Economics · May / June 2022 · Paper 21 · Question 1

Calculate the number of births in Cyprus in 2019. 12 240 (1)

Identify two indicators of living standards. GDP per head / per capita (1). HDI (1). Life expectancy / healthy people (1). Proportion of people in primary sector (1). Level of education / qualifications (1). 2 Do not reward GDP

State why the global market for grapes was in disequilibrium in 2019. Bad weather / failure of the grape harvest (1)

there was a shortage (1)

which means demand exceeded supply (1).

Explain two reasons why more well-educated workers tend to work past retirement age than less-educated workers. Logical explanation which might include: Well-paid / good work benefits (1)

which provides an incentive to work for longer / high job satisfaction / enter workforce late (1). Healthy (1)

and so more able to work for longer / remain productive (1). Work in jobs which do not require physical strength / less tiring (1)

older workers tend to be less strong / allows them to continue working as long as remain fit (1). 4 One mark for each of two reasons identified and one mark for each explanation.

Analyse how a rise in a country’s retirement age is likely to affect its government’s budget. Coherent analysis which might include: A rise in the retirement age / less people retired will reduce the cost of pensions (1)

may reduce government spending / government may spend on alternatives e.g., infrastructure, education or health (1). More people in work will increase incomes / businesses expand production (1)

raise direct tax revenue (1)

spending will increase (1)

raise indirect tax revenue (1).

Analyse the relationship between inflation rates and current account balances. Coherent analysis which might include: Overview: Generally, an inverse relationship / the lower the inflation rate, the higher the current account surplus or the higher the inflation rate, the higher the current account deficit (1). Supporting evidence−max of 2 marks Mongolia has the highest inflation rate (1)

and the largest current account deficit (1)

Mongolia / Kenya / Nepal have the highest inflation rates (1)

all have a current account deficit (1). Iceland / Slovenia have a low rate of inflation (1)

but have a current balance of payments surplus (1)

Exception: Cyprus lowest inflation rate (1)

but a current account deficit / 3rd highest current account deficit (1). Comments: Most of the table shows the expected relationship. (1)

Low inflation rates may make products more price competitive / high inflation rates may make prices less price competitive (1)

5 Do not accept current account balance is high or low. Answers need to refer to size of surplus or deficit. Simply using data without explanation is description rather than analysis.

Discuss whether or not, after 2019, Cyprus’s production possibility curve (PPC) is to shift to the right. Award up to 4 marks for logical reasons why it might, which may include: Quantity / quality of resources may have increased (1)

retirement age may have increased (1)

people living longer (1)

so labour force is likely to have increased (1). Investment may have increased (1)

due to low interest rates (1)

more capital goods would increase productive capacity (1). Award up to 4 marks for logical reasons why it might not, which may include: Quantity and quality of resources may have decreased (1)

land quality is decreasing (1)

which will reduce the productivity of land (1). Entrepreneurs may emigrate (1)

reducing the supply of enterprise / skilled workers (1). Birth rate is falling (1)

size of workforce may fall in future (1)

Covid−19 may have reduced productivity (1). For recognising that any of these reasons could result in PPC shifting to the left / stay unchanged (1). 6 Apply this example to all questions with the command word DISCUSS (1g, 1h, 2d, 3d, 4d and 5d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. Generic example Tax revenue may decrease because of reason e.g., incomes may be lower. Tax revenue may increase because incomes may be higher i.e., reverse of a previous argument. Tax revenue may increase because of a different reason i.e., not the reverse of a previous argument e.g., government spending on subsidies may stimulate the economy more than spending on education.

Discuss whether or not adopting capital-intensive production will benefit consumers. Award up to 4 marks for logical reasons why it might, which may include: It may reduce costs of production / more efficient / may result in economies of scale (1)

lower costs may reduce prices (1). It may avoid disruption to supply (1)

as no industrial action / strikes (1). It may be quicker / faster (1)

to respond to changes in consumer demand (1)

It may raise quality (1)

as absence of human error (1). Award up to 4 marks for logical reasons why it might not, which may include: Products may be standardised / lack variety (1)

individual wants may not be met (1). Capital equipment may break down / costly to maintain (1)

causing delays in production (1). Initial high cost of capital equipment (1)

may push up prices (1).