Economics · Oct / Nov 2020 · Paper 22 · Question 4
0455
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Italy is home to the world’s oldest bank and some of the world’s oldest car producers. Internationally, both industries are facing a number of challenges. The wages of bank workers and car workers are increasing. Demand for bank loans and for cars is changing, in part, due to changes in population size. It is predicted that the price elasticity of demand (PED) for cars will also change in the future.
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4(a)[2]
State two functions of a commercial bank. Two from:
lendingaccepting depositsallowing customers to make paymentslooking after valuablesgiving financial adviceproviding insuranceexchanging foreign currency 2 Internet banking alone is too vague.4(b)[4]
Explain two reasons why emigration from a country may increase. Logical explanation which might include: Rise in unemployment (1)
people move abroad in search of jobs (1). Fall in income (1)
seek higher wages abroad (1). Lower living standards (1)
e.g. healthcare may be better abroad / less pollution (1). Relaxation on immigration controls (1)
making it easier to move abroad (1). Greater social unrest / outbreak of war (1)
seek greater security (1). High inflation at home (1)
seek lower cost of living (1). 4 One mark for each of two reasons identified and one mark for each of two explanations. Reward answers that give an argument from the opposite perspective but do not double award. Accept ‘static approach’ e.g. unemployment.
4(c)[6]
Analyse the possible causes of a rise in the wages of bank workers. Coherent analysis which might include: Demand for bank workers may increase (1)
due to higher demand for banking / this may result from more people opening bank accounts/using the services of banks (1)
may also result from a rise in the productivity of workers (1)
more banks competing for the services of bank workers / more competition for workers (1)
higher wages paid to retain bank workers (1). Supply of bank workers may fall (1)
qualifications may have been increased (1)
skills may have increased / may need to be more skilled as working with more advanced technology (1). Bank workers may use trade union power (1)
collective bargaining and/or industrial action (1). Banks may have earned large profits (1)
may have rewarded workers with bonuses (1)
bonuses / high pay may be used to motivate workers (1). A higher national minimum wage (1)
forcing banks to pay some of their staff more (1). Bank workers may work longer hours / may work overtime (1). Bank workers may be more experienced (1)
more productive / more skilled (1). Inflation / higher income tax (1)
purchasing power will fall unless wages increased (1).
4(d)[8]
Discuss whether or not demand for cars will become more price-elastic in the future. In assessing each answer, use the table opposite. Why it might:
may be closer substitutes. Price of public transport and /or quality of public transport may fall making them closer substitutesmay take up a larger proportion of income. Incomes may fallprice may rise. Demand becomes more price elastic as price risesthe number of firms producing certain types of cars may increasetime will give consumers more opportunity to search out lower prices. Why it might not:may become more of a necessity. People may work further from where they livemay become easier to postpone purchase. If cars last longer, consumers may be able to delay buying replacementspeople may have become used to driving – habit forming. May be reluctant not to own and drive a carprice of complements may rise, so that even if price of cars fall, people may not buy more cars. Level Descriptors Mark A reasoned discussion which accurately examines both sides of the economic argument, making use of economic information and clear and logical analysis to evaluate economic issues and situations. One side of the argument may have more depth than the other, but overall both sides of the argument are considered and developed. There is thoughtful evaluation of economic concepts, terminology, information and/or data appropriate to the question. The discussion may also point out the possible uncertainties of alternative decisions and outcomes. 6–8 A reasoned discussion which makes use of economic information and clear analysis to evaluate economic issues and situations. The answer may lack some depth and development or may be one-sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 There is a simple attempt at using economic definitions and terminology. Some reference may be made to economic theory, with occasional understanding. 1–2 A mark of zero should be awarded for no creditable content. Guidance Example of an L2 answer: Demand for cars may become more price-elastic. People may be more willing to switch to substitutes. If bus transportation reduced market prices, people may use buses rather than buying cars when prices of cars rise. On the other hand, cars may be price-inelastic in the future. They may become more of a necessity if people find buses and trains inconvenient. Cars also show a better standard of living and many jobs require a car which makes having a car a necessity therefore it becomes price-inelastic. Principal Examiner comment: Reasonable on both sides. Reward answers that give an argument from the opposite perspective but do not double award.
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