Cambridge International Examinations Cambridge International General Certificate of Secondary Education

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1 * * ambridge International Examinations ambridge International General ertificate of Secondary Education EONOMIS 0455/12 Paper 1 Multiple hoice October/November 2016 dditional Materials: Multiple hoice nswer Sheet Soft clean eraser Soft pencil (type or H is recommended) 45 minutes RE THESE INSTRUTIONS FIRST Write in soft pencil. o not use staples, paper clips, glue or correction fluid. Write your name, entre number and candidate number on the nswer Sheet in the spaces provided unless this has been done for you. O NOT WRITE IN NY ROES. There are thirty questions on this paper. nswer all questions. For each question there are four possible answers,, and. hoose the one you consider correct and record your choice in soft pencil on the separate nswer Sheet. Read the instructions on the nswer Sheet very carefully. Each correct answer will score one mark. mark will not be deducted for a wrong answer. ny rough working should be done in this booklet. This document consists of 10 printed pages and 2 blank pages. I16 11_0455_12/3RP ULES 2016 [Turn over

2 2 1 Each factor of production earns an income. What correctly identifies the income for labour and capital? labour capital profit interest rent profit wages profit wages interest 2 What could be the opportunity cost of a nuclear power station? the running costs of the power station a coal-fired power station the current value of the power station the cost of building the power station 3 The diagram shows a production possibility curve for maize and cotton. maize P Q R S O cotton ad weather causes a poor harvest for both crops. Which movement could be used to represent this change? P to R Q to R S to Q S to R 4 The market for a good was in equilibrium. change occurred which resulted in a new equilibrium with a higher price for the good and a lower quantity traded. What change would have caused this? the demand curve moved to the left the demand curve moved to the right the supply curve moved to the left the supply curve moved to the right ULES /12/O/N/16

3 5 demand curve shows the relationship between the quantity demanded and 3 a change in income consumer tastes the supply of the product the price of the product 6 government subsidises the production of pineapples. This is likely to increase the price of pineapples raise the costs of supplying pineapples raise revenue for the government cause the supply of pineapples to increase at every price 7 What indicates the existence of external costs in an economy? n international trade deficit has caused the country to be in debt. National companies have borrowed from foreign investors. Private costs of production are less than social costs. Private costs of production are more than social benefits. 8 What might be a disadvantage to a trade union when arguing for an increase in its members pay? an increase in imports of a cheaper, similar product the closure of a local training college resulting in fewer potential workers the development of a new and profitable brand of the company s product the development of new techniques that increase productivity 9 What shows the correct examples of income and wealth? income wealth dividends from shares wages rent from a house overtime payments overtime payments wages wages house ULES /12/O/N/16 [Turn over

4 4 10 Nazmin Uddin works in a local office as a secretary three days a week. She lives with her parents in a small apartment. Meer li owns a successful fitness centre that employs about twenty people. He owns a large house. Which is most likely to be correct? Nazmin spends a smaller proportion of her income than Meer. Nazmin saves most of her income. Nazmin would find it easier than Meer to borrow money. Nazmin has a lower disposable income than Meer. 11 The table shows how household spending changes with income. income ($ per month) spending ($ per month) What is the first level of income shown at which savings are positive? $4000 $4600 $4900 $ survey of managers in the US revealed that most businessmen feel that a company s responsibility is to serve the interests of owners, employees, customers and the public. The idea of profit maximisation, in contrast, implies that a company s main responsibility should be to the customers employees owners public ULES /12/O/N/16

5 5 13 Some agricultural co-operatives have changed from labour-intensive to capital-intensive methods of production. What might be a cause of this change? verage productivity of agricultural workers has increased. Farming equipment has become more efficient. People are eating less food for health reasons. Some agricultural land has been sold for housing. 14 firm has fixed costs of $200 for its daily output. The table shows its daily total variable costs. output (units) total variable costs ($) What can be concluded about the firm s average total cost? it falls continuously it is highest at output 4 units it is lowest at output 4 units it rises continuously 15 The table shows the growth rate of output (%) in four sectors of an economy. construction sector % energy sector % manufacturing sector % services sector % first quarter of second quarter of Which two sectors showed an increase in the growth rate in the first half of 2014? construction and energy construction and manufacturing services and construction services and manufacturing ULES /12/O/N/16 [Turn over

6 16 government decides to sell the monopoly supply of gas to households to a private firm. 6 How could the government protect the interests of households after selling a large company to the private sector? by excluding all competition from foreign companies by imposing a tax on excess profits by introducing a quota system for imports of gas by removing price controls on gas 17 In 2015, extra people lost their jobs but total employment rose by What could explain this? Some people may have emigrated. Some people may have gone back to education. Some people may have re-entered the labour force. Some people may have retired early. 18 The table shows taxes as a percentage of Gross omestic Product (GP) for four countries. From this information, which country had the highest percentage of direct taxation as a percentage of GP? income tax % tax on business profits % tax on dividends % tax on goods and services % ULES /12/O/N/16

7 7 19 government gives farmers a subsidy of $5 per kilo to supply food on the open market where X is the original equilibrium position. The effect is illustrated in the diagram. S 3 S 1 20 S 2 price ($ per kilo) X quantity supplied (000 kilos) What will be the new equilibrium price and quantity supplied as a result of the subsidy? equilibrium price ($ per kilo) quantity supplied (000 kilos) What is involved in the construction of a Retail Price Index? a base year incomes price elasticity of products quantity supplied 21 Why is nominal Gross omestic Product not a good measure to compare the standard of living in a country between two years? It does not account for inflation. It does not allow for savings. It does not include government expenditure. It only compares export prices with import prices. ULES /12/O/N/16 [Turn over

8 22 In 2010 there was an increase in net emigration from Ireland. What is most likely to have caused this increase? 8 a decrease in job security abroad a decrease in wage rates abroad an increase in Ireland s real GP an increase in unemployment in Ireland 23 Some goods take a greater percentage of a typical household s total spending than others. How is this accounted for in the construction of a Retail Price Index? by deducting the goods and services by giving a weight to the goods by taking an average of price fluctuations during a year by using the price elasticity of demand for the goods 24 Which outcome is least likely to be found with greater economic development? greater percentage of the population are highly educated. greater percentage of the population are homeowners. greater percentage of the population are old. greater percentage of the population are very poor. 25 government introduces state benefits for the unemployed and increases the top rate of income tax to pay for the benefits. What effect will these changes have on poverty and the tax system? poverty tax system increase make it more progressive increase make it more regressive reduce make it more progressive reduce make it more regressive ULES /12/O/N/16

9 26 The chart shows total world carbon emissions in 1995 and predicted emissions by developing world 27% other sia 6% developing world 50% Latin merica 4% frica 3% Middle East 3% Japan 7% hina 11% E. Europe 27% US 22% W. Europe 17% developed world 73% Latin merica 6% hina 17% other sia 14% frica 8% Middle East 5% US 15% W. Europe 12% E. Europe 19% Japan 4% developed world 50% If the chart proves to be correct, what will have happened by 2035? frica and the Middle East will have responsibility for the same amount of carbon emissions in 2035 as in etween 1995 and 2035, the Middle East will have increased its industrialisation by as much as Latin merica. y 2035 the combined percentage of carbon emissions caused by frica and Latin merica will have doubled. The US will have decreased its carbon emissions by a smaller percentage than Western Europe. 27 What encourages international specialisation? a foreign exchange shortage diseconomies of scale free trade quotas ULES /12/O/N/16 [Turn over

10 28 Japanese car manufacturer decided to produce its cars in a factory in Europe. What would not be a reason why they might have chosen to do this? 10 cheaper wage costs in Europe the availability of raw materials to gain external economies from skilled labour in Europe to increase Japanese self-sufficiency 29 government removed the quota on goods imported into the country. What is the most likely result of this? a decrease in demand for domestic production a decrease in domestic unemployment a decrease in exports a decrease in the balance of trade deficit 30 The table shows components of Japan s current account balance in trillion Yen for 2011 and year balance of goods trillion balance of services trillion balance of current transfers trillion balance of income trillion Which balance improved between 2011 and 2012? balance of current transfers balance of goods balance of income balance of services ULES /12/O/N/16

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12 12 LNK PGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (ULES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the ambridge International Examinations opyright cknowledgements ooklet. This is produced for each series of examinations and is freely available to download at after the live examination series. ambridge International Examinations is part of the ambridge ssessment Group. ambridge ssessment is the brand name of University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. ULES /12/O/N/16

13 * * ambridge International Examinations ambridge International General ertificate of Secondary Education EONOMIS 0455/13 Paper 1 Multiple hoice October/November 2016 dditional Materials: Multiple hoice nswer Sheet Soft clean eraser Soft pencil (type or H is recommended) 45 minutes RE THESE INSTRUTIONS FIRST Write in soft pencil. o not use staples, paper clips, glue or correction fluid. Write your name, entre number and candidate number on the nswer Sheet in the spaces provided unless this has been done for you. O NOT WRITE IN NY ROES. There are thirty questions on this paper. nswer all questions. For each question there are four possible answers,, and. hoose the one you consider correct and record your choice in soft pencil on the separate nswer Sheet. Read the instructions on the nswer Sheet very carefully. Each correct answer will score one mark. mark will not be deducted for a wrong answer. ny rough working should be done in this booklet. This document consists of 11 printed pages and 1 blank page. I16 11_0455_13/5RP ULES 2016 [Turn over

14 2 1 What is not a factor of production? a $20 banknote an office a photocopier a secretary 2 What could be the opportunity cost of a nuclear power station? the running costs of the power station a coal-fired power station the current value of the power station the cost of building the power station 3 In 2014 private companies began to drill in areas of the country to exploit natural gas supplies that were known to exist. R V manufactured goods S T U O gas supplies How might this decision be represented on the diagram which shows a production possibility curve for the country? by a movement from R to S by a movement from R to V by a movement from S to T by a movement from U to V ULES /13/O/N/16

15 3 4 The market for a good was in equilibrium. change occurred which resulted in a new equilibrium with a higher price for the good and a lower quantity traded. What change would have caused this? the demand curve moved to the left the demand curve moved to the right the supply curve moved to the left the supply curve moved to the right 5 The demand for cocoa beans is price-inelastic. What is most likely to decrease as a result of an increase in demand for cocoa beans? price of cocoa bean products production of cocoa beans profits of cocoa bean producers unemployment among cocoa bean farmers 6 government subsidises the production of pineapples. This is likely to increase the price of pineapples. raise the costs of supplying pineapples. raise revenue for the government. cause the supply of pineapples to increase at every price. ULES /13/O/N/16 [Turn over

16 4 7 The use of cars in many cities creates negative externalities. The diagram shows the free market equilibrium X 1 and the socially efficient market equilibrium X 2. S 2 S 1 costs / benefits P 2 X 2 P 1 X 1 Using the diagram, which statement is correct? O quantity Socially efficient supply is S 1 and the market price P 1 is too high. Socially efficient supply is S 1 and the market price P 1 is too low. Socially efficient supply is S 2 and the market price P 1 is too high. Socially efficient supply is S 2 and the market price P 1 is too low. 8 What could increase the ability of a trade union to gain a pay rise for its members in a coat factory? a decrease in the demand for coats a decrease in the number of people willing to work in the coat industry a decrease in the productivity of workers making coats a decrease in the sale of coat exports 9 What does net income mean? income after allowing for price changes income after paying regular household bills income less tax and government deductions income plus overtime payments ULES /13/O/N/16

17 5 10 Nazmin Uddin works in a local office as a secretary three days a week. She lives with her parents in a small apartment. Meer li owns a successful fitness centre that employs about twenty people. He owns a large house. Which is most likely to be correct? Nazmin spends a smaller proportion of her income than Meer. Nazmin saves most of her income. Nazmin would find it easier than Meer to borrow money. Nazmin has a lower disposable income than Meer. 11 The table shows how household spending changes with income. income ($ per month) spending ($ per month) What is the first level of income shown at which savings are positive? $2600 $2900 $3200 $ survey of managers in the US revealed that most businessmen feel that a company s responsibility is to serve the interests of owners, employees, customers and the public. The idea of profit maximisation, in contrast, implies that a company s main responsibility should be to the customers. employees. owners. public. ULES /13/O/N/16 [Turn over

18 13 Why is a firm in perfect competition a price taker? 6 It has no information about market price. Its output is too small to have any effect on market equilibrium. There are few barriers to entry. There are only a few firms in the industry. 14 firm produced 200 cars a week and employed 50 workers. fall in demand caused the firm to reduce its output to 160 cars a week and its labour force to 32. What was the percentage change in the firm s productivity? It fell by 20%. It fell by 25%. It increased by 20%. It increased by 25%. 15 firm has fixed costs of $100 for its daily output. The table shows its daily total variable costs. output (units) total variable costs ($) What can be concluded about the firm s average total cost? It falls continuously. It is highest at output 4 units. It is lowest at output 3 units. It rises continuously. 16 government decides to sell the monopoly supply of gas to households to a private firm. How could the government protect the interests of households after selling a large company to the private sector? by excluding all competition from foreign companies by imposing a tax on excess profits by introducing a quota system for imports of gas by removing price controls on gas ULES /13/O/N/16

19 7 17 government decides to increase the rate of income tax and spend the extra revenue on providing training colleges. How might this be described? as fiscal and monetary policy as fiscal and supply-side policy as fiscal, monetary and supply-side policy as monetary and supply-side policy 18 government taxes farmers $12 per kilo when they supply food on the open market where X is the original equilibrium position. The effect is illustrated in the diagram below. price ($ per kilo) S 4 S 1 X S 3 S quantity supplied (000 kilos) What will be the new equilibrium price and quantity supplied as a result of the tax? equilibrium price ($ per kilo) quantity supplied (000 kilos) ULES /13/O/N/16 [Turn over

20 19 The table shows taxes as percentages of Gross omestic Product (GP) for four countries. 8 From this information, which country had the lowest percentage of direct taxation as a percentage of GP? income tax % tax on business profits % tax on dividends % tax on goods and services % newspaper reports that there has been an economic slump in an economy. What would an economist expect the immediate effect to be? Production will decrease. Saving will decrease. Taxation will decrease. The population will decrease. 21 How is the pattern of employment likely to change when a country becomes more developed? from regular employment to seasonal employment from rural employment to urban employment from skilled employment to manual employment from tertiary employment to primary employment 22 In 2010 there was an increase in net emigration from Ireland. What is most likely to have caused this increase? a decrease in job security abroad a decrease in wage rates abroad an increase in Ireland s real GP an increase in unemployment in Ireland ULES /13/O/N/16

21 9 23 The table shows some economic indicators. Which increase in the first indicator is most likely to lead to an increase in the second indicator? first indicator second indicator budget surplus consumer saving consumer spending unemployment inflation trade surplus productivity living standards 24 What would be most likely to cause the population to decrease if other things remain constant? a decrease in the birth rate a decrease in the death rate an increase in net immigration an increase in the fertility rate 25 eveloped countries have a high and increasing proportion of their population over the age of 65. Which economic consequence will be most likely to result from this kind of population change? Government transfer payments will increase. More facilities will be needed to retrain workers. There will be a rise in the economic growth rate. The total savings in the economy will increase. ULES /13/O/N/16 [Turn over

22 26 The chart shows total world carbon emissions in 1995 and predicted emissions by developing world 27% other sia 6% developing world 50% Latin merica 4% frica 3% Middle East 3% Japan 7% hina 11% E. Europe 27% US 22% W. Europe 17% developed world 73% Latin merica 6% hina 17% other sia 14% frica 8% Middle East 5% US 15% W. Europe 12% E. Europe 19% Japan 4% developed world 50% If the chart proves to be correct, what would have happened by 2035? frica will emit the least carbon. hina will cause about a third of the emissions of all developing areas shown. eveloped areas will have reduced their absolute amount of carbon emissions. The US will have decreased its carbon emissions by a smaller percentage than Western Europe. 27 What encourages international specialisation? a foreign exchange shortage diseconomies of scale free trade quotas 28 Japanese car manufacturer decided to produce its cars in a factory in Europe. What would not be a reason why they might have chosen to do this? cheaper wage costs in Europe the availability of raw materials to gain external economies from skilled labour in Europe to increase Japanese self-sufficiency ULES /13/O/N/16

23 29 government removed the quota on goods imported into the country. What is the most likely result of this? 11 a decrease in demand for domestic production a decrease in domestic unemployment a decrease in exports a decrease in the balance of trade deficit 30 In 2009 the exchange rate of the Singapore dollar changed from 1.49 = 1 US dollar to 1.43 Singapore dollars = 1 US dollar. How would this affect the import prices and export prices for Singapore? prices paid by Singapore for imports prices paid to Singapore for exports decrease decrease decrease increase increase decrease increase increase ULES /13/O/N/16

24 12 LNK PGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (ULES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the ambridge International Examinations opyright cknowledgements ooklet. This is produced for each series of examinations and is freely available to download at after the live examination series. ambridge International Examinations is part of the ambridge ssessment Group. ambridge ssessment is the brand name of University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. ULES /13/O/N/16

25 ambridge International Examinations ambridge International General ertificate of Secondary Education * * EONOMIS 0455/21 Paper 2 Structured Questions October/November 2016 No dditional Materials are required. RE THESE INSTRUTIONS FIRST 2 hours 15 minutes n answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Section nswer Question 1. Section nswer any three questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 5 printed pages, 3 blank pages and 1 insert. (KN) /2 ULES 2016 [Turn over

26 2 Section nswer this question. 1 The changing oil market In 2013 hina overtook the United States of merica (US) as the largest importer of oil. The rise in hinese demand has driven up the price of oil. The higher price of oil has made production techniques used in the US, such as hydraulic fracking, possible and has provided more oil for US domestic consumption. US oil companies have purchased larger, more expensive capital equipment and are employing more specialist engineers. The expansion in the US oil industry contributed to the fall in the country s unemployment rate to 6.1% in espite being the largest importer of oil, hina is not yet the world s largest consumer. In 2013 the US oil industry supplied 10.5 million barrels a day, exported 3.4 million barrels a day and imported 10.9 million barrels a day. These figures are likely to change in the future. For example, in 2013 the US had 250 million vehicles and hina had only 100 million. It is forecast that by 2030 hina will have 350 million vehicles. If this change does occur, hina will become more vulnerable to oil price changes and disruptions in the supply of oil. While US oil production is increasing, its consumption is falling. More oil is being discovered in the country and more sophisticated techniques are being used to extract it. t the same time, fewer young people in the country are learning to drive, vehicle ownership per household is falling and average mileage is declining. In addition, US cars are becoming more fuel efficient as a result of tighter fuel economy standards and consumers switching to more economical vehicles. US consumers are becoming more sensitive to changes in the price of oil but a rise in price still leads to a rise in oil producers revenue. hanges in the price of oil, oil production and oil consumption also still have a significant effect on the US economy. For example, the discovery of more oil in the country usually affects the value of the US dollar. hanges in the consumption and production affect hina s and the US s current account positions on their balance of payments. urrently hina has the world s largest current account surplus whilst the US has the world s largest current account deficit. It is interesting to note that both countries have been trying to increase their economic growth rate. The US central bank, the Federal Reserve, has tried to raise the growth of the country s output by cutting the rate of interest. ULES /21/O/N/16

27 3 (a) Using information from the extract, explain whether the US was operating on or inside its production possibility curve in [2] (b) Explain whether the extract suggests the demand for oil in the US is price-elastic or priceinelastic. [2] (c) Using information from the extract, explain two economies of scale that US oil companies are experiencing. [4] (d) alculate the US s demand for oil per day in [3] (e) nalyse how the discovery of more oil in the US would be likely to affect the value of the US dollar. [4] (f) iscuss whether a cut in the rate of interest will increase a country s economic growth rate. [5] (g) Using information from the extract, explain why the price of oil may rise more in hina than in the US in the future. [4] (h) iscuss whether a government should try to reduce a surplus on the current account of its country s balance of payments. [6] ULES /21/O/N/16 [Turn over

28 4 Section nswer any three questions from this section. 2 In 2014 the value of Ghana s currency, the cedi, changed in value by 40% against the US dollar. Inflation rose as the cedi experienced a depreciation. emand in the economy was changing, with government spending rising by more than taxation. Some economists warned that increasing taxes might cause deflation. (a) What is meant by a depreciation of a currency? [2] (b) Explain how a depreciation of a currency can cause a rise in the inflation rate of a country. [4] (c) nalyse why it may be difficult for an economy to have both low unemployment and low inflation at the same time. [6] (d) iscuss whether an increase in taxes will cause deflation. [8] United Nations report recommended that governments should seek to halve meat consumption. reduction in meat consumption, it was argued, would reduce the market failure caused by the pollution coming from chemical fertilisers and manure. Reducing meat consumption would free large areas of land that could be used to grow vegetables, cereals and fruit to feed a growing population. The supply of a number of agricultural products is inelastic. (a) efine inelastic supply. [2] (b) Explain why market failure occurs. [4] (c) nalyse how a government could reduce meat consumption. [6] (d) iscuss whether population growth is likely to exceed the growth of food production in the future. [8] 4 In Egypt in both 2011 and 2012, Gross omestic Product (GP) per head and investment fell. One reason for the fall in investment was that firms found it difficult to obtain loans from the country s commercial banks. nother reason was the removal of some government subsidies, including the subsidy given to the producers of petrol. (a) efine GP per head. [2] (b) Explain two reasons why firms may find it difficult to obtain loans from commercial banks. [4] (c) Using a demand and supply diagram, analyse the effect on the market for petrol if a subsidy on petrol is removed. [6] (d) iscuss whether a fall in a country s GP will result in net emigration. [8] ULES /21/O/N/16

29 5 5 In 2014 global steel demand slowed because of a halving of the growth in consumption by hina, the world s biggest market for steel. The world s biggest steel producing firm forecast higher profits for 2014 although it thought that it might have to cut production. The firm was increasing its specialisation within the steel market. Employment in the industry has declined as firms have sought to reduce their capacity. (a) efine specialisation. [2] (b) Explain how a fall in output will affect average fixed cost and average total cost. [4] (c) nalyse how a firm could reduce its output and increase its total profit. [6] (d) iscuss whether workers who lose their jobs are likely to still be unemployed a year later. [8] 6 The population of most countries includes more women than men. Iran, however, is an exception. In the 1990s the Iranian Government sought to reduce the country s birth rate. The measures it introduced were very successful and the birth rate fell. In 2012, however, the government changed its objective and is now trying to persuade people to have more children. This change in policy is because of concerns about the effects of an ageing population caused by a falling death rate. (a) Identify two reasons why a country may have more women than men. [2] (b) Explain two causes of a fall in the death rate. [4] (c) nalyse three policy measures a government could introduce to increase the birth rate. [6] (d) iscuss whether the government of a country with an ageing population should raise the retirement age. [8] 7 The development of laser eye surgery is reducing the demand for spectacles in a number of countries. The treatment of sight problems is using more capital equipment and less labour. Some economists are predicting that the wages of opticians may decrease in the future. fall in wages may encourage some opticians to retrain for other jobs. (a) Giving an example, define labour. [2] (b) Explain two reasons why a firm may change from labour-intensive to capital-intensive production. [4] (c) nalyse why the wages of workers in a particular occupation may fall. [6] (d) iscuss whether a government should subsidise the provision of training. [8] ULES /21/O/N/16

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32 8 LNK PGE Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (ULES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the ambridge International Examinations opyright cknowledgements ooklet. This is produced for each series of examinations and is freely available to download at after the live examination series. ambridge International Examinations is part of the ambridge ssessment Group. ambridge ssessment is the brand name of University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. ULES /21/O/N/16

33 ambridge International Examinations ambridge International General ertificate of Secondary Education * * EONOMIS 0455/22 Paper 2 Structured Questions October/November 2016 No dditional Materials are required. RE THESE INSTRUTIONS FIRST 2 hours 15 minutes n answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Section nswer Question 1. Section nswer any three questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 4 printed pages and 1 Insert. (LK) /1 ULES 2016 [Turn over

34 2 Section nswer this question. 1 The Mints Mexico, Indonesia, Nigeria and Turkey, known as the Mints, are four emerging economies that are predicted to grow rapidly. The four countries have relatively large populations, from 75 million in Turkey to 242 million in Indonesia in They also have high birth rates, from 17 in Turkey to 41.5 in Nigeria per 1000 people. oth income per head and the countries Human evelopment Index ranking are improving. The changes, however, do not mean that everyone in the four countries is satisfied. s incomes increase, so do people s wants, and what people would like to consume exceeds the maximum output that countries are capable of producing. Output and consumption are increasing in each of the four countries. Nigeria, for example, is predicted to be one of the world s 20 largest economies by Productivity is rising in most sectors of the Nigerian economy although it remains low in agriculture. espite some security concerns, more multinational companies are setting up in the country, attracted by its expanding markets. Nigeria and Turkey both had annual inflation rates above 8% in Indonesia s was 5.7% and Mexico s 5.2%. The Mexican Government had used monetary policy measures in that year to keep the inflation rate down. In ugust 2014 it opened up its energy market, allowing private sector firms to compete against the country s state-owned petroleum firm. It also increased spending on state-provided health care, which operates alongside private medical care. The four countries saw fluctuations in their exchange rates in Indonesia s currency, the rupiah, changed from per US$ the year before to per US$ in Turkey s currency, the Turkish Lira, followed a similar trend. hanges in the exchange rate can affect firms costs of production, as can industrial action. In June 2014 Turkish trade unions organised a number of strikes seeking to gain better wages and working conditions for their members. However, the power of Turkish trade unions is limited by restrictive trade union legislation and a small membership, with only 9% of workers belonging to trade unions. This means that collective bargaining is not a key feature of Turkish labour markets and Turkish trade unions do not have much influence on economic policy. (a) Using information from the extract, explain how the Mints illustrate the economic problem. [2] (b) alculate how many children were born in Turkey in [2] (c) Using information from the extract, explain two reasons why the earnings of workers in Nigeria are likely to increase. [4] (d) Explain whether the extract suggests that Mexico operates a market economic system or a mixed economic system. [3] (e) nalyse how the change in Indonesia s exchange rate in 2014 is likely to have affected the country s import expenditure. [4] (f) iscuss whether the Human evelopment Index is a good measure of living standards. [5] (g) Using information from the extract, explain two functions of a trade union. [4] (h) iscuss whether countries with high population growth have high economic growth. [6] ULES /22/O/N/16

35 3 Section nswer any three questions from this section. 2 There are a number of competing producers of jeans. These firms are now also facing competition from new sportswear designed to also be worn as leisurewear. This increased competition has made demand for jeans more price-elastic. For instance, a government report has estimated that the price elasticity of demand for one of the oldest firm s jeans in sia is 2.5. (a) What is meant by a price elasticity of demand of 2.5? [2] (b) Explain the importance of price elasticity of demand for a government. [4] (c) Using a demand and supply diagram, analyse the effect of a rise in the price of Firm X s jeans on the market for Firm Y s jeans. [6] (d) iscuss whether long-established and well-known firms are likely to be more successful than firms that are new to an industry. [8] 3 In recent years productivity growth has been low in razil, which has kept average costs relatively high. Some economists claim this low growth in productivity is due to protectionism. The razilian Government imposes high tariffs on a range of imports, including smartphones; it argues that such protectionism saves razilian jobs. (a) efine productivity. [2] (b) Explain the difference between average fixed cost and average variable cost. [4] (c) nalyse the advantages that a country may gain from specialising in a product such as smartphones. [6] (d) iscuss whether protectionism saves jobs. [8] 4 Household debt in South Korea in 2014 was reaching record levels. People were borrowing more and saving less: the savings ratio fell from 19% in 1985 to 4% in espite the low rate of saving, there was little demand-pull or cost-push inflation. Indeed, in 2014 the country came close to experiencing deflation. (a) efine deflation. [2] (b) Explain the difference between demand-pull inflation and cost-push inflation. [4] (c) nalyse how a central bank might reduce household borrowing. [6] (d) iscuss whether a government should encourage an increase in saving. [8] ULES /22/O/N/16 [Turn over

36 4 5 The unemployment rate in Wales fell from 8.2% in March 2013 to 6.8% in March One in four workers in Wales is employed in the public sector. high proportion of workers are employed in multinational companies, including a Japanese car producer and a South Korean electronics firm. (a) efine unemployment. [2] (b) Explain two benefits that a firm may gain from producing in another country. [4] (c) Using a production possibility curve diagram, analyse the effect of a decrease in unemployment on an economy s output. [6] (d) iscuss whether it is better to work in the public sector or the private sector. [8] 6 The largest Indonesian aviation firm is a public corporation that started production in It employs a relatively high value of capital goods and has a monopoly of aircraft construction in Indonesia. It has been making parts for foreign firms for some time but is now trying to sell aircraft to other countries. This involves it competing in a market where most of the firms are public limited companies. (a) Identify who owns a public corporation and who owns a public limited company. [2] (b) Explain why fixed costs are high in the aircraft-making industry. [4] (c) nalyse what determines a firm s demand for capital goods. [6] (d) iscuss whether the quality of products is likely to be higher in a monopoly or in a perfectly competitive market. [8] 7 Tax revenue from both direct and indirect taxes in Germany rose to US$860 billion in The increase was largely due to a fall in unemployment. Germany has a progressive tax system. In 2014, German politicians discussed whether the tax rates should be increased. hanges in tax rates influence the amount of tax revenue received and the nature of the tax system. (a) efine a progressive tax. [2] (b) Explain the difference between direct and indirect taxes. [4] (c) nalyse how a fall in unemployment can increase tax revenue. [6] (d) iscuss whether a government should increase tax rates. [8] Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (ULES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the ambridge International Examinations opyright cknowledgements ooklet. This is produced for each series of examinations and is freely available to download at after the live examination series. ambridge International Examinations is part of the ambridge ssessment Group. ambridge ssessment is the brand name of University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. ULES /22/O/N/16

37 ambridge International Examinations ambridge International General ertificate of Secondary Education * * EONOMIS 0455/23 Paper 2 Structured Questions October/November 2016 No additional materials are required. RE THESE INSTRUTIONS FIRST 2 hours 15 minutes n answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Section nswer Question 1. Section nswer any three questions. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 4 printed pages and 1 insert. (ST) /2 ULES 2016 [Turn over

38 2 Section nswer this question. 1 Fishing in Mauritania Much of Mauritania s land is desert and regular droughts put pressure on the country s supply of food. The frican country does, however, have the advantage of coastal waters which are among the world s most plentiful ocean fishing grounds. pproximately 95% of the fish caught by Mauritania s small fishing vessels are exported. Earnings from the sale of fish abroad contribute to the current account of the country s balance of payments. In 2013 the country had a trade in goods surplus and a current transfers surplus. There is little processing of the fish into higher value products in Mauritania, except at a small number of factories at Nouakchott, the country s capital. This failure to process the fish is having an impact on the country s earnings from the fish it catches and on its economic growth. The country s total output did actually increase from US$8 billion in 2012 to US$8.5 billion in That year also saw a change in the country s population. The birth rate was 31.83, the death rate was 8.35 and the migration rate was 0.85 per thousand of the population. Some economists in Mauritania criticise their government for allowing other countries, including lgeria, Morocco, Japan and Russia, to catch large quantities of fish in Mauritania s waters. They have recently objected to the government signing an agreement with the European Union (EU) that allows more than one hundred large EU vessels to fish in Mauritania s waters in return for a payment of US$105 million per year. These EU vessels, with their highly skilled workers, are catching large volumes of fish, including highly valued squid, and are thought to be threatening the sustainability of Mauritania s fishing industry. Mauritanian economists are predicting that fish stocks could decline significantly in the next twenty years. The country s economy is currently heavily dependent on the primary sector. Improvements in the productivity of both its fishing and agricultural industries would help to reduce both the unemployment and poverty in the country. (a) escribe the opportunity cost of Mauritania exporting fish. [2] (b) alculate Mauritania s economic growth rate in [3] (c) Using information from the extract, draw a demand and supply diagram to show the effects of the predicted change in fish stocks on the market for fish. [4] (d) State the two parts of a country s current account balance not identified in the extract. [2] (e) nalyse two reasons why the average cost of the EU fishing industry is lower than the Mauritanian fishing industry. [4] (f) iscuss whether a decrease in unemployment will always reduce poverty. [5] (g) Using information from the extract, explain whether the population of Mauritania increased or decreased in [4] (h) iscuss whether an economy should or should not conserve its fish stocks. [6] ULES /23/O/N/16

39 3 Section nswer any three questions from this section. 2 In March 2014, teachers in rgentina went on strike after their unions failed to reach an agreement about wage rates. The government offered a 25% pay rise but the unions were demanding a pay rise above the country s 32% inflation rate. The government claimed that large pay rises would cause unemployment. It also stated that the economy s prospects would soon improve as a result of its devaluation of the country s exchange rate at the start of the year. (a) efine a trade union. [2] (b) Explain two influences on the strength of a trade union. [4] (c) nalyse how wage rises may cause unemployment. [6] (d) iscuss whether a government should devalue the country s exchange rate. [8] 3 In 2014 the US s second-largest cigarette maker, made a bid to take over the country s thirdlargest cigarette maker. It was expected that if the merger went ahead, the price of cigarettes would increase. The effect of a rise in price on quantity demanded would be determined by the price elasticity of demand. (a) Identify two external costs of smoking. [2] (b) Explain how perfectly inelastic demand differs from inelastic demand. [4] (c) nalyse two ways, apart from imposing an indirect tax, in which a government could discourage smoking. [6] (d) iscuss whether a merger between two large firms in the same industry will increase the price of the product. [8] 4 Peru has been moving from a mixed economic system closer to a market economic system in recent years. One feature of this has been an increase in the number of small firms being set up. Some small firms short-term goal is profit maximisation whilst others aim for growth. In the long term these two goals may both be achieved. Some small firms develop into large firms listed on their country s stock exchange. (a) efine a mixed economy. [2] (b) Explain why the growth of a firm may lead to profit maximisation in the long term. [4] (c) nalyse how a country s stock exchange can benefit its economy. [6] (d) iscuss the advantages and disadvantages of small firms. [8] ULES /23/O/N/16 [Turn over

40 4 5 The 48 countries with the lowest Human evelopment Index (HI) values have 28 million citizens working abroad. These workers save some of their earnings to send home to their relatives. Research shows that most transferred money is spent on food and housing by their families, raising their standard of living. These remittances in 2013 were double the value of foreign direct investment received by these countries. (a) How does the amount and the proportion of income spent on food change as people get richer? [2] (b) Explain the difference between saving and borrowing. [4] (c) nalyse three ways in which a country s HI value could increase. [6] (d) iscuss whether a government should encourage some of the country s people to work abroad. [8] 6 Microfinance involves giving small loans at a low rate of interest to poor people. Such people normally cannot get loans from commercial banks. Microfinance is designed to promote development and started in angladesh. study by the World ank in 2014 found that microfinance increases consumer expenditure, the value of household assets, the size of the labour force and spending on children s education. (a) efine the rate of interest. [2] (b) Explain two reasons why the poor may find it difficult to get loans from commercial banks. [4] (c) nalyse how an increase in spending on education could increase inflation in the short run but decrease it in the long run. [6] (d) iscuss whether an increase in consumer expenditure would be beneficial for an economy. [8] 7 Mozambique is a developing economy with a relatively high economic growth rate. In recent years there has been a depreciation in the value of its currency, the metical, against the US dollar. This has had an influence on the country s unemployment rate. Some economists in Mozambique have called for an increase in tariffs on imports to reduce unemployment. (a) efine a depreciation in the value of a currency. [2] (b) Explain two causes of a high economic growth rate. [4] (c) nalyse how the pattern of employment within a country tends to change as the economy develops. [6] (d) iscuss whether an increase in tariffs on imports would reduce unemployment. [8] Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (ULES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the ambridge International Examinations opyright cknowledgements ooklet. This is produced for each series of examinations and is freely available to download at after the live examination series. ambridge International Examinations is part of the ambridge ssessment Group. ambridge ssessment is the brand name of University of ambridge Local Examinations Syndicate (ULES), which is itself a department of the University of ambridge. ULES /23/O/N/16