Economics · Oct / Nov 2025 · Paper 22 · Question 2

0455

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The question as text

Some markets in Belgium are in equilibrium. The country produces a wide range of goods and services with different degrees of price elasticity of demand. The Belgian Government wants the economy to move to a production possibility point beyond its current production possibility curve (PPC). Belgium’s scientific industry is one industry which is doing well. Workers in this industry are highly specialised.

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2(a)[2]
Define market equilibrium. Demand equalling supply (2). No shortage (1)
no surplus (1). Balance of demand and supply (2).
2(b)[4]
Explain two ways an economy could reach a point outside its current PPC. Logical explanation which might include the following.
Increase investment (1)
devoting more resources to capital goods (1).
Encourage immigration (1)
increase size of the labour force (1).
Land reclamation (1)
creating more land on which to e.g. grow crops (1).
Increase in education and training (1)
raise quality / efficiency / productivity of labour (1).
Increase spending on research and development / new technology (1)
increase quality / efficiency / productivity of capital (1).
Discovery of sources of resources (1)
example/enables extra output to be produced (1). 4 One mark each for two ways identified and one mark each for two explanations. If more than two reasons are given, consider the first three.
2(c)[6]
Analyse how price elasticity of demand can influence a firm’s pricing decisions. Coherent analysis which might include the following. Price elasticity of demand is a measure of the responsiveness of demand to a change in price (1). If demand is elastic, a rise in price will cause a greater percentage change in demand (1)
may indicate the firm’s product has close substitutes / is not a necessity / takes a significant proportion of consumers’ incomes (1)
may encourage firms to lower price (1)
raise revenue (1). If demand is inelastic, a rise in price will cause a smaller percentage change in demand (1)
may indicate the firm’s product has few substitutes / is a necessity / takes a small proportion of consumers’ incomes (1)
may encourage firms to raise prices (1)
revenue would increase (1). 6 Reward, but do not expect: Facilitate price discrimination (1)
charging higher prices in markets with inelastic demand (1)
valid example, e.g. higher rail fares at peak times (1).
2(d)[8]
Discuss whether or not firms benefit from their workers undertaking training. In assessing each answer, use the table opposite. Why they might:
may increase productivity
may enable workers to work with more advanced technology
may lower costs of production
may be able to fill promoted posts
reduce waste
raise quality of output
training may be provided by the government at no direct cost for firms.
increase workers motivation, reducing labour turnover
increase flexibility to cover absences. Why they might not:
if the firms provide the training, increase costs / opportunity cost
output may fall while workers are being trained
training may not be successful
trained workers may demand higher wages
trained workers may leave to work for other firms – other firms will gain the benefits of the training. 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 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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