2
Section A
Answer this question.
1
India, the United States of America (US) and wheat production
Agriculture accounted for 17% of India’s Gross Domestic Product (GDP) of US$1 890 billion
in 2013. GDP had increased from US$1 769 billion the year before. The country’s population
increased from 1.22 billion in 2012 to 1.26 billion in 2013.
In 2013, both India and the US were in the top ten producers of wheat. India achieved third place
with an output of 95 million tonnes while the US was placed fourth with an output of 62 million
tonnes.
Only 1.6% of the US labour force was employed in agriculture, in contrast to India’s 45% in 2013.
While agricultural subsidies have decreased in the US, they remain high in India. The Indian
Government considers that help for its farmers is important for its national security and that food
subsidies help reduce poverty. Between 2010 and 2013, the Indian Government had spent US$15
billion on subsidising fertilisers to raise the fertility of the soil. Subsidising fertilisers has increased
the output of wheat but has also resulted in polluted rivers.
The Indian Government thinks that in the long run its agricultural sector will become more efficient
and the need for subsidies will be reduced. It expects that its workers will become more educated
and that the amount of capital equipment that will be used in agriculture will increase. Some US
economists have questioned this optimism. They point out that the state-owned Food Corporation
of India had to buy 30% of the country’s annual wheat harvest and that the country had a large
stockpile of unsold wheat in 2014.
Trade between India and the US is increasing. US citizens are buying a greater quantity of goods
and services from India. For example, with rising life expectancy in the US, which had already
reached 79 years in 2014, there is an increase in the imports of Indian medicines into the US.
The trend in trade between the two countries will be influenced by a number of factors. These
include the exchange rate between the US dollar and the Indian rupee. The price of the US dollar
is determined by market forces, so there may be fluctuations in the long-term trend.
(a) Using information from the extract, identify two examples of the factor of production ‘land’. [2]
(b) Explain the type of exchange rate system referred to in the extract.
[2]
(c) Using information from the extract, calculate the rise in GDP per head in India from 2012 to
2013.
[3]
(d) Explain two characteristics of the US mentioned in the extract that suggest that it is a
developed country.
[4]
(e) Using information from the extract, analyse two reasons why the productivity of Indian
agricultural workers is likely to increase in the future.
[4]
(f)
Discuss whether an increase in output always reduces average cost.
[5]
(g) Explain the cause of the example of market failure referred to in the extract.
[4]
(h) Discuss whether food subsidies reduce poverty.
[6]
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Section B
Answer any three questions from this section.
2
The price of shares in a large UK supermarket firm fell on the London Stock Exchange in 2014
when it was announced that it was expecting a reduction in its profits. The increased competition
from German supermarket firms had forced the UK supermarket to consider a number of ways of
cutting its costs by, for example, reducing some of its workers’ wage rates and increasing some
workers’ working hours.
(a) Define a ‘stock exchange’.
[2]
(b) Explain why some firms may have survival as a short-term goal.
[4]
(c) Analyse how consumers may suffer as a result of a fall in the profits firms earn.
[6]
(d) Discuss whether a decrease in wage rates and an increase in working hours will always
reduce the supply of workers to a firm.
[8]
3
A falling death rate is affecting the size of China’s population, which in turn is influencing demand
for a range of products including table salt. The Chinese Government has recently considered
ending the state salt monopoly. An online survey, however, revealed that most Chinese people
oppose introducing more competition into the market, thinking it will cause the price of salt to rise.
(a) Define a ‘monopoly’.
[2]
(b) Explain how a falling death rate may affect demand in a country.
[4]
(c) Analyse why price can be lower in a monopoly market than in perfect competition.
[6]
(d) Discuss whether an increase in a country’s population size will cause an increase in living
standards.
[8]
4
Between 2008 and 2014, Greece’s Gross Domestic Product fell by 25%. Thousands of sole
proprietors and other business organisations went out of business. As a result, the unemployment
rate increased to 28%. The Government reduced its spending and was being encouraged by the
International Monetary Fund to cut its corporation tax (the tax on firms’ profits).
(a) Identify two costs of unemployment.
[2]
(b) Explain two advantages of a sole proprietor.
[4]
(c) Analyse how a reduction in government spending may affect unemployment.
[6]
(d) Discuss whether a cut in corporation tax will increase economic growth.
[8]
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6
In 2014 the inflation rate in the United States of America (US) was 2.0%. The unemployment rate
in the US was 6.1%, the lowest rate in six years. The economy was not yet at full employment
but not all job vacancies were filled. A higher proportion of US students were going to university.
Investment, which is spending on capital goods, was increasing.
(a) What is the opportunity cost to a person of going to university?
[2]
(b) Explain why there may be some people unemployed whilst there are job vacancies.
[4]
(c) Analyse how an increase in investment may affect unemployment.
[6]
(d) Discuss whether supply-side policy measures will reduce inflation.
[8]
In 2014 the World Trade Organisation ordered China to end its export quotas on its rare earth
metals, which are used in smartphones, laptops, tablets and other electronic equipment. China
supplies 90% of the world’s rare earth metals and is also the world’s largest consumer. The supply
of these metals is inelastic, and changes in their price affect the costs of producing a range of
products.
(a) Define an ‘export quota’.
[2]
(b) Explain the difference between inelastic supply and perfectly inelastic supply.
[4]
(c) Using a demand and supply diagram, analyse how an increase in the cost of producing
smartphones will affect the market for smartphones.
[6]
(d) Discuss whether a country exporting its raw materials always benefits its economy.
7
[8]
There has been a growth in foreign tourism. More people from both developed and developing
countries are taking holidays abroad. Foreign tourism brings both advantages and disadvantages.
Employment is created but some of the jobs are low-paid and low-skilled. The quality of employment
can vary between developed and developing countries, as can the problems they face, including
population problems.
(a) How are earnings received by a country from foreign tourism recorded in the current account
of its balance of payments?
[2]
(b) Explain two factors that could cause an increase in foreign tourists to a country.
[4]
(c) Analyse why workers with the same skills may be paid different wage rates.
[6]
(d) Discuss how population problems in developing countries may differ from those in developed
countries.
[8]
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable
effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will
be pleased to make amends at the earliest possible opportunity.
To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2016
0455/22/F/M/16
2
Section A
Answer this question.
1
Low-cost airlines
For several decades, low-cost airlines have been competing on short-distance flights not just with
established airlines, but also with train travel and car travel. Now they are starting to compete with
established airlines on long-distance flights. In response to this increased competition there have
been some horizontal mergers occurring between the established airlines.
It is predicted that by 2030 China will become the world’s largest domestic air travel market, with
20% of all global air travel. The USA is currently the dominant market and it is predicted that
between 2015 and 2030 the country will order 6160 of the 28 000 passenger aircraft that will be
produced.
India, which has both state-owned and private-sector airlines, is experiencing a great increase in
both internal flights and flights to other countries. More airports are being built in India, with more
facilities being provided inside and around the airports. For example, more taxi firms are being set
up to take passengers to and from the airports. The rapid expansion of air travel in India and other
countries is having an impact on the market for pilots, as shown in Fig. 1.
S
price of
pilots
P2
P1
D1
O
Q1 Q2
D2
quantity / number of pilots
Fig. 1 The market for pilots
How rapidly the Indian air travel market will grow will be influenced by a number of factors. These
include the extent to which business travel will grow and how rapidly demand for foreign holidays
will increase. Demand for these forms of air travel is, in turn, influenced by changes in price. The
price elasticity of demand for air travel has been estimated at −1.2. One factor that influences
prices, and so the inflation rate, is changes in taxation.
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(a) Identify, using information from the extract:
(i)
a substitute for air travel
[1]
(ii)
a complement to air travel.
[1]
(b) Explain two advantages that firms may gain from a horizontal merger.
[4]
(c) Calculate, using information from the extract:
(i)
the percentage of the new passenger aircraft that the USA is predicted to purchase
between 2015 and 2030
[2]
(ii)
the percentage change in demand for air travel if the price of air travel falls by 15%.
[2]
(d) Analyse why demand for a luxury holiday may be price elastic.
[5]
(e) Discuss whether airlines should be state-owned or operated by the private sector.
[5]
(f)
Explain, using information from the extract and Fig. 1, what happened to the market for pilots
in India in 2015.
[4]
(g) Discuss whether a cut in taxation will reduce inflation.
[6]
Section B
Answer any three questions from this section.
2
The actions of the Government of Georgia to reduce inflation and unemployment had an impact on
the business organisations operating in the country in 2015. The country has an expanding tertiary
sector including its banking sector. The country now has some features of a market economy.
(a) Identify two goals that business organisations may have.
[2]
(b) Explain two functions of a commercial bank.
[4]
(c) Analyse how the price mechanism influences the allocation of resources in a market economy.
[6]
(d) Discuss whether an increase in output will increase the profits that firms receive.
3
[8]
Firms use different quantities of land, labour, capital and enterprise in producing their products.
The ways in which a country’s resources can be used, and the extent to which they are employed,
can be shown on a production possibility diagram.
(a) What is the difference between capital and land?
[2]
(b) Explain two reasons why a firm may decide to use more labour and less capital in producing
its products.
[4]
(c) Analyse, using a production possibility diagram, the effect on an economy’s output when
there is a change from full employment to unemployment.
[6]
(d) Discuss whether it is always possible for a country to have low unemployment and low
inflation at the same time.
[8]
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4
The amount that workers earn influences their living standards. Some workers receive relatively
low pay. There are a number of ways a government can help the low-paid.
(a) Identify two wage factors that workers take into account when deciding on their occupation.
[2]
(b) Explain two indicators of living standards.
[4]
(c) Analyse how fiscal policy can produce a more even distribution of income.
[6]
(d) Discuss whether a rise in the wages paid to low-paid workers would benefit an economy. [8]
5
6
Abu Dhabi is a rapidly developing economy. It is building three new museums in its new cultural
district, which may attract more tourists and help its balance of payments. The museums will
include some very highly priced works of art.
(a) Define ‘balance of payments’.
[2]
(b) Explain two characteristics of a rapidly developing economy.
[4]
(c) Analyse how an increase in tourism can increase a country’s inflation rate.
[6]
(d) Discuss whether the rich always save more than the poor.
[8]
At the start of 2015, dockworkers on the west coast of the USA took industrial action in the form of
a go-slow, disrupting exports and imports. This was coordinated by their trade union. Unions in the
USA are declining in strength, particularly in the private sector. Most workers in the USA work in
the private sector.
(a) Identify two aims of a trade union.
[2]
(b) Explain two reasons for a decline in trade union membership.
[4]
(c) Analyse why someone may switch from working in the public sector to working in the private
sector.
[6]
(d) Discuss whether a decrease in imports would increase a country’s economic growth rate. [8]
7
One way in which governments seek to reduce market failure is to introduce regulation.
Governments also produce some goods and services by employing workers in the public sector.
(a) Define ‘regulation’.
[2]
(b) Explain two causes of market failure.
[4]
(c) Analyse the possible opportunity costs of an increase in government spending on higher
education services.
[6]
(d) Discuss whether government policy measures can reduce unemployment.
[8]
Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2017
0455/22/F/M/17
2
Section A
Answer this question.
1
India’s high-technology industry
India has a number of expanding industries including construction, engineering, healthcare
and retail. Its high-technology industry, which is often referred to as ‘hi-tech’, is its most rapidly
growing industry, adding more than 200 000 jobs a year. It currently employs more than 10 million
people and accounts for exports worth US$90 billion each year. Firms in the industry specialise
in research and development, electronics and software production. Software production includes
applications (apps) for smartphones and tablets.
One Indian hi-tech firm has developed an app that allows people to look at menus in a range
of restaurants, to book a table and to order food. The firm now supplies the app in a number of
countries including the Philippines, Turkey and the USA. This Indian hi-tech firm also produces
electronic equipment in these countries. One of the reasons for its expansion abroad is the
relatively low demand for restaurant meals in India. This situation could change soon as incomes
rise and restaurants increase their advertising, including on the firm’s app.
India’s hi-tech industry is concentrated in Bengaluru (Bangalore). The city has strong links to
universities and multinational companies (MNCs) and is home to some of India’s most innovative
entrepreneurs. Some of these entrepreneurs come from other countries. Immigrants play a large
role in the creation and growth of hi-tech firms throughout the world. A number of factors can
encourage entrepreneurs to move to another country including a low rate of tax on profits.
An expanding economy is a key influence on the number of new firms that are set up. In turn,
economic growth is influenced by how much firms spend on capital goods (investment). Fig. 1
shows India’s economic growth rate and the percentage change in investment in India between
2008 and 2014. India’s economic growth rate peaked in 2010. It then fell in 2011 and 2012 caused,
in part, by a rise in the interest rate and concerns about future economic prospects.
Fig. 1 Economic growth rate and percentage change in investment in India 2008–14
%
14
12
10
8
6
4
2
0
–2
2008
2009
2010
2011
Economic growth rate (%)
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2012
2013
2014
Change in investment (%)
3
(a) Identify, using information from the extract, two industries that operate in the secondary
sector of the Indian economy.
[2]
(b) Explain, using information from the extract, two reasons why the price of restaurant meals in
India is likely to increase in the future.
[4]
(c) Analyse how a government can encourage enterprise.
[5]
(d) Analyse the extent to which the relationship shown in Fig. 1, between changes in India’s
investment and its economic growth rate, is the expected one.
[4]
(e) Discuss whether or not a city such as Bengaluru should specialise in one industry.
(f)
[5]
Explain, using information from the extract, two reasons why some Indian people might have
spent less in 2012.
[4]
(g) Discuss whether or not an economy would benefit from its firms producing in other countries.
[6]
Section B
Answer any three questions in this section.
2
It is forecast that by 2022 India will overtake China as the world’s most highly populated country.
China’s birth rate is lower than India’s and China has a higher proportion of its population aged
over 65. By 2050, it is estimated that 500 million Chinese people and 330 million Indian people
will be over 65. Changes in population size and age structure affect the quantity and quality of a
country’s resources.
(a) Define resources.
[2]
(b) Explain two reasons why the quality of a country’s resources may increase.
[4]
(c) Analyse the reasons why a country’s birth rate may fall.
[6]
(d) Discuss whether or not a government should be worried about an increase in the proportion
of its population that is aged over 65.
[8]
3
Taxi drivers usually have to buy a licence to carry passengers. The relatively high fixed cost of the
licence discourages some people from becoming taxi drivers. Encouraging more people to be taxi
drivers would be likely to reduce taxi fares and unemployment. It may, however, increase traffic
congestion.
(a) Define fixed cost.
[2]
(b) Explain why traffic congestion is an external cost.
[4]
(c) Analyse how a taxi firm can use information about price elasticity of demand for its service.
[6]
(d) Discuss whether or not a reduction in unemployment always increases living standards.
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4
In March 2016, the Canadian government announced increases in government spending including
an increased subsidy to environmentally friendly technology. It also announced that high income
earners would face an increase from 29% to 33% in the highest rate of income tax. Changes in
government spending and taxation can influence a country’s inflation rate.
(a) Define subsidy.
[2]
(b) Explain two disadvantages of inflation.
[4]
(c) Analyse how an increase in government spending may cause inflation.
[6]
(d) Discuss whether or not an increase in the highest rate of income tax will benefit an economy.
[8]
5
South Africa has more than 700 state-owned enterprises, a number of which have engaged
in vertical integration and horizontal integration. Some of the state-owned enterprises are
monopolies, including a railway monopoly. A leading South African economist has argued that
more of the country’s resources should be devoted to building and operating new railway lines
and stations.
(a) Define state-owned enterprise.
[2]
(b) Explain the difference between vertical integration and horizontal integration. Give an example
of each.
[4]
(c) Analyse how a monopoly could benefit consumers.
[6]
(d) Discuss whether or not a country should devote more of its resources to building and
operating new railway lines and stations.
[8]
6
The effects of a depreciation of a currency are influenced by the price elasticity of demand of
exports and imports. Worldwide there has been a reduction in trade barriers including tariffs.
There has also been an increase in the movement of goods and services between countries and,
to a lesser extent, the movement of people. Some countries experience net emigration with more
people leaving the country than entering it.
(a) Define depreciation of a currency.
[2]
(b) Explain two reasons why demand for a country’s exports may be price-inelastic.
[4]
(c) Analyse how a reduction of its import tariffs could increase a country’s output.
[6]
(d) Discuss whether or not net emigration will reduce poverty in a country.
[8]
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7
France is a mixed economy. During recent years there have been a number of changes in its
labour market. More workers are employed in the tertiary sector and fewer workers in the primary
sector. Average working hours have increased and public sector workers have received wage
rises.
(a) Define mixed economy.
[2]
(b) Explain two advantages of working in the tertiary sector rather than the primary sector.
[4]
(c) Analyse why a trade union may oppose a rise in working hours.
[6]
(d) Discuss whether or not a government should increase the wages it pays to workers in the
public sector.
[8]
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Section A
Answer this question.
1
India: a growing success
In 2016, the Indian economy grew by 7.5%. This made it the world’s fastest growing large
economy. In contrast, the Chinese economy grew by 6.8%. India had some other macroeconomic
successes. Its price level rose by less in 2016 than it had in any year since 2004. The price of oil
fell in 2016 and India is a large importer of oil. The government’s use of monetary policy helped to
keep down rises in the general price level.
India’s manufacturing sector grew rapidly in 2016. One industry that performed particularly well
was the vehicle industry. India was the world’s sixth largest producer of vehicles, employing 26
million workers. India was the world’s largest producer of tractors. In 2015, the price of tractors
was increased. This led to a short-term fall in demand but a rise in revenue.
The growth of the vehicle industry has enabled firms in the industry to employ more specialised
workers and made it easier for these larger firms to borrow from banks. It is expected that the
industry will be able to recruit extra workers in the future because India’s labour force is growing.
In 2014, India’s labour force was 500m and this grew by 4% between 2014 and 2016.
The economic growth rate and the population growth rate in recent years are shown in Fig. 1.1.
The rate of economic growth and its stability affect households’ decisions on how much they spend
and save.
12
10
8
6
4
2
0
2010
2011
2012
2013
Economic growth rate (%)
2014
2015
2016
Population growth rate (%)
Fig. 1.1 India’s economic growth rate and population growth rate 2010–2016
The rising optimism about the performance of India’s economy has increased total demand in the
economy. However, the Reserve Bank of India, the country’s central bank, has been relatively
successful at keeping the inflation rate close to the government’s target which in 2016 was
4%. One influence on the country’s future macroeconomic performance will be changes in its
population. India is set to have one of the world’s youngest populations by 2020, with an average
age of only 29.
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(a) Identify, using information from the extract, two reasons why India’s inflation rate fell in 2016.
[2]
(b) Explain, using information from the extract, whether demand for Indian tractors was
price-elastic or price-inelastic in 2015.
[2]
(c) Explain two internal economies of scale referred to in the extract.
[4]
(d) Calculate, using information from the extract, the percentage of India’s labour force that was
employed in the vehicle industry in 2016.
[2]
(e) Analyse, using Fig. 1.1, what happened to India’s output and population over the period
shown.
[5]
(f)
Discuss whether or not a government should aim for a low rate of inflation.
[5]
(g) Explain, using information from the extract, two reasons why consumer expenditure may
increase in India in the future.
[4]
(h) Discuss whether or not having a young population is a benefit to an economy.
[6]
Section B
Answer any three questions from this section.
2
Ireland has attracted a significant number of foreign multinational companies (MNCs) to set up
production in the country. These firms employ approximately 10% of the country’s labour force
and make a high proportion of Ireland’s exports. The surplus on the current account of Ireland’s
balance of payments fell in 2016 while government spending rose.
(a) Identify two reasons why an MNC may decide to start producing in a foreign country.
[2]
(b) Explain two reasons why someone may want to work for an MNC.
[4]
(c) Analyse how an increase in exports could improve a country’s economic performance.
[6]
(d) Discuss whether or not an increase in government spending will reduce a surplus on the
current account of that country’s balance of payments.
[8]
3
The economic problem results in people having to make choices. In Bulgaria, in recent years,
people have changed how much they spend. The Bulgarian government is encouraging people to
spend more. It is trying to ensure that deflation does not return and that the country will continue to
experience an increase in output.
(a) Identify two ways a government could encourage people to spend more.
[2]
(b) Explain how the economic problem results in people having to make choices.
[4]
(c) Analyse why deflation may cause a fall in output.
[6]
(d) Discuss whether or not a country will suffer if its output falls.
[8]
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4
Average life expectancy is as short for the poorest Americans as it is for the people of Sudan, a
low-income African country. Low-income individuals tend to live longest in countries with more
educated populations. Economic growth can increase education and reduce poverty. In 2017, the
US President announced a cut in the tax on firms’ profits. He said the measure would increase
employment.
(a) Identify two reasons why someone may want to migrate to the USA.
[2]
(b) Explain two reasons why less-educated people tend to have a shorter life expectancy than
people who have received more education.
[4]
5
6
(c) Analyse how economic growth can reduce absolute poverty.
[6]
(d) Discuss whether or not a cut in the tax on firms’ profits will increase employment.
[8]
The mobile (cell) phone industry is growing in Asia with more workers being employed. In March
2017, there was a merger between two mobile phone producers, both of which had relatively
high fixed costs. This merger created one of the largest mobile phone firms and moved the Asian
market further from perfect competition and closer to monopoly. It was expected that profits in the
industry would increase as a result of the merger.
(a) Identify two fixed costs.
[2]
(b) Explain two ways monopoly differs from perfect competition.
[4]
(c) Analyse what determines a firm’s demand for labour.
[6]
(d) Discuss whether or not a merger will increase profits.
[8]
Botswana has a number of conservation projects. These are thought to provide a social benefit
to local communities. Botswana has a mixed economic system with tax revenue as a percentage
of GDP at 27% in 2017. Some Botswanan economists suggest that the country should move
towards a market economic system, taking care to avoid market failure.
(a) Define social benefit.
[2]
(b) Explain two advantages of conserving natural resources.
[4]
(c) Analyse how taxation could reduce market failure.
[6]
(d) Discuss the advantages and disadvantages of a market economic system.
[8]
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7
Indian Railways is a state-owned enterprise, owned and operated by the Ministry of Railways.
There is currently only one privately-owned railway line in India. The market for rail travel is
influenced by changes in the markets for other forms of transport. For instance, changes in the
supply of oil and petrol influence the market for car travel.
(a) Define a market.
[2]
(b) Explain two reasons why the supply of a raw material such as oil may rise in the future.
[4]
(c) Analyse, using a demand and supply diagram, how the market for oil would be affected when
the demand for oil increases by more than the supply of oil.
[6]
(d) Discuss whether or not car travel will increase in the future.
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[8]
2
Section A
Read the source material carefully before answering Question 1.
Source material: Air pollution in India
India fact file
Real GDP
2016
2017
$8750.0 billion
$9362.5 billion
–0.7
–1.2
3.7 million
4.0 million
Current account deficit as % of GDP
Car production
As India increases its output, it creates more pollution. Its government encourages economic growth
by promoting investment and free trade. It is considering cutting taxes, spending more on education,
lowering import tariffs and removing some import quotas.
The Indian government intervenes in its economy for a number of reasons, including to reduce
pollution. The causes of pollution include vehicles and private and public sector factories which emit
harmful gases. With reductions in the cost of producing cars and rising incomes, more cars are being
produced and purchased in India.
Producers and car drivers base their decisions on just their private costs and benefits. Some farmers
burn their fields after harvesting to increase the growth of their next crop, even though their action
causes pollution. Also, some owners of mines do not take sufficient care to ensure that minerals and
metals do not leak into local water supplies.
As well as affecting pollution, the relative size of the primary sector can influence average income as
shown in Table 1.
Table 1 Primary sector output as a percentage of GDP
and GDP per head in selected countries in 2017
Primary sector output
(% of GDP)
GDP per head
($)
US
1
59 600
Spain
3
38 200
Argentina
8
20 700
Egypt
11
13 000
India
18
7 200
Philippines
30
8 200
Country
To reduce pollution, the Indian government subsidises bus travel. It also requires buses to run on
natural gas rather than on more polluting diesel and petrol. Reduced pollution can attract more foreign
tourists. Foreign tourism and changes in the foreign exchange rate affect the current account of a
country’s balance of payments. It has been predicted that India’s foreign exchange rate is likely to rise
in the future.
© UCLES 2020
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3
Answer all parts to Question 1. Refer to the source material in your answers.
1
(a) Calculate India’s economic growth rate in 2017.
[1]
(b) Identify two methods of protection.
[2]
(c) State why India is a mixed economy.
[2]
(d) Explain why external costs cause market failure.
[4]
(e) Draw a demand and supply diagram to show the effects of a decrease in the costs of
production on the market for cars.
[4]
(f)
Analyse the relationship between the size of countries’ primary sector output and GDP per
head.
[5]
(g) Discuss whether or not increasing subsidies given to bus travel would reduce pollution in
India.
[6]
(h) Discuss whether or not India is likely to experience a deficit on the current account of its
balance of payments in the future.
[6]
© UCLES 2020
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[Turn over
4
Section B
Answer any three questions.
Each question is introduced by stimulus material. In your answer you may refer to this material and / or
to other examples that you have studied.
2
The main industries in the Seychelles, an island country in the Indian ocean, are tourism and
fishing. The price elasticity of supply of fish is affected by the relatively short time that fish can be
stored. Economic goods and free goods play a role in both fishing and tourism. With rises in the
skills of workers and an increase in enterprise, GDP per head has increased by more than seven
times over the last fifty years.
(a) State the formula for calculating the price elasticity of supply (PES).
[2]
(b) Explain how opportunity cost is different for economic goods and free goods.
[4]
(c) Analyse, using a production possibility curve (PPC) diagram, the effect of an increase in
enterprise on an economy.
[6]
(d) Discuss whether or not skilled workers are always paid more than unskilled workers.
3
[8]
In 2017, the Brazilian paper industry was booming. Its total revenue increased and it employed
both more, and better quality, factors of production. Brazil’s largest paper producer merged with an
Indonesian paper-producing firm at the end of 2017. The performance of Brazil’s coffee industry
differed from its paper industry. Brazilian coffee experienced a fall in demand and a fall in total
revenue.
(a) Define total revenue.
[2]
(b) Explain two differences between capital and labour.
[4]
(c) Analyse the possible effects on consumers of a merger between two paper-producing firms.
[6]
(d) Discuss whether or not demand for coffee is likely to rise in the future.
4
[8]
African countries are expected to experience growth in their output. It is also predicted that Africa’s
population will increase from 1.1 bn in 2017 to 4.2 bn by 2100, when Nigeria will account for one
in twelve of the world’s births. Nigeria and South Africa are expected to experience the greatest
rise in investment (spending on capital goods) over this period, and a change in their gender
distribution.
(a) Define gender distribution.
[2]
(b) Explain two benefits of a higher economic growth rate.
[4]
(c) Analyse the disadvantages of a rapidly growing population.
[6]
(d) Discuss whether or not a cut in the rate of interest will increase investment.
[8]
© UCLES 2020
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5
5
The Chinese government reformed the Chinese tax system in 2016. It extended VAT (sales tax)
from the sale of goods to the sale of services enabling it to cut the corporation tax rate. Taxes
on goods and services are usually regressive. The Chinese government wanted to raise living
standards and hoped that a cut in the tax rate firms pay would attract multinational companies
(MNCs) to the country.
(a) State two reasons for levying taxes.
[2]
(b) Explain the difference between a progressive tax and a regressive tax.
[4]
(c) Analyse how a cut in the rates of corporation tax and income tax may influence the number of
MNCs setting up in the country.
[6]
(d) Discuss whether or not people in a high-income country always enjoy a higher living standard
than those in a low-income country.
[8]
© UCLES 2020
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2
Section A
Read the source material carefully before answering Question 1.
Source material: Will Germany continue to be a strong economy?
Population fact file 2017
Germany
world
population
81 million
7.5 billion
percentage of population aged over 65
22.0%
8.5%
47.4 years
30.6 years
average age
Germany is a country with a trade surplus and a high GDP per head. It also has a budget surplus
(government tax revenue greater than expenditure), a high HDI and a low inflation rate.
In recent years, German firms have exported a higher value of goods and services. This has contributed
to the growth of world trade, caused partly by a fall in transport costs. A relatively large number of
German firms produce both in Germany and in other countries, helped by better communications.
Germany is a major producer and exporter of luxury cars. Demand for luxury cars was influenced in
2018 by increases in incomes in Germany and abroad, a rise in the price of US luxury cars and, in
some countries, a fall in the price of petrol.
Improvements in the quality of education and information on job vacancies have made it easier
for workers to change jobs in Germany. This greater ability to change jobs has helped to reduce
unemployment and to increase the country’s output.
Fewer workers in the German car industry are now members of a trade union. As shown in Table 1.1,
trade union membership in Germany has declined in recent years.
Table 1.1 selected data on the German labour market 2013–2016
Year
Trade union
membership
(millions)
Size of labour force
(millions)
Unemployment
rate
(%)
Average annual
wage
($)
2013
18.0
42.2
5.4
40 567
2014
17.7
42.5
5.1
41 188
2015
17.6
42.8
4.8
42 084
2016
17.0
43.3
4.3
42 708
A challenge facing Germany is its ageing population. The effect of an older labour force is uncertain. It
may mean firms become reluctant to invest in new technology, but a shortage of young workers may
encourage firms to buy more capital goods.
Germany’s population may fall and there will soon be fewer Germans aged under 30 than over 60
unless immigration continues at a relatively high rate. Immigration might increase both the country’s
labour force and its government’s spending on education.
© UCLES 2021
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3
Answer all parts of Question 1. Refer to the source material in your answers.
1
(a) Calculate the number of Germans aged over 65 in 2017.
[1]
(b) Identify two measures of living standards.
[2]
(c) Explain one cause of globalisation.
[2]
(d) Explain two advantages of an increase in the occupational mobility of labour.
[4]
(e) Analyse why the price of German luxury cars may have increased in 2018.
[4]
(f)
[5]
Analyse whether the strength of German trade unions increased from 2013–2016.
(g) Discuss whether or not an ageing labour force will reduce productivity.
[6]
(h) Discuss whether or not immigration will increase a country’s budget surplus.
[6]
© UCLES 2021
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[Turn over
4
Section B
Answer any three questions.
Each question is introduced by stimulus material. In your answer you may refer to this material and/or
to other examples that you have studied.
2
India has experienced a relatively high economic growth rate in recent years. This growth has
been driven by increases in government spending and exports, including exports of textiles. India’s
unemployment rate has, however, increased. The government is concerned that trying to reduce
unemployment may increase India’s inflation rate.
(a) Define economic growth.
[2]
(b) Explain the possible opportunity cost to India of exporting more textiles.
[4]
(c) Analyse how higher government spending could increase economic growth.
[6]
(d) Discuss whether or not a government can reduce unemployment without increasing inflation.
[8]
3
In the Netherlands in 2018, there were 1.3 bicycles per person and the world’s largest underground
bicycle parking area was built in the capital city. Land is scarce in city centres, where most cycling
takes place. Demand for bikes in the Netherlands is price-inelastic. Only a few people in the
Netherlands borrow money to buy bikes. The government encourages cycling by spending on
both bike parking areas and leisure cycle parks.
(a) Identify one difference between land and labour.
[2]
(b) Explain two reasons why demand for a product may be price-inelastic.
[4]
(c) Analyse why households in one country may borrow more than households in another
country.
[6]
(d) Discuss whether or not a government should encourage more people to cycle.
4
[8]
It is estimated that half of Egyptian men smoke. This is one of the highest rates in the world.
In recent years the Egyptian government has increased the tax on cigarettes. The government
and central bank have also tried to reduce inflation and improve Egypt’s international trade
performance. The Egyptian government could use subsidies to reduce its deficit on the current
account of its balance of payments.
(a) Identify two qualities of a good tax.
[2]
(b) Explain two reasons why governments tax cigarettes.
[4]
(c) Analyse how a central bank could reduce inflation.
[6]
(d) Discuss whether or not an increase in government subsidies will reduce a deficit on the
current account of the balance of payments.
[8]
© UCLES 2021
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5
5
Sweden has a mixed economic system. In 2018, it was operating at a point inside its production
possibility curve (PPC). In 2018, the country’s schools employed nearly 2500 extra teachers. A few
of these had previously been actors. A higher number had previously been government officials
involved with regulation of Swedish monopolies.
(a) Define a mixed economic system.
[2]
(b) Explain the difference between a point inside a PPC and a point outside a PPC.
[4]
(c) Analyse why an actor may decide to become a teacher.
[6]
(d) Discuss whether all monopolies have low costs of production.
[8]
© UCLES 2021
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2
Section A
Read the source material carefully before answering Question 1.
Source material: The advantages of visiting, producing and living in Bermuda
Bermuda fact file
2018
Population
72 000
Labour force
33 500
Unemployment rate
7%
Inflation rate
2%
Bermuda is a well-known holiday destination. It offers luxury holidays which are expensive.
Bermuda bans foreign fast-food outlets. It does have one foreign outlet selling fried chicken in the
island’s capital, Hamilton. This was opened before the ban was introduced in 1997. Some foreign
multinational companies (MNCs), which produce other goods and services, operate in Bermuda.
Bermuda is considered a tax haven. It does not have any corporation tax, but it does charge high
import tariffs particularly on demerit goods which are harmful to health.
Bermuda has a higher literacy rate and a lower population growth rate than most other countries. Its
GDP per head is high. Fig. 1.1 shows the relationship between GDP per head ($) and life expectancy
(years) in selected countries in 2018.
200 000
Monaco
180 000
160 000
140 000
GDP
per 120 000
head 100 000
($)
80 000
Bermuda
USA
60 000
Bahamas
40 000
20 000
0
Eswatini
0
10
20
30
40
50
60
70
Argentina
80
90
100
Life expectancy (years)
Fig. 1.1 The relationship between GDP per head ($) and life expectancy (years)
in selected countries 2018
© UCLES 2022
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3
Bermuda also has a relatively larger tertiary sector than most other countries. Insurance and other
financial services contributed 85% of its GDP in 2018. The Bermudian Monetary Authority (BMA)
carries out most of the functions of a central bank. For example, it acts as banker to the government,
holds the country’s reserves of foreign currency and implements the government’s monetary policy. The
BMA has been relatively successful in keeping inflation low. However, government policy measures
designed to reduce unemployment may affect the inflation rate. This is because policy measures can
influence total demand, productivity and firms’ costs of production.
Bermudian government policy may change, not only to cut unemployment, but also to reduce market
failure. For example, higher indirect taxes on demerit goods may be used but it can be difficult to
change people’s spending patterns.
Answer all parts of Question 1. Refer to the source material in your answers.
1
(a) Calculate the number of Bermudian workers who were unemployed in 2018.
[1]
(b) Identify two reasons why demand for holidays in Bermuda may be price-elastic.
[2]
(c) State two reasons why a foreign MNC may want to operate in Bermuda.
[2]
(d) Explain two reasons why Bermuda has a higher level of economic development than many
other countries.
[4]
(e) Analyse the role of the Bermudian Monetary Authority (BMA).
[4]
(f)
[5]
Analyse the relationship between GDP per head and life expectancy.
(g) Discuss whether or not Bermudian government policy measures designed to reduce
unemployment would increase the inflation rate.
[6]
(h) Discuss whether or not higher indirect taxes can reduce the market failure caused by demerit
goods.
[6]
© UCLES 2022
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[Turn over
4
Section B
Answer any three questions.
Each question is introduced by stimulus material. In your answer you may refer to this material and/or
to other examples that you have studied.
2
South Africa (SA) experienced a recession in the second half of 2019 and an unemployment
rate of 29%. Only a small proportion of this unemployment was frictional. South Africa’s foreign
exchange rate fell from 1 SA rand = US$0.08 in 2018 to 1 SA rand = US$0.06 in 2019. South
Africa had reduced import tariffs, but in 2019 some South African economists suggested tariffs
should be used to protect its infant industries.
(a) Define frictional unemployment.
[2]
(b) Explain why an infant industry may need protection.
[4]
(c) Analyse how a fall in a country’s foreign exchange rate could reduce a deficit on the current
account of its balance of payments.
[6]
(d) Discuss whether or not a reduction in income tax will end a recession.
3
[8]
New Zealand is a small country with a population of 5 million. Most New Zealand firms are
relatively small and most do not experience diseconomies of scale. In 1894, New Zealand was the
first country to introduce a national minimum wage. New Zealand experienced a rise in income per
head every year between 2010 and 2019. During this period, 6% of New Zealand’s households
experienced absolute poverty.
(a) Define diseconomies of scale.
[2]
(b) Explain two reasons why a high-income household may borrow more than a low-income
household.
[4]
(c) Analyse, using a diagram, the effect of an increase in output on average fixed cost (AFC) and
total fixed cost (TFC).
[6]
(d) Discuss whether or not the introduction of a national minimum wage will reduce poverty.
4
[8]
Botswana’s net migration varies. In 2019, Botswana had net immigration. Since 2010, its
unemployment rate has averaged 18%. Between 2010 and 2019, the number of women in the
labour force increased from 380 000 to 490 000. Although Botswana is one of Africa’s richer
countries, its households do not save much of their income.
(a) Identify two reasons why immigration may increase.
[2]
(b) Explain two consequences of unemployment.
[4]
(c) Analyse why more women may join a country’s labour force.
[6]
(d) Discuss whether or not a government should encourage an increase in saving.
[8]
© UCLES 2022
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5
5
The economic problem means that countries have to decide what to produce. Ghana uses much
of its agricultural land to grow cocoa. Cocoa is sold to chocolate producers. The world’s main
chocolate producer in 2019 was a US firm with a 14% share of the global market. That firm was
the largest seller of chocolate in the US and, if it merges, may become a monopoly.
(a) Define the economic problem.
[2]
(b) Explain whether land is mobile.
[4]
(c) Analyse the causes of a shift to the right in the supply curve of chocolate.
[6]
(d) Discuss whether or not consumers would benefit from a firm becoming a monopoly.
[8]
© UCLES 2022
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2
Section A
Read the source material carefully before answering Question 1.
Source material: Changes in US macroeconomic performance and policies
US fact file
2020
Current account of the balance of payments
–$470 bn
Imports of goods and services
$2 800 bn
Imports from China as % of total imports
20%
Economic growth rate
–2.8%
Inflation rate
1.4%
Between 2009 and 2019, US real GDP increased every year. This was the result of, among other
causes, low interest rates, land reclamation and an increase in the labour force. The higher US
output brought a number of benefits but some workers lost their jobs. This was because while some
industries expanded, others closed down. Income also became more unevenly distributed and pollution
increased.
US exports and imports rose over this period. The growth of trade with China, a major trading partner
of the US, was affected later in the period by increases in US tariffs on some Chinese imports. These
increases were expected to change the US current account balance, output and tax revenue.
The US exports a range of products to China, including ice cream. China is the world’s largest
consumer of ice cream, buying a third of all ice cream consumed. Chinese consumers sometimes buy
chocolate to eat with ice cream. In 2019, the price of chocolate increased.
In 2020, US macroeconomic performance changed. The country’s price level rose more slowly,
largely due to a decrease in consumer expenditure and a reduction in workers’ bargaining power. The
country’s real GDP fell and unemployment rose. These changes influenced US macroeconomic policy.
US government spending rose significantly as shown in Table 1.1.
Table 1.1 US Government spending and unemployment rate 2015–2020
Year
Government spending ($ billion)
Unemployment (%)
2015
3 700
5.3
2016
3 900
4.9
2017
4 000
4.4
2018
4 100
3.9
2019
4 400
3.7
2020
6 600
6.7
The US central bank, the Federal Reserve, announced in September 2010 that it would allow the
inflation rate to rise and would not increase the interest rate. In the past, central banks have aimed to
keep the inflation rate low because of the effects that inflation can have on, for example, investment,
exports, the distribution of income and tax revenue. The Federal Reserve stated that it wanted to raise
economic growth which can increase income per head, employment and tax revenue.
© UCLES 2023
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3
Answer all parts of Question 1. Refer to the source material in your answers.
1
(a) Calculate the value of US imports from China in 2020.
[1]
(b) Identify two causes of the increase in the quantity of US factors of production.
[2]
(c) Explain one way that import tariffs could improve the US economy.
[2]
(d) Explain two reasons why the US inflation rate fell in 2020.
[4]
(e) Draw a demand and supply diagram to show the effect of an increase in the price of a
complement on the market for ice cream.
[4]
(f)
Analyse the relationship between government spending and unemployment.
[5]
(g) Discuss whether or not a central bank should aim for a low inflation rate.
[6]
(h) Discuss whether or not economic growth benefits everyone in the US.
[6]
© UCLES 2023
0455/22/F/M/23
[Turn over
4
Section B
Answer any three questions.
Each question is introduced by stimulus material. In your answer you may refer to this material and/or
to other examples that you have studied.
2
Vietnam has a high number of female entrepreneurs. Some of their firms have grown and now
compete with foreign multinational companies (MNCs) and public sector firms. The Vietnamese
government encourages MNCs to locate in Vietnam as a host country. It also intervenes in the
economy to encourage the consumption of merit goods.
(a) Identify two reasons why people become entrepreneurs.
[2]
(b) Explain two benefits that an MNC can bring to its host country.
[4]
(c) Analyse how a government could encourage the consumption of merit goods.
[6]
(d) Discuss whether or not private sector firms are likely to charge lower prices than public sector
firms.
[8]
3
In 2019, India became the world’s largest producer of sugar. Sugar cane is grown in the country
by a large number of mainly low-income farmers. They sell sugar cane to mills which process the
sugar cane into sugar. Processing the sugar cane is more capital-intensive than growing it. The
Indian government sets a minimum price for sugar cane and subsidises the export of sugar.
(a) Define a minimum price.
[2]
(b) Explain two advantages of capital-intensive production.
[4]
(c) Analyse why low-income farmers are likely to have low living standards.
[6]
(d) Discuss whether or not a government subsidy on the export of sugar will help it achieve its
macroeconomic aims.
[8]
4
Safiye Ali became the first female doctor in Turkey in 1923. By 2020, 40% of Turkish doctors were
women. Over this period, labour productivity increased. Turkey also experienced advances in
technology, a change in the current account balance on its balance of payments and a significant
increase in the size of its population.
(a) Identify two causes of an increase in labour productivity.
[2]
(b) Explain two reasons why someone may choose to become a doctor.
[4]
(c) Analyse how advances in technology may improve the current account balance on a country’s
balance of payments.
[6]
(d) Discuss whether or not a country with a high population growth rate is likely to experience a
high economic growth rate.
[8]
© UCLES 2023
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5
5
Serbia is the world’s second largest producer of raspberries, a product with elastic demand.
Consumers experience the economic problem when buying raspberries. Few raspberry farm
workers are members of trade unions. Membership of trade unions in Serbia had fallen to 20% of
all workers by 2020. In that year, Serbia had more state pensioners than workers.
(a) Identify two determinants of price elasticity of demand.
[2]
(b) Explain how the economic problem results in consumers having to make choices.
[4]
(c) Analyse why some workers decide not to join a trade union.
[6]
(d) Discuss whether or not a government should reduce the amount of money it gives to each
state pensioner.
[8]
© UCLES 2023
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