAL TRADE and PROTECTIONISM………………………………………………………………143
1
CONTENTS
5. YEARLY PASTPAPERS (DATA RESPONSE)…………………………………………………149
1. JUNE 2019………………………………………………………………………………………………………………………150
2. NOV 2018……………………………………………………………………………………………………………………….154
3. JUNE 2018………………………………………………………………………………………………………………………158
4. NOV 2017……………………………………………………………………………………………………………………….162
5. JUNE 2017………………………………………………………………………………………………………………………166
6. NOV 2016……………………………………………………………………………………………………………………….170
7. JUNE 2016………………………………………………………………………………………………………………………172
8. NOV 2015……………………………………………………………………………………………………………………….174
9. JUNE 2015………………………………………………………………………………………………………………………178
10. NOV 2014……………………………………………………………………………………………………………………..182
11. JUNE 2014…………………………………………………………………………………………………………………….186
2
Syllabus
Cambridge OLevel
Economics 2281
For examination in June and November 2020, 2021 and 2022.
Version 1
3
O Level Economics 2281 syllabus for 2020, 2021 and 2022. Syllabus overview
Assessment objectives
The assessment objectives (AOs) are:
AO1 Knowledge and understanding
Candidates should be able to:


show knowledge and understanding of economic definitions, formulas, concepts and theories
use economicterminology.
Candidates should be able to:




select, organise and interpret data
use economic information and data to recognise patterns and to deduce relationships
apply economic analysis to written, numerical, diagrammatic and graphical data
analyse economic issues and situations, identifying and developing links.
Candidates should be able to:



evaluate economic information and data
distinguish between economic analysis and unreasoned statements
recognise the uncertainties of the outcomes of economic decisions and events

communicate economic thinking in a logical manner.
4
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Syllabus overview
Weighting for assessment objectives
The approximate weightings allocated to each of the assessment objectives (AOs) are summarised below.
Assessment objectives as a percentage of thequalification
Assessment objective
Weighting in O Level %
AO1 Knowledge and understanding
40
AO2 Analysis
40
AO3 Evaluation
20
Assessment objectives as a percentage of each component
Assessment objective
Weighting in components %
Paper 1 30%
Paper 2 70%
AO1 Knowledge and understanding
50
35
AO2 Analysis
50
35
AO3 Evaluation
0
30
5
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022.
3 Subject content
Teachers and students are encouraged tofocuslearning of the followingsubject content around real, relevant and
up-to-date economic events that affect the whole world and students’ own countries. Such events might include
but are certainly not limited to:
(a) how large immigration movements may impact on economic growth/living standards in countries affected
(b) the impact that changes in oil prices and the effect that drilling/fracking may have on world trade
(c) the impact that a significant recession in one country may have on its trading partners
(d) how changes in corporation tax between countries may impacton where multinational companies (MNCs)
locate their head office.
1
The basic economic problem
1.1
The nature of the economic problem
Topic
Guidance
1.1.1 finite resources and unlimited wants
Definition and examples of the economic problem in
the contexts of: consumers; workers; producers; and
governments.
Thedifference betweeneconomic goodsandfree
goods.
1.1.2 economic and free goods
1.2
The factors of production
Topic
Guidance
1.2.1 definitions of the factors of production and
their rewards
Definitions and examples of land, labour, capital and
enterprise. Examples of the nature of each factor of
production.
Theinfluences onthemobilityofthevarious factors.
The causes of changes in the quantity and quality of
the various factors.
1.2.2 mobility of the factors of production
1.2.3 quantity and quality of the factors of
production
1.3
Opportunity cost
Topic
Guidance
1.3.1 definition of opportunity cost
Definition and examples of opportunity cost in
different contexts.
1.3.2 the influence of opportunity cost on decision
making
Decisions made by consumers, workers, producers
andgovernmentswhenallocating theirresources.
6
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
1.4
Production possibilitycurvediagrams (PPC)
Topic
Guidance
1.4.1 definition of PPC
Definition,drawing andinterpretation of appropriate
diagrams.
1.4.2 points under, on and beyond a PPC
1.4.3 movements along a PPC
1.4.4 shifts in a PPC
The significance of the location of production points.
2
The allocation of resources
2.1
Microeconomics and macroeconomics
Topic
Movements along a PPC and opportunity cost.
The causes andconsequences of shifts in a PPC in
terms of an economy’s growth.
Guidance
2.1.1
microeconomics
2.1.2
macroeconomics
2.2
The role of markets in allocating resources
The difference between microeconomics and
macroeconomicsand thedecisionmakersinvolved
in each.
Topic
Guidance
2.2.1 the marketsystem
Howamarketsystemworks;includingbuyers,sellers,
allocation of scarce resources, market equilibrium,
and market disequilibrium.
Establishing thatthe economic problem creates three
key questions aboutdetermining resource allocation
– what to produce, how, and for whom.
2.2.2 key resourcesallocationdecisions
2.2.3 introduction to the price mechanism
2.3
How the pricemechanism provides answers to these
key allocationquestions.
Demand
Topic
Guidance
2.3.1 definition ofdemand
Definition,drawing andinterpretation of appropriate
diagrams.
Ademandcurveto bedrawn andusedtoillustrate
movements alongademandcurve with appropriate
terminology, for example extensions and
contractions in demand.
The linkbetween individual and marketdemand in
terms ofaggregation.
The causes of shifts in a demand curve with
appropriate terminology,forexample increase and
decrease indemand.
2.3.2 price anddemand
2.3.3 individual andmarketdemand
2.3.4 conditions ofdemand
7
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
2.4
Supply
Topic
Guidance
2.4.1 definition ofsupply
Definition,drawing andinterpretation of appropriate
diagrams.
2.4.2 price andsupply
Asupplycurveto be drawnandusedtoillustrate
movements along asupplycurve with appropriate
terminology, for example extensions and
contractions insupply.
The linkbetween individual and marketsupplyin
terms ofaggregation.
2.4.3 individual andmarketsupply
2.4.4 conditions ofsupply
2.5
The causes of shifts in a supply curve with
appropriate terminology,forexample increase and
decrease insupply.
Price determination
Topic
Guidance
2.5.1 market equilibrium
Definition, drawing and interpretation of demand
andsupplyschedules andcurves used to establish
equilibrium price and sales in a market.
2.5.2 marketdisequilibrium
Definition, drawing and interpretation of demand
and supply schedules and curves used to identify
disequilibrium prices and shortages (demand
exceeding supply) and surpluses (supply exceeding
demand).
2.6
Price changes
Topic
Guidance
2.6.1 causes of price changes
Changingmarketconditions ascauses of price
changes.
2.6.2 consequences of price changes
Demand and supplydiagrams to be used to illustrate
these changes in market conditions and their
consequences for equilibrium price andsales.
8
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
2.7
Price elasticity of demand (PED)
Topic
Guidance
2.7.1 definition of PED
2.7.2 calculation of PED
Calculation of PED using the formula and interpreting
the significance of the result.
Drawing and interpretation of demandcurve
diagrams to show different PED.
2.7.3 determinants of PED
The key influences on whether demand is elastic or
inelastic.
2.7.4 PED and total spending on aproduct/revenue
The relationship between PEDand total spending
on aproduct/revenue, both in adiagram and as a
calculation.
Theimplicationsfordecisionmakingbyconsumers,
producers andgovernment.
2.7.5 significance of PED
2.8
Price elasticity of supply (PES)
Topic
Guidance
2.8.1 definition of PES
2.8.2 calculation of PES
2.8.3 determinants of PES
2.8.4 significanceof PES
2.9
Calculation of PES using the formulaand interpreting
the significance of the result.
Drawing andinterpretationofsupplycurve diagrams
to show different PES.
The key influences on whether supply is elastic or
inelastic.
Theimplications fordecisionmakingbyconsumers,
producers andgovernment.
Market economic system
Topic
Guidance
2.9.1 definition of market economic system
Including the roles of the private sector (firms and
consumers) and thepublicsector (government) in a
market economy.
2.9.2 advantages and disadvantages of themarket
economic system
Including examples of how itworks in a variety of
different countries.
9
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
2.10 Market failure
Topic
Guidance
2.10.1 definition of market failure
The key termsassociated with marketfailure: public
good, meritgood, demeritgood, socialbenefits,
externalbenefits, privatebenefits, socialcosts,
external costs, private costs.
With respectto public goods, merit and demerit
goods,externalcosts and externalbenefits, abuseof
monopoly power and factor immobility.
2.10.2 causes of market failure
2.10.3 consequences ofmarketfailure
2.11
Examples of marketfailure with respect to these
areas only.
Theimplicationsofmisallocation ofresources in
respectoftheoverconsumptionofdemeritgoods
and goods with external costs, and the under
consumption of meritgoods and goods with external
benefits.
Note: demand and supplydiagrams relating to
market failure are not required.
Mixed economicsystem
Topic
2.11.1 definition ofthemixedeconomicsystem
2.11.2 governmentintervention to addressmarket
failure
Guidance
Definitions,drawing andinterpretation ofappropriate
diagramsshowingtheeffectsofthreegovernment
microeconomic policy measures: maximum and
minimum prices in product, labour and foreign
exchange markets; indirect taxation; and subsidies.
Definition only of government microeconomic
policymeasures: regulation;privatisation and
nationalisation; anddirect provision of goods.
The effectiveness ofgovernmentintervention in
overcoming thedrawbacks of amarket economic
system.
10
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
3
Microeconomic decision makers
3.1
Money and banking
Topic
Guidance
3.1.1
3.1.2
money
banking
3.2
Households
The forms, functions and characteristics of money.
Theroleandimportanceofcentralbanksand
commercialbanksforgovernment,producersand
consumers.
Topic
Guidance
3.2.1 theinfluences onspending, savingand
borrowing
Including income, the rate of interest and confidence
– between different households and over time.
3.3
Workers
Topic
Guidance
3.3.1 factors affecting an individual’s choice of
occupation
3.3.2 wage determination
Wage and non-wage factors.
3.3.3 reasons for differences in earnings
How changes in demand and supply, relative
bargaining strengths, discrimination and government
policy can all influence differences in earnings
between workers whether they are: skilled/unskilled;
primary/secondary/tertiary; male/female; private
sector/public sector. Definition, drawing and
interpretation of diagrams that illustrate the effects
of changes in demand and supply in the labour
market.
Advantages and disadvantages for workers, firms and
the economy.
3.3.4 division of labour/specialisation
3.4
The influences of demand and supply, relative
bargaining power and government policy, including
minimum wage.
Trade unions
Topic
3.4.1 definition of a trade union
3.4.2 the role oftradeunions in the economy
3.4.3 the advantagesanddisadvantagesoftrade
union activity
Guidance
Including engaging in collective bargaining on wages,
working hours and working conditions; protecting
employment; and influencing government policy.
Factors influencing the strength of trade unions.
From the viewpoint of workers, firms and the
government.
11
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
3.5
Firms
Topic
Guidance
3.5.1 classification of firms
Intermsofprimary/secondary/tertiarysectorsand
private/publicsector, and the relative size of firms.
Note: detailed knowledge of different types of
structure of a firm is not required.
3.5.2 small firms
3.5.3 causes and forms of the growth of firms
3.5.4 mergers
3.5.5 economies and diseconomies of scale
3.6
Theadvantagesanddisadvantagesofsmallfirms, the
challengesfacingsmall firms andreasonsfortheir
existence.
Internal growth, for example increased market share.
External growth, for example mergers.
Examples, advantages and disadvantages of
differenttypes ofmergers:horizontal,vertical,and
conglomerate.
How internal and external economies and
diseconomies of scale can affect afirm/industry as
the scale of production changes.
Firms and production
Topic
Guidance
3.6.1 demand for factors of production
Influences to include demand for the product,
the price of different factors of production, their
availability and their productivity.
3.6.2 labour-intensive and capital-intensive
production
The reasons for adopting the different forms of
production and their advantages and disadvantages.
3.6.3 production and productivity
The difference between, and influences on,
production andproductivity.
3.7
Firms’ costs, revenue and objectives
Topic
Guidance
3.7.1 definition of costs of production
Total cost(TC), average total cost (ATC), fixed cost
(FC), variablecost (VC), average fixed cost(AFC),
average variable cost (AVC).
Note: marginal cost not required.
3.7.2 calculation of costs of production
Calculation of TC, ATC, FC, VC, AFC and AVC.
Definition,drawing andinterpretation ofdiagrams
thatshowhowchanges in outputaffectcostsof
production.
Total revenue (TR) and average revenue (AR).
Note: marginalrevenue is notrequired.
Calculation of TR and AR.
The influence of sales on revenue.
Survival, social welfare,profit maximisation and
growth.
3.7.3 definition of revenue
3.7.4 calculationofrevenue
3.7.5 objectives of firms
12
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
3.8
Market structure
Topic
Guidance
3.8.1 competitive markets
The effect of having a high number of firms on price,
quality, choice, profit.
Note: thetheoryofperfect andimperfect
competition anddiagramsarenotrequired.
3.8.2 monopolymarkets
Characteristics, advantages and disadvantages of
monopoly.
Note: diagrams are not required.
4
Government and the macroeconomy
4.1
Therole of government
Topic
Guidance
4.1.1 theroleofgovernment
Locally, nationally and internationally.
4.2
Themacroeconomicaims ofgovernment
Topic
Guidance
4.2.1 the macroeconomic aims of government
Economic growth, full employment/low
unemployment, stable prices/low inflation, balance
of payments stability, redistribution of income.
Reasonsbehind the choice of aims and the criteria
that governments set for each aim.
Possibleconflictsbetween aims: fullemployment
versus stable prices; economic growth versus balance
ofpaymentsstability; andfullemploymentversus
balance of payments stability.
4.2.2 possibleconflictsbetweenmacroeconomic
aims
4.3
Fiscal policy
Topic
4.3.1 definition of the budget
4.3.2 reasons for government spending
Guidance
The main areas of governmentspending and the
reasons forandeffects of spending in theseareas.
4.3.3 reasonsfortaxation
Taxation as the main sourceofgovernmentrevenue
and the reasons for levying taxation.
4.3.4 classificationoftaxes
Examples of the different classifications of tax;
progressive, regressive, proportional; and direct,
indirect.
The qualities of a good tax.
Theimpactoftaxation onconsumers,producers,
government and economy as a whole.
4.3.5 principles of taxation
4.3.6 impact oftaxation
Continued
13
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
4.3
Fiscalpolicycontinued
Topic
Guidance
4.3.7 definition of fiscal policy
4.3.8 fiscal policymeasures
4.3.9 effects of fiscal policy on government
macroeconomic aims
The tax and spending changes, in the form of fiscal
policy, thatcausebudgetbalanceorimbalance.
Including calculations of the size of abudgetdeficit
or surplus.
How fiscal policy measures may enable the
government to achieve itsmacroeconomic aims.
Note: aggregate demand and aggregate supply are
not required.
4.4
Monetary policy
Topic
Guidance
4.4.1 definition of money supply and monetary
policy
4.4.2 monetary policymeasures
4.4.3 effects of monetary policy on government
macroeconomic aims
4.5
Changes in interest rates,money supplyandforeign
exchange rates.
How monetary policy measures may enable the
government to achieve itsmacroeconomic aims.
Supply-side policy
Topic
4.5.1 definition of supply-side policy
4.5.2 supply-side policy measures
4.5.3 effects ofsupply-sidepolicymeasureson
government macroeconomic aims
Guidance
Possible supply-side policy measures include
education and training, labourmarket reforms, lower
direct taxes, deregulation, improving incentives to
work and invest, and privatisation.
Howsupply-sidepolicymeasuresmay enable the
government to achieve itsmacroeconomic aims.
14
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
4.6
Economic growth
Topic
Guidance
4.6.1 definition of economic growth
4.6.2 measurementofeconomicgrowth
Real Gross Domestic Product(GDP) andhow itcan
be used to measure economic growth. GDP per head
(capita).
4.6.3 causes and consequences of recession
Meaning of recession andhow a recession moves the
economy within its PPC.
4.6.4 causes of economic growth
How changes in total demand may increase the
utilisation of resources and GDP – resulting in a
movement from inside toward the PPC.
How economic growth shifts the economy’s PPC to
therightandis causedbychangesininvestment,
technology, and the quantityand qualityof the
factors ofproduction.
4.6.5 consequences of economic growth
The costs and benefits of economic growth in the
context of different economies.
4.6.6 policies to promote economic growth
The range of policies available to promote economic
growth and how effective they might be.
4.7
Employment and unemployment
Topic
Guidance
4.7.1 definition of employment, unemployment and
full employment
4.7.2 changingpatterns andlevel of employment
4.7.3 measurement of unemployment
4.7.4 causes/types of unemployment
4.7.5 consequences of unemployment
4.7.6 policiestoreduce unemployment
The nature and causes of changes in the pattern of
employment, for example increase in proportion
ofworkers employed in thetertiarysector and
formal economy as an economy develops; agreater
proportion of women in the labour force due to
changesinsocial attitudes; decline in the proportion
employed in thepublicsector as acountrymoves
towards a market economy.
How unemployment ismeasured – claimant count
andlabour forcesurvey– andtheformula for the
unemployment rate.
Frictional, structural and cyclical unemployment.
The consequences of unemployment for the
individual, firms and the economy asa whole.
The range of policies available to reduce
unemployment and how effective they mightbe.
15
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
4.8
Inflationanddeflation
Topic
Guidance
4.8.1 definition of inflation and deflation
4.8.2 measurement of inflation and deflation
4.8.3 causes of inflation and deflation
4.8.4 consequences of inflationanddeflation
4.8.5 policies to control inflation and deflation
5
Economic development
5.1
Living standards
Topic
5.1.1
Measurement of inflation and deflation using the
Consumer Prices Index (CPI).
Causes of inflation: demand-pull and cost-push.
Causes of deflation: demand-side and supply-side.
Theconsequencesofinflation anddeflation for
consumers, workers, savers, lenders, firms and the
economy as a whole.
The range of policies available to control inflation and
deflation and how effective they might be.
Guidance
indicators of living standards
Real GDP perhead and the Human Development
Index (HDI).
The components of real GDP and HDI.
Theadvantagesanddisadvantagesof realGDP and
HDI.
5.1.2
comparinglivingstandards andincome
distribution
5.2
Poverty
Reasons for differences in livingstandards and
incomedistribution within andbetween countries.
Topic
Guidance
5.2.1 definition of absolute and relative poverty
The difference between the two terms.
5.2.2 the causes of poverty
The causes of poverty includingunemployment, low
wages, illness and age.
Policies including thosepromoting economic growth,
improved education, moregenerous state benefits,
progressive taxation, and national minimum wage.
5.2.3 policies to alleviate poverty and redistribute
income
16
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
5.3
Population
Topic
Guidance
5.3.1 the factors that affect population growth
Birth rate, death rate, netmigration, immigration and
emigration.
5.3.2 reasons fordifferent rates of population
growth in different countries
How and why birth rates, death rates and net
migration vary between countries.
5.3.3 the effects ofchanges in the size and structure
of population on different countries
The concept of an optimum population. The effects
of increases and decreases in population size and
changes in the age and gender distribution of
population.
Note: interpretation of a population pyramid is
required, but drawing is not.
5.4
Differences in economic development between countries
Topic
Guidance
5.4.1 differences in economicdevelopment
between countries
Causesandimpactsofdifferences in income;
productivity;population growth;sizeofprimary,
secondary and tertiary sectors; saving and
investment; education; and healthcare.
6
International trade and globalisation
6.1
International specialisation
Topic
Guidance
6.1.1 specialisation at anational level
The basis for specialisation atnational level in broad
termsof:superiorresource allocationand/orcheaper
production methods.
6.1.2 advantages and disadvantages of specialisation
at a national level
For consumers, firms and the economy.
6.2
Globalisation, freetradeandprotection
Topic
Guidance
6.2.1 definition ofglobalisation
6.2.2 role of multinational companies (MNCs)
6.2.3 the benefits of free trade
6.2.4 methods of protection
6.2.5 reasonsforprotection
6.2.6 consequences of protection
MNCsandthecostsandbenefitstotheirhostand
home countries.
Thebenefits forconsumers,producers andthe
economy in a variety of countries.
Tariffs, import quotas, subsidies and embargoes.
Including infant industry, declining industry, strategic
industry and avoidance of dumping.
Effectiveness of protection and its impact on the
home country and its trading partners.
17
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
6.3
Foreignexchangerates
Topic
Guidance
6.3.1 definition of foreign exchange rate
6.3.2 determinationofforeign exchange ratein
foreign exchangemarket
Floating and fixed systems.
Thedemand for andsupplyofacurrency in the
foreign exchangemarketand thedeterminationof
the equilibrium foreign exchange rate.
6.3.3 causes offoreignexchange rate fluctuations
Includingchanges indemand forexports andimports,
changesintherateof interest,speculation, andthe
entry or departure of MNCs.
6.3.4 consequences of foreign exchange rate
fluctuations
Theeffects of foreignexchange rate fluctuations on
export and import prices and spending on imports
and exports via the PED.
Thedifference between, andtheadvantages and
disadvantagesof, afloatingforeignexchange rate
and a fixed foreign exchange rate system.
6.3.5 floatingandfixedforeign exchangerates
6.4
Current account of balance of payments
Topic
Guidance
6.4.1 structure
The components ofthe current account ofthe
balance ofpayments – trade in goods, tradein
services, primary income and secondary income.
Calculation of deficits and surpluses on the current
account of the balance of payments and its
component sections.
Reasons for deficits and surpluses.
6.4.2 causes of current accountdeficitand surplus
6.4.3 consequences of current accountdeficitand
surplus
6.4.4 policiestoachieve balanceofpayments
stability
Impact on GDP, employment, inflation andforeign
exchange rate.
The range of policies available to achieve balance of
payments stability and how effective they mightbe.
18
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022.
4 Details of the assessment
Forinformation on the assessment objectives (AOs), see Section 2.
Paper 1 – Multiple Choice
Multiple-choice paper, 45 minutes, 30 marks
Candidates answer all 30 multiple-choice questions. Candidates indicate their answers on the multiple choice
answer sheet provided. Thequestions are based on all six sections of the syllabus content. The questions may
include calculations.
Calculators may be used in the examination.
The paper assesses the following assessment objectives:
AO1: Knowledge and understanding
AO2: Analysis
Paper 2 – Structured Questions
Written paper, 2 hours 15 minutes, 90 marks
Candidates answer one compulsory question in Section A and three questions from a choice of four in Section B.
Candidates write their answers in the answer booklet provided.
Candidatesshouldbe awareofthemarksforeach partquestion. Theseareprintedonthequestionpaper.
Candidates shoulduse them as a guide to the amount of detail and length of response expected and to help them
manage their time effectively.
Calculators may be used in both sections of the examination.
Section A
Candidates answer one compulsory question (30 marks), which requires them to interpret and analysepreviously
unseen source material relevant toa real economic situation. Thequestion has partquestions. Each partquestion
is based on one or more topics drawn from the syllabus content. The part questions require short and extended
responses, based on the source information provided and may include calculations and diagrams. The source
material contains written text and may contain diagrammatic or tabular information. Candidates must refer to this
source material.
Section B
Candidatesanswerthreequestions from achoiceof four.Each question isworth 20marks andhas four part
questions.Eachpartquestionis basedononeormoretopics drawnfromthesyllabuscontent. Thequestions
require short andextended responses, andmayincludecalculations anddiagrams.Each question isintroduced by
stimulus material. The stimulus gives the question context. Candidates may refer to this material and/or to other
examples that they have studied.
The paper assesses the following assessment objectives:
AO1: Knowledge and understanding
AO2: Analysis
AO3: Evaluation
19
Cambridge O Level Economics 2281 syllabus for 2020, 2021 and 2022. Subjectcontent
Command words
The table below includescommandwordsused in the assessment forthis syllabus. The use of the command word
will relate to the subject context.
Command word
What it means
Analyse
examine in detail toshow meaning, identify elements and the relationship between them
Calculate
work out from given facts, figures or information
Define
give precisemeaning
Describe
state the points of a topic / give characteristics and main features
Discuss
write about issue(s) or topic(s) in depth in a structured way
Explain
setoutpurposes orreasons/maketherelationshipsbetween thingsevident/provide why
and/or how and support with relevant evidence
Give
produce an answer from a given source or recall/memory
Identify
name/select/recognise
State
express in clear terms
20
0 LEVEL ECONOMICS
FORMULA SHEET
21
1. Price Elasticity of Demand (PED)
𝑃𝐸𝐷 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
2. Price Elasticity of Supply (PES)
𝑃𝐸𝑆 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑠𝑢𝑝𝑝𝑙𝑖𝑒𝑑
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
3. Marginal Product (MP)
𝑀𝑃 =
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑁𝑢𝑚𝑏𝑒𝑟 𝐿𝑎𝑏𝑜𝑢𝑟 𝑈𝑛𝑖𝑡𝑠
4. Average Product (AP)
𝐴𝑃 =
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐿𝑎𝑏𝑜𝑢𝑟 𝑈𝑛𝑖𝑡𝑠
5. Total Revenue (TR)
TR = Price × Quantity
6. Average Revenue (AR)
𝐴𝑅 =
𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
22
7. Marginal Revenue (MR)
𝑀𝑅 =
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
8. Average Variable Cost (AVC)
𝐴𝑉𝐶 =
𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
9. Average Fixed Cost (AFC)
𝐴𝐹𝐶 =
𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡
𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
10. Total Cost (TC)
TC = Fixed Cost + Variable Cost
11. Average Cost (AC)
𝑀𝐶 =
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑑𝑢𝑐𝑡
12. Total Profit (TP)
TP = Total Revenue –Total Cost
13. Terms of Trade
𝑇𝑂𝑇 =
𝐸𝑥𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
× 100
𝐼𝑚𝑝𝑜𝑟𝑡 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
23
14. Social Benefits and Social Costs
Social Benefits = Private Benefits + External Benefits
Social Costs = Private Costs + External Costs
15. Consumer Price Index (CPI)
𝐶𝑃𝐼 =
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐵𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟
× 100
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐵𝑎𝑠𝑘𝑒𝑡 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
16. Inflation Rate (IR)
𝐼𝑅 =
𝐶𝑃𝐼 𝑡ℎ𝑖𝑠 𝑦𝑒𝑎𝑟 − 𝐶𝑃𝐼 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟
𝐶𝑃𝐼 𝑙𝑎𝑠𝑡 𝑦𝑒𝑎𝑟
× 100
16. Aggregate Expenditure (AE) or National Income (Y)
AE=Y=C+G+I+(X-M)
Where: C = Consumption G = Government Spending I = Investment X = Exports
M = Imports (X – M) = Net Exports
Gross Domestic Product (GDP) =Total Output produced in an economy within year
Gross National Product (GNP) = GDP + Net Property Income from Abroad (NPIA)
Net National Product (NNP) = GNP – Capital Consumption
Net Domestic Product (NDP) = GDP – Capital Consumption
24
17. Nominal GDP
Nominal GDP = Quantity × Price in current year
18. Real GDP
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 = 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 ×
𝐵𝑎𝑠𝑒 𝑦𝑒𝑎𝑟 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑦𝑒𝑎𝑟 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
19. GDP Deflator
𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
× 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
20. Total Labour Force (TLF)
TLF = Total number of employed people + Total number of unemployed people
21. Unemployment Rate (UR)
𝑈𝑅 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑃𝑒𝑜𝑝𝑙𝑒
𝑇𝑜𝑡𝑎𝑙 𝐿𝑎𝑏𝑜𝑢𝑟 𝐹𝑜𝑟𝑐𝑒
× 100
22. Real Exchange Rate (RER)
𝑅𝐸𝑅 =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐸𝑥𝑐ℎ𝑎𝑛𝑔𝑒 𝑅𝑎𝑡𝑒 × 𝐷𝑜𝑚𝑒𝑠𝑡𝑖𝑐 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
𝐹𝑜𝑟𝑒𝑔𝑖𝑛 𝐸𝑥𝑐ℎ𝑎𝑛𝑔𝑒 𝑅𝑎𝑡𝑒
25
0 LEVEL ECONOMICS
TOPICAL PASTPAPERS
(STRUCTURED)
26
1. Basic Economic Problem
(JUNE 2016/P22/Q7)
(a) What is meant by ‘scarce resources’? [2]
(JUNE 2016/P22/Q6)
(a) Why can the economic problem never be solved? [2]
(JUNE 2015/P21/Q2)
(b) Explain why the economic problem can never be solved. [4]
(JUNE 2014/P22/Q2)
(a) What is meant by the ‘economic problem’? [2]
(JUNE 2013/P21/Q2)
The economic problem exists in every country, but there are different ways to try
to solve it.
(a) Describe the nature of the economic problem. [4]
(NOV 2012/P22/Q2)
(b) Explain what is meant by the economic problem and why opportunity cost is
relevant to the allocation of resources. [6]
(JUNE 2012/P21/Q2)
(a) Explain the economic problem of scarcity. [3]
(NOV 2011/P23/Q2)
(a) What is meant by the basic economic problem? [2]
(NOV 2011/P22/Q2)
(a) Why do all countries face the basic economic problem? [4]
27
2. Factors of Production
(JUNE 2019/P21/Q4)
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]
(c) Analyse how a government could increase the supply of enterprise. [6]
(NOV 2017/P22/Q4)
(a) Name two factors of production used in making cars. [2]
(NOV 2017/P22/Q2)
Singapore is usually ranked as one of the best countries in which to do business. It
is an open economy engaging in free trade. It has a history of strong
entrepreneurship, low unemployment, low average costs and relatively low tax
rates. Its example may encourage other countries to remove trade restrictions.
(b) Explain two factors that would increase the supply of entrepreneurs in an
economy. [4]
(JUNE 2017/P22/Q2)
Indonesia’s output is influenced by its factors of production. A production
possibility curve diagram can be used to show this relationship between resources
and output. Indonesia does have extensive fishing waters but does not actually
catch many fish. Most of its fishing firms are small and they compete against
much larger foreign firms. These larger foreign firms have been attracted into
Indonesia’s waters because of increasing demand for fish. The price elasticity of
demand for different types of fish has changed in the last few years.
(a) Identify the two human factors of production. [2]
28
(JUNE 2017/P21/Q4)
(b) Explain two benefits that an economy may gain as a result of the discovery of
oil on its land. [4]
(JUNE 2016/P21/Q7)
(b) Explain, giving examples, two factors of production used in the tourism
industry. [4]
(NOV 2014/P22/Q2)
(a) Using examples, define the factor of production, ‘capital’. [4]
(JUNE 2014/P21/Q2)
(a) Describe two ways in which land is different from labour. [4]
(NOV 2013/P23/Q2)
Labour is one of the most important factors of production.
(a) Using examples, define the factor of production, labour. [4]
(b) Explain why production is sometimes very labour-intensive. [6]
(NOV 2013/P22/Q2)
(a) Define the factor of production, enterprise. [4]
(JUNE 2013/P22/Q2)
(a) Using appropriate examples, describe the four factors of production. [6]
(c) Discuss whether more factors of production should be used to build houses. [8]
(NOV 2012/P23/Q2)
Labour is one of the most important factors of production.
(a) Using examples, define the factor of production, labour. [4]
(NOV 2012/P22/Q2)
(a) Describe, with the use of examples, two factors of production. [4]
29
(JUNE 2012/P22/Q2)
(a) Explain, using examples, what is meant by the factor of production called land.
[3]
(JUNE 2012/P21/Q2)
(c) Distinguish, using examples, between the different factors of production. [6]
(NOV 2011/P22/Q2)
(b) State and explain the factors of production. [4]
(NOV 2011/P21/Q2)
Car production in the United States has changed dramatically during the last forty
years. The managers of the firms have decided to use more advanced machinery
and fewer employees to produce the cars.
(a) Identify and explain the factors of production in the information above. [4]
(NOV 2010/P23/Q2)
(d) Discuss whether it is a disadvantage to rely just on market forces to allocate
resources. [6]
(NOV 2010/P22/Q2)
(a) Giving an example of each, define the four factors of production. [4]
(JUNE 2010/P22/Q3)
(b) Explain three factors of production that are involved in the operation of an
airport. [6]
(JUNE 2010/P21/Q6)
Firms employ factors of production to produce goods and services in order to
make profits. (a) What is meant by the term factors of production? [4]
30
3. Opportunity Cost
(JUNE 2018/P22/Q2)
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]
(NOV 2017/P22/Q3)
Rich people in some countries are now working for more hours on average than
poor people. One reason for this is thought to be that well-paid jobs provide more
job satisfaction. Gaining enjoyment from work can lead to high labour
productivity.
(a) What is a possible opportunity cost of working? [2]
(JUNE 2017/P22/Q3)
In 2015 some German commercial banks reduced their already very low interest
rates on deposit accounts. The German Government was hoping that such a
change would encourage more Germans to buy shares in German firms. The
ability of German firms to buy capital goods would be increased if they could sell
more shares or borrow more from commercial banks.
(b) Explain the connection between opportunity cost and the purchase of
shares.[4]
31
(JUNE 2016/P21/Q4)
Increasing demand from China has made New Zealand the world’s biggest
exporter of dairy products. Its exports of milk to China increased by 45% in 2013.
More than 300 000 hectares of land in New Zealand have been transferred to
dairy use from other forms of farming and forestry use since 2000. The increase in
milk production has caused the average cost of its production to fall and changes
in production methods have affected the price elasticity of supply of milk.
(a) Why may less wheat be the opportunity cost of producing more milk? [2]
(JUNE 2015/P22/Q2)
Students have to consider the opportunity cost of going to university. University
graduates usually earn more than people who have not gone to university. Having
more graduates influences a country’s production possibility curve. Some
economists suggest that students should pay the full cost of their university
courses and accommodation. Others say that the government should pay some or
all of the cost.
(a) Describe a possible opportunity cost of a student going to university. [2]
(b) Explain why university graduates usually earn more than people who have not
gone to university. [4]
(JUNE 2015/P21/Q2)
(a) Define ‘opportunity cost’. [2]
(NOV 2014/P22/Q2)
Factors of production, private and external costs and opportunity costs are all
important concepts in Economics.
(c) Explain why scarcity gives rise to an ‘opportunity cost’. [4]
(d) Discuss whether a decision to cut down trees for wood is an appropriate use of
a scarce resource. [8]
32
(JUNE 2014/P21/Q2)
In 2012, the Indian Prime Minister announced that the Government was going to
spend US$90 million on sending a spaceship to the planet Mars. Some economists
argued that it would be better to use the factors of production, such as land and
labour, to improve education or to build more roads.
(b) Explain the significance of opportunity cost for a government when making its
spending decisions. [4]
(NOV 2012/P22/Q2)
(b) Explain what is meant by the economic problem and why opportunity cost is
relevant to the allocation of resources. [6]
(JUNE 2012/P21/Q2)
(b) Define the concept of opportunity cost. [3]
(NOV 2011/P22/Q2)
(c) Define opportunity cost and explain why it is an important concept for
economists. [4]
(JUNE 2010/P21/Q2)
A government decided to stop subsidising students when they went to university.
This meant a university course cost the students more but the government had
extra funds.
(a) Define opportunity cost and explain how the above decision might be used to
illustrate an opportunity cost. [4]
33
4. Production Possibility Curve
(JUNE 2019/P22/Q4)
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]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of
damaging weather on an economy. [6]
(NOV 2018/P22/Q3)
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.
(c) Analyse, using a production possibility curve (PPC) diagram, the effects of high
unemployment in a country. [6]
(NOV 2017/P22/Q3)
Rich people in some countries are now working for more hours on average than
poor people. One reason for this is thought to be that well-paid jobs provide more
job satisfaction. Gaining enjoyment from work can lead to high labour
productivity.
(c) Analyse, using a production possibility curve diagram, how an increase in
labour productivity will affect an economy. [6]
34
(JUNE 2017/P22/Q2)
Indonesia’s output is influenced by its factors of production. A production
possibility curve diagram can be used to show this relationship between resources
and output. Indonesia does have extensive fishing waters but does not actually
catch many fish. Most of its fishing firms are small and they compete against
much larger foreign firms. These larger foreign firms have been attracted into
Indonesia’s waters because of increasing demand for fish. The price elasticity of
demand for different types of fish has changed in the last few years.
(b) Explain two economic concepts shown by a production possibility curve
diagram. [4]
(JUNE 2017/P21/Q6)
Japan’s birth rate is falling. Its population is ageing, and declining at a faster rate
than any other country’s population. This has an impact on the amount that the
Japanese Government spends on pensions. Its government is considering
measures to increase the country’s birth rate and to encourage immigration.
(c) Analyse, using a production possibility curve diagram, what effect net
immigration is likely to have on an economy. [6]
(NOV 2016/P22/Q5)
The unemployment rate in Wales fell from 8.2% in March 2013 to 6.8% in March
2014. One in four workers in Wales is employed in the public sector. A high
proportion of workers are employed in multinational companies, including a
Japanese car producer and a South Korean electronics firm.
(c) Using a production possibility curve diagram, analyse the effect of a decrease
in unemployment on an economy’s output. [6]
(JUNE 2016/P21/Q7)
(a) What is meant by a production possibility curve? [2]
35
(JUNE 2015/P22/Q2)
Students have to consider the opportunity cost of going to university. University
graduates usually earn more than people who have not gone to university. Having
more graduates influences a country’s production possibility curve. Some
economists suggest that students should pay the full cost of their university
courses and accommodation. Others say that the government should pay some or
all of the cost.
(c) Using a production possibility curve diagram, analyse what effect an increase
in the number of graduates will have on an economy. [6]
(d) Discuss whether graduates should pay the full cost of their university
education. [8]
(JUNE 2015/P21/Q2)
In 2013, an earthquake on the Iran/Pakistan border destroyed many factories and
homes. Some officials wanted the Governments to rebuild the factories and
homes, even though there would be an opportunity cost. Others suggested that
some people should be encouraged to emigrate.
(c) Using a production possibility curve diagram, analyse the effect of the
destruction of some of its resources on an economy. [6]
(d) Discuss whether a country will benefit from the emigration of some of its
people. [8]
(JUNE 2014/P22/Q2)
A number of economies are devoting more of their resources to the provision of
health care. Due to the economic problem, this involves them having to make
difficult choices.
(b) Using a production possibility curve diagram, explain why choices have to be
made as to how to allocate resources. [6]
36
(JUNE 2014/P21/Q2)
In 2012, the Indian Prime Minister announced that the Government was going to
spend US$90 million on sending a spaceship to the planet Mars. Some economists
argued that it would be better to use the factors of production, such as land and
labour, to improve education or to build more roads.
(c) Using a production possibility curve diagram, analyse the impact of an increase
in resources on an economy. [5]
(d) Discuss whether the building of more roads will benefit an economy. [7]
(JUNE 2013/P22/Q2)
(b) Using a production possibility curve, explain what is meant by opportunity cost.
[6]
37
5. Economic Systems
(JUNE 2019/P22/Q6)
(b) Explain how resources are allocated in a mixed economic system. [4]
(NOV 2016/P23/Q4)
(a) Define ‘a mixed economy’. [2]
(JUNE 2015/P22/Q6)
(d) Discuss whether the advantages of a market economy are greater than its
disadvantages. [8]
(NOV 2014/P23/Q2)
All market systems have both advantages and disadvantages.
(a) Explain how resources are allocated in a market system. [5]
(JUNE 2014/P22/Q2)
A number of economies are devoting more of their resources to the provision of
health care. Due to the economic problem, this involves them having to make
difficult choices.
(c) Explain how resources are allocated differently in market and mixed economic
systems. [4]
(d) Discuss whether an economy would benefit from an increase in the provision of
health care. [8]
(JUNE 2013/P21/Q2)
(b) Explain how the market system attempts to solve the economic problem. [6]
(JUNE 2011/P22/Q2)
(c) Identify the three questions faced by every type of economic system. [3]
(d) Discuss why virtually every country today has a mixed economy. [8]
38
(JUNE 2011/P21/Q2)
A market system, such as in Spain, has a number of advantages but, despite these
benefits, it can also be said to fail in certain circumstances. This is why
governments are sometimes required to intervene.
(a) Describe the advantages of a market system. [6]
(NOV 2010/P23/Q2)
(c) Explain, with the aid of demand and supply diagrams, how resources are reallocated in a market economy. [6]
(NOV 2010/P22/Q2)
(c) Compare how resources are allocated in market and mixed economic systems.
[4]
(d) Discuss whether people living in a country would benefit if their country’s
economic system changed from a mixed to a market economy. [8]
(NOV 2010/P21/Q4)
(a) Identify two types of business organisation that are likely to be found in a
mixed economy and describe their characteristics. [6]
(b) Explain why most countries have mixed economies. [6]
(JUNE 2010/P21/Q2)
(d) Analyse the differences between a market economy and a mixed economy. [6]
39
6. Free Market Failure and
Government Intervention
(JUNE 2019/P21/Q6)
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.
(d) Discuss whether or not the government should subsidise the production of
books. [8]
(JUNE 2019/P21/Q2)
(b) Explain two benefits a government may gain from the growth of the private
sector. [4]
(NOV 2018/P23/Q3)
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.
(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]
40
(NOV 2018/P22/Q3)
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.
(d) Discuss whether or not a government should raise the school leaving age. [8]
(JUNE 2018/P22/Q4)
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.
(d) Discuss whether or not a government should subsidise bus transport. [8]
(JUNE 2018/P21/Q7)
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.
(c) Analyse why a government imposes taxes. [6]
(NOV 2017/P22/Q6)
(d) Discuss whether a government should increase tax rates during a recession.
[8]
(JUNE 2017/P21/Q7)
(d) Discuss whether a government should increase taxes on food. [8]
(JUNE 2017/P21/Q2)
(a) Why is pollution an example of market failure? [2]
41
(NOV 2016/P23/Q3)
In 2014 the US’s second-largest cigarette maker, made a bid to take over the
country’s third-largest cigarette maker. It was expected that if the merger went
ahead, the price of cigarettes would increase. The effect of a rise in price on
quantity demanded would be determined by the price elasticity of demand.
(c) Analyse two ways, apart from imposing an indirect tax, in which a government
could discourage smoking. [6]
(JUNE 2016/P21/Q5)
In January and February 2014 there were calls for the UK Government to build
more flood defences. Homes, factories and other resources were damaged and
some destroyed by floods. It was argued that government intervention was
needed in this case as there was evidence of market failure.
(a) Define ‘market failure’. [2]
(b) Explain how government regulation may reduce market failure. [4]
(NOV 2015/P23/Q3)
(d) Discuss whether a government subsidy to producers will reduce market failure.
[8]
(NOV 2015/P22/Q3)
(b) Explain two ways a government could influence the price of a product. [4]
(JUNE 2015/P21/Q3)
In 2013, the market price of houses rose in China but fell in Greece. The Chinese
Government tried to reduce the rise in house prices by discouraging borrowing. In
Greece, the equilibrium price of houses fell, largely because of a decrease in
income. In some countries, governments give subsidies to housebuilders to
influence the market for houses.
(d) Discuss whether the building of houses should be subsidised. [8]
42
(NOV 2014/P23/Q2)
(b) Analyse three reasons why a market system could fail. [7]
(c) Discuss whether government intervention in a market is always to be
supported. [8]
(NOV 2014/P22/Q3)
Governments can influence economic behaviour in different ways, such as through
taxes and regulations.
(a) Explain why, in a market economy, some goods and services are overconsumed and some under-consumed. [6]
(c) Discuss whether government regulations on private producers always achieve
their intended aims. [8]
(JUNE 2013/P21/Q2)
(c) Discuss which are the most important market failures in your country. [10]
(NOV 2012/P22/Q2)
(c) Discuss whether every economy should have some government intervention.
[10]
(JUNE 2012/P21/Q5)
(a) Explain why a government may sometimes decide to produce certain goods
and services itself rather than leave the production of such goods and services to
the private sector. [6]
(NOV 2011/P23/Q3)
(c) Discuss whether a government should support financial institutions when they
experience difficulties. [8]
43
(NOV 2011/P21/Q3)
Many governments intervene in their economies by imposing an indirect tax on a
product. Sometimes, this is to try to overcome a market failure.
(c) Explain why markets often fail. [5]
(d) Discuss the extent to which the introduction of an indirect tax could correct
market failure. [6]
(JUNE 2011/P21/Q2)
(b) Explain what causes market failure. [6]
(c) Discuss whether government intervention is always successful in correcting
market failure. [8]
(NOV 2010/23/Q2)
(d) Discuss whether it is a disadvantage to rely just on market forces to allocate
resources. [6]
(JUNE 2010/P22/Q2)
(d) Discuss why market failure could occur in an economy. [8]
(JUNE 2010/P21/Q2)
(c) Apart from a subsidy, how might a government change the market price of a
good? [4]
44
7. Demand & factors affecting
Demand
(NOV 2018/P23/Q5)
(b) Explain two influences on a country’s demand for food. [4]
(JUNE 2018/P21/Q6)
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.
(c) Analyse what determines the demand for labour. [6]
(NOV 2017/P23/Q2)
(a) Define ‘demand’. [2]
(NOV 2017/P22/Q4)
In Pakistan there is a limited choice of cars to buy. The country has a population of
approximately 190 million but only about 120 000 cars a year are produced there.
The firms producing cars in Pakistan are protected from foreign competition by a
range of methods of trade protection.
(d) Discuss whether demand for cars is likely to increase in the future. [8]
(JUNE 2017/P21/Q7)
In recent years there has been an increase in prices in Mexico. Indirect taxes have
also been increased. Bus fares and food have become more expensive. In 2015, the
Mexican Government was planning to cut its spending by US$8.3 billion.
(b) Explain two causes of an increase in demand for bus transport. [4]
45
(NOV 2015/P23/Q3)
An increasing number of people in both market and mixed economies are
becoming overweight. In 2013 the Dubai Government offered residents a gram of
gold for every kilogram of weight lost over a period of 30 days. Such a policy
measure was designed to reduce the external costs arising from overeating,
including the eating of too much chocolate. To reduce market failure,
governments give subsidies to both consumers and producers.
(c) Analyse three reasons why the demand for chocolate may rise in the future. [6]
(JUNE 2014/P22/Q3)
Despite more cars being sold, world demand for bicycles is increasing. It has been
estimated that the world price elasticity of demand for bicycles is –0.18 but this
does vary between countries. The indirect taxes imposed on bicycles also differ
between countries.
(a) Define ‘demand’. [2]
(b) Explain three likely causes of an increase in demand for bicycles. [6]
(JUNE 2013/P22Q3)
The demand for flat screen televisions has increased enormously in many
countries and this has had an effect on the market.
(a) Describe what can influence the demand for flat screen televisions. [4]
(JUNE 2012/P22/Q3)
(b) Explain what determines the demand for houses. [6]
(NOV 2011/P23/Q2)
(b) Describe what could cause an increase in the demand for a good or service. [4]
(JUNE 2011/P22/Q3)
(a) Describe the factors that can affect the demand for a product. [6](JUNE
2010/P22/Q2)
(a) (i) Using a demand diagram, show an increase in demand for a product. [2] (ii)
Identify two causes of such an increase in demand. [2]
46
8. Supply & factors affecting
supply
(JUNE 2017/P21/Q2)
(b) Explain two causes of a shift of a supply curve to the right. [4]
(JUNE 2014/P21/Q3)
Many governments seek to discourage people from smoking cigarettes, whilst
encouraging them to eat more fruit, including bananas and apples. The
government’s ability to influence people’s consumption is determined, in part, by
the price elasticity of supply and the price elasticity of demand of the products,
and by changes in market conditions.
(b) Explain three reasons why the supply of bananas may decrease. [6]
(c) Analyse what effect a rise in the price of apples, which are a substitute for
bananas, will have on the market for bananas. [4]
(NOV 2010/21/Q2)
In recent years there has been publicity that eating fish is often healthier than
eating meat. At the same time, environmentalists in one country complained that
the local supply of some fish had declined and they persuaded their government to
limit the amount of fish that could be caught.
(a) Describe, with the aid of a demand and supply diagram, what might have
happened in the market for fish. [5]
47
9. Equilibrium and Price
Determination
(JUNE 2019/P21/Q3)
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]
(c) Analyse, using a demand and supply diagram, how bad weather is likely to
affect the market for broccoli. [6]
(JUNE 2018/P22/Q5)
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.
(b) Explain why the price of housing may increase. [4]
(JUNE 2018/P21/Q6)
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.
(b) Explain how market forces would respond to a shortage of drinking water. [4]
48
(NOV 2017/P22/Q2)
Singapore is usually ranked as one of the best countries in which to do business. It
is an open economy engaging in free trade. It has a history of strong
entrepreneurship, low unemployment, low average costs and relatively low tax
rates. Its example may encourage other countries to remove trade restrictions.
(c) Analyse how the market for a product would be affected by a reduction of the
tax on the product combined with a fall in the price of a complement. [6]
(JUNE 2017/P22/Q6)
(c) Analyse how advances in technology can affect demand and supply. [6]
(JUNE 2017/P21/Q2)
Sales of bottled water in China doubled between 2010 and 2015. In 2013 China
overtook the USA as the biggest market for water by volume, but not value as the
price of a bottle was higher in the USA. The increase in global consumption of
bottled water has increased the size of firms producing bottled water but has also
increased pollution.
(c) Analyse why the price of a product may be higher in the USA than China. [6]
(NOV 2016/P22/Q2)
There are a number of competing producers of jeans. These firms are now also
facing competition from new sportswear designed to also be worn as leisurewear.
This increased competition has made demand for jeans more price-elastic. For
instance, a government report has estimated that the price elasticity of demand
for one of the oldest firm’s jeans in Asia is – 2.5.
(c) Using a demand and supply diagram, analyse the effect of a rise in the price of
Firm X’s jeans on the market for Firm Y’s jeans. [6]
49
(JUNE 2016/P22/Q2)
In 2013 the Mexican Government was considering imposing a sales tax of one
peso per litre on the price of fizzy drinks. The Government wanted to discourage
people from consuming too many fizzy drinks – 40% more fizzy drinks per person
are consumed than in the United States of America. A number of multinational
fizzy drinks companies have threatened to leave the country if taxes are increased.
(c) Using a demand and supply diagram, analyse the effect of imposing a tax on
fizzy drinks. [6]
(JUNE 2016/P21/Q2)
Burundi is a country in Sub-Saharan Africa. In 2013 the government of Burundi
introduced VAT, an indirect tax, while lowering corporation tax (the tax on firms’
profits), from 35% to 30%. The United Nations has encouraged Sub-Saharan
African countries to increase their tax revenue in order to have more funds
available to spend on reducing poverty. There is, however, a debate about
whether imposing more taxes or removing some taxes is more beneficial for an
economy.
(c) Using a demand and supply diagram, analyse the effect of removing an indirect
tax on the market for the product. [6]
(JUNE 2015/P22/Q4)
Chile produces a third of the world’s supply of copper. A change in demand for, or
supply of, copper affects Chile’s Gross Domestic Product (GDP) and the current
account position on its balance of payments.
(c) Using a demand and supply diagram, analyse the effect of an increase in the
costs of producing copper on the market for copper. [6]
50
(JUNE 2015/P21/Q3)
In 2013, the market price of houses rose in China but fell in Greece. The Chinese
Government tried to reduce the rise in house prices by discouraging borrowing. In
Greece, the equilibrium price of houses fell, largely because of a decrease in
income. In some countries, governments give subsidies to housebuilders to
influence the market for houses.
(a) Define ‘equilibrium price’. [2]
(c) Using a demand and supply diagram, analyse why a fall in incomes may reduce
the market price of houses. [6]
(NOV 2014/P23/Q3)
A government decides to increase the number of schools it operates, leading to an
increase in the demand for teachers. At the same time, the government decides to
increase the qualifications that a person needs to have to become a teacher.
(a) Using a demand and supply diagram, analyse the effect of these two decisions
on the equilibrium wage rate and the equilibrium quantity of teachers. [6]
(b) Describe why the earnings of teachers can change over a period of time. [4]
(NOV 2014/P22/Q3)
(b) Using a demand and supply diagram, analyse the effect of the imposition of
an indirect tax on the equilibrium price and equilibrium quantity of tobacco. [6]
(NOV 2013/P23/Q3)
The costs of production in the motorcycle industry have risen significantly in recent
years.
(b) Using a demand and supply diagram, analyse the effect of an increase in
production costs in the motorcycle industry on the equilibrium price and the
equilibrium quantity of new motorcycles. [6]
(NOV 2013/P22/Q5)
(b) Using a demand and supply diagram, analyse how an increase in tax on fuel
can affect the equilibrium price and equilibrium quantity of fuel. [6]
51
(JUNE 2013/P22/Q3)
The demand for flat screen televisions has increased enormously in many
countries and this has had an effect on the market.
(b) Using a demand and supply diagram, analyse how an increase in income can
affect the equilibrium price and equilibrium quantity of flat screen televisions. [6]
(NOV 2012/P23/Q3)
The costs of production in the motorcycle industry have risen significantly in recent
years.
(b) Using a demand and supply diagram, analyse the effect of an increase in
production costs in the motorcycle industry on the equilibrium price and the
equilibrium quantity of new motorcycles. [6]
(JUNE 2012/P22/Q3)
Both the private sector and the public sector are involved in building houses. In
one country a private firm has built an extra 100 000 houses but, at the same
time, its government has increased income tax significantly.
(a) Explain, using a demand and supply diagram, how these two actions would
have affected the equilibrium price and the equilibrium quantity of houses. [6]
(NOV 2011/P23/Q2)
(c) Explain, using a demand and supply diagram, how an increase in the demand
for a good or service can affect its equilibrium price and equilibrium quantity in a
market. [6]
(NOV 2010/P21/Q2)
In recent years there has been publicity that eating fish is often healthier than
eating meat. At the same time, environmentalists in one country complained that
the local supply of some fish had declined and they persuaded their government to
limit the amount of fish that could be caught.
(b) Explain how the changes mentioned might affect
(i) the incomes of fishermen [4] (ii) the profits of food retailers. [4]
52
10. Elasticities of Demand and
Supply
(JUNE 2019/P22/Q7)
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]
(JUNE 2019/P22/Q2)
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.
(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]
(JUNE 2019/P21/Q6)
(c) Analyse how a change in the PED for its products may benefit a firm. [6]
(NOV 2018/P23/Q3)
(b) Explain two reasons why manufactured goods are usually in more price-elastic
supply than agricultural goods. [4]
53
(NOV 2018/P22/Q5)
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.
(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]
(JUNE 2018/P22/Q4)
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]
(c) Analyse how price elasticity of demand for a product influences the revenue a
firm receives. [6]
(JUNE 2018/P21/Q2)
(a) Define perfectly inelastic supply. [2]
(NOV 2017/P23/Q5)
(c) Analyse the factors that can make the supply of a product more price-elastic.
[6]
(NOV 2017/P23/Q2)
In Saudi Arabia, output of cement has risen as a result of an increase in demand
from the construction industry for building houses, schools, hospitals and roads.
The market for cement is also being affected by price changes, export bans and
mergers between companies making cement.
(c) Analyse how information on the price elasticity of demand for its product can
influence a firm’s pricing decisions. [6]
54
(JUNE2017/P22/Q7)
(c) Analyse why price elasticity of supply can differ between products. [6]
(JUNE 2017/P22/Q2)
(c) Analyse why demand for a product may become more elastic over time. [6]
(NOV 2016/P23/Q3)
(b) Explain how perfectly inelastic demand differs from inelastic demand. [4]
(NOV 2016/P22/Q2)
There are a number of competing producers of jeans. These firms are now also
facing competition from new sportswear designed to also be worn as leisurewear.
This increased competition has made demand for jeans more price-elastic. For
instance, a government report has estimated that the price elasticity of demand
for one of the oldest firm’s jeans in Asia is – 2.5.
(a) What is meant by a price elasticity of demand of – 2.5? [2]
(b) Explain the importance of price elasticity of demand for a government. [4]
(JUNE 2016/P21/Q4)
(b) Explain two reasons why the supply of a product may be price-inelastic. [4]
(NOV 2015/P23/Q2)
Demand for luxury products, including expensive perfume, increased significantly
in China from 2007 to 2012. The average revenue from selling these products also
rose. Many luxury products have elastic demand. A high proportion of the luxury
products sold in China are currently imported. Some firms are now considering
producing in China rather than exporting to China.
(b) Explain two reasons why luxury products often have elastic demand. [4]
(c) Analyse how a perfume producer could make the supply of its products more
price elastic. [6]
55
(NOV 2015/P22/Q3)
A heatwave in July 2013 in the United Kingdom resulted in sales of ice cream more
than doubling. Extra workers were taken on to meet the higher demand. In recent
years, the demand and supply conditions of ice cream have changed, leading to
demand and supply becoming more elastic. The market has also been influenced
by government policies and by changes in the country’s economic growth rate.
(c) Analyse why demand for a product may become more price elastic. [6]
(JUNE 2015/P22/Q3)
(b) Explain two reasons why the supply of a product may be price inelastic. [4]
(JUNE 2014/P22/Q3)
Despite more cars being sold, world demand for bicycles is increasing. It has been
estimated that the world price elasticity of demand for bicycles is –0.18 but this
does vary between countries. The indirect taxes imposed on bicycles also differ
between countries.
(c) Analyse why the demand for a product may be more price elastic in one
country than in another country. [6]
(d) Discuss whether a government should impose indirect taxes only on products
with inelastic demand. [6]
(JUNE 2014/P21/Q3)
(a) Define ‘price elasticity of supply’. [2]
(NOV 2013/P23/Q3)
(c) Explain the concept of price elasticity of supply. [4] (d) Discuss to what extent
time is the main influence on the price elasticity of supply. [6]
56
(JUNE 2013/P22/Q3)
The demand for flat screen televisions has increased enormously in many
countries and this has had an effect on the market.
(c) Explain what is meant by price elasticity of demand. [4]
(d) Discuss the potential usefulness of price elasticity of demand to a
manufacturer of flat screen televisions. [6]
(NOV 2012/P23/Q3)
(c) Explain the concept of price elasticity of supply. [4]
(d) Discuss to what extent time is the main influence on the price elasticity of
supply. [6]
(JUNE 2011/P22/Q3)
Firms are keen to know what influences consumers in their buying decisions.
Publishing firms in India have researched why people buy particular magazines
and have found that the price elasticity of demand for different magazines varies.
(b) Explain what is meant by price elasticity of demand. [6]
(c) Discuss how knowledge of the price elasticity of demand for magazines may be
used by a firm which produces and sells magazines. [8]
(JUNE 2010/P22/Q2)
(b) Explain what is meant by price elasticity of demand. [4]
(c) Why is the concept of price elasticity of demand potentially very useful to a
business? [4]
57
11. Social Costs and Benefits
(NOV 2018/P23/Q6)
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]
(NOV 2018/P22/Q2)
(a) Define private cost. [2]
(b) Explain two ways a government could reduce external costs. [4]
(JUNE 2018/P22/Q2)
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.
(c) Analyse the external costs that can be caused by the building and expansion of
an airport. [6]
(JUNE 2018/P21/Q7)
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.
(b) Explain why the social benefit of healthcare is greater than the private benefit.
[4]
58
(NOV 2017/P22/Q4)
In Pakistan there is a limited choice of cars to buy. The country has a population of
approximately 190 million but only about 120 000 cars a year are produced there.
The firms producing cars in Pakistan are protected from foreign competition by a
range of methods of trade protection.
(c) Analyse the social costs created by car production and car use. [6]
(JUNE 2017/P21/Q4)
(c) Analyse why the social costs of oil extraction may be greater than the private
costs. [6]
(NOV 2016/P23/Q3)
In 2014 the US’s second-largest cigarette maker, made a bid to take over the
country’s third-largest cigarette maker. It was expected that if the merger went
ahead, the price of cigarettes would increase. The effect of a rise in price on
quantity demanded would be determined by the price elasticity of demand.
(a) Identify two external costs of smoking. [2]
(JUNE 2016/P22/Q2)
(b) Explain the difference between private costs and social costs. [4]
(JUNE 2016/P21/Q5)
In January and February 2014 there were calls for the UK Government to build
more flood defences. Homes, factories and other resources were damaged and
some destroyed by floods. It was argued that government intervention was
needed in this case as there was evidence of market failure.
(d) Discuss whether the social benefits of building flood defences will exceed the
social costs involved. [8]
59
(NOV 2015/P23/Q3)
An increasing number of people in both market and mixed economies are
becoming overweight. In 2013 the Dubai Government offered residents a gram of
gold for every kilogram of weight lost over a period of 30 days. Such a policy
measure was designed to reduce the external costs arising from overeating,
including the eating of too much chocolate. To reduce market failure,
governments give subsidies to both consumers and producers.
(b) Explain two external costs that could arise from people overeating. [4]
(NOV 2014/P22/Q2)
(b) Using examples, distinguish between a private cost and an external cost. [4]
(NOV 2013/P22/Q2)
An entrepreneur plans to cut down timber in a rainforest. The local community,
however, are concerned that the social costs will be greater than the social
benefits.
(b) Distinguish between the social benefits and the social costs involved in this
example. [6]
(NOV 2012/P22/Q3)
A government is planning to build a high speed railway through a large area of
fertile land and scenic beauty. A decision to construct the railway will depend upon
how the project is financed and the social costs and social benefits arising from its
construction.
(a) Describe, with the aid of examples from the construction of a railway, the
meaning of social costs. [4]
60
(NOV 2011/P22/Q3)
The Government of Bangladesh is planning to build a new motorway with the help
of private companies. It recognises that there are a number of costs and benefits,
both private and social, that need to be taken into account before a final decision
is taken.
(a) Explain what is meant by (i) a private cost, (ii) a private benefit, (iii) an external
cost and (iv) an external benefit. [4]
(b) For each of the following, identify one example of (i) a private cost, (ii) a
private benefit, (iii) an external cost and (iv) an external benefit that might be
involved in the building of a motorway. [4]
(NOV 2010/P21/Q6)
As scientists discover more about the spread of disease, governments introduce
health education programs and increase spending on health care. These programs
are particularly significant in developing countries and can change the age
structure of the population.
(d) Discuss whether it is possible to apply the concepts of opportunity cost and
social benefit to health care programs. [6]
(JUNE 2010/P22/Q3)
(c) A proposal has been put forward to build a new runway at an airport. Discuss
the social costs and benefits of such a decision. [10]
61
12. Private and Public
Expenditure
(JUNE 2018/P21/Q7)
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.
(d) Discuss whether or not consumers are likely to benefit from state-owned
enterprises becoming private sector firms. [8]
(NOV 2017/P23/Q5)
(d) Discuss whether a decrease in government spending will benefit an economy.
[8]
(JUNE 2017/P22/Q7)
(d) Discuss whether increasing government spending will reduce poverty. [8]
(JUNE 2017/P21/Q5)
(c) Analyse why private sector banks may earn higher profits than public sector
banks. [6]
(NOV 2015/P22/Q6)
(d) Discuss whether new airports should be built and operated by governments or
the private sector. [8]
(NOV 2013/P22/Q2)
(c) Discuss whether a resource, such as a rainforest, should be conserved rather
than used. [10]
62
(NOV 2012/P22/Q3)
A government is planning to build a high speed railway through a large area of
fertile land and scenic beauty. A decision to construct the railway will depend upon
how the project is financed and the social costs and social benefits arising from its
construction.
(b) Explain why a government might consider using private funding rather than
public funding to finance the project. [6]
(c) Discuss the advantages and disadvantages of such a high speed railway to a
country’s economy, both locally and nationally. [10]
(JUNE 2012/P22/Q3)
(c) Discuss whether it is better for the public sector to build houses rather than the
private sector. [8]
(JUNE 2012/P21/Q2)
(d) Discuss whether a country should conserve or use its natural resources. [8]
(NOV 2011/P22/Q3)
The Government of Bangladesh is planning to build a new motorway with the help
of private companies. It recognises that there are a number of costs and benefits,
both private and social, that need to be taken into account before a final decision
is taken.
(c) Why might a government want to involve private companies in a motorway
project? [4]
(d) Discuss how nearby communities are likely to be affected by the building of a
motorway. [8]
(NOV 2010/P23/Q5)
In a number of countries, governments have tried to reduce inflation by
introducing subsidies.(c) Explain what is meant by a subsidy. [3]
(d) Discuss the advantages and disadvantages of a government intervening in a
market through the use of subsidies. [7]
63
13. Money, Banking and Stock
Exchange
(JUNE 2019/P21/Q5)
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]
(NOV 2018/P23/Q5)
(d) Discuss whether or not a central bank should limit the amount that a
commercial bank can lend to its customers. [8]
(NOV 2018/P22/Q2)
(c) Analyse how a high rate of inflation affects the functions of money. [6]
(JUNE 2018/P22/Q6)
(a) Define commercial bank. [2]
(b) Explain how a stock exchange could encourage economic growth. [4]
(NOV 2017/P23/Q4)
(d) Discuss whether a central bank should lend to commercial banks which get into
financial difficulties. [8]
(JUNE 2017/P22/Q6)
(a) What is sold on a stock exchange? [2]
(b) Explain how money helps specialisation and trade to occur. [4]
64
(JUNE 2017/P21/Q3)
Money and banking are closely linked. Money performs a number of functions,
including being a standard for deferred payments, and it is used to pay workers,
often directly into their bank accounts. The amount workers earn differs
depending on the industry in which they work. Bank lending from both private
sector and public sector (state-owned) banks has increased in some countries in
recent years.
(a) Define ‘a standard for deferred payments’. [2]
(c) Analyse why private sector banks may earn higher profits than public sector
banks. [6]
(d) Discuss whether an increase in bank lending will benefit an economy. [8
(NOV 2016/P23/Q6)
(a) Define ‘the rate of interest’. [2]
(b) Explain two reasons why the poor may find it difficult to get loans from
commercial banks. [4]
(NOV 2016/P23/Q4)
(c) Analyse how a country’s stock exchange can benefit its economy. [6]
(JUNE 2016/P22/Q5)
(b) Explain two ways in which a central bank differs from a commercial bank. [4]
(JUNE 2016/P21/Q3)
(a) Identify two functions of money. [2]
(NOV 2015/P22/Q5)
(a) Define ‘medium of exchange’. [2]
(b) Explain two ways in which a central bank differs from a commercial bank. [4]
(JUNE 2015/P22/Q7)
(b) Explain two functions of money. [4]
65
(NOV 2014/P22/Q4)
Money, central banks and commercial banks all play a key role in economies.
(a) Explain how well money performs its function as a medium of exchange. [5]
(b) Analyse the importance of a central bank in an economy. [7]
(c) Discuss whether a country’s largest commercial banks should be nationalised
and so become public corporations, and taken under government control. [8]
(JUNE 2014/P22/Q4)
(a) Describe two functions of a central bank. [4]
(JUNE 2014/P21/Q5)
(b) Explain why an item has to be generally acceptable and divisible for it to carry
out the functions of money. [4]
(JUNE 2013/P22/Q4)
4 The central bank and stock exchanges can perform important roles in
economies.
(a) What is meant when it is stated that money performs the functions of (i) a
medium of exchange and (ii) a store of value? [4]
(b) Explain the role a central bank can play in an economy. [6]
(c) Discuss how important a stock exchange can be in encouraging firms to
expand. [10]
(NOV 2012/P22/Q4)
Money is said to be of vital importance in all economies.
(a) Describe the four functions of money. [4]
(b) Explain how commercial banks may encourage saving. [6]
66
(JUNE 2012/P22/Q4)
Money plays a significant role in all economies.
(a) Explain why it is better for individuals to use money rather than barter. [6]
(b) Describe the functions that commercial banks perform in an economy. [6]
(JUNE 2012/P21/Q3)
(a) Explain the functions that money performs in an economy. [6]
(NOV 2011/P23/Q3)
The United States, like many countries, has recently experienced serious difficulties
with a number of its financial institutions. Its central bank, The Federal Reserve,
has intervened to provide financial support to some of these institutions.
(a) Describe the functions of a central bank. [6]
(b) Explain three of the functions of money. [6]
(JUNE 2011/P21/Q3)
Commercial banks perform an important role in most economies. Money helps in
the exchange of goods and services and, in the form of wages, is an influence on
the choice of occupation for many individuals.
(a) Explain the role of commercial banks. [4]
(b) Describe the various functions that money performs in an economy. [4]
(NOV 2010/P23/Q3)
Commercial banks and stock exchanges are playing an increasing role in the
Chinese economy with, for instance, more of the Chinese labour force being
employed in the financial sector.
(a) Describe the functions of a commercial bank. [4]
(b) Explain how a stock exchange can play a key role in an economy. [4]
67
(NOV 2010/P22/Q3)
(a) Describe the functions of money. [4]
(JUNE 2010/P21/Q7)
People often have an account with a commercial bank in which they deposit some
of their money and from which they can pay their bills.
(a) Describe the functions of money. [6]
(b) Identify and explain three functions of a central bank which differ from the
functions of a commercial bank. [6]
68
14. Choice of Occupations and
Wage Determination
(JUNE 2019/P21/Q5)
(c) Analyse why skilled workers are usually paid more than unskilled workers. [6]
(NOV 2018/P22/Q6)
(b) Explain two reasons why a person may be willing to work at night. [4]
(NOV 2018/P22/Q4)
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
£115000 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]
(JUNE 2018/P21/Q2)
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.
(c) Analyse why Premier League footballers receive very high wages. [6]
69
(NOV 2017/P22/Q3)
(b) Explain two reasons why older workers tend to earn more than younger
workers. [4]
(NOV 2017/P23/Q5)
(b) Explain two reasons why some young workers may earn more than some old
workers. [4]
(JUNE 2017/P22/Q5)
(b) Explain two possible causes of a fall in a worker’s earnings. [4]
(NOV 2016/P22/Q5)
(d) Discuss whether it is better to work in the public sector or the private sector.
[8]
(JUNE 2016/P22/Q7)
(b) Explain two reasons why someone may be willing to do a low-paid job with
little job security. [4]
(JUNE 2016/P21/Q7)
(c) Analyse why doctors are paid more than nurses. [6]
(NOV 2015/P22/Q3)
A heatwave in July 2013 in the United Kingdom resulted in sales of ice cream more
than doubling. Extra workers were taken on to meet the higher demand. In recent
years, the demand and supply conditions of ice cream have changed, leading to
demand and supply becoming more elastic. The market has also been influenced
by government policies and by changes in the country’s economic growth rate.
(d) Discuss whether the wages of all workers will increase during a period of
economic growth. [8]
70
(JUNE 2015/P22/Q3)
China is the world’s largest producer of gold and India is the world’s largest buyer
of gold. Gold mining in China is becoming more capital-intensive which is making
the supply of gold less price inelastic. The wages of workers employed in the
industry are rising but other costs of production are falling.
(d) Discuss whether a rise in the wages paid by an industry will encourage more
people to work in that industry. [8]
(JUNE 2015/P22/Q2)
(b) Explain why university graduates usually earn more than people who have not
gone to university. [4]
(NOV 2014/P23/Q3)
(b) Describe why the earnings of teachers can change over the period of time. [4]
(c) Consider whether teachers working in the private sector and in the public
sector are likely to receive different earnings. [4]
(JUNE 2014/P22/Q4)
(d) Discuss whether workers employed in banking are likely to earn more than
workers employed in agriculture. [8]
(NOV 2013/P22/Q3)
A person is choosing between different occupations and realises that there are
both wage and non-wage factors that need to be taken into account.
(a) Describe the non-wage factors that can influence a person’s choice of
occupation. [4]
(b) Explain the different forms of payment that can a worker can receive. [4]
(c) Consider the likely changes in earnings over an individual’s lifetime. [3]
(d) Discuss whether a worker in the services sector is always likely to receive a
higher wage than one in manufacturing sector. [9]
71
(JUNE 2013/P21/Q3)
(b) Explain why a skilled worker is likely to be paid more than an unskilled worker.
[6]
(NOV 2012/P22/Q4)
(c) Analyse why there are often differences in the earnings of workers in the public
sector and workers in the private sector. [10]
(JUNE 2012/P21/Q3)
(c) Discuss whether skilled workers always earn more than unskilled workers. [8]
(NOV 2011/P21/Q2)
(c) The wages paid to employees in the car industry vary widely. Discuss the
possible reasons why these earnings vary so much. [8]
(JUNE 2010/P22/Q4)
(b) Is it always true that individuals are paid more as they get older? [4]
(JUNE 2011/P21/Q3)
(c) Describe the likely changes in income for individuals over their lifetime. [4]
(d) Discuss whether wages are the most important factor influencing the choice of
occupation for many individuals. [8]
(NOV 2010/P23/Q4)
(c) Discuss whether it is better to be employed in public sector or the private
sector. [10]
(NOV 2010/P23/Q4)
(c) Analyse the differences in earnings between different group of workers. [6]
(NOV 2010/P22/Q3)
(c) Describe how an individual’s earnings are likely to change over their lifetime.
[3]
72
(NOV 2010/P21/Q3)
Sometimes there is not enough skilled labour for a particular occupation.
(a) Why might companies spend money on training to increase the skills of their
workers.[4]
(b) Apart from lack of skills, explain three other reasons that might prevent a
person moving from one job to another. [6]
(JUNE 2010/P21/Q3)
(a)Sometimes it is said that a person chooses a job because of non-wage factors.
Explain, using three examples, the meaning of non-wage factors. [4]
(c) Some occupations pay much more than other occupations. Why might this
happen? [10]
73
15. Labour and Trade Union
(JUNE 2018/P21/Q5)
(d) Discuss whether or not increasing the strength of trade unions will benefit an
economy. [8]
(NOV 2017/P23/Q3)
(d) Discuss whether an economy would benefit from an increase in the strength of
its trade unions. [8]
(NOV 2016/P23/Q2)
(a) Define ‘a trade union’. [2]
(b) Explain two influences on the strength of a trade union. [4]
(JUNE 2016/P21/Q6)
The year 2014 saw the longest-ever strike by platinum miners in South Africa. It
involved 70 000 miners out of a total of 200 000 employed in the industry. These
miners included migrant workers from neighbouring countries who had increased
the size of the country’s labour force. The strike cost the world’s three largest
platinum producing firms US$1.4 billion and reduced the country’s exports of
platinum.
(a) Identify two reasons why workers go on strike. [2]
(d) Discuss whether an increase in a country’s labour force will increase income
per head. [8]
(NOV 2015/P23/Q5)
Between 2011 and 2012 the number of people employed by the public sector in
Egypt increased significantly. Egyptian trade unions which represent labour
employed in the public sector welcomed this increase. However, more powerful
trade unions might cause inflation which, in turn, might cause unemployment.
(a) Define ‘labour’. [2]
(b) Explain why a rise in employment would benefit trade unions. [4]
74
(JUNE 2015/P21/Q4)
Trade union membership is decreasing in some countries, but it is increasing in
China. Industrial action by workers is becoming more common in China, with
workers seeking higher wages. Recently there was a strike at a car factory in
South China, owned by a Japanese multinational company.
(b) Explain why governments may discourage strikes. [4]
(c) Analyse three reasons why trade union membership may decrease in a country.
[6]
(JUNE 2014/P21/Q5)
Walmart, the US multinational retailer, is the world’s largest company. It allows
its customers to pay for their purchases by cash and by using a variety of other
forms of money. The company is the third largest employer in the world. Most of
its workers do not belong to a trade union.
(c) Explain two advantages of working for a large company. [4]
(d) Discuss whether a firm will benefit from encouraging its workers to join a trade
union. [8]
(NOV 2013/P23/Q2)
(c) Discuss whether a worker should always be encouraged to join a trade union.
[10]
(JUNE 2013/P21/Q3)
Earnings in Nigeria vary a great deal. Some workers are highly paid, but others are
paid very little. Trade unions are trying to increase the wages of their members.
(a) Using a demand and supply diagram, analyse how a trade union can increase
the wages of their members. [6]
(b) Explain why a skilled worker is likely to be paid more than an unskilled worker.
[6]
(c) Discuss what is likely to influence the success of trade unions in trying to
increase the average wages of workers in an economy. [8]
75
(NOV 2011/P22/Q4)
Trade unions play a role in the New Zealand economy, but not every worker
belongs to one. This is especially the case in small firms.
(a) Describe the functions of a trade union. [4]
(b) Why might some workers not belong to a trade union? [4]
(JUNE 2011/P22/Q4)
Deciding on an occupation is difficult for some individuals. There are so many
factors that need to be taken into consideration. One of these is whether or not
there is a trade union they can join.
(a) Describe the factors, other than possible membership of a trade union, which
can affect an individual’s choice of occupation. [6]
(c) Explain the benefits that an individual may get from being a member of a trade
union. [4]
(d) Discuss whether trade unions always have a harmful effect on the wider
economy. [6]
(NOV 2010/P21/Q3)
Sometimes there is not enough skilled labour for a particular occupation.
(c) Why might a worker join a trade union? [4]
(d) Discuss how a government might influence the demand for and the supply of
labour. [6]
76
16. Motives for Spending,
Saving and Borrowing
(NOV 2017/P22/Q3)
Rich people in some countries are now working for more hours on average than
poor people. One reason for this is thought to be that well-paid jobs provide more
job satisfaction. Gaining enjoyment from work can lead to high labour
productivity.
(d) Discuss whether the rich in one country will save more than the rich in another
country. [8]
(JUNE 2017/P22/Q4)
(b) Explain two reasons why the rich spend more in total than the poor. [4]
(NOV 2016/P23/Q5)
The 48 countries with the lowest Human Development Index HDI values have 28
million citizens working abroad. These workers save some of their earnings to send
home to their relatives. Research shows that most transferred money is spent on
food and housing by their families, raising their standard of living. These
remittances in 2013 were double the value of foreign direct investment received
by these countries.
(a) How does the amount and the proportion of income spent on food change as
people get richer? [2]
(b) Explain the difference between saving and borrowing. [4]
(d) Discuss whether a government should encourage some of the country’s people
to work abroad. [8]
77
(NOV 2016/P22/Q4)
Household debt in South Korea in 2014 was reaching record levels. People were
borrowing more and saving less: the savings ratio fell from 19% in 1985 to 4% in
2014. Despite the low rate of saving, there was little demand-pull or cost-push
inflation. Indeed, in 2014 the country came close to experiencing deflation.
(c) Analyse how a central bank might reduce household borrowing. [6]
(d) Discuss whether a government should encourage an increase in saving. [8]
(JUNE 2016/P22/Q7)
(c) Analyse how the spending, saving and borrowing patterns of young workers
may differ from older workers. [6]
(JUNE 2016/P21/Q3)
The Canadian economy in 2014 was generally doing well. Money was largely
retaining its value and unemployment was falling. The country did, however, have
rising household debt and a deficit on the current account of its balance of
payments. The Canadian Government in 2014 was seeking to increase exports
whilst recognising that such an increase may have an impact on the exchange
rate.
(b) Explain two reasons why household borrowing may increase. [4]
(NOV 2015/P22/Q7)
(b) Explain two reasons why people may spend most of their income. [4]
(JUNE 2015/P21/Q3)
(b) Explain two reasons why borrowing may decrease. [4]
(NOV 2014/P23/Q3)
(d) Discuss whether highly-paid teachers are likely to spend more and borrow
more than less well-paid teachers. [6]
(JUNE 2014/P21/Q5)
(a) Describe two influences on the amount people spend. [4]
78
(NOV 2013/P23/Q4) / (NOV 2012/P23/Q4)
People all over the world are continually being encouraged to spend their money
rather than save it.
(a) Describe three influences on spending, apart from changes in taxation. [6]
(b) Explain how people’s spending could be affected by changes in both direct and
indirect taxes. [6]
(c) Discuss whether a government should be concerned if people began to spend
most of their money. [8]
(JUNE 2012/P22/Q4)
(c) Analyse why some individuals are more likely to borrow money than others. [8]
(NOV 2011/P21/Q4)
It was reported in the Netherlands in 2010 that the proportion of income that was
saved, rather than spent, had actually increased for the first time in many years.
At the same time, borrowing fell.
(a) Explain what could influence people to save more. [6]
(b) Explain the disadvantages to an economy of people saving a high proportion of
their income. [6]
(c) Discuss how a government could encourage people to spend a higher
proportion of their income. [8]
(NOV 2010/P23/Q3)
(c) Analyse the differences in earnings between different groups of workers. [6]
(d) Discuss whether high income earners will always save more than low income
earners. [6]
(NOV 2010/P22/Q3)
Money, in terms of how we earn it, spend it and save it, is of fundamental
importance to everybody. (c) Describe how an individual’s earnings are likely to
change over their lifetime. [3] (d) Discuss why some individuals spend less than
their income whilst others spend more. [7]
79
17.Types of Business Structures
(JUNE 2019/P21/Q4)
(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]
(NOV 2018/P22/Q5)
(d) Discuss whether or not small firms are likely to survive in the long run. [8]
(JUNE 2018/P22/Q2)
(d) Discuss whether people would prefer to buy a product from a small firm or a
large firm. [8]
(NOV 2017/P23/Q3)
(b) Explain two advantages a business organisation may gain from becoming a
public limited company. [4]
(NOV 2017/P22/Q2)
(d) Discuss whether low unemployment in a country will encourage multinational
companies (MNCs) to set up there. [8]
(NOV 2016/P23/Q4)
(d) Discuss the advantages and disadvantages of small firms. [8]
(NOV 2016/P22/Q6)
(a) Identify who owns a public corporation and who owns a public limited
company. [2]
(NOV 2016/P22/Q5)
(b) Explain two benefits that a firm may gain from producing in another country.
[4]
80
(JUNE 2016/P22/Q2)
(d) Discuss whether a country’s economy would be harmed if multinational
companies moved out. [8]
(NOV 2015/P23/Q4)
One Finnish mobile (cell) phone manufacturing firm makes about 20% of the total
output of all goods produced in Finland. This public limited company employs a
higher number of workers and buys more capital goods than most other Finnish
firms. It also supplies a high proportion of the country’s exports.
(a) Define ‘public limited company’. [2]
(b) Explain two reasons for the differences in the size of firms in the same industry.
[4]
(d) Discuss whether a large firm is likely to sell its products at a lower price than a
small firm. [8]
(NOV 2014/P23/Q4)
Car production is an important economic activity in many countries. Much of this
production is undertaken by large multinational companies. These firms aim to
increase both productivity and production.
(a) Describe two reasons why car production is usually undertaken by large
multinational companies. [4]
(d) Discuss whether the establishment of a multinational company in a country
will always be beneficial for all the workers it employs. [8]
(NOV 2014/P22/Q5)
(a) Explain two reasons why a decision might be taken to change a private limited
company into a public limited company. [4]
(d) Discuss whether it is likely that the majority of small firms in an economy will
remain small. [6]
81
(JUNE 2014/P22/Q5)
A Zambian copper mine is operated by a foreign multinational company. The
company’s main goal is profit maximisation. Its mine creates pollution in the area,
which causes diseases and damages crops. Some economists have suggested that
the economy would benefit from the mine being operated by the Zambian
Government.
(a) Define a ‘multinational company’. [2]
(b) Explain one goal a multinational company may have other than profit
maximisation. [3]
(d) Discuss whether a mine operated by the government would be more likely to
benefit an economy than one operated by a foreign multinational company. [10]
(JUNE 2014/P21/Q4)
(a) Describe two characteristics of a co-operative. [4]
(NOV 2013/P23/Q5)
Firms can vary greatly in size from a sole proprietor to a very large monopoly.
(a) Describe the advantages and disadvantages of a sole proprietor business
organisation. [4]
(JUNE 2013/P21/Q4)
(a) Describe two differences between a partnership and a private limited
company. [4]
(NOV 2012/P22/Q5)
(a) Describe the main features of (i) a co-operative and (ii) a public corporation. [4]
(b) Explain to what extent (i) a co-operative and (ii) a public corporation have
profit maximisation as an objective. [4]
(JUNE 2012/P22/Q5)
(a) Identify the differences between a partnership and a company. [4]
82
(JUNE 2012/P21/Q4)
(a) Explain why a firm might wish to change from a private limited company to a
public limited company. [4]
(NOV 2011/P23/Q4)
There is a wide variety of different types of business organisation operating in
South Africa, including co-operatives, public limited companies and public
corporations. Some of the companies are monopolies.
(a) (i) Identify two features of a co-operative. [2] (ii) Give examples of two types of
co-operative. [2]
(b) Explain the differences between a public limited company and a public
corporation. [6]
(JUNE 2011/P22/Q5)
The size of firms in the United Arab Emirates can vary enormously, from very small
sole proprietor businesses to very large public limited companies.
(a) Describe the disadvantages of a sole proprietor business. [4]
(b) Explain why a private limited company might wish to become a public limited
company. [6]
(JUNE 2011/P21/Q4)
Sole proprietors and partnerships play an important role in Pakistan. They can
often be regarded as a feature of perfect competition, especially sole proprietors.
(a) Describe the key features of a sole proprietor. [4]
(b) Explain why a lawyer, working as a sole proprietor, might wish to change the
business to a partnership. [4]
(NOV 2010/P23/Q4)
(a)Describe the main features of: (i) a co-operative [2] (ii) a public corporation. [2]
83
(NOV 2010/P22/Q4)
In Brazil, firms vary in size from the very small to the very large.
(a) Describe the main characteristics of a multi-national company. [4]
(b) Explain the reasons why small firms continue to exist in all economies. [6]
(NOV 2010/P21/Q4)
(a) Identify two types of business organisation that are likely to be found in a
mixed economy and describe their characteristics. [6]
(b) Explain why most countries have mixed economies. [6] (c) Sometimes firms and
business organisations grow in size. Discuss how this might occur. [8]
(JUNE 2010/P22/Q4)
In Nigeria, firms vary in size from the smallest businesses up to very large
enterprises.
(a) Distinguish between a sole proprietor and a partnership. [4]
(b) Explain why a business might wish to change from a partnership to a private
limited company. [4]
(c) Describe the reasons why small firms are often successful in the retail trade in
many countries. [5]
(JUNE 2010/P21/Q4)
A large, capital-intensive German company producing electrical goods decided to
establish a factory in India.
(a) From the information given above, describe the type of business organisation
that the German company is likely to be. [4]
(b) Discuss what might be the advantages for a company of establishing a factory
in another country. [6]
(c) How might the establishment of the factory affect existing Indian companies
and the Indian economy? [10]
84
18. Productivity and Cost of
Production
(JUNE 2019/P22/Q7)
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.
(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]
(JUNE 2019/P22/Q2)
(d) Discuss whether a large firm will earn more profit per unit sold than a small
firm. [8]
(NOV 2018/P22/Q5)
(b) Explain two reasons why productivity may fall. [4]
(NOV 2017/P22/Q5)
(a) What is meant by a ‘labour-intensive industry’? [2]
(NOV 2017/P22/Q2)
(a) Define ‘average costs’. [2]
85
(JUNE 2017/P21/Q4)
In 2012 oil was discovered in Kenya, but in 2014 an American firm stopped its
plans to explore for oil in the Arabuko Sokoke forest in the country. The relative
sizes of Kenya’s primary, secondary and tertiary sectors are changing. The amount
of capital goods in the country is also increasing.
(a) Define the ‘secondary sector’ and give an example. [2]
(d) Discuss whether a country would benefit from devoting more resources to
producing capital goods. [8]
(NOV 2016/P22/Q6)
(b) Explain why fixed costs are high in the aircraft-making industry. [4]
(NOV 2016/P22/Q3)
(a) Define ‘productivity’. [2]
(b) Explain the difference between average fixed cost and average variable cost.
[4]
(JUNE 2016/P22/Q6)
(b) Explain two reasons why workers specialising can reduce the average cost of
production. [4]
(JUNE 2016/P22/Q4)
(a) Define ‘capital-intensive’. [2]
(NOV 2015/P23/Q4)
One Finnish mobile (cell) phone manufacturing firm makes about 20% of the total
output of all goods produced in Finland. This public limited company employs a
higher number of workers and buys more capital goods than most other Finnish
firms. It also supplies a high proportion of the country’s exports.
(c) Analyse why a firm may decide to change the proportion of capital and labour
it employs. [6]
86
(NOV 2015/P23/Q2)
Demand for luxury products, including expensive perfume, increased significantly
in China from 2007 to 2012. The average revenue from selling these products also
rose. Many luxury products have elastic demand. A high proportion of the luxury
products sold in China are currently imported. Some firms are now considering
producing in China rather than exporting to China.
(d) Discuss whether a firm would make more profit from producing in a foreign
market rather than exporting to that market. [8]
(JUNE 2015/P22/Q7)
The Mexican economy has recently been performing well. Its monetary policy has
lowered inflation which has helped money in the country perform its functions
more efficiently. The level of efficiency of a country’s industries is influenced by a
range of factors. These include the use of division of labour and the level of the
country’s trade protection.
(c) Analyse why engaging in division of labour may increase a firm’s costs of
production. [6]
(JUNE 2015/P22/Q3)
China is the world’s largest producer of gold and India is the world’s largest buyer
of gold. Gold mining in China is becoming more capital-intensive which is making
the supply of gold less price inelastic. The wages of workers employed in the
industry are rising but other costs of production are falling.
(a) What is meant by an industry being ‘capital-intensive’? [2]
(c) Analyse what effect an increase in output will have on fixed, variable and
average costs. [6]
(d) Discuss whether a rise in the wages paid by an industry will encourage more
people to work in that industry. [8]
87
(JUNE 2015/P21/Q4)
Trade union membership is decreasing in some countries, but it is increasing in
China. Industrial action by workers is becoming more common in China, with
workers seeking higher wages. Recently there was a strike at a car factory in
South China, owned by a Japanese multinational company.
(d) Discuss whether a rise in the wages a firm pays would reduce its profits. [8]
(NOV 2014/P23/Q4)
(b) Distinguish between productivity and production. [4]
(c) Using an example of each, explain the difference between fixed costs and
variable costs in car production. [4]
(NOV 2014/P22/Q5)
(b) Explain two reasons why production by a firm might be changed from capitalintensive to labour-intensive. [5]
(NOV 2010/P21/Q3)
(a) Why might companies spend money on training to increase the skills of their
workforce? [4]
(JUNE 2010/P22/Q3)
(a) Define fixed cost and variable cost, giving one example of each. [4]
88
19. Profit Maximisation &
other Goals of Firms
(NOV 2018/P23/Q2)
(a) Define total revenue. [2]
(b) Explain how a firm may earn a profit despite a fall in revenue. [4]
(JUNE 2018/P21/Q2)
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.
(b) Explain two reasons why a firm may not aim to earn maximum profit. [4]
(NOV 2013/P23/Q5)
(b) Explain the different goals that such a business organisation might have. [5]
(c) Analyse two reasons for the different sizes of firms in an economy. [4]
(JUNE 2013/P21/Q4)
Many firms in Spain, from the smallest to the largest, have profit maximisation as
their main goal, but some of them have different goals.
(b) Describe the principle of profit maximisation. [4]
(c) Explain the other goals, apart from profit maximisation, that firms may have.
[6]
(JUNE 2012/P21/Q4)
(b) Analyse why most firms want to maximise profits. [6]
89
20. Monopoly and Perfect
Competition
(NOV 2018/P22/Q7)
(c) Analyse how perfect competition differs from monopoly. [6]
(JUNE 2018/P22Q4)
(b) Explain two advantages a firm may gain from being a monopoly. [4]
(NOV 2016/P22/Q6)
(d) Discuss whether the quality of products is likely to be higher in a monopoly or
in a perfectly competitive market. [8]
(JUNE 2016/P22/Q4)
(b) Explain two characteristics of perfect competition. [4]
(JUNE 2014/P21/Q4)
(b) Explain three ways in which monopoly differs from perfect competition. [6]
(NOV 2013/P23/Q5)
(d) Discuss whether a monopoly is always in the best interest of consumers. [7]
(NOV 2013/P22/Q4)
Perfect competition is one type of market structure with a number of distinctive
characteristics. It is often compared favourably with monopoly.
(a) Analyse three characteristics of perfect competition. [6]
(b) Distinguish between a firm that is a price taker and one that is a price
maker.[4]
(c) Discuss whether pricing and output policies in perfect competition are more
favourable to the consumer than those in monopoly. [10]
90
(NOV 2012/P23/Q5)
Firms can vary greatly in size from a sole proprietor to a very large monopoly.
(a) Describe the advantages and disadvantages of a sole proprietor business
organisation. [4]
(b) Explain the different goals that such a business organisation might have. [5]
(c) Analyse two reasons for the different sizes of firms in an economy. [4]
(d) Discuss whether a monopoly is always in the best interest of consumers. [7]
(NOV 2012/P22/Q5)
(d) Discuss whether the disadvantages of a monopoly always outweigh the
advantages. [8]
(NOV 2011/P23/Q4)
(c) Discuss whether the advantages of a monopoly are greater than its
disadvantages. [10]
(JUNE 2011/P21/Q4)
(c) Describe the characteristics of perfect competition. [4]
(d) Discuss whether perfect competition is always to be preferred to monopoly. [8]
(NOV 2010/P22/Q4)
(c) Discuss the advantages and disadvantages of monopoly. [10]
(JUNE 2010/P21/Q6)
(b) How do the characteristics of a monopoly differ from those of perfect
competition? [6]
(c) Discuss how firms might become large and evaluate whether monopolies are
necessarily advantageous. [10]
91
21. Economies and
Diseconomies of Scale
(JUNE 2019/P21/Q4)
(b) Explain, giving examples, the difference between an internal economy of scale
and an external economy of scale. [4]
(NOV 2018/P23/Q4)
(d) Discuss whether or not a firm that produces a wide range of products can take
advantage of economies of scale. [8]
(JUNE 2018/P22/Q3)
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.
(c) Analyse the economies of scale from which a farm may benefit. [6]
(JUNE 2018/P21/Q4)
(a) Define economies of scale. [2]
(JUNE 2016/P22/Q4)
(c) Analyse two internal diseconomies of scale that a large firm may experience.
[6]
(JUNE 2016/P21/Q4)
(d) Discuss whether the average cost of production always decreases when a firm
increases the total output that it produces. [8]
92
(JUNE 2015/P21/Q6)
About 30% of Nigeria’s labour force is employed in agriculture but the country still
spends more than US$12 billion a year importing food. The Nigerian Government
is seeking to reduce the imports of food. With a high birth rate and many small
farms, this may be difficult to achieve.
(c) Analyse how an increase in the size of farms may affect the cost of producing
food. [6]
(JUNE 2014/P22/Q4)
(b) Explain two types of internal economy of scale that a growing bank can enjoy.
[4]
(JUNE 2013/P21/Q4)
(d) Discuss the extent to which different firms can be affected by diseconomies of
scale. [6]
(JUNE 2012/P22/Q5)
(c) Distinguish between internal and external economies of scale. [4]
(JUNE 2012/P21/Q4)
(c) Discuss whether a firm will always benefit from an increase in its size. [10]
(JUNE 2011/P22/Q5)
(d) Discuss whether some large firms might benefit from reducing their size. [6]
(JUNE 2010/P22/Q4)
(d) Discuss to what extent a large firm is able to benefit from economies of scale in
the television manufacturing industry. [7]
93
22. Growth of Firms and
Integration
(JUNE 2019/P22/Q5)
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.
(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]
(NOV 2017/P23/Q2)
(d) Discuss whether a merger of two firms in the same industry will be likely to
reduce the price of the product. [8]
(JUNE 2017/P22/Q2)
(d) Discuss whether small firms can compete successfully against large firms. [8]
(JUNE 2017/P21/Q2)
(d) Discuss whether large firms or small firms benefit consumers more. [8]
(NOV 2016/P23/Q3)
(d) Discuss whether a merger between two large firms in the same industry will
increase the price of the product. [8]
94
(NOV 2016/P23/Q4)
Peru has been moving from a mixed economic system closer to a market economic
system in recent years. One feature of this has been an increase in the number of
small firms being set up. Some small firms’ short-term goal is profit maximisation
whilst others aim for growth. In the long term these two goals may both be
achieved. Some small firms develop into large firms listed on their country’s stock
exchange.
(b) Explain why the growth of a firm may lead to profit maximisation in the long
term. [4]
(NOV 2016/P22/Q2)
(d) Discuss whether long-established and well-known firms are likely to be more
successful than firms that are new to an industry. [8]
(JUNE 2016/P22/Q6)
Deposits in banks in Dubai rose by 40% in 2013. More financial companies are
locating in Dubai. The growth in its financial sector is being accompanied by
horizontal mergers between financial companies and workers becoming more
specialised. The economy is becoming richer but the economic problem will never
be solved here or elsewhere in the world.
(d) Discuss whether consumers benefit from horizontal mergers. [8]
(JUNE 2016/P21/Q6)
(c) Analyse how a fall in a firm’s revenue may influence its spending on capital
goods. [6]
(NOV 2014/P22/Q5)
(c) Using examples, distinguish between vertical, horizontal and conglomerate
integration. [5]
(JUNE 2014/P21/Q4)
(c) Analyse the advantages of vertical integration. [4]
95
(NOV 2012/P22/Q5)
(c) Firms can grow large through integration. Explain, with the aid of examples,
the difference between horizontal and vertical integration. [4]
(JUNE 2012/P22/Q5)
(b) Explain why a firm’s profits might increase. [4]
(d) Discuss whether all small firms will eventually become large firms. [8]
(NOV 2011/P21/Q2)
(b) Most car producing firms are now very large. Explain how they may have
benefited from: (i) horizontal integration [4] (ii) vertical integration. [4]
(JUNE 2011/P22/Q5)
(c) Explain how firms can grow in size. [4]
96
23. Government Economic
Aims and Conflicts
(JUNE 2019/P22/Q6)
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, onefifth of Portugal’s population was living in poverty and the government increased
its spending.
(d) Discuss whether or not increasing government spending will enable a
government to achieve its aims for the economy. [8]
(JUNE 2017/P22/Q6)
In 2015 the world saw many changes in demand and advances in technology.
People were using new ways to transfer money and there was an increase in the
number of stock exchanges. Some governments also raised the school-leaving age,
that is the minimum age at which children are legally allowed to leave school.
(d) Discuss the economic arguments for and against a government raising the
school-leaving age. [8]
(JUNE 2017/P22/Q3)
(d) Discuss whether an increase in spending on capital goods will help to achieve
the aims of government policies. [8]
(JUNE 2016/P22/Q3)
(a) Identify two government economic aims. [2]
(JUNE 2016/P21/Q5)
(c) Analyse the effect of a decrease in resources on government economic aims. [6]
97
(NOV 2014/P22/Q6)
(d) Discuss whether there is likely to be a conflict between the government aims of
low inflation and low unemployment. [6]
(NOV 2012/P22/Q6)
Governments usually aim to have a low rate of inflation and a high rate of
employment, but these two aims can sometimes conflict.
(c) Discuss to what extent the aims of a low rate of inflation and a high rate of
employment are likely to conflict. [8]
98
24. Government Economic
Policies
(JUNE 2019/P21/Q7)
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]
(d) Discuss whether or not a government should protect its country’s industries
from foreign competition. [8]
(NOV 2018/P22/Q6)
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.
(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]
(JUNE 2018/P21/Q5)
(b) Explain two supply-side policy measures. [4]
99
(JUNE 2018/P21/Q3)
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%.
(c) Analyse how fiscal policy measures could reduce inflation. [6]
(JUNE 2018/P21/Q2)
(d) Discuss whether or not a government should spend some of its tax revenue on
building sports stadiums. [8]
(NOV 2017/P23/Q7)
In 2015, the UK economy experienced an increase in production and relatively low
unemployment. There was, however, little growth in labour productivity and
earnings. The government continued to spend more than it was receiving in tax
revenue and considered changing some of its monetary policy measures.
(b) Explain two reasons why government spending may be greater than tax
revenue. [4]
(d) Discuss whether monetary policy measures can increase economic growth. [8]
(NOV 2015/P23/Q7)
(d) Discuss whether use of monetary policy will increase economic growth. [8]
(JUNE 2015/P21/Q7)
In 2013, the Singapore Government was concerned that its economy might
experience a recession. It was introducing a range of supply-side policy measures
to increase productivity, avoid a recession and achieve its other aims for the
economy. It was also trying to reduce the international value of the Singapore
dollar.
(c) Analyse how supply-side policy measures could increase productivity. [6]
100
(NOV 2014/P23/Q5)
(c) Discuss whether fiscal policy, rather than monetary policy, is always a better
way to bring down the rate of inflation in an economy. [10]
(JUNE 2014/P22/Q6)
(a) What is meant by ‘monetary policy’? [2]
(b) Explain two reasons why governments aim for low and stable inflation. [4]
(JUNE 2014/P21/Q7)
Algeria’s exports have been increasing in recent years. The country has
experienced low inflation, in part, because of the fiscal and supply-side policy
measures the government has introduced. In 2012, the Algerian Government
stated its main objective was to reduce unemployment.
(a) Describe two reasons why a country’s exports may increase. [4]
(c) Discuss whether a government should increase or decrease taxes to reduce
inflation. [10]
(JUNE 2013/P22/Q5)
(b) Explain how fiscal policy can be used to encourage economic growth. [6]
(c) Discuss to what extent supply-side policies are likely to be more effective than
monetary policies in stimulating economic growth. [10]
101
25. Taxation
(JUNE 2018/P21/Q7)
(a) Define regressive tax. [2]
(NOV 2017/P23/Q5)
In 2015, the island of Puerto Rico announced it was considering ending some of its
trade embargoes. Its government was also reviewing the amount it was planning
to spend. Incomes have been increasing in Puerto Rico with some workers doing
better than others. There have also been changes on the micro level, with
elasticities of demand and supply changing in some markets.
(a) Identify two reasons why a government may place an embargo on the import
of a product. [2]
(NOV 2017/P23/Q3)
In June 2015, trade unions in Argentina demanded higher wages and lower taxes.
As well as pressure for increased wages the economy was facing a number of
other challenges. It was trying to promote the formation of public limited
companies and economic growth.
(a) Identify two reasons why governments impose taxes. [2]
(c) Analyse how a cut in tax rates could increase tax revenue. [6]
(JUNE 2017/P21/Q7)
(a) Define ‘indirect taxes’ and give an example. [2]
102
(NOV 2016/P22/Q7)
Tax revenue from both direct and indirect taxes in Germany rose to US$860 billion
in 2013. The increase was largely due to a fall in unemployment. Germany has a
progressive tax system. In 2014, German politicians discussed whether the tax
rates should be increased. Changes in tax rates influence the amount of tax
revenue received and the nature of the tax system.
(a) Define ‘a progressive tax’. [2]
(b) Explain the difference between direct and indirect taxes. [4]
(d) Discuss whether a government should increase tax rates. [8]
(JUNE 2016/P22/Q2)
(a) Giving an example, define ‘a sales tax’. [2]
(JUNE 2016/P21/Q2)
Burundi is a country in Sub-Saharan Africa. In 2013 the government of Burundi
introduced VAT, an indirect tax, while lowering corporation tax (the tax on firms’
profits), from 35% to 30%. The United Nations has encouraged Sub-Saharan
African countries to increase their tax revenue in order to have more funds
available to spend on reducing poverty. There is, however, a debate about
whether imposing more taxes or removing some taxes is more beneficial for an
economy.
(a) Define ‘an indirect tax’. [2]
(b) Explain how a cut in the rate of corporation tax could result in an increase in
tax revenue. [4]
(NOV 2015/P23/Q7)
(b) Explain why tax revenue may fall during a recession. [4]
(JUNE 2014/P21/Q3)
(d) Discuss whether a government should increase the tax on cigarettes. [8]
(NOV 2013/P22/Q5)
(a) Explain what is meant by a regressive indirect tax. [4]
103
(NOV 2011/P23/Q5)
Governments impose taxes for a number of reasons. One of these reasons is to
bring about a redistribution of income.
(a) Describe the difference between a progressive and a regressive tax and give
one example of each. [4]
(b) Explain why governments impose taxes, apart from to bring about a
redistribution of income. [6]
(NOV 2011/P21/Q3)
(a) Using an example, describe what is meant by an indirect tax. [3]
(b) Explain, using a demand and supply diagram, how the introduction of an
indirect tax can affect the equilibrium price and equilibrium quantity in a
market.[6]
(JUNE 2011/P22/Q2)
One feature of many mixed economies is that governments may intervene by
giving subsidies to some producers.
(a) What is meant by a subsidy? [3]
(b) Explain, using a demand and supply diagram, how a subsidy can affect the
equilibrium price and equilibrium quantity in a market. [6]
(JUNE 2010/P22/Q5)
(a) Explain why governments impose taxes. [6]
(b) Describe, with the aid of examples, the differences between direct and indirect
taxes. [4]
(c) Discuss the extent to which taxes can be successful in redistributing income in a
country. [10]
104
26. Inflation/Deflation and
Price Indices
(JUNE 2019/P22/Q6)
(c) Analyse how a high rate of inflation may harm the poor. [6]
(JUNE 2019/P22/Q4)
(b) Explain two causes of an increase in a country’s HDI. [4]
(JUNE 2019/P21/Q3)
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.
(b) Explain how a rise in the price of food would affect a country’s consumer prices
index (CPI). [4]
(d) Discuss whether or not a higher inflation rate will benefit producers. [8]
(NOV 2018/P23/Q7)
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.
(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]
105
(JUNE 2018/P22/Q6)
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.
(c) Analyse what can cause deflation.[6]
(d) Discuss whether or not government policy measures to reduce unemployment
will cause inflation. [8]
(JUNE 2018/P21/Q5)
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]
(c) Analyse why a government may want to reduce its country’s inflation rate. [6]
(NOV 2017/P22/Q5)
(c) Analyse the effects of an increase in unemployment on inflation. [6]
(JUNE 2017/P21/Q5)
In June 2015 the value of the Swiss franc rose by 30% against the euro. The
countries that Switzerland exports to are changing. Exports to the USA, UK, India
and South Korea are growing in importance, while exports to Germany, Italy and
France are declining. A possible effect of an appreciation of the exchange rate is a
fall in the inflation rate. (a) Define ‘inflation’. [2]
(d) Discuss whether a low inflation rate always benefits an economy. [8]
106
(NOV 2016/P23/Q6)
Microfinance involves giving small loans at a low rate of interest to poor people.
Such people normally cannot get loans from commercial banks. Microfinance is
designed to promote development and started in Bangladesh. A study by the
World Bank in 2014 found that microfinance increases consumer expenditure, the
value of household assets, the size of the labour force and spending on children’s
education.
(c) Analyse how an increase in spending on education could increase inflation in
the short run but decrease it in the long run. [6]
(d) Discuss whether an increase in consumer expenditure would be beneficial for
an economy. [8]
(NOV 2016/P22/Q4)
Household debt in South Korea in 2014 was reaching record levels. People were
borrowing more and saving less: the savings ratio fell from 19% in 1985 to 4% in
2014. Despite the low rate of saving, there was little demand-pull or cost-push
inflation. Indeed, in 2014 the country came close to experiencing deflation.
(a) Define ‘deflation’. [2]
(b) Explain the difference between demand-pull inflation and cost-push
inflation.[4]
(JUNE 2016/P22/Q5)
In July 2016 the Sveriges Riksbank, Sweden’s central bank, cut the rate of interest
to 0.25%. The Swedish economy was experiencing deflation, with the weighted
price index falling by 0.2% on the previous year. The fall in the rate of interest
reduced the value of the krona, Sweden’s currency, and was expected to end
deflation.
(a) Define a ‘weighted price index’. [2]
(d) Discuss whether a cut in the rate of interest would end deflation. [8]
(JUNE 2016/P21/Q2)
(d) Discuss whether an increase in taxes will reduce inflation. [8]
107
(NOV 2015/P23/Q5)
(c) Analyse how trade union action could cause inflation. [6]
(JUNE 2015/P22/Q5)
Both the annual inflation rate and the economic growth rate fell in Pakistan
between 2012 and 2013. Some economists suggested that the Government should
try to lower inflation further by reducing government spending. Lower inflation
might increase economic activity and reduce unemployment.
(c) Analyse why a fall in the inflation rate may reduce a country’s unemployment
rate. [6]
(d) Discuss whether a decrease in government spending will reduce inflation. [8]
(NOV 2014/P23/Q5)
Inflation is an economic problem faced by many economies, but governments
differ in how they attempt to bring down the rate of inflation.
(a) Describe how changes in the price level are measured in an economy. [5]
(b) Explain how a situation of ‘too much money chasing too few goods’ can lead to
inflation. [5]
(NOV 2014/P22/Q6)
Inflation and unemployment are two economic problems that governments
usually have to deal with.
(a) Distinguish between demand-pull and cost-push inflation. [4]
(b) Explain three reasons why inflation is regarded as a serious economic
problem.[6]
108
(JUNE 2013/P21/Q5)
Many countries experience the problems of inflation, but in some countries, such
as Japan, there have been problems resulting from deflation.
(a) Distinguish between inflation and deflation. [4]
(b) Describe how the rate of inflation in a country can be measured. [6]
(c) Discuss whether deflation is a greater problem than inflation. [10]
(NOV 2012/P22/Q6)
(a) Explain why inflation can be harmful to an economy. [6]
(JUNE 2012/P22/Q6)
(a) Explain the possible causes of inflation. [5]
(JUNE 2011/P22/Q6)
Many governments are concerned about inflation in their economies. This was, for
example, a particular problem in Zimbabwe where there has been a very high rate
of inflation.
(a) What is meant by inflation? [3]
(b) Describe how a retail (consumer) price index is calculated. [7]
(c) Explain what is meant by demand-pull inflation.[4]
(d) Discuss whether a government should be concerned about a high rate of
inflation in its economy. [6]
(JUNE 2011/P21/Q5)
Inflation and unemployment continue to be major problems in many countries.
(a) What is meant by inflation? [3]
(b) Explain the possible causes of inflation. [5]
109
(NOV 2010/P23/Q5)
In a number of countries, governments have tried to reduce inflation by
introducing subsidies.
(a) Explain what is meant by inflation. [3]
(b) Analyse the possible causes of inflation. [7]
(NOV 2010/P22/Q5)
(c) Describe the main features of a retail (consumer) price index. [5]
(d) Discuss whether inflation is always harmful. [6]
(JUNE 2010/P21/Q7)
(c) Sometimes the value of money is decreased because of inflation. Discuss the
main causes of inflation. [8]
110
27. Unemployment
(JUNE 2019/P22/Q3)
(c) Analyse how improvements in education can affect the pattern of
employment.[6]
(JUNE 2019/P21/Q7)
(b) Explain two reasons why the unemployment rate may be higher in one country
than another. [4]
(NOV 2018/P23/Q2)
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.
(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]
(NOV 2018/P22/Q3)
(b) Explain two benefits to a government from a fall in unemployment. [4]
(NOV 2017/P22/Q6)
Moldova has a population of 3.5 million. It is one of the poorest countries in
Europe, with relatively low living standards. In 2015, the country experienced a
recession and a doubling of its inflation rate. Moldova’s central bank increased its
interest rate from 8.5% to 15.5%.
(c) Analyse how an increase in the rate of interest could increase
unemployment.[6]
111
(JUNE 2017/P22/Q7)
Spain has had one of the highest unemployment rates in Europe. Moreover, 3.5
million of those unemployed had been out of work for at least a year by 2015. The
Spanish Government has introduced a range of policy measures, including
increased government spending, to reduce unemployment and poverty. It has also
tried to help firms make the supply of their products more elastic.
(a) Identify two problems that prevent a worker finding employment. [2]
(b) Explain two costs of long-term unemployment to those who are
unemployed.[4]
(JUNE 2017/P22/Q5)
(c) Analyse the causes of unemployment. [6]
(JUNE 2017/P21/Q7)
(c) Analyse how a reduction in government spending on education could cause
unemployment. [6]
(NOV 2016/P23/Q3)
(c) Analyse how wage rises may cause unemployment. [6]
(NOV 2016/P22/Q7)
(c) Analyse how a fall in unemployment can increase tax revenue. [6]
(NOV 2016/P22/Q5)
(a) Define ‘unemployment’. [2]
(NOV 2015/P23/Q5)
(d) Discuss whether inflation would cause unemployment. [8]
(NOV 2015/P22/Q4)
(d) Discuss whether a country would benefit from having full employment. [8]
112
(JUNE 2015/P21/Q5)
In January 2013, the Portuguese Government increased tax rates. Three months
later it cut its spending on health care and education. Between these two periods,
unemployment in Portugal rose.
(b) Explain two reasons why an increase in unemployment may reduce tax
revenue. [4]
(c) Analyse two reasons why unemployment may increase. [6]
(NOV 2014/P22/Q6)
(c) Distinguish between frictional and cyclical unemployment. [4]
(JUNE 2014/P22/Q6)
(d) Discuss whether a reduction in a country’s unemployment rate will always
benefit an economy. [8]
(JUNE 2014/P21/Q7)
(b) Explain why governments aim for low unemployment. [6]
(NOV 2012/P22/Q6)
(b) Explain why unemployment which lasts for more than a year has more harmful
effects than short-term unemployment for (i) the unemployed and (ii) the
economy. [6]
(JUNE 2012/P22/Q6)
(b) Distinguish between structural unemployment and demand-deficient (cyclical)
unemployment. [5]
(JUNE 2012/P21/Q5)
(b) Define the term full employment. [4]
(c) Discuss the extent to which frictional unemployment and structural
unemployment are serious problems for (i) an individual and (ii) the economy. [10]
113
(NOV 2011/P21/Q5)
One of the important aims of governments is full employment. The unemployment
rate in some countries, however, has increased over the last few years.
(a) Define: (i) full employment [2] (ii) the unemployment rate. [2]
(b) Describe the different types of unemployment which could exist in an
economy.[6]
(c) Discuss whether a rise in employment always benefits an economy. [10]
(JUNE 2011/P21/Q5)
(c) Identify and describe two different types of unemployment that can exist in an
economy. [4]
(d) Discuss whether unemployment or inflation is the greater problem. [8]
(NOV 2010/P23/Q6)
In 2009 unemployment in South Africa rose to 24% and its real Gross Domestic
Product (GDP) fell by 1.3%. Both of these changes reduced living standards in the
country.
(a) Explain why it may sometimes be difficult to know precisely what the rate of
unemployment is in a country. [3]
(b) Analyse the possible consequences of unemployment for a country. [6]
(NOV 2010/P22/Q5)
Most countries are faced with economic problems including unemployment and
inflation.
(a) Describe what is meant by full employment. [3]
(b) Explain the different types of unemployment that can exist in an economy. [6]
(JUNE 2010/P21/Q5)
(b) If there is economic growth, unemployment often declines. Identify three types
of unemployment and explain their causes.
114
28. GDP, Economic Growth and
Recession
(JUNE 2019/P22/Q4)
(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]
(JUNE 2019/P21/Q5)
(d) Discuss whether or not a rise in the rate of interest will reduce economic
growth. [8]
(JUNE 2018/P21/Q6)
(d) Discuss whether or not increased government spending will increase economic
growth. [8]
(NOV 2017/P23/Q4)
(b) Explain two disadvantages of a decrease in a country’s output. [4]
(NOV 2016/P23/Q7)
(b) Explain two causes of a high economic growth rate. [4]
(c) Analyse how the pattern of employment within a country tends to change as
the economy develops. [6]
(JUNE 2016/P22/Q6)
6 Deposits in banks in Dubai rose by 40% in 2013. More financial companies are
locating in Dubai. The growth in its financial sector is being accompanied by
horizontal mergers between financial companies and workers becoming more
specialised. The economy is becoming richer but the economic problem will never
be solved here or elsewhere in the world.
(c) Analyse how an increase in bank lending can increase economic growth. [6]
115
(JUNE 2015/P22/Q4)
(a) Define ‘Gross Domestic Product’. [2]
(b) Explain two benefits of an increase in Gross Domestic Product. [4]
(JUNE 2014/P22/Q6)
(c) Analyse how an increase in government spending may cause economic
growth.[6]
(JUNE 2012/P22/Q5)
Governments can use a range of different policies to encourage economic growth.
(a) Describe how economic growth is measured. [4]
(NOV 2012/P22/Q3)
A government is planning to build a high speed railway through a large area of
fertile land and scenic beauty. A decision to construct the railway will depend upon
how the project is financed and the social costs and social benefits arising from its
construction.
(c) Discuss the advantages and disadvantages of such a high speed railway to a
country’s economy, both locally and nationally. [10]
(JUNE 2012/P22/Q6)
Low inflation, low unemployment and high economic growth are all government
economic aims.
(c) Discuss whether it is always possible for a government to achieve a high rate of
economic growth. [10]
(NOV 2010/P23/Q6)
(c) Explain what is meant by real Gross Domestic Product. [4]
116
(JUNE 2010/P21/Q5)
(a) Describe what is meant by economic growth and explain how it might be
measured. [5]
(c) Discuss how
(i) consumers
(ii) firms and
(iii) the government might benefit if there is economic growth. [9]
117
29. Standard of Living, Poverty
and Human Development
Index (HDI)
(JUNE 2019/P22/Q5)
(b) Explain two ways a government could reduce relative poverty. [4]
(NOV 2018/P23/Q6)
(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]
(NOV 2017/P23/Q7)
In 2015, the UK economy experienced an increase in production and relatively low
unemployment. There was, however, little growth in labour productivity and
earnings. The government continued to spend more than it was receiving in tax
revenue and considered changing some of its monetary policy measures.
(c) Analyse how an increase in labour productivity can increase living standards.[6]
(NOV 2017/P22/Q7)
The Gulf countries, some of which are quite specialised, import a high proportion
of the food their inhabitants eat. For example, the United Arab Emirates imports
83% of all the food that it consumes. The Gulf countries are trying to reduce their
reliance on imports of food.
(d) Discuss whether producing more food will increase living standards. [8]
(NOV 2017/P22/Q6)
(b) Explain two causes of an increase in living standards. [4]
118
(JUNE 2017/P22/Q4)
More people are becoming billionaires at the same time that other people are
living in poverty. While some people enjoy luxuries others lack even basic
essentials. To enable more people to achieve a minimum living standard some
economists support the redistribution of income.
(a) What is meant by ‘redistribution of income’? [2]
(c) Analyse why the elimination of absolute poverty would not solve the economic
problem. [6]
(d) Discuss whether Gross Domestic Product (GDP) per head is the best measure of
comparative living standards. [8]
(NOV 2016/P23/Q5)
(c) Analyse three ways in which a country’s HDI value could increase. [6]
(JUNE 2016/P21/Q7)
(d) Discuss whether living standards are always lower in developing countries than
in developed countries. [8]
(NOV 2015/P23/Q7)
The Netherlands is a country with a high Human Development Index (HDI) ranking
and a high Gross Domestic Product (GDP). A recession in 2012 resulted in a fall in
consumer expenditure. This caused a gap between government spending and tax
revenue. In order to close the gap, the Netherlands’ Government cut its spending.
It might have used monetary policy to increase economic growth and raise tax
revenue.
(c) Analyse how a cut in government spending may reduce a country’s HDI
ranking. [6]
119
(NOV 2015/P22/Q4)
On average, Norwegians work only 27 hours a week. They also take more, and
longer, holidays than most other countries’ workers. In 2013, Norway had the
second highest productivity in the world. It was also ranked number one in the
Human Development Index (HDI). Unlike many other countries, Norway has had
almost full employment in recent years.
(c) Analyse why a country may have a high HDI value. [6]
(JUNE 2015/P21/Q5)
(d) Discuss whether a reduction in government spending on education will reduce
living standards. [8]
(NOV 2014/P23/Q6)
(c) Explain what is meant by ‘absolute poverty’. [2]
(NOV 2013/P23/Q6)
(c) Discuss whether the Human Development Index (HDI) is the best way of
comparing the standard of living in different countries. [10]
(NOV 2012/P22/Q5)
(c) Discuss the extent to which a direct tax, such as income tax, can affect the
distribution of income in an economy. [10]
(JUNE 2013/P22/Q7)
A number of countries have high levels of poverty, but there is no agreement as to
which is the best way to try to improve standards of living in a country.
(a) Distinguish between absolute and relative poverty. [4]
(b) Explain how the Human Development Index is measured. [6]
(c) Discuss which policies are likely to be most successful in reducing the extent of
poverty in a country. [10]
120
(NOV 2012/P23/Q6)
(c) Discuss whether the Human Development Index (HDI) is the best way of
comparing the standard of living in different countries. [10]
(NOV 2011/P23/Q5)
(c) Discuss the advantages and disadvantages of a government trying to
redistribute income more evenly. [10]
(JUNE 2011/P22/Q7)
The living standards of people vary enormously and yet it is not always easy to
measure these with great accuracy. It is, however, certainly the case that some
countries suffer from extreme poverty.
(a) Describe how living standards in a country can be measured. [6]
(b) Explain two reasons why the measurement of living standards in a country is
not always accurate. [6]
(c) Discuss the actions a government might take to reduce poverty. [8]
(JUNE 2011/P21/Q6)
When an economy develops, the occupational, age and geographical structure of
the population is likely to change. Standards of living usually increase, but there
are still likely to be regional differences in living standards.
(b) Explain why there may be differences in living standards in various regions
within a country. [6]
(c) Discuss which policies are likely to be most effective in reducing the differences
in living standards in various regions within a country. [8]
(NOV 2010/P23/Q6)
(d) Discuss whether the quality of life is always higher in developed than in
developing countries. [7]
(JUNE 2010/P22/Q6)
(c) Discuss how effectively Gross Domestic Product (GDP) measures the standard
of living in a country. [10]
121
30. Developing and Developing
Economies
(NOV 2018/P22/Q4)
(d) Discuss whether or not people in developed countries are likely to save more
than people in developing countries. [8]
(JUNE 2018/P22/Q3)
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.
(d) Discuss whether or not developing countries benefit from producing mainly
primary products. [8]
(JUNE 2018/P22/Q2)
(b) Explain two reasons why a government would want to turn its country from a
developing into a developed country. [4]
(JUNE 2018/P21/Q4)
(d) Discuss whether or not raising living standards is the most important economic
objective for developing countries. [8]
(NOV 2017/P23/Q6)
(c) Analyse why developed countries usually have lower death rates than
developing countries. [6]
122
(JUNE 2016/P22/Q7)
Countries have to decide how to use their scarce resources. A number of countries
are devoting more of their resources to tourism. Some of the jobs in the industry
are, however, low-paid and offer little job security. The average age of workers
employed, for example, in hotels is relatively young although some older workers
have spent their working life in the hotel industry.
(d) Discuss whether developing countries should encourage foreign tourism. [8]
(NOV 2014/P23/Q6)
Developing countries have characteristics that are different from those of
developed countries. One of these is the extent of poverty in such countries.
(a) Describe three features of a developing country. [6]
(b) Describe the changes that are likely to occur as a country becomes more
developed in (i) its occupational structure, and (ii) the geographical distribution of
its population. [4]
(d) Discuss whether government policies can always reduce poverty in a
developing country. [8]
(JUNE 2012/P21/Q6)
(b) Explain the main features of a country classified as being developed. [6]
(NOV 2010/P21/Q5)
Lack of rain in some developing countries can be a problem. The developed
countries often send food and other essential items to help.
(a) Why might low rainfall have such a disastrous effect in many developing
countries? [5]
(b) What economic policies might the government of a developing country use to
reduce the problem of food shortages? [7]
(c) Discuss which indicators economists might find most useful to determine
whether a country is developed or developing. [8]
123
31. Population
(NOV 2018/P23/Q4)
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]
(JUNE 2018/P22/Q5)
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]
(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]
(JUNE 2018/P21/Q6)
(a) Define net immigration. [2]
124
(NOV 2017/P23/Q4)
In August 2015, China devalued its currency, the yuan. The Chinese Government
was trying to increase output, including the output of food. It had experienced a
slow-down in its economic growth. However, some other countries had actually
experienced a decrease in output. One of the causes of the decline in economic
growth in some countries was problems connected with their commercial banks.
Some commercial banks were at risk of going out of business.
(c) Analyse the effect on the market for food of an increase in population
combined with a prolonged period of bad weather. [6]
(NOV 2017/P22/Q6)
Moldova has a population of 3.5 million. It is one of the poorest countries in
Europe, with relatively low living standards. In 2015, the country experienced a
recession and a doubling of its inflation rate. Moldova’s central bank increased its
interest rate from 8.5% to 15.5%.
(a) Identify two influences on the size of a country’s population. [2]
(NOV 2017/P22/Q5)
(d) Discuss whether having a relatively small population is an advantage or a
disadvantage for an economy. [8]
(JUNE 2017/P22/Q5)
Between 2009 and 2014, Delaware was the only US state to experience a fall in
earnings. In the same period, however, it had an unemployment rate below the
national average and a higher proportion of workers belonging to a trade union.
The state is forecast to have one of the fastest ageing populations of any state in
the USA in the next twenty years.
(d) Discuss whether an ageing population benefits an economy. [8]
125
(JUNE 2017/P21/Q6)
Japan’s birth rate is falling. Its population is ageing, and declining at a faster rate
than any other country’s population. This has an impact on the amount that the
Japanese Government spends on pensions. Its government is considering
measures to increase the country’s birth rate and to encourage immigration.
(a) Identify two causes of a fall in a country’s birth rate. [2]
(b) Explain two reasons why more educated people tend to live longer than less
educated people. [4]
(d) Discuss whether the government of a country should reduce the pensions it
pays to retired people. [8]
(JUNE 2016/P22/Q3)
It is forecast that India’s working-age population aged between 15 and 64 will rise
by 125 million between 2015 and 2025 and by a further 103 million over the
following decade. Of course, not everyone of working age will be in work or will be
seeking work. Changes in population and the labour force affect a government’s
ability to achieve its economic aims.
(b) Explain two reasons why someone may be of working age but not in the labour
force. [4]
(c) Analyse what may cause an increase in a country’s labour force. [6]
(d) Discuss whether an economy will benefit from having a younger labour
force.[8]
126
(JUNE 2015/P22/Q6)
Poland is experiencing changes to its population and economy. The country’s
death rate is falling. Despite Poland’s high unemployment rate, more people are
migrating to the country, especially from Spain and Italy. Poland is moving closer
to a market economy with an increasing proportion of its labour force employed in
the private sector.
(a) Define ‘death rate’. [2]
(b) Explain two causes of a fall in a country’s death rate. [4]
(c) Analyse why people may migrate to a country with a high unemployment
rate.[6]
(JUNE 2015/P21/Q6)
(a) Define ‘birth rate’. [2]
(b) Explain two causes of a high birth rate. [4]
(JUNE 2014/P21/Q6)
Over time the determinants of population size, including the birth rate and the
fertility rate, change. It is predicted that the world population will rise to 9 billion
by 2050. Some countries, including Italy and Japan, however, are expected to
experience a fall in population size. It is also predicted that average incomes will
rise in most countries.
(a) Describe how the birth rate differs from the fertility rate. [4]
(b) Analyse how an increase in average incomes may influence a country’s
population size. [6]
(c) Discuss whether a government should be concerned about a fall in the
country’s population size. [10]
127
(NOV 2013/P23/Q6)
Economists are concerned with both the size of population and the standard of
living of different countries.
(a) Explain why the rate of population growth in some countries is greater than in
others. [5]
(b) Explain what is meant when a country is described as being over-populated or
under-populated. [5]
(NOV 2013/P22/Q6)
It is not only the size of a country’s population that concerns economists, but also
its age distribution.
(a) Describe three possible causes of the growth of a country’s population. [6]
(b) Explain how the rate of population growth may differ between a developed
country and a developing country. [4]
(c) Explain what is meant by an ageing population. [2]
(d) Discuss to what extent an ageing population is a serious economic problem. [8]
(JUNE 2013/P21/Q6)
A country’s population is influenced by the birth rate, the death rate and net
migration.
(a) Define
(i) birth rate and
(ii) death rate. [4]
(b) Explain why the birth rate is decreasing in many countries. [4]
(c) Describe what is meant by net migration. [2]
(d) Discuss whether a rapid rise in a country’s population should always be
regarded as a serious problem. [10]
128
(NOV 2012/P23/Q6)
Economists are concerned with both the size of population and the standard of
living of different countries.
(a) Explain why the rate of population growth in some countries is greater than in
others. [5]
(b) Explain what is meant when a country is described as being over-populated or
under-populated. [5]
(JUNE 2012/P22/Q7)
(a) Define the term death rate and describe the factors that can affect a country’s
death rate. [6]
(b) Explain what is meant when a country is said to be overpopulated. [4]
(c) Discuss whether the population problems found in the developing world are the
same as those found in the developed world. [10]
(JUNE 2012/P21/Q6)
(a) Explain why the rate of population growth varies so much between some
countries. [6]
(c) Discuss whether an ageing population should always be regarded as an
economic problem. [8]
(NOV 2011/P23/Q7)
Many people emigrate to another country for a variety of reasons and this trend
seems to be on the increase.
(a) Describe what is meant by net migration. [3]
(b) Explain the possible economic reasons why some people might emigrate. [7]
(c) Discuss the economic effects of a large increase in the number of migrants into
a country. [10]
129
(NOV 2011/P21/Q6)
The population of the world continues to rise, despite the efforts of some countries
to control population growth.
(a) Explain why the rate of population growth in some countries might be higher
than in other countries. [6]
(b) As a country becomes more developed, describe what is likely to happen to:
(i) the geographical distribution of its population [2]
(ii) the occupational distribution of its workforce. [4]
(c) Discuss whether an increase in the population of a country should always be
regarded as undesirable. [8]
(JUNE 2011/P21/Q6)
(a) Describe how the (i) occupational, (ii) age and (iii) geographical structure of a
population is likely to change as a country becomes more developed. [6]
(NOV 2010/P22/Q6)
Changes in population have a significant effect on many countries.
(a) (i) What is meant by net migration? [2]
(ii) Identify two other factors that influence the size of a country’s
population.[2]
(NOV 2010/P21/Q6)
As scientists discover more about the spread of disease, governments introduce
health education program and increase spending on health care. These programs
are particularly significant in developing countries and can change the age
structure of the population.
(a) Identify and explain two concerns that a health education program might
cover. [4]
(b) How may the age structure of the population in a developing country change
as a result of increased spending on health care? [6]
130
(JUNE 2010/P22/Q6)
Both China and India have a population of over 1 billion people each.
(a) Describe one economic advantage and one economic disadvantage to
countries such as China and India of having a very large population. [4]
(b) Explain the reasons for the different rates of population growth in different
countries. [6]
131
32. Specialisation
(JUNE 2019/P21/Q6)
(b) Explain two disadvantages a worker could experience from specialising. [4]
(NOV 2017/P23/Q6)
(b) Explain two advantages of countries specialising. [4]
(NOV 2017/P22/Q7)
The Gulf countries, some of which are quite specialised, import a high proportion
of the food their inhabitants eat. For example, the United Arab Emirates imports
83% of all the food that it consumes. The Gulf countries are trying to reduce their
reliance on imports of food.
(a) Define ‘specialisation’. [2]
(b) Explain two disadvantages that workers may experience from specialising. [4]
(NOV 2016/P22/Q3)
In recent years productivity growth has been low in Brazil, which has kept average
costs relatively high. Some economists claim this low growth in productivity is due
to protectionism. The Brazilian Government imposes high tariffs on a range of
imports, including smartphones; it argues that such protectionism saves Brazilian
jobs.
(c) Analyse the advantages that a country may gain from specialising in a product
such as smartphones. [6]
(NOV 2015/P22/Q4)
(a) Define ‘productivity’. [2]
(b) Explain two reasons why productivity may increase. [4]
132
(NOV 2014/P22/Q7)
Specialisation can lead to a significant increase in output and international trade.
(a) Explain what is meant by ‘specialisation’. [4]
(b) Describe the benefits and disadvantages of specialisation at a regional level.[6]
(NOV 2012/P22/Q7)
(a) Explain the advantages of regional specialisation in an economy. [4]
(NOV 2010/P22/Q7)
(c) What is meant by specialisation? [4]
(d) Discuss the benefits and disadvantages of specialisation at the national
level.[6]
133
33.Balance of payments
(NOV 2018/P23/Q7)
(d) Discuss whether or not an increase in investment would reduce a deficit on the
current account of the balance of payments. [8]
(JUNE 2018/P22/Q3)
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.
(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]
(JUNE 2018/P21/Q3)
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%.
(d) Discuss whether or not a reduction in a current account deficit on the balance
of payments will benefit an economy. [8]
(NOV 2017/P23/Q6)
(d) Discuss whether a rise in income tax will reduce a current account deficit. [8]
(JUNE 2016/P22/Q5)
(c) Analyse how a fall in the value of a currency may increase a current account
surplus on the balance of payments. [6]
134
(NOV 2015/P23/Q6)
In 2013 the Argentinian Government was trying to stop the fall in the international
value of the Argentinian peso, by imposing quotas. The depreciation of the peso
was unexpected as the country was experiencing a rising current account surplus
on its balance of payments. Usually such a change in the current account would
lead to an appreciation.
(a) Define ‘quota’. [2]
(b) Explain the structure of the current account of the balance of payments. [4]
(c) Analyse why it would be expected that a rising current account surplus would
lead to an appreciation in the country’s foreign exchange rate. [6]
(JUNE 2015/P22/Q4)
Chile produces a third of the world’s supply of copper. A change in demand for, or
supply of, copper affects Chile’s Gross Domestic Product (GDP) and the current
account position on its balance of payments.
(d) Discuss whether a rise in demand for copper would cause Chile to experience a
current account surplus. [8]
(NOV 2014/P23/Q7)
Many countries have a deficit in the current account of their balance of payments
but some countries, such as China, Germany and Japan, regularly have a surplus in
their current account.
(a) Explain two consequences of a current account deficit. [4]
(b) Analyse what can cause a surplus in the current account of the balance of
payments. [8]
(c) Discuss whether a current account surplus is always to be regarded as
desirable. [8]
135
(JUNE 2014/P22/Q7)
In March 2012, the Indian Government increased the tariff on imports of gold. It
did this to reduce the country’s growing deficit on the current account of its
balance of payments.
(a) Describe how a tariff could reduce imports. [4]
(b) Analyse three causes of a current account deficit. [6]
(c) Discuss whether a government should always be concerned about a growing
current account deficit. [10]
(JUNE 2013/P21/Q7)
Many economies are now experiencing a large current account deficit on their
balance of payments.
(a) Describe the structure of the current account of the balance of payments. [4]
(b) Explain what is meant by a current account deficit on the balance of
payments.[4]
(c) Explain why a large current account deficit on the balance of payments is
usually regarded as a serious problem. [4]
(d) Discuss which is the best way to reduce a large current account deficit on the
balance of payments. [8]
(NOV 2012/P22/Q7)
(b) Describe the structure of the current account of a country’s balance of
payments. [4]
(JUNE 2012/P21/Q7)
(a) Describe the structure of the current account of a country’s balance of
payments. [4]
(b) Explain the main causes of a current account deficit. [6]
(c) Discuss what would be the most effective policies to increase a country’s
exports. [10]
136
(NOV 2011/P23/Q6)
(c) Describe the structure of the current account of a country’s balance of
payments. [4]
(JUNE 2011/P21/Q7)
Changes in a country’s exchange rate can sometimes have significant effects on its
economy and on its balance of payments.
(c) Explain any two of the four sections of the current account. [4]
(d) Discuss whether an improvement in a country’s current account position will
result in an increase in its employment. [8]
(NOV 2010/P22/Q7)
(a) Describe the structure of the current account of a country’s balance of
payments. [4]
(b) Explain the policies a government could use to reduce a deficit on the current
account of the balance of payments. [6]
137
34. Exchange rate
(JUNE 2019/P21/Q2)
(a) Define a floating foreign exchange rate. [2]
(d) Discuss whether or not a government should prevent a fall in its country’s
foreign exchange rate. [8]
(NOV 2018/P22/Q2)
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.
(d) Discuss whether or not a fall in its foreign exchange rate will benefit an
economy. [8]
(JUNE 2018/P21/Q3)
(a) Define devaluation. [2]
(b) Explain two advantages of a floating exchange rate. [4]
(NOV 2017/P23/Q4)
(a) Define ‘devaluation’. [2]
(JUNE 2017/P22/Q3)
(c) Analyse how a fall in the rate of interest may affect a country’s exchange
rate.[6]
(JUNE 2017/P21/Q5)
(c) Analyse how an appreciation of the exchange rate may reduce the country’s
inflation rate. [6]
(NOV 2016/P23/Q7)
(a) Define ‘a depreciation’ in the value of a currency. [2]
138
(NOV 2016/P23/Q2)
In March 2014, teachers in Argentina went on strike after their unions failed to
reach an agreement about wage rates. The government offered a 25% pay rise
but the unions were demanding a pay rise above the country’s 32% inflation rate.
The government claimed that large pay rises would cause unemployment. It also
stated that the economy’s prospects would soon improve as a result of its
devaluation of the country’s exchange rate at the start of the year.
(c) Analyse how wage rises may cause unemployment. [6]
(d) Discuss whether a government should devalue the country’s exchange rate. [8]
(JUNE 2016/P21/Q3)
(d) Discuss whether an increase in exports will increase the exchange rate. [8]
(NOV 2015/P23/Q6)
(d) Discuss whether a government should try to prevent a depreciation in the
country’s currency. [8]
(JUNE 2015/P21/Q7)
In 2013, the Singapore Government was concerned that its economy might
experience a recession. It was introducing a range of supply-side policy measures
to increase productivity, avoid a recession and achieve its other aims for the
economy. It was also trying to reduce the international value of the Singapore
dollar.
(a) Define ‘recession’. [2]
(b) Explain two reasons why an economy may have a high foreign exchange
rate.[4]
(d) Discuss whether a fall in the international value of its currency will always
benefit an economy. [8]
139
(JUNE 2013/P22/Q6)
Some countries have a fixed exchange rate system, but others allow the external
value of their currency (foreign exchange rate) to float.
(a) Explain how the external value of a currency is determined in a floating or
flexible exchange rate system. [4]
(b) Describe how a government maintains the external value of its currency in a
fixed exchange rate system. [4]
(c) Explain why a government might want the external value of its currency to fall.
[4]
(d) Discuss to what extent a floating exchange rate is preferable to a fixed
exchange rate system. [8]
(NOV 2012/P23/Q7)
(c) Describe the differences between a fixed and a floating exchange rate. [4]
(d) Discuss whether a floating exchange rate system is always preferable to a fixed
exchange rate system. [7]
(NOV 2012/P22/Q7)
(c) Explain why the value of a currency may fall in a floating exchange rate system.
[4]
(d) Discuss whether a floating exchange rate system is always to be preferred to a
fixed one. [8]
(NOV 2011/P23/Q6)
Some countries have a deficit on the current account of their balance of payments.
One way to reduce the deficit is to change the exchange rate.
(a) What is meant by an exchange rate? [2]
(b) Explain what can cause fluctuations in exchange rates. [6]
(d) Discuss whether a change in the exchange rate will always solve a country’s
deficit on the current account of its balance of payments. [8]
140
(JUNE 2011/P21/Q7)
Changes in a country’s exchange rate can sometimes have significant effects on its
economy and on its balance of payments.
(a) Identify two causes of a change in a country’s exchange rate. [2]
(b) Explain the effects of a fall in a country’s exchange rate on its production. [6]
(NOV 2010/P23/Q7)
Changes in the exchange rate of a country’s currency can have a significant
influence on the value of its imports and exports.
(b) Analyse the advantages of maintaining a fixed exchange rate. [6]
(c) Discuss whether an economy would always benefit from a fall in its exchange
rate. [10]
(JUNE 2010/P22/Q7)
Whilst in recent years more countries have adopted freely floating exchange rates,
a number of countries have been increasing the protection they are giving to their
domestic industries.
(a) Define the term exchange rate. [2]
(b) Explain what determines the value of a freely floating exchange rate. [6]
141
35. International Trade and
Protectionism
(JUNE 2019/P22/Q3)
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]
(d) Discuss whether or not the imposition of import tariffs by a country will reduce
its unemployment. [8]
(JUNE 2019/P21/Q2)
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.
(c) Analyse why a country with low costs of production may experience a decrease
in its exports. [6]
(NOV 2018/P23/Q5)
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.
(c) Analyse why a country may change from a net exporter of a product into a net
importer of the product. [6]
142
(NOV 2018/P22/Q7)
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.
(b) Explain two reasons why a government may impose a tariff on imported
gold.[4]
(d) Discuss whether or not an economy should mine and sell all of its gold now. [8]
(JUNE 2018/P22/Q7)
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]
(JUNE 2018/P21/Q4)
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.
(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]
143
(NOV 2017/P23/Q6)
Trade protection reduces the opportunity for countries to specialise and influences
the current account positions that countries have on their balance of payments.
There are differences in the amount and types of trade protection used by
developed and developing countries. Developed countries also usually have a
lower death rate than developing countries.
(a) Define ‘trade protection’. [2]
(NOV 2017/P23/Q2)
(b) Explain two reasons why a country might want to restrict exports. [4]
(NOV 2017/P22/Q7)
(c) Analyse how a country could reduce its reliance on imports. [6]
(NOV 2017/P22/Q5)
(b) Explain two reasons why a country may stop exporting a product. [4]
(NOV 2017/P22/Q4)
(b) Explain how two methods of trade protection may reduce imports. [4]
(JUNE 2017/P21/Q5)
(b) Explain why a country’s exports to one country may increase, while those to
another country decrease. [4]
(NOV 2016/P23/Q7)
Moambiue is a developing economy with a relatively high economic growth rate.
In recent years there has been a depreciation in the value of its currency, the
metical, against the US dollar. This has had an influence on the country’s
unemployment rate. Some economists in Moambiue have called for an increase in
tariffs on imports to reduce unemployment.
(d) Discuss whether an increase in tariffs on imports would reduce
unemployment.[8]
144
(NOV 2016/P22/Q3)
(d) Discuss whether protectionism saves jobs. [8]
(JUNE 2015/P22/Q4)
Tuk-tuks, three-wheeled motorised rickshaws, are driven in a number of countries.
India is the largest producer of the vehicle. India’s largest tuk-tuk producing firm
faces competition from firms at home and from imported tuk-tuks. The industry is
becoming more capital-intensive and competitive but is still some way from
perfect competition.
(d) Discuss whether consumers would benefit from an increase in imports. [8]
(JUNE 2016/P21/Q6)
(b) Explain two disadvantages of a decrease in a country’s export revenue. [4]
(JUNE 2016/P21/Q3)
The Canadian economy in 2014 was generally doing well. Money was largely
retaining its value and unemployment was falling. The country did, however, have
rising household debt and a deficit on the current account of its balance of
payments. The Canadian Government in 2014 was seeking to increase exports
whilst recognising that such an increase may have an impact on the exchange
rate.
(c) Analyse three ways in which international trade differs from internal trade. [6]
(JUNE 2015/P22/Q7)
The Mexican economy has recently been performing well. Its monetary policy has
lowered inflation which has helped money in the country perform its functions
more efficiently. The level of efficiency of a country’s industries is influenced by a
range of factors. These include the use of division of labour and the level of the
country’s trade protection.
(d) Discuss whether a reduction in a country’s trade protection will improve its
economic performance. [8]
145
(NOV 2014/P22/Q7)
(c) Discuss whether an economy will always benefit from an increase in
international trade. [10]
(JUNE 2014/P21/Q7)
(a) Describe two reasons why a country’s exports may increase. [4]
(NOV 2013/P23/Q7)
Specialisation and exchange rates are two important aspects of international
economics.
(a) Explain why specialisation is an important aspect of international trade. [5]
(b) Describe the potential disadvantages of international specialisation. [4]
(c) Describe the differences between a fixed and a floating exchange rate. [4]
(d) Discuss whether a floating exchange rate system is always preferable to a fixed
exchange rate system. [7]
(NOV 2013/P22/Q7)
There are strong arguments in favour of free trade and yet many countries still use
various forms of trade protection.
(a) Explain three potential benefits of free trade. [6]
(b) Distinguish between quotas and exchange controls as methods of trade
protection. [4]
(c) Explain how a subsidy could be used to protect an industry from foreign
competition. [4]
(d) Discuss whether the protection of a declining and inefficient industry in a
country can ever be justified. [6]
146
(NOV 2012/P23/Q7)
Specialisation and exchange rates are two important aspects of international
economics.
(a) Explain why specialisation is an important aspect of international trade. [5] (b)
Describe the potential disadvantages of international specialisation. [4]
(JUNE 2012/P22/Q2)
(c) Discuss the advantages and disadvantages of a newly established firm, with
limited resources, expanding into foreign markets. [10]
(NOV 2011/P21/Q7)
In recent years there have been attempts to increase free trade so that countries
are able to benefit from specialisation. Trade protection, however, still survives as
a strong force in many parts of the world.
(a) Explain what is meant by trade protection. [4]
(b) Explain two reasons why a government might introduce trade protection. [6]
(c) Discuss the extent to which free trade can be seen as a benefit to (i) all
consumers and (ii) all producers. [10]
(NOV 2010/P23/Q7)
Changes in the exchange rate of a country’s currency can have a significant
influence on the value of its imports and exports.
(a) Explain two factors, other than a change in its exchange rate, that could cause
an increase in the volume of a country’s imports. [4]
(NOV 2010/P21/Q7)
Some governments impose tariffs and quotas on imports.
(a) Explain the difference between a tariff and a quota. [3]
(b) What effect might a tariff on imports have in the country that imposed the
tariff? [8]
(c) Discuss what might happen if free trade between countries was established. [9]
147
0 LEVEL ECONOMICS
YEARLY PASTPAPERS
(DATA RESPONSE)
148
(JUNE 2019/P22/Q1)
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
France
Germany
Japan
Average hours worked per week
Mexico
Russia
South Korea
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.
149
(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]
150
(JUNE 2019/P21/Q1)
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 $337.5. Finland started a two-year experiment
with a version of UBI in 2017.
A guaranteed minimum income might help some of the poor who currently do not receive state
benefits and may reduce inequality. In a number of countries, income and wealth inequality is
increasing. For instance, in Russia 16% of the population live below the official poverty line and
10% of the population own 87% of the country’s wealth. State benefits are relatively low in Russia
and the country has one income tax rate of 13%. One cause of the rise in the gap between the rich
and the poor in Russia has been the effect on prices and profits arising from the privatisation of a
number of state monopolies.
Differences in annual average incomes (annual GDP per head) between countries can affect life
expectancy as shown in Table 1.1.
Table 1.1 Annual GDP per head and life expectancy in selected countries in 2016
Country
Annual GDP per head
(US$)
Life expectancy
(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.
151
(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]
152
(NOV 2018/P23/Q1)
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.
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.
153
Identify, from the extract, two methods oftrade protection.
[2]
(b) Analyse what may cause a depreciation in an exchange rate.
[5]
(a)
(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]
154
(NOV 2018/P22/Q1)
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.
155
(a) Identify, from the extract, two goals ofbusiness 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 couldcause 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]
156
(JUNE 2018/P22/Q1)
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.
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.
157
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 tosave more.
(f)
[5]
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]
158
(JUNE 2018/P21/Q1)
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.
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.
159
(a) Identify, using information from the extract, two functions of acommercial 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 highunemployment 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]
160
(NOV 2017/P23/Q1)
Changes in the global balance of economic power
In 2014, global Gross Domestic Product (GDP) stood at US$78 000 billion. A year later it had increased to US$80 730
billion. In the past, countries such as the USA and Germany might have been expected to have made the largest
contribution to the increase in GDP. China accounted for 20% of the increase in world output in 2015. China is set to
become the largest economy. It is becoming a stronger competitor in a number of markets. This increased price
competitiveness is the result of a number of factors including maintaining a low exchange rate, providing subsidies to
a number of industries and increased labour productivity. However, in 2015 the Chinese Government was considering
whether to reduce the size of the country’s steel industry, possibly by cutting the subsidy it received. Fig. 1 shows how
the market for steel might be affected by such a change.
Some developed countries have been struggling recently. For example, Australia has seen its economic growth rate
declining. To try to increase domestic economic activity the Reserve Bank of Australia has cut interest rates.
Developing and emerging economies’ economic growth rates are increasing. In Africa, this is in part because of the
discovery and exploitation of oil and mineral resources. These countries have different exchange rate systems and have
different records of success in attracting multinational companies. Many African countries use protectionist measures
but some are moving towards free trade.
In most developing and emerging economies the birth rate is falling. The impact of this change is influenced by the
relative size of the fall. For instance, Nauru is one of the smallest countries in the world having a population of only 10
00. Its birth rate fell from 26 to 25 in 2015.
161
(a) Identify, from the extract, two monetary policy measures.
[2]
(b) Explain two causes of a fall in the birth rate.
[4]
(c) Calculate, using information from the extract:
(i) the value in US$ of China’s contribution to global GDP growthin 2015
(ii) the number of children born in Nauru in 2015.
[2]
[2]
(d) Analyse, using a production possibility curve diagram, how the discovery of new oil reserves would affect an
economy.
[5]
(e) Discuss whether a firm would benefit from a fall in its country’sexchange rate.
[5]
(f) Explain, using information from the extract and Fig. 1, what might have happened to the market for steel in
China in 2015.
[4]
(g) Discuss whether engaging in free trade increases living standards ina country.
[6]
162
(NOV 2017/P22/Q1)
From inflation to deflation
For some time, many central banks have tried to achieve a target inflation rate of about 2%. A small and steady rise in
the price level can bring a number of benefits to an economy. For central banks and governments, the problem used to
be stopping the inflation rate from going above the target rate while keeping the unemployment rate low. Now the
problem has changed, and the risk is that inflation will fall below this target rate. At the end of 2014 the consumer
prices index in China stood at 100.5. The inflation rate in the country in 2015 was 2%. Meanwhile, a number of countries
in Europe experienced deflation. This had several consequences, including increasing the gap between the wages of
skilled and unskilled workers.
One major reason for the downward pressure on inflation was a fall in the global price of oil from US$120 to US$66 a
barrel in 2015. This reduced the price of energy and transport. Lower transport costs had a noticeable impact on the
price of food. Fig. 1 shows how the market for food was affected in 2015.
At the same time as falling inflation, some countries experienced falling unemployment. Other countries, however,
experienced both falling inflation and rising unemployment. For example, France saw unemployment rising between
2014 and 2015. This put upward pressure on French Government spending.
163
(a) Identify, from the extract, two aims ofgovernment policies.
[2]
(b) Explain two problems caused by inflation.
[4]
(c) Calculate, using information from the extract:
(i) the percentage fall in the global price of a barrel of oilin 2015
(ii) the consumer prices index in China at the end of 2015.
[2]
[2]
(d) Analyse why an increase in unemployment might cause an increase in government spending. [5]
(e) Discuss whether the supply of workers for unskilled jobs will be high in a country.
[5]
(f) Explain, using information from the extract and Fig. 1, what happened to the market for food in 2015.
[4]
(g) Discuss whether a decrease in income tax wouldreduce deflation.
[6]
164
(JUNE 2017/P22/Q1)
Mining diamonds in Botswana
Botswana is the world’s largest producer of diamonds. Indeed, in 2015 diamonds accounted for a third of the country’s
Gross Domestic Product (GDP) of US$18 billion and for 80% of the country’s exports.
The country currently gets most of its income from mining and selling rough (uncut) diamonds. It receives only US$700
for a 1.5 carat rough diamond. The diamond is then cut, polished and finished, usually in other countries. India is the
market leader in cutting and polishing diamonds. The cost of cutting and polishing diamonds in India is only a quarter
of the cost in Botswana. The global average cost of finishing a 1.5 carat diamond is US$8000. The diamond is sold to
the customer with a 25% profit margin.
Botswana is trying to develop industries connected with diamond mining, such as cutting, polishing and jewellery
making including diamond rings. Fig. 1 shows how the global market for diamond rings changed in 2015.
The Botswanan Government has also encouraged the world’s largest diamond company to set up in Gaborone, the
capital of Botswana. Some government ministers, however, are concerned that Botswana is too dependent on
diamonds. They warn that there is a finite supply of diamonds and urge the government to encourage diversification.
As well as diamonds, the country has a number of other strengths. It has good infrastructure, a developed education
system and free hospital treatment.
165
(a) Identify, using information from the extract, two reasons why a foreign diamond company may set up in
Botswana.
[2]
(b) Explain two benefits that a country may gain from the presence of a foreign multinational company.
[4]
(c) Calculate, using information from the extract:
(i) the value of diamonds produced in Botswana in 2015
(ii) the average price of a 1.5 carat diamond in 2015.
[2]
[2]
(d) Analyse why a country could have lower production costs for a particular good than another country.
[5]
(e) Discuss whether Botswana should mine all its diamonds and sell them as quickly as possible.
[5]
(f) Explain, using information from the extract and Fig. 1, what happened to the market for diamond rings in
2015.
[4]
(g) Discuss the economic arguments for and against providing free hospital treatment to patients.
[6]
166
(JUNE 2017/P21/Q1)
The New Suez Canal
In August 2015 the Egyptian Government opened a second Suez Canal, alongside the original canal, to enable more
and larger ships to sail from the Mediterranean Sea to the Gulf of Suez. It cost more than US$8 billion to build, with
land having to be purchased, capital equipment acquired and wages paid to the workers building the canal. This was
at a time when there were calls for increased spending on healthcare, in particular improving the quality of public
hospitals and improving education, especially adult literacy.
The Egyptian Government believes that the canal will attract more ships, both those carrying goods and those carrying
people. The number of goods and people using sea transport is influenced by a variety of factors. These include the
speed of the transportation, the level of economic activity and the price of other forms of transport. Some goods have
to be transported quickly, and recent years have shown how sensitive demand for sea transport is to recessions and
economic booms. Fig. 1 shows how the market for sea transport has recently been affected by the change in the market
for air transport.
The Egyptian Government is hoping that new industries connected to the shipping industry will be built along the canal.
Developing infant industries may help to reduce the country’s unemployment rate, which in 2015 was 12.5%.
In 2015, the country had a population of 90 million, a population growth rate of 1.5% and a labour force of 28 million.
Its death rate was falling. The government’s spending on healthcare was equivalent to 4% of Gross Domestic Product
(GDP). 2015 also saw GDP at US$280 billion with an economic growth rate of 5%.
167
(a) Define ‘private cost’ and give an example fromthe extract.
[2]
(b) Explain opportunity cost and give an example from the extract.
[4]
(c) Calculate, using information from the extract:
(i) the number of people unemployed in Egyptin 2015
(ii)the amount the Egyptian Government spent on healthcare in 2015.
[2]
[2]
(d) Analyse how a global recession could affect demand for sea transport.
[5]
(e) Discuss whether a fall in a country’s death rate will always result in an increase in its population size.
[5]
(f) Explain, using information from the extract and Fig. 1, what happened to the market for sea transport as a
result of the fall in the price of air transport.
[4]
(g) Discuss whether a government should protectinfant industries.
[6]
168
(NOV 2016/P23/Q1)
Fishing in Mauritania
Much of Mauritania’s land is desert and regular droughts put pressure on the country’s supply of food. The African
country does, however, have the advantage of coastal waters which are among the world’s most plentiful ocean fishing
grounds.
Approximately 95% of the fish caught by Mauritania’s small fishing vessels are exported. Earnings from the sale of fish
abroad contribute to the current account of the country’s balance of payments. In 2013 the country had a trade in
goods surplus and a current transfers surplus.
There is little processing of the fish into higher value products in Mauritania, except at a small number of factories at
Nouakchott, the country’s capital. This failure to process the fish is having an impact on the country’s earnings from
the fish it catches and on its economic growth. The country’s total output did actually increase from US$8 billion in
2012 to US$8.5 billion in 2013. That year also saw a change in the country’s population. The birth rate was 31.83, the
death rate was 8.35 and the migration rate was –0.85 per thousand of the population.
Some economists in Mauritania criticise their government for allowing other countries, including Algeria, Morocco,
Japan and Russia, to catch large quantities of fish in Mauritania’s waters. They have recently objected to the
government signing an agreement with the European Union (EU) that allows more than one hundred large EU vessels
to fish in Mauritania’s waters in return for a payment of US$105 million per year. These EU vessels, with their highly
skilled workers, are catching large volumes of fish, including highly valued squid, and are thought to be threatening the
sustainability of Mauritania’s fishing industry.
Mauritanian economists are predicting that fish stocks could decline significantly in the next twenty years. The
country’s economy is currently heavily dependent on the primary sector. Improvements in the productivity of both its
fishing and agricultural industries would help to reduce both the unemployment and poverty in the country.
(a) Describe the opportunity cost of Mauritania exporting fish.
[2]
(b) Calculate Mauritania’s economic growth rate in 2013.
[3]
(c) Using information from the extract, draw a demand and supply diagram to show the effects of the
predicted change in fish stocks on the market for fish.
[4]
(d) State the two parts of a country’s current account balance not identified inthe extract.
[2]
(e) Analyse two reasons why the average cost of the EU fishing industry is lower than the Mauritanian
fishing industry.
[4]
(f)
Discuss whether a decrease in unemployment will alwaysreduce poverty.
[5]
(g) Using information from the extract, explain whether the population of Mauritania increased or
decreased in 2013.
[4]
(h) Discuss whether an economy should or should not conserve its fish stocks.
[6]
169
(NOV 2016/P22/Q1)
The Mints
Mexico, Indonesia, Nigeria and Turkey, known as the Mints, are four emerging economies that are predicted to grow
rapidly. The four countries have relatively large populations, from 75 million in Turkey to 242 million in Indonesia in
2014. They also have high birth rates, from 17 in Turkey to 41.5 in Nigeria per 1000 people. Both income per head and
the countries’ Human Development Index ranking are improving. The changes, however, do not mean that everyone
in the four countries is satisfied. As incomes increase, so do people’s wants, and what people would like to consume
exceeds the maximum output that countries are capable of producing.
Output and consumption are increasing in each of the four countries. Nigeria, for example, is predicted to be one of
the world’s 20 largest economies by 2020. Productivity is rising in most sectors of the Nigerian economy although it
remains low in agriculture. Despite some security concerns, more multinational companies are setting up in the
country, attracted by its expanding markets.
Nigeria and Turkey both had annual inflation rates above 8% in 2014. Indonesia’s was 5.7% and Mexico’s 5.2%. The
Mexican Government had used monetary policy measures in that year to keep the inflation rate down. In August 2014
it opened up its energy market, allowing private sector firms to compete against the country’s state-owned petroleum
firm. It also increased spending on state-provided health care, which operates alongside private medical care.
The four countries saw fluctuations in their exchange rates in 2014. Indonesia’s currency, the rupiah, changed from
10685 per US$ the year before to 11450 per US$ in 2014. Turkey’s currency, the Turkish Lira, followed a similar trend.
Changes in the exchange rate can affect firms’ costs of production, as can industrial action. In June 2014 Turkish trade
unions organised a number of strikes seeking to gain better wages and working conditions for their members. However,
the power of Turkish trade unions is limited by restrictive trade union legislation and a small membership, with only
9% of workers belonging to trade unions. This means that collective bargaining is not a key feature of Turkish labour
markets and Turkish trade unions do not have much influence on economic policy.
(a) Using information from the extract, explain how the Mints illustrate the economic problem. [2]
(b) Calculate how many children were born in Turkeyin 2014.
[2]
(c) Using information from the extract, explain two reasons why the earnings of workers in Nigeria are
likely to increase.
[4]
(d) Explain whether the extract suggests that Mexico operates a market economic system or a mixed
economic system.
[3]
(e) Analyse how the change in Indonesia’s exchange rate in 2014 is likely to have affected the country’s
import expenditure.
[4]
(f)
Discuss whether the Human Development Index is a good measure ofliving standards.
[5]
(g) Using information from the extract, explain two functions of atrade union.
[4]
(h) Discuss whether countries with high population growth have higheconomic growth.
[6]
170
(JUNE 2016/P22/Q1)
Crisis in the chocolate market
There are concerns that the price of chocolate could rise significantly in the next few years. This is because of increasing
demand for chocolate, particularly in emerging countries, and supply problems in the countries that produce cocoa
beans.
Cocoa beans, the main ingredient in chocolate, are grown mainly in the west coast of Africa by small farms using
labour-intensive methods. In 2012 Côte d’Ivoire (Ivory Coast) produced 37% of the world’s output of cocoa beans,
followed by Indonesia which produced 13%.
Côte d’Ivoire is becoming well known for supplying good quality cocoa beans. Concentrating on supplying the product
its resources are most suited to has increased output in the country. Gross Domestic Product per head rose to US$1240
in 2013. Some farmers and farm workers, however, still live on less than US$2 a day.
In Indonesia, the income of most cocoa farmers and farm workers increased along with the rise in the country’s average
income between 2013 and 2014. Their purchasing power was, however, affected by the consumer prices index rising
from 108.0 in 2013 to 115.2 in 2014. While people’s medical care in Indonesia is improving with more doctors per
head, the government is seeking to raise education standards.
Among the problems being experienced by cocoa bean producers are an ageing labour force, with the industry
experiencing difficulties attracting young farmers and farm workers. The industry also regularly experiences problems
caused by pests and diseases, including black pod disease. At the same time people in Asia, particularly China, are
eating more chocolate and drinking more chocolate drinks. People in the United States of America and the European
Union are also eating more chocolate, although concerns about the health effects of eating large quantities of
chocolate are beginning to affect demand. For many people, however, chocolate is addictive. Chocolate producers seek
to take advantage of this by increasing the gap between revenue and costs. Most chocolate producers come from
developed countries and most are public limited companies trying to keep their shareholders happy. These producers
take advantage of their market power to keep the price they pay for cocoa beans relatively low whilst the price they
charge to consumers who buy their chocolate is kept relatively high.
(a) Using information from the extract, identify two indicators of improved living standards in
Indonesia.
[2]
(b) Explain whether the extract suggests the demand for chocolate is price-elastic or price- inelastic in
developed countries.
[2]
(c) Using information from the extract, explain two reasons why cocoa bean farmers do not use much
capital equipment.
[4]
(d) Calculate the rate of inflation in Indonesia in 2014.
[3]
(e) Analyse two benefits of specialisation referred to in the extract.
[4]
(f)
Discuss whether the price of chocolate is likely to increase in the future.
[5]
(g) Using information from the extract, explain what is likely to be the main goal of chocolate
producers.
[4]
(h) Discuss whether free trade always benefits producers.
[6]
171
(JUNE 2016/P21/Q1)
Changes in car production
Car production is changing. Until recently car manufacturing firms had the most power in the market. Now, however,
firms producing car parts are gaining more power. The markets for both cars and car parts consist of a relatively high
number of firms that range from very large to small. In 2014 the market was dominated by sixteen major car firms,
each selling more than one million cars a year. In that year there were ten major car part firms and these were gaining
more power over the car producers.
The world’s largest car part supplier by revenue claims to supply at least one of the parts in every car sold throughout
the world. The firm has grown as a result of mergers and is moving towards total control of the market. It is seeking to
build up high barriers to entry and to become the sole producer. The ten largest car part firms accounted for 63% of
the total output of car parts in 2013, producing US$250 billion of car parts in that year. These ten firms now have the
ability to build 85% of a car’s internal systems, leaving the car manufacturing firms to make little more than the engine.
Car production is increasing in a number of developing countries but declining in some developed countries. Car
manufacturing increased in the UK between 2013 and 2014, but the industry had been experiencing problems before
2013. In 2008 the average wage of car workers fell. In that year the UK experienced a recession. Real wages in the UK
car industry for the lowest paid workers also declined after 2008 and the number of workers employed fell between
2008 and 2012. This was despite output per worker increasing, partly because some less skilled workers lost their jobs
and the industry replaced some of these workers with capital equipment.
Buyers of cars often borrow money from commercial banks to make their purchases. In some cases buyers use their
savings, which may be withdrawn from commercial banks, to buy cars.
The behaviour and performance of car firms are influenced by the economic system of the country they are producing
in. In countries with a market system there is likely to be greater consumer sovereignty. Car firms in such countries may
be more likely to innovate, bringing in new methods of production and developing higher-quality products.
(a) Using information from the extract, identify two characteristics of monopoly.
[2]
(b) Calculate the total output of car parts in US$ in 2013.
[3]
(c) Explain, using information from the extract, why wages in the UK car industry fell in 2008. [2]
(d) Using information from the extract, explain two merits of a market system.
[4]
(e) Analyse two reasons, referred to in the extract, why a decrease in employment mayincrease labour
productivity.
[4]
Discuss whether a declining car industry should be protected by the government.
[5]
(g) Using information from the extract, explain two functions of commercial banks.
[4]
(h) Discuss whether small car manufacturing firms can compete with large car manufacturing firms.
[6]
(f)
172
(NOV 2015/P23/Q1)
Progress in Rwanda
Rwanda is a small, landlocked African country. In recent years, its economic performance has improved significantly.
For instance, in 2012 it achieved an increase in its Gross Domestic Product (GDP) of 7.5%, stable inflation and a fall in
unemployment. Perhaps most noticeably, poverty is being reduced. Between 2006 and 2012, more than 1 million were
taken out of poverty and by 2012, 58% of the population of 12 million were not in poverty.
The government is following a number of policies to reduce poverty. One of these is to increase government spending
on education and healthcare. Now more than 90% of children attend primary school and the percentage of children
going to secondary school is increasing. Child mortality has fallen and the population’s general health has improved.
Half of the country’s population is aged under 25. The country is densely populated, with 430 people per square
kilometre. In 2013 it experienced net immigration, giving the country a positive migration rate, with more people
entering the country than leaving it. Migration is one influence on a country’s economic growth rate (see Table 1).
Table 1: Migration and economic growth rates for selected countries in 2012
Country
Migration rate (per
1000 population)
Economic growth rate (%
change in GDP)
Cuba
–3.6
3.1
Macau
+3.5
10.0
Rwanda
+1.0
7.5
South Africa
–6.2
2.6
Uganda
–0.1
4.2
Another influence on the economic growth rate is productivity. The Rwandan Government is seeking to raise
productivity in agriculture, which accounts for 80% of employment. There has been little investment in this sector.
Many farms lack equipment such as ploughs and tractors. Domestic agricultural output does not always match
domestic demand. This results in the country often having to import food. The government is trying to encourage
farmers to farm in a sustainable way and to concentrate on products that have a price-inelastic demand.
Rwanda is facing a number of challenges. The Rwandan Government has removed import tariffs on a number of
products, including some food items. Energy costs are relatively high and the banking sector is not very developed. In
2012 only a fifth of Rwandan adults had a bank account but reductions in poverty and a growth in the banking sector
are likely to change saving and borrowing in Rwanda in the future.
173
(a) Using information from the extract, calculate the number of people living in poverty in Rwanda in
2012.
[2]
(b) Explain how in a country such as Rwanda, an increase in government spending on education and
healthcare could reduce poverty.
[5]
(c) Using information from the extract, explain one reason why the average age of Rwanda’s population
may increase in the future.
[2]
(d) Using Table 1, comment on whether economists would expect to see the relationship shown
between the migration rates and the economic growth rates.
[4]
(e) Using information from the extract, explain whether agriculture in Rwanda is capital-intensive or
labour-intensive.
[2]
(f)
Discuss whether concentrating on products with inelastic demand will benefit farmers.
[5]
(g) Using information from the extract, explain two reasons why the price of food in Rwanda may fall.[4]
(h) Discuss whether an increase in borrowing by households and firms in a country will benefit its
economy.
[6]
174
(NOV 2015/P22/Q1)
Mexico: rising to the top?
It has been predicted that Mexico will be one of the world’s top ten economies by 2020. Changes in the industrial
structure of the country have been occurring for some time. In 2008, 12% of the labour force were employed in the
primary sector (mainly agriculture), 26% in the secondary sector (mainly manufacturing) and 62% in the tertiary sector
(services). By 2012, employment had fallen by 1% in the primary sector and by 2% in the secondary sector.
In recent years, Mexico has been removing trade protection measures such as tariffs and quotas. The country now has
free trade with more than 40 other countries. International trade plays a key role in the Mexican economy, with a third
of its output being exported and imports accounting for more than a third of the products bought in Mexico. Nearly
80% of Mexico’s exports go to the United States of America (US). Mexican firms have a wide choice of sources for
imported raw materials and a large international market in which to sell their products. The main destination of
Mexico’s falling number of emigrants is the US.
After an economic downturn in 2009, the Mexican economy has been growing. Incomes have risen and life expectancy
has increased. Table 1 shows the income levels and life expectancy for a number of countries.
Table 1: Gross Domestic Product (GDP) per head and life expectancy in selected countries in 2012
Country
GDP per head (US$)
Life expectancy
(years)
Bangladesh
700
69
Canada
48 000
83
Mexico
9 200
77
Peru
5 400
72
Portugal
22 100
80
South Africa
7 500
55
Although the standard of Mexico’s education is not very high, poverty is declining in the country as living standards
are rising. More people now have access to better quality health care. In contrast to its neighbour the US,
unemployment has been declining in Mexico.
Costs of production in Mexico are rising more slowly than in China. Mexico imports products from China and also
competes with China in a number of export markets.
Some of Mexico’s top exporting firms are monopolies within the country. One is Pemex, the state- owned oil and gas
monopoly. The firm sells oil throughout the world. Some economists claim that Mexican consumers would benefit
from Pemex being sold to the private sector.
175
(a) Using information from the extract, calculate what percentage of Mexico’s labour force was
employed in the tertiary sector in 2012.
[2]
(b) Using information from the extract, explain two benefits of free trade for Mexican firms.
(c)
(i)
[4]
Explain why people in countries with a higher GDP per head have a longer life expectancy than
people in countries with a lower GDP per head.
[2]
(ii) Using Table 1, comment on whether the information supports the view that countries with a higher
GDP per head have a longer life expectancy than countries with a lower GDP per head. [3]
(d) Using information from the extract, explain two reasons why emigration from Mexico has
fallen.
[4]
(e) Discuss whether rises in costs of production in China will benefit the Mexican economy.
(f)
Explain two ways in which a monopoly differs from perfect competition.
[5]
[4]
(g) Discuss whether selling a state monopoly, such as Pemex, to the private sector would benefit
consumers in Mexico.
[6]
176
(JUNE 2015/P22/Q1)
Peru and Panama
Between 2005 and 2012, Peru and Panama experienced the fastest economic growth rates in the Americas.The two
countries differ in the size of their populations and the size of their economies. In 2013, Peru had a population of 30
million and a Gross Domestic Product (GDP) of US$340 billion. In contrast, Panama had a population of 3.6 million and
a GDP of US$60 billion. Life expectancy was higher in Panama with people, on average, living three years longer than
in Peru.
Between 2008 and 2013, Peru had an average annual inflation rate of 2.7%. This was, in part because of careful control
of the country’s interest rate and exchange rate by Peru’s Central Bank. Panama does not have a central bank and
experienced a different average annual inflation rate (see Fig. 1).
Between 2008 and 2013, the unemployment rate fell more in Panama than in Peru. The decline in Panama’s
unemployment rate was largely due to the building work being undertaken on a seven- year project to enlarge the
Panama Canal. The lower unemployment rate enjoyed by Panama was one of the reasons why the level of poverty was
lower than in Peru in 2013.
Peru experienced a trade in goods surplus whilst Panama had a trade in goods deficit. Both countries export gold and
fish and import oil and cars. For both countries, the USA, China and Japan are important trading partners.
About 75% of workers in Peru are employed in the service (tertiary) sector compared with 80% in Panama. Among
Panama’s key service industries are insurance and banking. Panama has the largest insurance market in Central
America. The number of companies in the market, including multinational companies, is increasing. This is making the
market more competitive. Multinational companies also operate in the country’s banking sector. It has a number of
private sector commercial banks. It does not have a central bank and, therefore, does not have direct government
regulation of its banking sector. Recent years have seen an increase in the average size of the commercial banks. There
is some debate about whether larger banks benefit their customers.
177
(a) Using information from the extract, identify two reasons why Panama had a higher Human
Development Index (HDI) value than Peruin 2013.
[2]
(b) Using information in Fig. 1:
(i) describe what happened to the price level in Panama between 2008 and 2009.
(ii) explain in which year the price level was highest in Panama.
[2]
[2]
(c) Using information from the extract and in Fig. 1, explain the likely effects of Peru and Panama having
different average annual inflation rates between 2008 and 2013.
[4]
(d) Discuss whether a fall in the unemployment rate will reduce poverty.
[5]
(e) Analyse why countries specialise and trade.
[5]
Using information from the extract, describe two functions of a central bank.
[4]
(g) Discuss whether the growth of a commercial bank will benefit its customers.
[6]
(f)
178
(JUNE 2015/P21/Q1)
What does the future hold for Sweden?
Sweden is a highly developed European country which enjoys one of the highest standards of living in the world. In
2012, its citizens enjoyed an average income of US$49 000. The country’s labour force of five million is highly skilled.
About 70% of schoolchildren go on to university. Over the years, investment has been high in Sweden and as a result
there is a high value of capital goods for each worker to use. In 2012, however, its economic growth rate slowed. The
Swedish Government was hoping that its decision to raise the retirement age to 67 would increase the country’s
economic growth rate.
Sweden exports half of its output. It exports a range of products including cars and capital goods. Among the country’s
imports are petrol, cars and iron. Table 1 shows the balance of the current account of its balance of payments over the
period 2008–2013.
Table 1: Sweden’s current account balance, 2008–2013
Year
Current account balance
US$ billion
as a % of Gross Domestic
Product (GDP)
2008
+38
6.9
2009
+31
7.0
2010
+31
6.8
2011
+32
6.4
2012
+39
7.1
2013
+40
7.2
A country’s trade position is influenced by its inflation rate. Indeed, a fall in a country’s inflation rate can increase the
international competitiveness of its products. The Swedish Government aims to keep the annual inflation rate at 2%
or below. If there is a risk that the inflation rate will exceed the 2% target, the Swedish Central Bank will raise the
interest rate. Such a change will be likely to influence consumer expenditure, investment and the exchange rate. In
recent years, Sweden’s inflation rate has remained low, averaging 1.9% between 2008 and 2013.
The low inflation rate provides certainty for Swedish firms. The best known Swedish firm is probably IKEA, which
produces furniture and household accessories. In 2012, it reduced its prices which, as on previous occasions, resulted
in a rise in its revenue. In 2013, its owners stated that their main goal was to increase the size of the firm by opening
new stores throughout the world, including in its expanding markets in China and Russia.
179
(a) Using information from the extract, identify two reasons why Sweden is considered to be a highly
developed country.
[2]
(b) Explain how a rise in the retirement age may increase a country’s economic growth rate.
[4]
(c) Using information in Table 1, describe what happened to:
(i)
Sweden’s current account position over the period shown
[2]
(ii)
Sweden’s GDP between 2009 and 2010.
[2]
(d) Explain why a country may both export and import cars.
[2]
(e) Using information from the extract, analyse how a rise in the rate of interest can reduce inflation. [5]
(f)
Discuss whether a fall in a country’s inflation rate will increasethe international competitiveness of its
products.
[5]
(g) Using information from the extract, explain whether demand for IKEA’s products is price elastic or
price inelastic.
[2]
(h) Discuss whether growth is the main goal of most firms.
[6]
180
(NOV 2014/P23/Q1)
Economic problems in Bulgaria
Bulgaria is the poorest of the 27 countries (as of May 2013) in the European Union (EU). It joined the EU in January
2007. Average wages are only US$4.50 an hour and average monthly salaries are only US$465. The rate of
unemployment in Bulgaria in 2012 was estimated at 12%, compared to an EU average of 9.4%. This level of
unemployment, however, was much less than that in some EU countries, such as Greece, where the rate of
unemployment was twice as high.
The population of Bulgaria is 7.5 million and yet over a million Bulgarians have left the country in recent years to work
abroad, especially in Spain and Greece. The value of the money they have sent back home, known as migrant
remittances, has risen from US$900 million in 2008 to US$990 million in 2012. Much of the work that these people do
in Spain and Greece is seasonal and so there have been particular problems of seasonal unemployment, with some of
the migrants losing their jobs and having to return home.
Within Bulgaria, a lot of workers have lost their jobs in the construction industry. It had been planned that a large
number of hotels and holiday flats would be built along Bulgaria’s Black Sea coast. Since 2008, there has been a
dramatic fall in the demand for these properties and many construction firms have gone out of business, having failed
to obtain sufficient funds from financial institutions.
The Gross Domestic Product (GDP) of Bulgaria has only been growing by 1.7% per year in recent years. In 2012 the GDP
was US$48.0 billion. One of the problems in measuring GDP in Bulgaria is that it has been estimated that as much as
30% of the economy goes unrecorded. There is a great deal of activity in what has been termed the hidden or informal
economy. Not all income earned is declared for tax purposes, there is some smuggling (illegal importing) and much of
agricultural output is subsistence farming.
It is noticeable that the death rate in Bulgaria is considerably higher than the birth rate (see Table 2 for details). A
survey of Bulgarians found that about 70% of them expected the economic situation in the country to worsen in the
next 12 months, not something that would be likely to bring about an increase in the birth rate. This has meant that
Bulgaria now has the second most rapidlydeclining population in the world, as shown in Table 1.
Table 1: The world’s most rapidly declining populations, 2005–2010
Country
Average annual % change in population
Moldova
–1.06
Bulgaria
–0.64
Ukraine
–0.64
Georgia
–0.57
Lithuania
–0.55
181
It is also noticeable that in many indicators Bulgaria is worse off than the European Union average, as shown in Table 2.
Table 2: A comparison of Bulgaria and the EU average in 2012
Indicators of comparative living standards
Bulgaria
EU average
Human Development Index
0.743
0.867
Birth rate
9.9
10.1
Death rate
14.6
9.9
Health spending (% of GDP)
7.4
10.7
Education spending (% of GDP)
3.5
4.9
GDP per capita (US$)
6420
38 080
(a) Explain what is the difference between the rate of unemployment and the level of unemployment.
[2]
(b) Analyse three ways a government could reduce the rate of unemployment ina country.
[6]
(c) Using information from the extract, calculate the percentage increase in migrant remittances sent
home by Bulgarians between 2008 and 2012.
[2]
(d) Using information from the extract, calculate what would have been the estimated size of the
informal economy in Bulgaria in 2012 in US$.
[1]
(e) Using information from the extract, explain why such a large percentage of the Bulgarian Gross
Domestic Product goes unrecorded.
[3]
(f)
Discuss whether the Human Development Index is a perfect measure to compare living standards in
different countries.
[6]
(g) Define the terms ‘birth rate’ and‘death rate’.
[4]
(h) Discuss whether the Bulgarian Government should try to reverse the decline in the country’s
population size.
[6]
182
(NOV 2014/P22/Q1)
Fiscal policy and an ageing population in Japan
A sales tax was introduced in Japan in 1989, initially at a rate of 3%, and this was later increased to 5% in 1997. The
intention is to increase the rate to 8% in 2014 and to 10% in 2015. This will still leave the tax rate below other countries.
The tax increase in 1997 was not opposed by many of the Japanese people, but since then Japan’s Gross Domestic
Product (GDP) has fallen by 10%. It was US$5069 billion in 2011. There has been deflation and this has badly affected
tax revenue, which has fallen 22% since 1997, leading to a doubling of the Japanese Government’s debt. The Japanese
Government was required to spend a great deal of money in March 2011 when a devastating earthquake and tsunami
(coastal flooding) struck the country’s north-eastern coast, leaving 20 000 people dead or missing; it has been
estimated that the rebuilding work will cost US$260 billion. The Japanese Government’s debt is now at a very high
level, as can beseen in Table 1.
Table 1: Government debt as a percentage of GDP in 2011
Country
Government debt as a % of GDP
Japan
200
Greece
147
Italy
127
Iceland
120
Portugal
103
The Japanese Government has decided to increase sales tax to help pay for the pensions and health care of the ageing
population. The problem is that the higher tax rate might lead to a fall in consumption, leading to an increase in
unemployment. It may not help the country to get out of recession. The average annual growth in Gross Domestic
Product over the last five years has been –0.3%.
Many Japanese people are anxious and worried about the future, especially fearing that the government might try to
reduce its public sector debt, leading to further increases in unemployment. The rate of unemployment in Japan is
currently above its average rate over the last ten years. Economists in Japan are thinking of ways to promote economic
growth to get the country out of recession, such as through encouraging increased productivity and greater
entrepreneurship.
It is certainly the case that there is a high savings ratio in Japan. This is despite the fact that interest rates are at their
lowest ever level. There is a strong tradition of saving in Japanese culture and the level of interest rates is clearly only
one influence on the decision of how much people save.
The ageing population is a particular problem in Japan. The percentage of the Japanese population that is over the age
of 60 is 30.5%. The life expectancy of Japanese men is now 80.1 years and Japanese women 87.2 years, giving an
average of 83.7 years. Table 2 shows how this compares with a number of other countries.
183
Table 2: Average life expectancy in selected countries in 2011
Country
Average life expectancy
Japan
83.7
Singapore
81.0
United Arab Emirates
78.1
Kenya
56.9
Afghanistan
45.5
(a) Explain what is meant by ‘deflation’.
[2]
(b) Using information from the extract, calculate the level of government debt in US$ in Japan in 2011.
[1]
(c) Using information from the extract, explain two reasons why Japan’s government debt, as a
percentage of Gross Domestic Product, is so high.
[4]
(d) Discuss whether an increase in the rate of a sales tax will cause unemployment.
[6]
(e) Analyse how increased productivity and greater entrepreneurship could help an economy to get out
of recession.
[6]
(f)
Using information from the extract, explain two influences, other than interest rates, on how much
people save.
[4]
(g) Using Table 2, calculate the difference between average life expectancy in Japan and Kenya.
[1]
(h) Discuss whether an ageing population is always a problem for an economy.
[6]
184
(JUNE 2014/P22/Q1)
The challenges facing Angola
Angola is one of the fastest growing economies in the world and also one of the most specialised. It had an average
annual growth rate of 11% between 2002 and 2012. In 2010, the country’s capital city, Luanda, was the most expensive
capital city in the world. The average fare charged by the only taxi (cab) firm in the city was high at US$50, and a
standard house cost more than US$1m to buy.
Oil production plays a key role in the economy. The country produces 1.9m barrels of oil a day and this is expected to
double by 2020. There is the possibility that Angola could overtake Nigeria to become Africa’s largest oil producer. The
oil industry accounts for most of the country’s output, provides 97% of its export revenue and 75% of government tax
revenue.
Economists have expressed concern that the country is too dependent on oil. Sonangol, the state- owned oil
enterprise, is seeking to diversify. It is already involved in banking and it also owns an airline and a football team. The
government is trying to develop other industries. One of these is the diamond industry. World demand for diamonds
increased in 2012.
The Angolan Government faces a number of challenges in promoting other industries. One of these is a lack of capital
equipment in its manufacturing industries, and another is that much of its agriculture is in the form of subsistence
farming.
The economy faces other problems and three of these are connected. They are a widening gap between the rich and
the poor, a lack of education, and a rapidly growing population. Some people in the country are very rich but 35% of
the population live in poverty. Half of the population have no access to health care, the infant mortality rate is one of
the highest in the world, and life expectancy is one of the lowest. Most of the population only experience five years of
education and a third of adults are illiterate. Between 2005 and 2010, the country had the eighteenth fastest growing
population which might have influenced its level of average income – see Table 1.
Table 1: Population growth, Gross Domestic Product (GDP) and GDP per head in selected African countries in 2011
Country
Population growth
(annual % change)
GDP (US$bn)
GDP per head (US$)
Angola
2.92
120
6000
Kenya
2.58
72
1800
Nigeria
2.50
420
2600
South Africa
0.96
562
11 100
Uganda
3.24
47
1300
In 2012, Angola was experiencing an overall unemployment rate of 26% and an unemployment rate of 50% among the
young. The Angolan Government was considering cutting taxes to reduce unemployment.
185
(a) Why is the Angolan economy considered to be ‘specialised’?
[2]
(b) Using information from the extract, explain why taxi (cab) fares were high in Luanda in 2010.
[2]
(c) Using information from the extract, draw a demand and supply diagram to show what islikely to
have happened to the price of diamonds in 2012.
[4]
(d) Explain why countries with a high population growth rate may have a lower average income than
countries with a lower population growth rate.
[3]
(e) Analyse whether the information in Table 1 supports the view that countries with a high population
growth rate have a lower average income than countries with a lower population growth rate. [4]
(f)
Discuss whether an increase in a country’s GDP will reduce poverty in that country.
[5]
(g) Using information from the extract, explain two reasons why labour productivity is low in Angola. [4]
(h) Discuss whether a cut in taxes will reduce unemployment.
[6]
186
(JUNE 2014/P21/Q1)
A bright future for Mongolia?
Economists predict that the Asian economy of Mongolia will be the fastest growing economy between 2015 and 2020.
In 2011, the country’s economic growth rate was 21%. The forecast annual growth rate for 2015 to 2020 is 24%.
The country is rich in a range of minerals including coal, copper, gold, silver and uranium. China purchases large
quantities of these minerals. In 2011, there was a significant rise in the world demand for a range of minerals including
copper. Some economists have pointed out that there are a number of risks attached to an economic boom caused by
a rise in demand for minerals. One is the so-called ‘resources curse’. This refers to the disadvantage that can arise as
natural resources are used. High international demand for minerals can push up the exchange rate and reduce the
competitiveness of other industries. The extraction of minerals can also cause pollution. This is certainly the case in
Mongolia. The capital city, Ulaanbaatar, is one of the most polluted cities in the world.
The Mongolian economy faces a number of other problems. Its inflation rate is relatively high, reaching 10.6% in 2011,
driven up by increases in food prices and rises in government spending. Its unemployment rate, at 10% in the same
year, was above that of some of its Asian neighbours. This led it to being placed relatively high in the region’s ‘misery
index’. This index, developed by the American economist Arthur Okun, adds together the unemployment rate and the
inflationrate. Table 1 shows the unemployment rate, misery index and the interest rate for a number of Asian
economies.
Table 1: The unemployment rate, misery index and interest rate for selected Asian economies in 2011
Country
Unemployment rate
(%)
Misery index (%)
(unemployment rate
+ inflation rate)
Interest rate (%)
China
6.1
11.7
3.4
India
10.8
19.8
8.4
Japan
4.5
4.2
1.0
Malaysia
3.1
6.4
3.0
Mongolia
10.0
20.6
12.3
Nearly 40% of Mongolia’s population lives below the poverty line. However, with rising economic growth, income levels
are increasing. Indeed, some economists are predicting that Mongolians will become very rich. Tax revenue will also
rise, which will enable the government to increase its spending on, for instance, education. Higher spending on
education will make it possible for children to spend more years in school.
187
(a) Define ‘economic growth’.
[3]
(b) Using information from the extract, explain why Mongolia’s Human Development Index value is
likely to increase in the future.
[2]
(c) Using information from the extract, draw a demand and supply diagram to show what islikely to
have happened to the price of copper in 2011.
[4]
(d) Explain why countries with high inflation rates tend to have higher interest rates than those with
lower inflation rates.
[3]
(e) Analyse whether the information in Table 1 supports the view that countries with highinflation rates
have higher interest rates than those with lower inflation rates.
[5]
(f)
Discuss whether a rise in a country’s exchange rate will reduce its international competitiveness. [6]
(g) Using information from the extract, explain why the social costs of mining are higher than the
private costs of mining in Mongolia.
[2]
(h) Discuss whether a rise in incomes in a country will always increase tax revenue.
[5]
188