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Economics · Oct / Nov 2025 · Paper 21 · Question 4

0455

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The question as text

Lanzarote, a Spanish island, was once an area with very high rates of poverty. However, the rise of tourism has greatly reduced unemployment. The government is trying to attract more workers to the island by using non‑wage factors. Lanzarote’s low taxes also attract workers to the island. Mobility of labour in the island’s economy has also increased.

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  • 4(a)[2]

    Identify two non-wage factors that may influence a worker’s job choice. Two from:

    job security
    fringe benefits
    recognition at work
    company car
    holidays
    working hours
    flexibility / ability to work from home
    location of workplace
    available transport
    nearness to family 2 Accept any relevant non-wage factors. If more than two non-wage factors are given, consider the first three.

  • 4(b)[4]

    Explain how unemployment can lead to poverty. Logical explanation which might include:

    unemployment may lead to a loss of a source of income (1)

    unable to afford basic necessities (1)

    leading to absolute poverty (1)

    may reduce ability to provide a good standard of living for family (1)

    poor education (1)

    health problems (1)

    child poverty (1)

    long term unemployment (1)

    loss of skills (1)

    cannot re- enter the job market (1)

    unable to earn a living (1)

    the unemployed may claim unemployment benefits (1)

    with lower income than those working (1)

    leading to relative poverty (1).

    unemployment will lead reduced (income) tax revenue (1)

    less available to spend on public services that reduce poverty (1).

  • 4(c)[6]

    Analyse the influences on the mobility of labour. Coherent analysis which might include:

    labour could be occupationally mobile (1)

    influenced by skills / qualification / knowledge (1)

    if they are transferable (1)

    then labour is more occupationally mobile (1)

    labour could be geographically mobile (1)

    influenced by government regulations (1)

    e.g. visa requirements (1)

    cost of living in another area / country (1)

    access to transport (1)

    access to public transport / proximity to railway / ports (1)

    family ties may make workers immobile (1)

    access to working online / ability to work from home (1)

    house prices in different areas / access to housing in different areas (1)

    low house prices make it easier to move for work (1)

    incomes / tax systems in other countries (1)

    proficiency in another language (1)

    influencing workers to move abroad (1).

  • 4(d)[8]

    Discuss whether or not low taxes are beneficial for an economy. In assessing each answer, use the table opposite. Why they might be:

    low income taxes increase disposable income, increasing total (aggregate) demand
    low corporate income (corporation) taxes increase profits after tax
    low indirect taxes, e.g. VAT, reduce prices of goods and services
    low taxes on imports reduce prices of imports
    low taxes on firms encourage competition
    low taxes on demerit goods increase external costs
    low income taxes prevent a ‘brain drain’ / attract foreign workers
    low corporate taxes attract overseas companies e.g. MNCs. Level Description 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 may be one- sided. There is relevant use of economic concepts, terminology, information and data appropriate to the question. 3–5 Guidance Why they might not be:
    government revenue will be low – budget deficit / debt
    not enough revenue to provide for public / merit goods e.g. education / healthcare
    higher inequality if progressive taxes are low
    higher inflation if direct taxes are low
    low taxes on merit goods improve external benefits. Level Description 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.
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