Economics Paper 22

Using information from the extract, identify two indicators of improved living standards in Indonesia. [2]

improved medical care/an increase in doctors per head (1).

Explain whether the extract suggests the demand for chocolate is price-elastic or price-inelastic in developed countries. [2]

as it is addictive (2).

Using information from the extract, explain two reasons why cocoa bean farmers do not use much capital equipment. [4]

mean they cannot afford capital equipment (1).

makes it impractical to use much capital equipment (1).

makes it more cost effective to employ labour rather than capital/high cost of capital equipment (1).

may not know how to use capital equipment (1).

Calculate the rate of inflation in Indonesia in 2014. [3]

Analyse two benefits of specialisation referred to in the extract. [4]

so leading to higher output/higher income (1). Maximum mark = 2.

this may increase demand for the product (1). Maximum mark = 2.

Discuss whether the price of chocolate is likely to increase in the future. [5]

Up to 3 marks for why it might:

as incomes are rising/population increasing (1)

market power enables producers to raise price (1)

due to pests and disease (1).

becoming older (1). Up to 3 marks for why it might not:

enabling greater advantage to be taken of economies of scale (1)

lowering average costs (1).

may reduce demand for chocolate (1)

Using information from the extract, explain what is likely to be the main goal of chocolate producers. [4]

chocolate producers are seeking to increase the gap between revenue and cost/low costs and high prices (1)

to satisfy shareholders (1)

shareholders want a good return on their shares (1)

Attract more shareholders (1)

higher profits could be reinvested (1).

Discuss whether free trade always benefits producers. [6]

Up to 4 marks for why it might:

selling to a large market (1)

can take advantage of economies of scale (1).

lowering costs of production/increase efficiency/not having to pay tariffs on e.g. imported raw materials (1)

buy better quality raw materials (1).

ideas on new production methods (1)

which could lower costs of production (1). Up to 4 marks for why it might not:

if cannot compete due to higher costs may go out of business (1)

may need protection to survive (1).

will raise costs of production (1).

will go out of business (1). Note: the focus of the question is on the benefits to producers and not consumers.

Giving an example, define ‘a sales tax’. [2]

e.g. VAT, GST, a tax on a specific product e.g. petrol (1).

Explain the difference between private costs and social costs. [4]

Up to 2 marks for private costs:

producing the product (1)

example of such a cost (1)

Social costs – external costs (1). Up to 2 marks for social costs:

total costs to society/total cost (1)

Using a demand and supply diagram, analyse the effect of imposing a tax on fizzy drinks. [6]

Up to 4 marks for the diagram:

Discuss whether a country’s economy would be harmed if multinational companies moved out. [8]

Up to 5 marks for why it might:

and output/income/GDP/economic growth may decline (1).

as the MNC may have contributed to exports (1).

if the MNC was paying above wages paid by domestic employers (1).

reducing its ability to spend on e.g. education (1).

reducing its ability to grow in the future (1).

to meet the demand that had previously been supplied by the MNC (1).

and so tax revenue may not fall significantly (1).

keeping top jobs for workers from own country (1).

can use tax revenue for other purposes (1)

Identify two government economic aims. [2]

Explain two reasons why someone may be of working-age but not in the labour force. [4]

deciding to stay at home to e.g. look after children (1).

staying in education to improve qualifications/increase employment prospects/increase earning potential (1).

as may not need to work/may be unfit to work (1).

and so not able to work (1).

not in official figures (1).

Analyse what may cause an increase in a country’s labour force. [6]

of people of working-age (1)

will increase the supply of potential workers (1).

reduction in those who are students/retired/homemakers/sick and disabled (1)

this may be the result of e.g. a fall in the school leaving age (1)

or rise in the retirement age (1).

due to a fall in death rate/rise in birth rate/rise in the birth rate some years before (1).

may force more family members to work/seek work (1).

Discuss whether an economy will benefit from having a younger labour force. [8]

Up to 5 marks for why it might:

more up to date with advances in technology (1)

received up to date education (1).

more willing and able to switch jobs (1)

enabling the economy to adjust to changes in demand (1)

reducing structural unemployment (1).

reducing structural unemployment (1).

have less health problems (1)

be more productive/efficient (1)

be prepared to work longer hours (1)

increase output/GDP (1).

reduce firms’ costs of production (1). Up to 5 marks for why it might not:

not built up skills (1)

less productive (1).

increasing firms’ costs of production (1).

this may reduce demand for some products (1).

Define ‘capital-intensive’. [2]

relative to labour (1).

Explain two characteristics of perfect competition. [4]

making each firm a price taker/a very low market concentration ratio (1).

absence of barriers to entry and exit/results in only normal profits being earned in the long run (1).

an absence of anything that differentiates the product e.g. branding / demand for one firm’s product will be perfectly elastic (1).

firms and buyers aware of profits/prices (1).

Analyse two internal diseconomies of scale that a large firm may experience. [6]

there are more layers of management in a large firm (1)

may take longer to make decisions (1).

there are more layers of communication/communication may be indirect (1)

messages may be misinterpreted/take time to reach recipients (1).

Workers may feel less appreciated/have low morale (1)

so may become demotivated (1)

which could reduce labour productivity/efficiency (1).

industrial action e.g. strikes may occur (1)

due to the time it takes to address workers’ grievances (1)

more people to argue with (1).

Discuss whether consumers would benefit from an increase in imports. [8]

Up to 5 marks for why they might:

due to e.g. differences in climate/resources (1).

provide differentiated products (1)

provide good quality products (1)

this may also put pressure on domestic firms to improve the quality of their products (1).

this could lower costs of production (1)

lowering prices (1). Up to 5 marks for why they might not:

example (1)

such products would harm people’s health (1).

Define ‘a weighted price index’. [2]

which takes into account the different proportions spent on items in a basket of goods and services (1).

Explain two ways in which a central bank differs from a commercial bank. [4]

whereas a commercial bank is the bank of firms and households (1).

which a commercial bank cannot do (1).

whereas a commercial bank responds to monetary policy measures (1).

a commercial bank is usually privately owned (1),

Analyse how a fall in the value of a currency may increase a current account surplus on the balance of payments. [6]

and increase import prices (1).

this may increase export revenue (1)

if demand for exports is price elastic (1).

this will reduce import expenditure (1)

if demand for imports is price elastic (1).

credit items in the current account would increase (1)

while debit items would fall (1).

Discuss whether a cut in the rate of interest would end deflation. (8)

Up to 5 marks for why it might:

instead of saving households may spend (1).

this may encourage households to take out loans and spend (1).

as it will be cheaper to borrow (1)

they may expect a rise in consumer expenditure (1).

may push up the price level (1). Up to 5 marks for why it might not:

and so may not spend more despite a lower interest rate (1). May choose to repay past debts (1).

and so may not borrow/ invest more despite a lower interest rate (1).

and so a cut may make little difference (1).

and so will not alter their spending and investment plans (1).

may be a lack of credit worthy borrowers (1). Note: not rewarding other policy measures.

Why can the economic problem never be solved? [2]

than resources (1). Or:

whilst resources are finite/limited (1).

Explain two reasons why workers specialising can reduce the average cost of production. [4]

increasing productivity/efficiency (1).

cost of training reduced/do not have to be trained in every task (1).

cutting the amount of capital needed (1).

more time focused on production (1).

increase productivity (1).

reduces wastage (1).

Analyse how an increase in bank lending can increase economic growth. [6]

higher total (aggregate) demand (1)

may encourage firms to increase their output (1)

this will raise real GDP (1).

this will increase demand for capital goods (1)

it will also increase productive capacity (1)

causing potential economic growth (1).

may increase labour productivity (1)

increasing GDP (1)

and potential economic growth (1).

Discuss whether consumers benefit from horizontal mergers. [8]

example (1)

this will reduce average cost of production (1)

this may lower prices to consumers (1).

which they can spend on research and development (1)

increasing innovation (1)

raising the quality of the product (1). Up to 5 marks for why it might not:

example (1)

this will increase average cost of production (1)

this may raise prices to consumers (1).

move it closer to monopoly (1)

this may result in higher prices (1).

may discourage research and development (1)

this may reduce innovation (1)

reduce quality (1).

What is meant by scarce resources? [2]

that are limited in supply (1).

Explain two reasons why someone may be willing to do a low-paid job with little job security. [4]

some people undertake jobs because of the pleasure they gain from e.g. nursing (1).

some people place a high value on leisure (1).

e.g. a clean working environment (1).

due to family ties/housing costs (1).

some people may have no choice because they are not qualified to do better paid jobs (1).

workers may not be able to undertake the tasks required (1).

employers expecting lower productivity (1).

not wishing to take on a stressful job/position (1).

a worker may accept a low wage now in expectation of a high wage in the future (1).

such as a company car given to a sales person (1).

high rate of unemployment (1)

cut in or lack of unemployment benefits(1).

Analyse how the spending, saving and borrowing patterns of young workers may differ from those of older workers. [6]

old workers may spend a smaller proportion of their income (1)

as they may be paid more and so can afford to save (1).

older workers may already have sufficient savings (1).

older workers more on healthcare (1)

older workers may save more as they are preparing for retirement (1).

Discuss whether developing countries should encourage foreign tourism. [8]

Up to 5 marks for why it should:

it is an export of services (1)

improves the current account balance (1).

this could be spent on e.g. education which could improve living standards (1).

in e.g. hotels (1)

reduces unemployment (1).

contributes to economic growth (1).

e.g. foreign hotel chains may set up in the country (1).

this may reduce the price of imports (1). Up to 5 marks for why it should not:

e.g. destroy areas of natural beauty (1).

e.g. water (1).

low skilled jobs (1)

better paid and high skilled jobs may be undertaken by workers from the country of foreign holiday firms (1).

foreign hotels may be supplied by foreign firms (1).

pushing up the prices the local population have to pay (1). Note: not accepting increased crime.