OLevel Eco P1 & P2 2015-2016

PAGE 1
Cambridge International Examinations

Cambridge Ordinary Level
ECONOMICS 2281/11
Paper 1 Multiple Choice May/June 2015
45 minutes
Additional Materials: Multiple Choice Answer Sheet
Soft clean eraser
*3771473007*
Soft pencil (type B or HB is recommended)
READ THESE INSTRUCTIONS FIRST
Write in soft pencil.

Do not use staples, paper clips, glue or correction fluid.
Write your name, Centre number and candidate number on the Answer Sheet in the spaces provided
unless this has been done for you.
DO NOT WRITE IN ANY BARCODES.
There are thirty questions on this paper. Answer all questions. For each question there are four possible
answers A, B, C and D.
Choose the one you consider correct and record your choice in soft pencil on the separate Answer Sheet.
Read the instructions on the Answer Sheet very carefully.
Each correct answer will score one mark. A mark will not be deducted for a wrong answer.
Any rough working should be done in this booklet.
This document consists of 11 printed pages and 1 blank page.
IB15 06_2281_11/FP
© UCLES 2015 [Turn over
PAGE 2
1 The following are four ways factors of production are used.
What is likely to require the greatest use of the factor enterprise?
A a carpenter making wooden articles in his leisure time for sale at a monthly market
B a corn farmer negotiating with other farmers to hire expensive machinery
C a food shop owner sometimes selling flowers in the shop
D a householder harvesting vegetables grown at home
2 To help reduce the price of oil, new supplies are needed. However, in 2013, objectors opposed
attempts to explore new sites because of the environmental damage the exploration might cause.
How does this illustrate the basic economic problem?
A Oil is a limited resource.

B Oil is expensive.
C The exploration involves demand and supply.
D There are external costs involved in production.
3 With a given level of resources, an economy that can produce food or computers is at point Q on
its production possibility curve. Population growth means more resources need to be allocated to
food production.
At which point in the short term will the economy be in the diagram?
A Q
output
D
of food C
O output of computers
© UCLES 2015 2281/11/M/J/15

PAGE 3
4 A person makes sandwiches at home for five hours each day. She makes 20 sandwiches per
hour, and she sells each sandwich for $2 each.
What is the opportunity cost if she takes a holiday on a working day?
A $2
B $40
C 20 sandwiches
D 100 sandwiches
5 What can be found in a mixed economy but not in a market economy?
A a national economic development plan

B an unequal distribution of income and wealth
C the operation of the price mechanism
D the private ownership of factors of production
6 Newspapers recently reported there had been a decrease in the demand for beef and that its
price per kilogram had increased.
From the initial equilibrium point X, which point in the diagram illustrates the new market
equilibrium?
S2
B
A S1
price S3
X
C
D
D2 D1 D3
O
quantity
© UCLES 2015 2281/11/M/J/15 [Turn over

PAGE 4
7 The diagram shows the market for fresh fish in the Caribbean with equilibrium point X.
A new type of fishing boat increases production, which reduces costs.
Which point represents the new equilibrium?
S3
S1
S2
B
A
price X C
D D2
D1
O quantity
8 A large supermarket applied to build on land which was in an area of natural beauty. The local
government allowed the building, even though the natural beauty of the area would be lost,
because many jobs would be created and much needed income would be brought to the local
community.
Which economic ideas cannot be found in the above statement?
A external cost and private enterprise

B free market and the conservation of resources
C opportunity cost and improved standards of living
D public sector and external benefit
9 Cigarettes have been used as money in exceptional circumstances.
What is the most likely reason that they are not acceptable as money in normal circumstances?
A cigarettes lack durability

B cigarettes lack intrinsic value
C cigarettes lack portability
D cigarettes lack uniformity
© UCLES 2015 2281/11/M/J/15

PAGE 5
10 The table shows a country’s trade union membership in millions between 2008 and 2011.
trade union trade union

members in the members in the
year
private sector public sector
(millions) (millions)
2008 8.4 3.6

2009 6.6 4.2
2010 5.1 6.0
2011 3.4 7.1
What can be concluded about the country’s trade union membership in the period 2008 to 2011?
A Trade unions had least members in 2010.

B Trade unions had most members in 2011.
C Trade union membership fell between 2008 and 2009.
D Trade union membership rose between 2009 and 2011.
11 A bus driver works longer hours if the wage rate increases. As his earnings increase there
reaches a point when he prefers more leisure to work.
Which supply curve, S, represents this situation?
A B C D
S S
wage S wage wage wage

S
rate rate rate rate
O worker O worker O worker O worker

hours hours hours hours
12 In 2013, a German company that manufactured medicines bought a UK company that ran a chain
of pharmacies that sold medicines.
What term best describes this takeover?
A conglomerate
B horizontal
C vertical integration backwards
D vertical integration forwards

PAGE 6
13 When is a firm considered more capital-intensive than another firm?
A when it has a lower ratio of workers to machines than the other firm
B when it has fewer workers than the other firm
C when it has higher variable costs than the other firm
D when it has more machines than the other firm
14 In 2009, Gulf Airlines, which was making a loss, stated it would reduce the number of new aircraft
on order.
If it did this, which of its costs would be directly affected?
A fixed costs
B marginal costs
C opportunity costs
D variable costs
15 The diagram shows the costs of a firm.
60
50
40
cost
($ 000s) 30
20
10
0
100
output
What is the firm's total variable cost at an output of 100 units?
A $100 B $500 C $10 000 D $50 000
© UCLES 2015 2281/11/M/J/15

PAGE 7
16 A government lowers the rate of interest.
Who is most likely to be disadvantaged by this policy?
A house buyers
B manufacturers
C retailers
D savers
17 Which is a supply-side policy that would increase output in the long-run?
A an increase in benefit payments

B an increase in places at training colleges
C an increase in the rate of income tax
D an increase in the rate of tax employers pay
18 Russia exports wheat. In 2010, a bad harvest led the Russian government to prevent the export
of wheat, to ensure enough supplies were kept for domestic use.
What was the most likely outcome of the government’s action?
A prices were fixed by the wheat producers

B the amount produced was determined by the government
C the price of wheat abroad fell
D there was a redistribution of domestic production
19 The government reduces the rate of income tax and increases the rate of tax on producers.
From the initial equilibrium point X, which letter indicates the new equilibrium point in the market?
S2
B
A S1
price S3
X
C
D
D2 D1 D3
O
quantity

PAGE 8
20 What is most likely to cause economic growth?
A a better educated workforce

B a reduction in the right to own property
C decreased wages
D higher taxation
21 A worker earns $250 each week, which leaves a disposable income of $175.
What will affect the real value of the worker’s $250 earned income?
A a change in government spending

B a change in interest rates
C a change in the price level
D a change in the tax rate
22 The table shows the unemployment rate in three developed economies in June 2013.
United States 7.6

Sweden 8.2
France 10.9
What is the main cause of high rates of unemployment in developed economies in periods of
recession?
A decreases in total demand

B movement of labour between countries
C reduced levels of technological change
D regional inequalities of wealth
© UCLES 2015 2281/11/M/J/15

PAGE 9
23 From 2012 to 2013, European economies experienced weak economic growth.
Based on the information on GDP, industrial production and unemployment in the table, which
economy performed worst?
Percentage change 2012-2013

industrial
GDP unemployment
production
A UK +1.0 –2.3 –0.1

B Germany +0.3 –1.1 0.0
C Italy –1.8 –4.2 +1.5
D Spain –1.7 –1.3 +1.3
24 What is not a reason why the average size of families is likely to be greater in developing
countries than in developed countries?
A Children offer the prospect of security in old age.

B Government child care support is widely available.
C Means of birth control are less available and more expensive.
D Women are less likely to be part of the workforce.
25 The table shows the proportion of GDP produced by each sector of production in three fictitious
countries.
Farland Highland Lowland

(% of GDP) (% of GDP) (% of GDP)
primary sector 30 10 35
secondary sector 20 60 25
tertiary sector 50 30 40
What can be concluded from the table?
A Farland is the least developed economy.

B Highland is the most developed economy.
C It is uncertain which is the most developed economy.
D Lowland is the least developed economy.

PAGE 10
10
26 In rural areas in developing countries, farmers grow food for their own consumption.
Why might this mean that the GDP is a weak measure of the standard of living in those
countries?
A The food grown is not exported.

B The GDP does not include agricultural production.
C The GDP only refers to the public sector.
D The value of the food is unknown.
27 The charts show the population structure of a country in 1960 and 2010.
age age
85+ 85+
80-84 80-84
75-79 75-79
male 70-74 female male 70-74 female
65-69 65-69
60-64 60-64
55-59 55-59
50-54 50-54
45-49 45-49
40-44 40-44
35-39 35-39
30-34 30-34
25-29 25-29
20-24 20-24
15-19 15-19
10-14 10-14
5-9 5-9
0-4 0-4
3 2 1 0 0 1 2 3 3 2 1 0 0 1 2 3
millions millions
1960 2010
During this period, how did birth and death rates change?
birth rates death rates
A fell fell
B fell no change
C rose fell
D rose no change
© UCLES 2015 2281/11/M/J/15

PAGE 11
11
28 What is an advantage of international specialisation?
A choice is limited
B countries become overdependent on each other
C resources are used more efficiently
D transport costs are decreased
29 Skin creams preventing sunburn made in the European Union (EU) are more effective than those
made in the United States (US). US tourists stock up on the creams when visiting Europe. Such
creams are banned from production in the US because of the chemicals in them. In 2013,
negotiations began to remove this ban in order to allow production in the US.
How is this freer trade likely to affect manufacturers of skin creams in the US and the EU?
manufacturers manufacturers
in the US in the EU
A gain gain
B gain lose
C lose gain
D lose lose
30 The table shows the trade in goods balance and the current account balance of the balance of
payments for four countries during a year.
Which country had the largest surplus on its trade in services, assuming no other transfers or
income flows?
trade in goods current account

country balance balance
($ billion) ($ billion)
A Hong Kong 6.2 6.2

B Indonesia 4.4 4.3
C Mexico 7.8 7.6
D Singapore 5.3 5.4
© UCLES 2015 2281/11/M/J/15

PAGE 12
CAMBRIDGE INTERNATIONAL EXAMINATIONS

MARK SCHEME for the May/June 2015 series
0654 CO-ORDINATED SCIENCES

0654/11 Paper 1 (Multiple Choice), maximum raw mark 30
Mark schemes should be read in conjunction with the question paper and the Principal Examiner
Report for Teachers.
Cambridge will not enter into discussions about these mark schemes.
Cambridge is publishing the mark schemes for the May/June 2015 series for most
Cambridge IGCSE®, Cambridge International A and AS Level components and some
Cambridge O Level components.
® IGCSE is the registered trademark of Cambridge International Examinations.

PAGE 13
Page 2 Mark Scheme Syllabus Paper

Cambridge O LEVEL – May/June 2015 2281 11
Question Question
Key Key
Number Number
1 B 16 D
2 A 17 B
3 B 18 D
4 D 19 B
5 A 20 A
6 A 21 C
7 D 22 A
8 B 23 C
9 A 24 B
10 C 25 C
11 C 26 D
12 D 27 A
13 A 28 C
14 A 29 B
15 D 30 D
© Cambridge International Examinations 2015

PAGE 14

ECONOMICS 2281/12
45 minutes
Soft clean eraser
*8431840839*

This document consists of 10 printed pages and 2 blank pages.
IB15 06_2281_12/FP
PAGE 15
1 What is the basic economic problem?
A finite resources and limited wants

B finite resources and unlimited wants
C infinite resources and limited wants
D infinite resources and unlimited wants
2 New oil reserves are discovered.
What has increased in supply?
A capital
B enterprise
C labour
D land
3 The diagram shows production possibility curves (PPC) for a country that can produce
agricultural products or manufactured products.
Its current PPC passes through points Q and S but the country is currently experiencing
unemployment.
Q R
agricultural
products
P S
O
manufactured products
If there is now full employment at the same time as new agricultural techniques enable an
increase in productivity, what would be the movement on the PPC diagram?
A P to R B P to S C Q to R D S to Q
© UCLES 2015 2281/12/M/J/15

PAGE 16
4 A person makes sandwiches at home for five hours each day. She makes 20 sandwiches per
hour, and she sells each sandwich for $2 each.
What is the opportunity cost if she takes a holiday on a working day?
A $2
B $40
C 20 sandwiches
D 100 sandwiches
5 What would not be an example of the working of a market system?
A a high price charged because of costly research to produce the good

B a high price charged for a well-known painting
C a low price charged because of economies of scale
D a low price charged for subsidised bus travel
6 A product has a price elasticity of supply of +2. A change in price causes the quantity supplied to
change from 100 units to 120 units.
What is the price change?
A a fall of 10%
B a fall of 40%
C a rise of 10%
D a rise of 40%

PAGE 17
7 The diagram shows the market for fresh fish in the Caribbean with equilibrium point X.
A new type of fishing boat increases production, which reduces costs.
Which point represents the new equilibrium?
S3
S1
S2
B
A
price X C
D D2
D1
O quantity
8 A large supermarket applied to build on land which was in an area of natural beauty. The local
government allowed the building, even though the natural beauty of the area would be lost,
because many jobs would be created and much needed income would be brought to the local
community.
Which economic ideas cannot be found in the above statement?
A external cost and private enterprise

B free market and the conservation of resources
C opportunity cost and improved standards of living
D public sector and external benefit
9 A businesswoman seeks a 10-year loan from a bank. She has listed her four most valuable
possessions which could be offered to the bank in order to obtain the loan.
Which item would the bank be least likely to accept as security for the loan?
A a collection of gold coins, jewellery and antiques

B a house in a desirable part of town
C a part ownership in a race horse
D a portfolio of government bonds
© UCLES 2015 2281/12/M/J/15

PAGE 18
10 A trade union and employers agree a minimum wage (W1) which is above the market equilibrium
wage (W) for that industry.
supply of labour
W1
W
wage
demand for labour

O Q
labour employed
What is the effect of paying the minimum wage (W1)?
A demand for workers will exceed the supply

B fewer workers will be employed
C some workers will continue to be paid at wage W
D workers will be less willing to work for the minimum wage
11 In choosing their occupation, people often take into account aspects of the job other than pay.
Which would not be a good match for the aspects of employment a worker is looking for?
desired aspect occupation
A a wish for an outdoor lifestyle army officer

and to develop teamwork
B a wish for foreign travel airline pilot
and to have responsibility
C a wish for public respect and heart surgeon
to undertake precise work
D a wish to work with the general marine biologist
public and investigate nature
12 What may exist in monopoly but not in perfect competition?
A barriers to entry
B identical products
C market price
D perfect knowledge

PAGE 19
13 What is not a reason for the decline in manufacturing industries in developed economies in
recent years?
A growth of newly industrialised competitor countries

B invention of automated production methods
C rising costs of factor inputs in the steel industry
D considerable skill shortages as school-leavers prefer to work in the service sector
14 In 2013, Barclays Bank had two branches in a city. It decided to close them both, move to a
different building and employ fewer hourly-paid staff.
What is likely to have happened to the bank’s fixed and variable costs?
fixed cost variable cost
A fall fall
B fall rise
C rise fall
D rise rise
15 The diagram shows the costs of a firm.
60
50
40
cost
($ 000s) 30
20
10
0
100
output
What is the firm's total variable cost at an output of 100 units?
A $100 B $500 C $10 000 D $50 000
© UCLES 2015 2281/12/M/J/15

PAGE 20
16 What is most likely to cause a fall in the rate of inflation?
A an increase in consumer spending

B an increase in import prices
C an increase in income tax
D an increase in wage rates
17 In recent years, governments have had to manage the effects of a world recession.
Which supply-side policy could have been used to stimulate economic growth?
A increases in income tax

B investment in skills training schemes
C payments of unemployment benefits
D reduction in interest rates
18 Russia exports wheat. In 2010, a bad harvest led the Russian government to prevent the export
of wheat, to ensure enough supplies were kept for domestic use.
What was the most likely outcome of the government’s action?
A prices were fixed by the wheat producers

B the amount produced was determined by the government
C the price of wheat abroad fell
D there was a redistribution of domestic production
19 A government increases expenditure on infrastructure to stimulate an economy.
With which of the other government aims for an economy might this conflict?
A a decrease in income inequality

B a higher rate of economic growth
C a lower level of unemployment
D a steady price level
20 Who is most likely to benefit during a period of inflation?
A creditors (lenders)
B debtors (borrowers)
C fixed income earners
D holders of cash

PAGE 21
21 The Human Development Index (HDI) measures more than just average incomes.
What are two additional measures it includes?
A life expectancy years of schooling

B percentage unemployed number of hospitals
C poverty rate years of schooling
D years of schooling access to clean water
22 The table shows some economic indicators for four countries.
country inflation unemployment GDP growth
P 3.0% 11.3% 3.5%

Q 4.2% 7.6% 1.0%
R 1.3% 12.2% 3.0%
S 3.5% 10.1% 2.3%
What can be concluded from the table?
A high GDP growth occurred with low unemployment

B high inflation occurred with high GDP growth
C low GDP growth occurred with low inflation
D low inflation occurred with high unemployment
23 When would an increase in aggregate demand be least likely to result in inflation in an economy?
A when it is the result of an increase in government expenditure

B when it is the result of an increase in expenditure on consumer goods
C when there are substantial unemployed resources in the economy
D when there is a substantial increase in expenditure on imports
24 In 2013, subsistence farming, which involved a large percentage of the population, was a
significant activity in the Philippines and Indonesia.
What can be concluded about the Philippines and Indonesia from this information?
A a good use was being made of natural resources

B production was likely to involve skilled labour
C the GDP in these countries was likely to be underestimated
D there was no need to import food because the population was self-sufficient
© UCLES 2015 2281/12/M/J/15

PAGE 22
25 Which feature is not a typical characteristic of a developed country?
A a high death rate

B a high literacy rate
C a large elderly population
D a low number of doctors per head
26 The charts show the population structure of a country in 1960 and 2010.
age age
85+ 85+
80-84 80-84
75-79 75-79
male 70-74 female male 70-74 female
65-69 65-69
60-64 60-64
55-59 55-59
50-54 50-54
45-49 45-49
40-44 40-44
35-39 35-39
30-34 30-34
25-29 25-29
20-24 20-24
15-19 15-19
10-14 10-14
5-9 5-9
0-4 0-4
3 2 1 0 0 1 2 3 3 2 1 0 0 1 2 3
millions millions
1960 2010
During this period, how did birth and death rates change?
birth rates death rates
A fell fell
B fell no change
C rose fell
D rose no change

PAGE 23
10
27 Which combination of changes is most likely to result in a fall in living standards in a country?
GDP inflation population
A fall fall rise

B fall rise rise
C rise fall fall
D rise rise fall
28 What is an advantage of international specialisation?
A choice is limited
B countries become overdependent on each other
C resources are used more efficiently
D transport costs are decreased
29 The table shows information on the trading position of four major economies in 2013.
Which country had the strongest trading position?
current account
currency unit
country balance % of GDP
per US $
(US $ billion)
A China +211.7 +1.9 6.12

B Germany +246.0 +6.4 0.75
C Japan +54.1 +1.0 79.4
D UK –96.7 –2.8 0.64
30 The table shows the trade in goods balance and the current account balance of the balance of
payments for four countries during a year.
Which country had the largest surplus on its trade in services, assuming no other transfers or
income flows?
trade in goods current account

country balance balance
($ billion) ($ billion)
A Hong Kong 6.2 6.2

B Indonesia 4.4 4.3
C Mexico 7.8 7.6
D Singapore 5.3 5.4
© UCLES 2015 2281/12/M/J/15

PAGE 24

2281 ECONOMICS

PAGE 25

Cambridge O LEVEL – May/June 2015 2281 12
Question Question
Key Key
Number Number
1 B 16 C
2 D 17 B
3 A 18 D
4 D 19 D
5 D 20 B
6 C 21 A
7 D 22 D
8 B 23 C
9 C 24 C
10 B 25 A
11 D 26 A
12 A 27 B
13 B 28 C
14 A 29 B
15 D 30 D

PAGE 26

ECONOMICS 2281/12
Paper 1 Multiple Choice October/November 2015
45 minutes
Soft clean eraser
*8617713263*

IB15 11_2281_12/FP
PAGE 27
1 In a rural community of Southern Africa, women were responsible for planting and weeding crops
by hand, while men used to control production and receive profits.
Which combination of factors of production was in operation?
men women
A capital land
B enterprise labour
C labour capital
D land enterprise
2 The government of a prosperous country announced that it would offer free food to its citizens for
a year.
What would be the effect of this measure?
A Agricultural resources would become unlimited.

B Human wants would become finite.
C More resources would be devoted to food production.
D The basic economic problem would be solved.
3 The diagram shows a production possibility curve for an economy that can produce rice or
electronic equipment. The economy is at point Q. A recession causes unemployment in the
electronics industries.
At which point will the economy be in the diagram?
C
B
Q
A D
rice
O
electronic
equipment
© UCLES 2015 2281/12/O/N/15

PAGE 28
4 A person works at home making table cloths. He works for 6 hours each day and makes 15 table
cloths an hour. He sells them for $10 each.
He then decides to work for only 4 hours each day.
What can be concluded from the above information?
A The lost profit would be $300.

B The lost revenue would be $60.
C The daily opportunity cost would be 30 table cloths.
D The daily opportunity cost would be $50.
5 What is meant by an equilibrium price?
A a government price that ensures fairness for all

B a price that has no pressure to rise or fall
C a price that maximises the profits of the producers
D a price that maximises the satisfaction of the consumers
6 In August 2013, a lengthy strike in north-east India, where the finest and most expensive
Darjeeling tea is grown, shut down the tea industry at harvest time.
What is the likely outcome of such a situation on a demand and supply diagram for Darjeeling
tea?
A The price will rise because demand will switch to other teas.
B The price will rise because the strike will cause a movement down the supply curve.
C The price will rise because the supply curve will move to the left.
D The price will rise because there will be a fall in demand for the remaining Darjeeling tea.
© UCLES 2015 2281/12/O/N/15 [Turn over

PAGE 29
7 Air travel and rail travel are substitute forms of transport. The diagram shows the effect of new
technology on the market for air travel.
S1
S2
price per P1
ticket
P2
D
O Q1 Q2
quantity of airline tickets
What would be the most likely effect on the market for rail transport?
A a decrease in demand for rail transport

B an increase in the price of rail tickets
C an increase in supply of rail transport
D an increase in the total income of rail companies
8 A developer built some large houses in a rural area which poorer people could not afford. The
houses destroyed an area of natural beauty.
What type of market failure resulted from the development?
A ignoring external cost

B inequality of income
C lack of information
D price discrimination
9 How do high direct taxes affect spending and how do high interest rates affect saving by wage-
earners?
spending saving
A decrease decrease
B decrease increase
C increase decrease
D increase increase
© UCLES 2015 2281/12/O/N/15

PAGE 30
10 A national trade union wishes to increase the wages of its members without reducing the
numbers employed.
Which factor would help the union to do this?
A The demand for the industry’s product is high.

B The industry consists of a small number of well-organised employers.
C The union workers have low-level skills.
D The workers’ wages are the largest cost of the industry.
11 The wage rate of a worker is reduced.
Which combination of characteristics of the job is most likely to cause the worker to stay in the
job?
additional unsocial
job security
bonuses hours
A high high many

B high high none
C low low many
D low low none
12 What characteristics are found in a monopoly?
A freedom of entry to the market and a single seller

B freedom of entry to the market and many sellers
C many buyers and a single seller
D many buyers and many sellers
13 What must be falling if a firm is experiencing economies of scale?
A average costs
B external costs
C fixed costs
D total costs

PAGE 31
14 A company supplying water spent $470 million creating a network of pipes to distribute water
more efficiently. It employed local workers and boosted the local economy. It also provided better
facilities for the tourist industry.
What cannot be concluded from the above?
A The company increased its profits.

B There was a decrease in regional unemployment.
C There were fixed costs of $470 million.
D There were positive externalities.
15 The table shows the information that managers of a company have from a week of business
activity.
number of employees 100

average wage $900
value of output $100 000
rent $10 000
raw materials $20 000
Assuming there are no other costs, what is the value of the fixed costs?
A $300 B $10 000 C $20 000 D $30 000
16 What is most likely to be the responsibility of a government?
A the building of a food processing plant

B the building of a housing estate
C the building of a large shopping centre
D the building of a major rail link
17 Which statement about the meaning of government economic aims is correct?
A Economic growth means that a country’s real output must rise over time.
B Full employment means that no one must be unemployed.
C Price stability means that the price of all goods and services must remain unchanged.
D Redistribution of income means that everyone must have equal incomes.
© UCLES 2015 2281/12/O/N/15

PAGE 32
18 A government wishes to close the gap between the earnings of the rich and the poor.
What should it do to achieve this aim?
A increase progressive taxation

B increase the rate of interest
C increase the rate of sales tax
D increase the supply of money
19 A government decided to increase its spending on building schools and hospitals.
Which aim of government policy is most likely to be achieved by this increase?
A a balance of payments surplus

B a stronger exchange rate
C economic growth
D price stability
20 The forecast for Germany’s GDP growth in 2013 was 1.5%.
What might cause economic growth?
A an increase in imports
B an increase in interest rates
C an increase in productivity
D an increase in unemployment
21 The proportion of workers employed varies between different industries and between developing
and developed economies.
Which combination in the table is likely to have the highest percentage of workers employed?
developing developed
A agriculture manufacturing
B agriculture services
C construction manufacturing
D construction services

PAGE 33
22 In 2009, a country had an inflation rate of 2%. The table shows the inflation rate in the following
years.
inflation rate
year
(%)
2010 2
2011 1
2012 0
2013 –1
In which year did deflation start?
A 2010 B 2011 C 2012 D 2013
23 Which item does the Human Development Index (HDI) of a country include, in addition to real
GDP per head and life expectancy at birth?
A expenditure on law and order

B literacy rate among adults
C number of doctors
D retirement age
24 Why might real GDP per head not be a good indicator of the standard of living in developing
countries?
A It does not account for inflation.

B It does not account for population changes.
C It does not include primary production.
D It does not include unpaid work on farms.
25 The richest 60% of the population in a developed economy received an increase in income.
Which row is correct as a result of this increase?
absolute poverty relative poverty
A increased increased
B increased remained constant
C remained constant increased
D remained constant remained constant
© UCLES 2015 2281/12/O/N/15

PAGE 34
26 According to the United Nations, the share of world population living in developing countries will
increase from 83% in 2003 to 88% in 2050.
What is likely to be the major cause of this predicted change?
A Climate change will lead to lower food output and starvation.

B Improved education for girls will lead to a small decline in birth rates.
C Increasing numbers of people will migrate to developed countries.
D Modern medicine and sanitation will lead to a rapid decline in death rates.
27 The diagram shows China’s trade with Brazil for 1999 and 2003 in billions of dollars.
0 1 2 3 4 5
Exports 1999
2003
Imports
With reference to the diagram, what happened to China’s trade balance with Brazil between 1999
and 2003?
A It experienced a falling surplus.

B It experienced a rising deficit.
C It moved from deficit to surplus.
D It moved from surplus to deficit.
28 A country imposes tariffs and quotas on imported goods.
What will citizens of that country experience?
A higher prices
B higher welfare
C higher unemployment
D wider consumer choice
29 What is most likely to encourage international specialisation?
A similarities in climate in different countries

B the ability to produce products more cheaply than other countries
C the discovery of oil in a country that had no oil before
D very high international transport costs

PAGE 35
10
30 Turkey’s agricultural sector employs 48% of the country’s workforce, compared with 17% in the
United States (US) and 3.9% in France.
What could be concluded from this?
A France is likely to import more agricultural produce than the US.

B The workers in France are not as productive as those in Turkey.
C Total agricultural production is likely to be higher in Turkey than in the US.
D Turkey is likely to be less developed than France.
© UCLES 2015 2281/12/O/N/15

PAGE 36

MARK SCHEME for the October/November 2015 series
2281 ECONOMICS
Cambridge is publishing the mark schemes for the October/November 2015 series for most

PAGE 37

Cambridge O Level – October/November 2015 2281 12
Question Question
Key Key
Number Number
1 B 16 D
2 C 17 A
3 A 18 A
4 C 19 C
5 B 20 C
6 C 21 B
7 A 22 D
8 A 23 B
9 B 24 D
10 A 25 C
11 B 26 D
12 C 27 D
13 A 28 A
14 A 29 B
15 B 30 D

PAGE 38

ECONOMICS 2281/13
45 minutes
Soft clean eraser
*2371617459*

IB15 11_2281_13/FP
PAGE 39
1 Governments often try to influence the supply of factors of production in their economies.
Which factor’s supply is a government least likely to be able to increase?
A capital
B enterprise
C labour
D land
2 There has been increased concern about the way large firms exploit the environment.
What is the main reason for this concern?
A Large firms are unprofitable because of diseconomies of scale.

B Large firms combine together to fix prices.
C The exploitation of resources is expensive.
D Unlimited wants will use up the finite resources.
3 The diagram shows a production possibility curve for an economy that can produce agricultural
products or financial services. It is currently at point Q.
A crop disease decreases agricultural production but the financial services sector increases
output as a result of an increase in demand.
To which point is the economy likely to move?
A
Q
agricultural B
products
C D
O
financial
services
4 A person works at home making small cakes. She can make 30 cakes an hour and works for four
hours a day. The total cost of the ingredients is $50 and she sells the cakes for $2 each.
What is the opportunity cost if she takes a working day for a holiday?
A $50
B $240
C 30 cakes
D 120 cakes
© UCLES 2015 2281/13/O/N/15

PAGE 40
5 Former planned economies in Eastern Europe have changed to market economies.
What is most likely to be observed in these economies?
A greater government controls over labour mobility

B increased production of capital goods rather than consumer goods
C less choice for consumers
D widespread privatisation of manufacturing and services
6 What is an example of a public good?
A a theatre performance
B an injection to prevent influenza
C road signs and road markings
D the collection of rubbish by a local authority
7 Air travel and rail travel are substitute forms of transport. The diagram shows the effect of new
technology on the market for air travel.
S1
S2
price per P1
ticket
P2
D
O Q1 Q2
quantity of airline tickets
What would be the most likely effect on the market for rail transport?
A a decrease in demand for rail transport

B an increase in the price of rail tickets
C an increase in supply of rail transport
D an increase in the total income of rail companies

PAGE 41
8 A developer built some large houses in a rural area which poorer people could not afford. The
houses destroyed an area of natural beauty.
What type of market failure resulted from the development?
A ignoring external cost

B inequality of income
C lack of information
D price discrimination
9 Which statement is correct when comparing low-income earners with high-income earners?
A High-income earners are likely to save a higher proportion of any additional income received.
B High-income earners spend proportionately more of their income.
C Low-income earners are likely to spend a lower proportion of any additional income received.
D Low-income earners save proportionately more of their income.
10 In the United States (US) in 2011, 7.6 million public sector workers (36% of public sector workers)
were members of trade unions, but only 7.1 million private sector workers (8% of private sector
workers) belonged to a trade union.
What can be concluded from this information?
A 28% of all workers belonged to a trade union in the US in 2011.

B Collective bargaining was more a feature of the private sector than the public sector in the
US in 2011.
C More people worked in the private sector than in the public sector in the US in 2011.
D The working population in the US in 2011 was 14.7 million.
11 Car assembly workers usually earn more income than agricultural workers.
What might explain this?
A Car assembly has safer working conditions.

B Car assembly involves more regular hours.
C Car assembly is usually in smaller firms.
D Car assembly produces a higher-value product.
© UCLES 2015 2281/13/O/N/15

PAGE 42
12 In some countries, former nationalised utilities, such as electricity, have been replaced by several
public limited companies.
Which change has occurred in the electricity market?
A All profits are reinvested into the business by public limited companies.
B Governments decide which company consumers must use.
C Market prices are fixed by governments.
D Public limited companies pay dividends to shareholders.
13 There has been a move away from labour-intensive to capital-intensive production in developed
economies.
Which type of activity remains labour-intensive?
A assembling cars
B designing clothes
C farming cereals
D manufacturing steel
14 In 2007, a huge industrial mining company attempted to buy another industrial mining company.
The attempt failed.
In 2010, the same mining company made an offer to buy a company that sells potash, which is
used to improve agricultural soils.
How may the mining company’s attempts to buy these other companies be described?
2007 2010
A diversification horizontal integration

B horizontal integration diversification
C specialisation vertical integration
D vertical integration specialisation

PAGE 43
15 The table shows the information that managers of a company have from a week of business
activity.
number of employees 100

average wage $900
value of output $100 000
rent $10 000
raw materials $20 000
Assuming there are no other costs, what is the value of the fixed costs?
A $300 B $10 000 C $20 000 D $30 000
16 Governments use monetary policy such as increasing the rate of interest.
What is a result of increasing the rate of interest?
A It creates disincentives for wage earners.

B It discourages investment by entrepreneurs.
C It increases disposable income of consumers.
D It reduces government transfer payments.
17 Which statement about the meaning of government economic aims is correct?
A Economic growth means that a country’s real output must rise over time.
B Full employment means that no one must be unemployed.
C Price stability means that the price of all goods and services must remain unchanged.
D Redistribution of income means that everyone must have equal incomes.
18 In 2013, a government wanted to keep inflation low and also to decrease unemployment. It
decided to subsidise consumers wishing to purchase a house so that houses would become
more affordable to them. At the time, there was a shortage of houses.
What is most likely to have happened to inflation, housebuilding and unemployment?
inflation housebuilding unemployment
A fall no change fall

B fall rise rise
C rise no change rise
D rise rise fall
© UCLES 2015 2281/13/O/N/15

PAGE 44
19 A government decided to increase its spending on building schools and hospitals.
Which aim of government policy is most likely to be achieved by this increase?
A a balance of payments surplus

B a stronger exchange rate
C economic growth
D price stability
20 A consumer price index (CPI) consists of four items. The table shows the percentage price
change for each item over a period of a year and the weight of each item.
Which price change will affect the level of the CPI most?
% price change
item weight
over 1 year
A food +5 0.30
B housing +6 0.20
C recreation +3 0.40
D transport +4 0.10
21 GDP per head is regarded as a poor measure of living standards because it omits
A environmental changes.
B exports.
C the income of the poor.
D the profits of private businesses.
22 A large economy experiences a high rate of GDP growth.
What is least likely to be a result of this growth?
A Everybody in the economy will benefit.

B Some people in the economy will benefit more than others.
C Some people in other economies will benefit.
D There will be economic growth in other economies.

PAGE 45
23 In 2008, a country had an inflation rate of 4%. The table shows the inflation rate in the following
years.
inflation rate
year
%
2009 4
2010 2
2011 –2
2012 –1
In which year did deflation start?
A 2009 B 2010 C 2011 D 2012
24 In developed countries, an ageing population has caused changes in the population structure.
What is the result of this change?
A an increase in the dependency ratio

B employment conditions have improved
C medical treatment is available to all
D welfare services have improved
25 Assuming no other changes, the population is most likely to increase if there is a reduction in
A the birth rate.

B the death rate.
C the fertility rate.
D the inoculation rate.
© UCLES 2015 2281/13/O/N/15

PAGE 46
26 The diagram shows population data for Japan for 1950, 2005 and 2050.
age age age

100 100 men 100 women
men women
80 80 80
men women
60 60 60
40 40 40
20 20 20
0 0 0
1.2 0.8 0.4 0 0 0.4 0.8 1.2 1.2 0.8 0.4 0 0 0.4 0.8 1.2 0.8 0.4 0 0 0.4 0.8
Japanese population, Japanese population, Japanese population,
millions millions millions
1950 2005 2050 (forecast)
What can be concluded from the diagram?
A Men outnumber women in each year.

B People are living longer over the period.
C The population has grown continuously.
D The workforce has grown continuously.
27 The diagram shows China’s trade with Brazil for 1999 and 2003 in billions of dollars.
0 1 2 3 4 5
Exports 1999
2003
Imports
With reference to the diagram, what happened to China’s trade balance with Brazil between 1999
and 2003?
A It experienced a falling surplus.

B It experienced a rising deficit.
C It moved from deficit to surplus.
D It moved from surplus to deficit.

PAGE 47
10
28 In August 2013, the Indian rupee reached a new low against the US dollar compared with the
previous month.
What does this mean?
A India’s balance of trade would worsen.

B Indian goods became cheaper in the US.
C Investors would wish to buy Indian rupees.
D More Indian students would study in the US.
29 What is most likely to encourage international specialisation?
A similarities in climate in different countries

B the ability to produce products more cheaply than other countries
C the discovery of oil in a country that had no oil before
D very high international transport costs
30 Turkey’s agricultural sector employs 48% of the country’s workforce, compared with 17% in the
United States (US) and 3.9% in France.
What could be concluded from this?
A France is likely to import more agricultural produce than the US.

B The workers in France are not as productive as those in Turkey.
C Total agricultural production is likely to be higher in Turkey than in the US.
D Turkey is likely to be less developed than France.
© UCLES 2015 2281/13/O/N/15

PAGE 48

2281 ECONOMICS

PAGE 49

Question Question
Key Key
Number Number
1 D 16 B
2 D 17 A
3 C 18 D
4 D 19 C
5 D 20 A
6 C 21 A
7 A 22 A
8 A 23 C
9 A 24 A
10 C 25 B
11 D 26 B
12 D 27 D
13 B 28 B
14 B 29 B
15 B 30 D

PAGE 50

ECONOMICS 2281/11
45 minutes
Soft clean eraser
*2536405131*

IB16 06_2281_11/FP
PAGE 51
1 The diagram shows an initial production possibility curve of PPC1.
PPC2
capital PPC1
goods
O consumer goods
What may cause the movement of the production possibility curve from PPC1 to PPC2?
A a better educated workforce

B a decrease in availability of raw materials
C increased wages
D lower productivity
2 An increase in the number of manufacturing robots in the car manufacturing industry represents
an increase in the quantity of which factor of production?
A capital
B enterprise
C labour
D land
© UCLES 2016 2281/11/M/J/16

PAGE 52
3 The diagram shows the choices for an individual between leisure and earnings.
18
15
12
hours of leisure X
9
per day
Y
6
0
10 20 30 40 50 60
earnings $
What is the opportunity cost to the individual of the extra earnings when moving from position X
to position Y?
A $10
B $40
C 3 hours of leisure per day
D 9 hours of leisure per day
4 A government taxes the production of cars.
What is likely to decrease?
A the cost of supplying cars

B the price of cars
C the revenue for the government
D the supply of cars at every price
5 Which pair of economic institutions can be found in a market economy?
A charities and public corporations

B multinationals and commercial banks
C public corporations and private companies
D stock exchange and government hospitals

PAGE 53
6 Developers want to increase the size of a major retail shopping area in a city. It is thought that the
proposal would create hundreds of jobs, be profitable for the shops but cause major traffic
congestion.
What economic concepts are directly involved in this statement?
A external cost and private benefit

B income distribution and inelastic demand
C private investment and a decrease in supply
D social benefit and perfect competition
7 The diagram shows the market for rice.
S2
S1
P2
price P1
D
O Q2 Q1
quantity
What would have caused the equilibrium price to rise from OP1 to OP2?
A a government subsidy to rice farmers

B a successful advertising campaign for rice
C improved rice farming methods
D poor weather conditions
8 What might a trade union usually be expected to do for its members?
A arrange childcare facilities for members’ children

B ensure adequate promotion prospects exist
C negotiate better working conditions
D provide medical insurance
© UCLES 2016 2281/11/M/J/16

PAGE 54
9 What is the usual reason why citizens trust their country’s banknotes?
A They are acceptable for trade and exchange.

B They are backed by gold at the central bank.
C They are convertible into the US$ or Chinese Yuan.
D They are recognisable and in infinite supply.
10 In the diagram, D1D1 and S1S1 represent the demand for and the supply of labour. W indicates a
legal minimum wage.
An influx of immigrant labour causes the supply curve for labour to shift from S1S1 to S2S2.
D1 S1
S2
W
wage
($)
S1 D1
S2
0 1 2 3 4 5 6 7 8 9 10
labour (millions)
How many people will be employed if the minimum wage legislation is then abolished?
A 4 million B 5 million C 6 million D 7 million

PAGE 55
11 The table shows how three people spend their income.
person X person Y person Z
food, clothing and housing 30% 25% 50%

entertainment and leisure 35% 35% 25%
luxury goods 35% 40% 25%
For these three people, what is the most likely order of income, from highest income to lowest
income?
A X→Y→Z
B Y→X→Z
C Y→Z→X
D Z→X→Y
12 How does a firm guarantee that it makes the maximum profit?
A by maximising the difference between its total revenue and total cost
B by maximising the number of goods that it sells
C by minimising the number of goods that it keeps in stock
D by minimising the difference between average revenue and average cost
13 Which characteristic does a firm in perfect competition have in common with a monopoly?
A the ability to exclude rivals

B the benefit of internal economies of scale
C the problem of diseconomies of scale
D the wish to maximise profits
© UCLES 2016 2281/11/M/J/16

PAGE 56
14 The table shows the units of factors of production that a firm needs to employ for two different
levels of output.
land labour capital output
5 2 4 100
10 4 8 150
What is the firm experiencing?
A constant returns to scale

B diseconomies of scale
C external diseconomies of scale
D external economies of scale
15 The diagram shows the demand and supply of places in independent (private) schools which
charge fees. The equilibrium position is X.
The costs of independent (private) schools rise. Also a report is issued which states that
Government schools achieve very good examination results.
What is likely to be the new equilibrium position?
C
B
price A X
O quantity
16 A government wishes to stimulate economic recovery.
Which action will assist this?
A decreasing government investment

B decreasing income tax
C increasing indirect taxation
D increasing interest rates

PAGE 57
17 What is an expansionary monetary policy?
A a decrease in the interest rate

B a decrease in the rate of value added tax
C an increase in the power of trade unions
D an increase in the standard rate of income tax
18 A government decides to make two changes to its taxation policies. It lowers the tax on petrol and
raises the tax on food.
How do these changes affect the regressive nature of the taxes?
lower petrol higher food

tax tax
A less regressive less regressive

B less regressive more regressive
C more regressive less regressive
D more regressive more regressive
19 The table shows a government’s receipts from taxation.
$m
air passenger duty 10

company profits tax 100
import duty 75
income tax 200
insurance policy tax 10
sales tax (VAT) 400
What is the total amount of revenue raised by indirect taxes?
A $95 m B $300 m C $400 m D $495 m
20 What is Gross Domestic Product (GDP) divided by to calculate GDP per head?
A net migration
B the birth rate
C the total population
D the working population
© UCLES 2016 2281/11/M/J/16

PAGE 58
21 Who is made worse off during a period of deflation?
A cash holders
B creditors
C debtors
D fixed income earners
22 The table gives information about three economic indicators in four countries.
inflation interest rates unemployment

% % %
country W 1.4 3.4 10.2

country X 3.7 8.7 12.3
country Y 3.6 7.3 14.2
country Z 2.1 6.0 7.7
What may be concluded from this information?
A Countries with higher inflation have higher interest rates.

B Countries with higher interest rates have lower unemployment.
C The country with the lowest inflation had the highest unemployment.
D The country with the lowest unemployment had the lowest inflation.
23 What must result when a country experiences economic growth?
A a higher Gross Domestic Product

B a lower rate of inflation
C a surplus on the balance of trade
D an improved standard of living for everybody
24 Why may the figure calculated for a developing country’s Gross Domestic Product be inaccurate?
A There are unused resources.

B There is a high reliance on imports.
C There is a large amount of subsistence farming.
D There is a small amount of skilled labour.

PAGE 59
10
25 The table gives information on four countries.
Which country is likely to be most developed?
Gross Domestic life

population Product expectancy
(m) ($ billion) (years)
A 100 800 51
B 200 6000 62
C 300 600 48
D 1000 1600 63
26 It has been predicted that by 2050 China will have 53 million fewer children under 14, 100 million
fewer workers and 234 million more people aged over 60.
What will be the likely effect in China of these changes?
A The dependency ratio will fall.

B The Government’s expenditure will fall.
C The Government’s income will fall.
D The total population will fall.
27 What might cause the balance on the current account of Mauritius to improve?
A increased purchases of coffee from Kenya

B increased transport of Mauritian goods in Greek ships
C increased spending by Mauritians on holidays in South Africa
D increased spending by tourists in Mauritian hotels
28 A country says that it wishes to increase its trade protection policies.
What might that involve?
A conservation of resources and taxes on external costs

B eliminating waste in the use of resources and grants to multinational companies
C increased self sufficiency and increased tariffs
D price controls and increased regulations on domestic monopoly industries
© UCLES 2016 2281/11/M/J/16

PAGE 60
11
29 It has been suggested that all countries producing arms should ban the export of weapons and
cut production in order to reduce the risk of war.
What would happen if this occurred?
A The balance of payments on current account of countries exporting weapons would

immediately improve.
B The price of existing weapons would fall.
C There would be a risk of structural unemployment in countries that are major producers of
weapons.
D There would be no overall effect on the balance of payments as countries would produce
their own weapons.
30 70% of the 10 million kilograms of tea produced in India is exported. The UK, Japan, and
Germany buy the most.
Wholesale prices rose 10% in 2013 as supply was restricted because of a strike.
How would these circumstances be shown in international trade accounts?
A a credit on the goods and services account for Germany

B a debit on the goods and services account for Japan
C a 10% fall in the balance of the goods and services account for India
D a 10% rise in the balance of goods and services account for the UK
© UCLES 2016 2281/11/M/J/16

PAGE 61

ECONOMICS 2281/11
MARK SCHEME
Maximum Mark: 30
Published
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.
Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.
Cambridge is publishing the mark schemes for the May/June 2016 series for most Cambridge IGCSE ®,
Cambridge International A and AS Level components and some Cambridge O Level components.
This document consists of 2 printed pages.

PAGE 62

Cambridge O Level – May/June 2016 2281 11
Question Question
Key Key
Number Number
1 A 16 B
2 A 17 A
3 C 18 B
4 D 19 D
5 B 20 C
6 A 21 C
7 D 22 A
8 C 23 A
9 A 24 C
10 D 25 B
11 B 26 C
12 A 27 D
13 D 28 C
14 B 29 C
15 A 30 B

PAGE 63

ECONOMICS 2281/12
45 minutes
Soft clean eraser
*6819512628*

IB16 06_2281_12/RP
PAGE 64
1 What economic concept must be at work when there is movement by a country along its
production possibility curve?
A economies of scale
B equilibrium price
C maximum profit
D opportunity cost
2 The diagram shows the choices for an individual between leisure and earnings.
24
20
16
hours of leisure 12 X
per day
Y
8
0
20 40 60 80 100 120
earnings $
The person decides to take a job that gives more leisure time.
What is the opportunity cost to the individual of moving from position Y to position X?
A $20
B $80
C 4 hours of leisure per day
D 12 hours of leisure per day
3 What is the best example of the existence of the economic problem?
A A government provides accommodation for all those who are homeless.

B A police force has a lengthening list of unsolved crimes.
C Janitha hands her homework in at the last permitted deadline.
D Musa completes his journey without putting petrol in his car.
© UCLES 2016 2281/12/M/J/16

PAGE 65
4 A government taxes the production of cars.
What is likely to decrease?
A the cost of supplying cars

B the price of cars
C the revenue for the government
D the supply of cars at every price
5 Which pair of economic institutions is most likely found in a market economy?
A free accident and emergency hospitals and charities

B partnerships and public corporations
C stock exchange and monopolies
D trade unions and local government schools
6 Developers want to increase the size of a major retail shopping area in a city. It is thought that the
proposal would create hundreds of jobs, be profitable for the shops but cause major traffic
congestion.
What economic concepts are directly involved in this statement?
A external cost and private benefit

B income distribution and inelastic demand
C private investment and a decrease in supply
D social benefit and perfect competition

PAGE 66
7 The diagram shows the price of a product during year 1 and year 2.
price
($)
O year 1 year 2
Which changes in demand and supply are consistent with the price behaviour in year 2?
demand supply
A falls by 5% falls by 10%

B falls by 10% falls by 5%
C unchanged falls by 10%
D rises by 15% falls by 5%
8 A trade union agrees on a ‘closed shop’ policy with employers in an industry.
How does this operate?
A All workers will be members of the trade union.

B Employment will be open only to skilled workers.
C The employers cannot make workers redundant.
D Workers cannot move between employers.
9 When will a central bank act as lender of last resort to a commercial bank?
A when a commercial bank faces a liquidity crisis

B when a commercial bank fails to make a profit
C when a commercial bank needs to raise share capital
D when a commercial bank reduces its lending rates
© UCLES 2016 2281/12/M/J/16

PAGE 67
10 In the diagram, D1D1 and S1S1 represent the demand for and the supply of labour. W indicates a
legal minimum wage.
An influx of immigrant labour causes the supply curve for labour to shift from S1S1 to S2S2.
D1 S1
S2
W
wage
($)
S1 D1
S2
0 1 2 3 4 5 6 7 8 9 10
labour (millions)
How many people will be employed if the minimum wage legislation is then abolished?
A 4 million B 5 million C 6 million D 7 million
11 The table shows how three people spend their income.
person X person Y person Z
food, clothing and housing 35% 50% 20%

entertainment and leisure 25% 20% 40%
luxury goods 40% 30% 40%
For these three people, what is the most likely order of income, from lowest income to highest
income?
A XoYoZ
B YoXoZ
C YoZoX
D ZoXoY

PAGE 68
12 How does a firm guarantee that it makes the maximum profit?
A by maximising the difference between its total revenue and total cost
B by maximising the number of goods that it sells
C by minimising the number of goods that it keeps in stock
D by minimising the difference between average revenue and average cost
13 Two firms agree to integrate their activities.
What must result?
A a change in their ownership structure

B a lowering of average costs of production
C a move from national to international markets
D a reduction in the level of market risk
14 The table shows the units of factors of production that a firm needs to employ for two different
levels of output.
land labour capital output
6 8 4 100
9 12 6 200
What is the firm experiencing?
A constant returns to scale

B economies of scale
C external diseconomies of scale
D external economies of scale
© UCLES 2016 2281/12/M/J/16

PAGE 69
15 By 2014, government subsidies for the Chinese steel industry led to 200 million tonnes of excess
output.
The diagrams show the market for Chinese steel.
Which would represent the position after the subsidy but before the market adjusted?
A B
price price
($) ($)
0 100 300 0 100 200 400

output (million tonnes) output (million tonnes)
C D
price price
($) ($)
0 100 200 300 0 100 200 400

output (million tonnes) output (million tonnes)
16 A government wishes to stimulate economic recovery.
Which action will assist this?
A decreasing government investment

B decreasing income tax
C increasing indirect taxation
D increasing interest rates

PAGE 70
17 A government fixes the rate of income tax at $0.20 per dollar earned.
What describes this type of taxation?
A indirect
B progressive
C proportional
D regressive
18 A government introduces a law to reduce the restrictive practices of trade unions.
What would be the most likely purpose of this law?
A to change from a mixed to a planned economy

B to ensure a fairer distribution of earnings
C to increase competition in labour markets
D to reduce government expenditure on job training
19 The table shows a government’s receipts from taxation.
$m
air passenger duty 10

company profits tax 100
import duty 75
income tax 200
inheritance tax 50
sales tax (VAT) 300
What is the total amount of revenue raised by indirect taxes?
A $300 m B $350 m C $385 m D $435 m
20 What would best indicate the start of an economic boom?
A negative growth of Gross Domestic Product

B rising interest rates
C rising levels of employment
D steadily falling price levels
© UCLES 2016 2281/12/M/J/16

PAGE 71
21 A country has a very high Gross Domestic Product and a small population but has a low standard
of living.
What may be the cause of this low standard of living?
A There is a high inequality of income distribution and a high provision of merit goods.
B There is a high inequality of income distribution and a limited provision of merit goods.
C There is equality of income distribution and a high provision of merit goods.
D There is equality of income distribution and a low provision of merit goods.
22 The table gives information about three economic indicators in four countries.
inflation interest rates unemployment

% % %
country W 1.4 3.4 10.2

country X 3.7 8.7 12.3
country Y 3.6 7.3 14.2
country Z 2.1 6.0 7.7
What may be concluded from this information?
A Countries with higher inflation have higher interest rates.

B Countries with higher interest rates have lower unemployment.
C The country with the lowest inflation had the highest unemployment.
D The country with the lowest unemployment had the lowest inflation.
23 The weight for a product in the consumer price index was increased.
What is most likely to have caused this adjustment?
A The product has become more expensive to produce.

B The product has been offered for sale in more retail outlets.
C The product has improved in quality and performance.
D The product has taken a bigger share of consumers’ income.

PAGE 72
10
24 China is classified as a developing country. Recently, contributions to its Gross Domestic Product
(GDP) were agriculture 10%, construction 13%, manufacturing 32% and services 45%.
Which contribution to GDP usually decreases first when countries move to a higher level of
development?
A agriculture
B construction
C manufacturing
D services
25 Some people think that the debts and interest payments of the poorest countries in the world
should be cancelled.
What might be a disadvantage for the poorest countries if this were done?
A International banks might be less willing to give loans to poor countries.

B Interest payments to the lenders would fall.
C The standard of living of people in the poorest countries would fall.
D Trade between the poorest countries and the rest of the world would increase.
26 Which country is likely to have the highest standard of living?
infant mortality
birth rate death rate life expectancy
rate
A 41 20 31 49
B 32 14 29 59
C 25 6 25 79
D 25 5 22 79
27 What might cause the balance on the current account of Mauritius to improve?
A increased purchases of coffee from Kenya

B increased transport of Mauritian goods in Greek ships
C increased spending by Mauritians on holidays in South Africa
D increased spending by tourists in Mauritian hotels
© UCLES 2016 2281/12/M/J/16

PAGE 73
11
28 A country says that it wishes to increase its trade protection policies.
What might that involve?
A conservation of resources and taxes on external costs

B eliminating waste in the use of resources and grants to multinational companies
C increased self sufficiency and increased tariffs
D price controls and increased regulations on domestic monopoly industries
29 It has been suggested that all countries producing arms should ban the export of weapons and
cut production in order to reduce the risk of war.
What would happen if this occurred?
A The balance of payments on current account of countries exporting weapons would

immediately improve.
B The price of existing weapons would fall.
C There would be a risk of structural unemployment in countries that are major producers of
weapons.
D There would be no overall effect on the balance of payments as countries would produce
their own weapons.
30 The US currently trades in oil with the UK. The discovery of new oil and gas deposits in the US
will mean that its oil imports decrease and its oil exports increase.
From the initial equilibrium point of X, which letter indicates the new equilibrium point for the US
exchange rate?
S1
B
A S
price
of $ X S2
C
D
D1 D D2
O
quantity of $
© UCLES 2016 2281/12/M/J/16

PAGE 74

ECONOMICS 2281/12
MARK SCHEME
Maximum Mark: 30
Published
Teachers.

PAGE 75

Question Question
Key Key
Number Number
1 D 16 B
2 A 17 C
3 B 18 C
4 D 19 C
5 C 20 C
6 A 21 B
7 B 22 A
8 A 23 D
9 A 24 A
10 D 25 A
11 B 26 D
12 A 27 D
13 A 28 C
14 B 29 C
15 C 30 B

PAGE 76

ECONOMICS 2281/12
45 minutes
Soft clean eraser
*8153278276*

IB16 11_2281_12/FP
PAGE 77
1 Each factor of production earns an income.
What correctly identifies the income for labour and capital?
labour capital
A profit interest
B rent profit
C wages profit
D wages interest
2 What could be the opportunity cost of a nuclear power station?
A the running costs of the power station
B a coal-fired power station

C the current value of the power station
D 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
Bad weather causes a poor harvest for both crops.
Which movement could be used to represent this change?
A P to R B Q to R C S to Q D S to R
4 The market for a good was in equilibrium. A 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?
A the demand curve moved to the left

B the demand curve moved to the right
C the supply curve moved to the left
D the supply curve moved to the right
© UCLES 2016 2281/12/O/N/16

PAGE 78
5 A demand curve shows the relationship between the quantity demanded and
A a change in income
B consumer tastes
C the supply of the product
D the price of the product
6 A government subsidises the production of pineapples.
This is likely to
A increase the price of pineapples

B raise the costs of supplying pineapples
C raise revenue for the government
D cause the supply of pineapples to increase at every price
7 What indicates the existence of external costs in an economy?
A An international trade deficit has caused the country to be in debt.

B National companies have borrowed from foreign investors.
C Private costs of production are less than social costs.
D 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?
A an increase in imports of a cheaper, similar product

B the closure of a local training college resulting in fewer potential workers
C the development of a new and profitable brand of the company’s product
D the development of new techniques that increase productivity
9 What shows the correct examples of income and wealth?
income wealth
A dividends from shares wages

B rent from a house overtime payments
C overtime payments wages
D wages house

PAGE 79
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 Ali owns a successful fitness centre that employs about twenty people. He owns a large
house.
Which is most likely to be correct?
A Nazmin spends a smaller proportion of her income than Meer.

B Nazmin saves most of her income.
C Nazmin would find it easier than Meer to borrow money.
D Nazmin has a lower disposable income than Meer.
11 The table shows how household spending changes with income.
income spending
($ per month) ($ per month)
4000 4150
4300 4375
4600 4650
4900 4900
5200 4975
5500 5275
What is the first level of income shown at which savings are positive?
A $4000 B $4600 C $4900 D $5200
12 A survey of managers in the USA 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
A customers
B employees
C owners
D public
© UCLES 2016 2281/12/O/N/16

PAGE 80
13 Some agricultural co-operatives have changed from labour-intensive to capital-intensive methods

of production.
What might be a cause of this change?
A Average productivity of agricultural workers has increased.

B Farming equipment has become more efficient.
C People are eating less food for health reasons.
D Some agricultural land has been sold for housing.
14 A firm has fixed costs of $200 for its daily output. The table shows its daily total variable costs.
output (units) 1 2 3 4
total variable costs ($) 300 400 700 800
What can be concluded about the firm’s average total cost?
A it falls continuously
B it is highest at output 4 units
C it is lowest at output 4 units
D it rises continuously
15 The table shows the growth rate of output (%) in four sectors of an economy.
construction energy manufacturing services

sector % sector % sector % sector %
first quarter of 2014 0.9 0.1 –0.7 –3.4

second quarter of 2014 0.5 1.6 –0.5 0.5
Which two sectors showed an increase in the growth rate in the first half of 2014?
A construction and energy

B construction and manufacturing
C services and construction
D services and manufacturing

PAGE 81
16 A 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?
A by excluding all competition from foreign companies

B by imposing a tax on excess profits
C by introducing a quota system for imports of gas
D by removing price controls on gas
17 In 2015, 70 000 extra people lost their jobs but total employment rose by 75 000. What could
explain this?
A Some people may have emigrated.

B Some people may have gone back to education.
C Some people may have re-entered the labour force.
D Some people may have retired early.
18 The table shows taxes as a percentage of Gross Domestic Product (GDP) for four countries.
From this information, which country had the highest percentage of direct taxation as a
percentage of GDP?
tax on tax on goods

income tax tax on
business and services
% dividends %
profits % %
A 12 14 2 5
B 14 15 2 14
C 17 13 5 10
D 18 10 1 10
© UCLES 2016 2281/12/O/N/16

PAGE 82
19 A government gives farmers a subsidy of $5 per kilo to supply food on the open market where X
is the original equilibrium position.
The effect is illustrated in the diagram.
S3 S1
20 S2
X
15
price
($ per kilo) 10 D1
0
4 8 12 16 20 24
quantity supplied
(000 kilos)
What will be the new equilibrium price and quantity supplied as a result of the subsidy?
equilibrium price quantity supplied

($ per kilo) (000 kilos)
A 10 16
B 13 20
C 15 16
D 20 8
20 What is involved in the construction of a Retail Price Index?
A a base year
B incomes
C price elasticity of products
D quantity supplied
21 Why is nominal Gross Domestic Product not a good measure to compare the standard of living in
a country between two years?
A It does not account for inflation.

B It does not allow for savings.
C It does not include government expenditure.
D It only compares export prices with import prices.

PAGE 83
22 In 2010 there was an increase in net emigration from Ireland.
What is most likely to have caused this increase?
A a decrease in job security abroad

B a decrease in wage rates abroad
C an increase in Ireland’s real GDP
D 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?
A by deducting the goods and services

B by giving a weight to the goods
C by taking an average of price fluctuations during a year
D by using the price elasticity of demand for the goods
24 Which outcome is least likely to be found with greater economic development?
A A greater percentage of the population are highly educated.

B A greater percentage of the population are homeowners.
C A greater percentage of the population are old.
D A greater percentage of the population are very poor.
25 A 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
A increase make it more progressive

B increase make it more regressive
C reduce make it more progressive
D reduce make it more regressive
© UCLES 2016 2281/12/O/N/16

PAGE 84
26 The chart shows total world carbon emissions in 1995 and predicted emissions by 2035.
1995 2035
other Asia
6%
developing developing
world world
27% 50%
other US
Latin
China US Asia
America 4% 15%
11% 22% 14% W.
Africa 3% China Europe
Middle East 17% 12%
W. Europe
3% 17% E. Europe
E. Europe 19%
Japan Africa
27%
7% 8%
Latin
America
6% developed
developed
world
world
Middle Japan 50%
73%
East 4%
5%
If the chart proves to be correct, what will have happened by 2035?
A Africa and the Middle East will have responsibility for the same amount of carbon emissions
in 2035 as in 1995.
B Between 1995 and 2035, the Middle East will have increased its industrialisation by as much
as Latin America.
C By 2035 the combined percentage of carbon emissions caused by Africa and Latin America
will have doubled.
D The US will have decreased its carbon emissions by a smaller percentage than Western
Europe.
27 What encourages international specialisation?
A a foreign exchange shortage

C free trade
D quotas

PAGE 85
10
28 A 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?
A cheaper wage costs in Europe
B the availability of raw materials

C to gain external economies from skilled labour in Europe
D to increase Japanese self-sufficiency
29 A government removed the quota on goods imported into the country.
What is the most likely result of this?
A a decrease in demand for domestic production

B a decrease in domestic unemployment
C a decrease in exports
D 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
2012.
balance of balance of balance of

balance of goods
year services current transfers income
¥ trillion
¥ trillion ¥ trillion ¥ trillion
2011 –1.61 –1.76 –1.11 14.04

2012 –5.23 –2.33 –1.02 13.55
Which balance improved between 2011 and 2012?
A balance of current transfers

B balance of goods
C balance of income
D balance of services
© UCLES 2016 2281/12/O/N/16

PAGE 86

ECONOMICS 2281/12
MARK SCHEME
Maximum Mark: 30
Published
Teachers.
®
Cambridge IGCSE , Cambridge International A and AS Level components and some Cambridge O Level
components.

PAGE 87

Question Question
Key Key
Number Number
1 D 16 B
2 B 17 C
3 B 18 C
4 C 19 B
5 D 20 A
6 D 21 A
7 C 22 D
8 A 23 B
9 D 24 D
10 D 25 C
11 D 26 C
12 C 27 C
13 B 28 D
14 C 29 A
Question
15 30 A
Removed
© UCLES 2016
PAGE 88

ECONOMICS 2281/13
45 minutes
Soft clean eraser
*3134898997*

IB16 11_2281_13/RP
PAGE 89
1 What is not a factor of production?
A a $20 banknote
B an office
C a photocopier
D a secretary
2 What could be the opportunity cost of a nuclear power station?
A the running costs of the power station
B a coal-fired power station

C the current value of the power station
D 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?
A by a movement from R to S
B by a movement from R to V
C by a movement from S to T
D by a movement from U to V
© UCLES 2016 2281/13/O/N/16

PAGE 90
4 The market for a good was in equilibrium. A 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?
A the demand curve moved to the left

B the demand curve moved to the right
C the supply curve moved to the left
D 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?
A price of cocoa bean products

B production of cocoa beans
C profits of cocoa bean producers
D unemployment among cocoa bean farmers
6 A government subsidises the production of pineapples.
This is likely to
A increase the price of pineapples.

B raise the costs of supplying pineapples.
C raise revenue for the government.
D cause the supply of pineapples to increase at every price.

PAGE 91
7 The use of cars in many cities creates negative externalities. The diagram shows the free market
equilibrium X1 and the socially efficient market equilibrium X2.
S2
S1
costs P2 X2
/ benefits
P1 X1
D
O
quantity
Using the diagram, which statement is correct?
A Socially efficient supply is S and the market price P is too high.

B Socially efficient supply is S and the market price P is too low.
C Socially efficient supply is S1 and the market price P is too high.
D Socially efficient supply is S1 and the market price P 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 a decrease in the demand for coats

B a decrease in the number of people willing to work in the coat industry
C a decrease in the productivity of workers making coats
D a decrease in the sale of coat exports
9 What does net income mean?
A income after allowing for price changes

B income after paying regular household bills
C income less tax and government deductions
D income plus overtime payments
© UCLES 2016 2281/13/O/N/16

PAGE 92
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 Ali owns a successful fitness centre that employs about twenty people. He owns a large
house.
Which is most likely to be correct?
A Nazmin spends a smaller proportion of her income than Meer.

B Nazmin saves most of her income.
C Nazmin would find it easier than Meer to borrow money.
D Nazmin has a lower disposable income than Meer.
11 The table shows how household spending changes with income.
income spending
($ per month) ($ per month)
2600 2625
2900 2925
3200 3190
3500 3275
3800 3500
4100 3725
What is the first level of income shown at which savings are positive?
A $2600 B $2900 C $3200 D $3500
12 A survey of managers in the USA 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
A customers.
B employees.
C owners.
D public.

PAGE 93
13 Why is a firm in perfect competition a price taker?
A It has no information about market price.

B Its output is too small to have any effect on market equilibrium.
C There are few barriers to entry.
D There are only a few firms in the industry.
14 A firm produced 200 cars a week and employed 50 workers. A 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?
A It fell by 20%.
B It fell by 25%.
C It increased by 20%.
D It increased by 25%.
15 A firm has fixed costs of $100 for its daily output. The table shows its daily total variable costs.
output (units) 1 2 3 4
total variable costs ($) 200 360 500 720
What can be concluded about the firm’s average total cost?
A It falls continuously.
B It is highest at output 4 units.
C It is lowest at output 3 units.
D It rises continuously.
16 A 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?
A by excluding all competition from foreign companies

B by imposing a tax on excess profits
C by introducing a quota system for imports of gas
D by removing price controls on gas
© UCLES 2016 2281/13/O/N/16

PAGE 94
17 A government decides to increase the rate of income tax and spend the extra revenue on
providing training colleges.
How might this be described?
A as fiscal and monetary policy

B as fiscal and supply-side policy
C as fiscal, monetary and supply-side policy
D as monetary and supply-side policy
18 A government taxes farmers $12 per kilo when they supply food on the open market where X is
the original equilibrium position.
The effect is illustrated in the diagram below.
50
S4 S3 S1
S2
40
X
price 30
($ per kilo)
20
D1
10
0
10 20 30 40 50 60
quantity supplied
(000 kilos)
What will be the new equilibrium price and quantity supplied as a result of the tax?
equilibrium price quantity supplied

($ per kilo) (000 kilos)
A 20 40
B 25 50
C 35 30
D 40 20

PAGE 95
19 The table shows taxes as percentages of Gross Domestic Product (GDP) for four countries.
From this information, which country had the lowest percentage of direct taxation as a percentage
of GDP?
tax on
income tax tax on tax on goods
business
% dividends % and services %
profits %
A 12 14 2 4
B 14 15 2 13
C 17 8 5 9
D 17 13 5 9
20 A newspaper reports that there has been an economic slump in an economy.
What would an economist expect the immediate effect to be?
A Production will decrease.

B Saving will decrease.
C Taxation will decrease.
D The population will decrease.
21 How is the pattern of employment likely to change when a country becomes more developed?
A from regular employment to seasonal employment

B from rural employment to urban employment
C from skilled employment to manual employment
D 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 a decrease in job security abroad

B a decrease in wage rates abroad
C an increase in Ireland’s real GDP
D an increase in unemployment in Ireland
© UCLES 2016 2281/13/O/N/16

PAGE 96
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
A budget surplus consumer saving

B consumer spending unemployment
C inflation trade surplus
D productivity living standards
24 What would be most likely to cause the population to decrease if other things remain constant?
A a decrease in the birth rate

B a decrease in the death rate
C an increase in net immigration
D an increase in the fertility rate
25 Developed 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?
A Government transfer payments will increase.

B More facilities will be needed to retrain workers.
C There will be a rise in the economic growth rate.
D The total savings in the economy will increase.

PAGE 97
10
26 The chart shows total world carbon emissions in 1995 and predicted emissions by 2035.
1995 2035
other Asia
6%
developing developing
world world
27% 50%
other US
Latin
China US Asia
America 4% 15%
11% 22% 14% W.
Africa 3% China Europe
Middle East 17% 12%
W. Europe
3% 17% E. Europe
E. Europe 19%
Japan Africa
27%
7% 8%
Latin
America
developed 6% developed
world world
73% Middle Japan 50%
East 4%
5%
If the chart proves to be correct, what would have happened by 2035?
A Africa will emit the least carbon.

B China will cause about a third of the emissions of all developing areas shown.
C Developed areas will have reduced their absolute amount of carbon emissions.
D The US will have decreased its carbon emissions by a smaller percentage than Western
Europe.
27 What encourages international specialisation?
A a foreign exchange shortage

C free trade
D quotas
28 A 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?
A cheaper wage costs in Europe

B the availability of raw materials
C to gain external economies from skilled labour in Europe
D to increase Japanese self-sufficiency
© UCLES 2016 2281/13/O/N/16

PAGE 98
11
29 A government removed the quota on goods imported into the country.
What is the most likely result of this?
A a decrease in demand for domestic production

B a decrease in domestic unemployment
C a decrease in exports
D 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 prices paid to Singapore

for imports for exports
A decrease decrease
B decrease increase
C increase decrease
D increase increase
© UCLES 2016 2281/13/O/N/16

PAGE 99

ECONOMICS 2281/13
MARK SCHEME
Maximum Mark: 30
Published
Teachers.
®
components.

PAGE 100

Question Question
Key Key
Number Number
1 A 16 B
2 B 17 B
3 C 18 C
4 C 19 A
5 D 20 A
6 D 21 B
7 D 22 D
8 B 23 D
9 C 24 A
10 D 25 A
11 C 26 B
12 C 27 C
13 B 28 D
14 D 29 A
15 C 30 B
© UCLES 2016
PAGE 101

ECONOMICS 2281/21
Paper 2 Structured Questions May/June 2015
2 hours 15 minutes
No Additional Materials are required.
* 0 8 4 6 8 4 2 3 1 4 *
An 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 A
Answer Question 1.
Section B
Answer 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.
DC (ST) 109048
PAGE 102
Section A
Answer this question.
1 What does the future hold for Sweden?
Sweden is a highly developed European country which enjoys one of the highest standards of
living in the world. In 2012, its citizens enjoyed an average income of US$49 000. The country’s
labour force of five million is highly skilled. About 70% of schoolchildren go on to university. Over
the years, investment has been high in Sweden and as a result there is a high value of capital
goods for each worker to use. In 2012, however, its economic growth rate slowed. The Swedish
Government was hoping that its decision to raise the retirement age to 67 would increase the
country’s economic growth rate.
Sweden exports half of its output. It exports a range of products including cars and capital goods.
Among the country’s imports are petrol, cars and iron. Table 1 shows the balance of the current
account of its balance of payments over the period 2008–2013.
Table 1: Sweden’s current account balance, 2008–2013
Year Current account balance

US$ billion as a % of Gross Domestic
Product (GDP)
2008 +38 6.9
2009 +31 7.0
2010 +31 6.8
2011 +32 6.4
2012 +39 7.1
2013 +40 7.2
A country’s trade position is influenced by its inflation rate. Indeed, a fall in a country’s inflation rate
can increase the international competitiveness of its products. The Swedish Government aims to
keep the annual inflation rate at 2% or below. If there is a risk that the inflation rate will exceed
the 2% target, the Swedish Central Bank will raise the interest rate. Such a change will be likely
to influence consumer expenditure, investment and the exchange rate. In recent years, Sweden’s
inflation rate has remained low, averaging 1.9% between 2008 and 2013.
The low inflation rate provides certainty for Swedish firms. The best known Swedish firm is
probably IKEA, which produces furniture and household accessories. In 2012, it reduced its prices
which, as on previous occasions, resulted in a rise in its revenue. In 2013, its owners stated that
their main goal was to increase the size of the firm by opening new stores throughout the world,
including in its expanding markets in China and Russia.
© UCLES 2015 2281/21/M/J/15

PAGE 103
(a) Using information from the extract, identify two reasons why Sweden is considered to be a
highly developed country. [2]
(b) Explain how a rise in the retirement age may increase a country’s economic growth rate. [4]
(c) Using information in Table 1, describe what happened to:
(i) Sweden’s current account position over the period shown [2]
(ii) Sweden’s GDP between 2009 and 2010. [2]
(d) Explain why a country may both export and import cars. [2]
(e) Using information from the extract, analyse how a rise in the rate of interest can reduce
inflation. [5]
(f) Discuss whether a fall in a country’s inflation rate will increase the international competitiveness
of its products. [5]
(g) Using information from the extract, explain whether demand for IKEA’s products is price
elastic or price inelastic. [2]
(h) Discuss whether growth is the main goal of most firms. [6]

PAGE 104
Section B
Answer any three questions from this section.
2 In 2013, an earthquake on the Iran/Pakistan border destroyed many factories and homes. Some
officials wanted the Governments to rebuild the factories and homes, even though there would be
an opportunity cost. Others suggested that some people should be encouraged to emigrate.
(a) Define ‘opportunity cost’. [2]
(b) Explain why the economic problem can never be solved. [4]
(c) Using a production possibility curve diagram, analyse the effect of the destruction of some of
its resources on an economy. [6]
(d) Discuss whether a country will benefit from the emigration of some of its people. [8]
3 In 2013, the market price of houses rose in China but fell in Greece. The Chinese Government
tried to reduce the rise in house prices by discouraging borrowing. In Greece, the equilibrium price
of houses fell, largely because of a decrease in income. In some countries, governments give
subsidies to housebuilders to influence the market for houses.
(a) Define ‘equilibrium price’. [2]
(b) Explain two reasons why borrowing may decrease. [4]
(c) Using a demand and supply diagram, analyse why a fall in incomes may reduce the market
price of houses. [6]
(d) Discuss whether the building of houses should be subsidised. [8]
4 Trade union membership is decreasing in some countries, but it is increasing in China. Industrial
action by workers is becoming more common in China, with workers seeking higher wages.
Recently there was a strike at a car factory in South China, owned by a Japanese multinational
company.
(a) Define ‘multinational company’. [2]
(b) Explain why governments may discourage strikes. [4]
(c) Analyse three reasons why trade union membership may decrease in a country. [6]
(d) Discuss whether a rise in the wages a firm pays would reduce its profits. [8]
© UCLES 2015 2281/21/M/J/15

PAGE 105
5 In January 2013, the Portuguese Government increased tax rates. Three months later it cut its
spending on health care and education. Between these two periods, unemployment in Portugal
rose.
(a) What is meant by ‘tax’? [2]
(b) Explain two reasons why an increase in unemployment may reduce tax revenue. [4]
(c) Analyse two reasons why unemployment may increase. [6]
(d) Discuss whether a reduction in government spending on education will reduce living
standards. [8]
6 About 30% of Nigeria’s labour force is employed in agriculture but the country still spends more
than US$12 billion a year importing food. The Nigerian Government is seeking to reduce the
imports of food. With a high birth rate and many small farms, this may be difficult to achieve.
(a) Define ‘birth rate’. [2]
(b) Explain two causes of a high birth rate. [4]
(c) Analyse how an increase in the size of farms may affect the cost of producing food. [6]
(d) Discuss whether a reduction in its imports will always benefit an economy. [8]
7 In 2013, the Singapore Government was concerned that its economy might experience a
recession. It was introducing a range of supply-side policy measures to increase productivity,
avoid a recession and achieve its other aims for the economy. It was also trying to reduce the
international value of the Singapore dollar.
(a) Define ‘recession’. [2]
(b) Explain two reasons why an economy may have a high foreign exchange rate. [4]
(c) Analyse how supply-side policy measures could increase productivity. [6]
(d) Discuss whether a fall in the international value of its currency will always benefit an economy.
[8]
© UCLES 2015 2281/21/M/J/15

PAGE 106

2281 ECONOMICS
2281/21 Paper 2 (Structured Questions), maximum raw mark 90
This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of
the examination. It shows the basis on which Examiners were instructed to award marks. It does not
indicate the details of the discussions that took place at an Examiners’ meeting before marking began,
which would have considered the acceptability of alternative answers.

PAGE 107

1 (a) Using information from the extract, identify two reasons why Sweden is considered to
be a highly developed country. [2]
One mark each for two of the following:
• high standard of living

• high average income
• skilled labour force
• high proportion of children going to university
• high level of investment
(b) Explain how a rise in the retirement age may increase a country’s economic growth
rate. [4]
• more people will be in the labour force (1) this will increase potential/long run economic
growth (1)
• if the people are employed (1) output will rise (1)
• more people will be earning an income (1) this will increase demand (1) higher demand
will encourage firms to increase their output (1)
• it will reduce the cost of pensions (1) enabling the government to spend more on e.g.
education which can promote growth (1)
• there will be more older workers (1) who may be more experienced/skilled and so more
productive (1)
(c) Using information in Table 1, describe what happened to:
(i) Sweden’s current account position over the period shown [2]
• for recognition of surplus e.g. it was in surplus throughout the period / fell at the start
and then rose / fluctuated (1)
• for a description of how the figures changed between 2008 and 2013 e.g. increases
from US$38 bn to US$40 bn / shows an increase of US$2 bn (1)
(ii) Sweden’s GDP between 2009 and 2010. [2]
• it increased (1) although current account balance remained unchanged as a

percentage of GDP it fell (1)
• it changed from $442.86 bn ($443 bn) to $455.89bn ($456 bn) (2)
(d) Explain why a country may both export and import cars. [2]
• home produced cars may be in demand abroad because of competitive prices/high

quality (1)
• may import cars to obtain a greater variety / are cheaper (1)
• may export luxury cars and import basic cars or vice versa (2)
• certain models may be exported e.g. family cars whilst other models are imported e.g.
sports cars (2)
Note: reward relevant reference to comparative advantage but do not expect it.
Note: candidates must refer to cars to gain any marks.

PAGE 108

(e) Using information from the extract, analyse how a rise in the rate of interest can
reduce inflation. [5]
• a rise in the rate of interest may reduce consumer expenditure (1) may reduce
investment (1) because the cost of borrowing will be higher (1) increase saving (1) the
return from saving will be greater (1) people/firms who have borrowed in the past will
have less to spend (1) lower demand will put downward pressure on the price level (1)
reduce demand-pull inflation (1)
• a rise in the rate of interest may attract hot money flows/financial investment into the
country (1) this will raise demand for the currency (1) higher demand for the currency will
raise the exchange rate (1) a higher exchange rate will raise export prices and lower
import prices (1) changes in the price of exports and imports will put pressure on
domestic producers to keep prices low (1) a reduction in the price of imported raw
materials will lower costs of production (1) lower costs will reduce cost-push inflation (1)
(f) Discuss whether a fall in a country’s inflation rate will increase the international
competitiveness of its products. [5]
Up to 3 marks for why it might:
• the fall in the inflation rate may mean the price of the country’s exports may be lower (1)
than the price of its rivals’ products (1) this will increase international price
competitiveness (1) this may increase demand for its products (1)
Up to 3 marks for why it might not:
• quality may be lower (1) rival countries’ inflation rates may be lower (1) inflation rates
may be lower but the initial price level may have been higher (1) a rise in the country’s
exchange rate may offset the effect of the fall in the inflation rate (1) trade protection
measures may offset the effect of the fall in the inflation rate (1)
(g) Using information from the extract, explain whether demand for IKEA’s products is
price elastic or price inelastic. [2]
• price elastic (1)

• reduction in price increased revenue (1)

PAGE 109

(h) Discuss whether growth is the main goal of most firms. [6]
Up to 4 marks for why it might be:
• growth may increase revenue (1) enabling a firm to expand overseas and become a
multinational company (1) example(s) of benefits of being an MNC (1)
• growth may reduce competition (1) a firm may grow by merging or taking over another
firm (1) will increase its market power/power to raise price (1)
• growth may reduce a firm’s costs of production (1) as it may enable advantage to be
taken of economies of scale (1) example(s) (1)
• growth can lead to higher profits in the long run (1) as it may lower costs and raise
revenue (1) this can keep shareholders happy (1)
• growth can increase the reward to directors and managers (1) who are key decision
makers in the firm’s business strategy (1)
Up to 4 marks for why it might not be:
• usually assumed profit maximisation is the main goal (1)

• firms may engage in other objectives e.g. profit satisficing (1)
• at difficult times e.g. during a recession (1) survival may be the main goal (1)
• different types of business organisation may have different goals (1) e.g. a public
corporation may seek to provide a public service (1)
• may want to avoid diseconomies of scale (1) example(s) (1)
• there are benefits of staying small (1) example(s) (1)

PAGE 110
Pag
P ge 5 Mar
M k Sch
S hemmee Sylllab
S bus Pape
P er
Cam
mbrrid
dge
e O Le
eve
el – M
May/J
Jun
ne 20
015
5 2 81
228 2
21
2 (
(a) D fine
Def e ‘o
opppo
ortu
unity
y co
ostt’. [2
2]
• (n
nex
xt) be
est altern
nattive
e (1
1) forg
f gone (1)
( ) Exp
(b) ain wh
E pla hy th
he eco
e ono
ommic
c prrob em ca
ble an ne
eve
er be
b so
olve
ed. [4
4]
• th
he eco
e onoom
mic prooblem m iss sca
s rcity (1))
• in
nfin e wants (1)) fin
nite nite
e re
esoourrce
es (1)
(
• w nts ex
wan xceed reeso ourccess (11) as
a waantts gro
g ow fas
ster th
han
n re
eso
ourrce
es/g
gro
owtth o
of res
r sou
urce
es
w nott exce
will eedd gro
g wth ho of wan
w ntss (1)
(
(c) Usiing
U g a prrod duc on po
ctio osssib
bilitty cu
urve
eddiaagra
am
m, ana
a aly
yse
e th
he efffec
ct of
o the
t e destru
ucttion
noof
s me
som e off its res
r sou
urcces an ec
s on a con
nommyy. [6
6]
U to 4 ma
Up marks
s fo
or the
t e diag
gram:
• ax
xes s corr
c recctlyy laabeelled ((1)
• origina al curv
c ve//do ownnward d slop
ping
g liine
e to
o ax
xes
s (1
1)
• ne
eww cu urvve p
preese ent (1)
• sh
hiftt to he lleftt clea
o th arly
y indic
cate
ed eittheer by
b an
a arrroww or b lab
o by belling
g (1)
U to 2 ma
Up marks
s fo
or wri
w itte
en exp
e pla
ana
atio
on:
• he de
th d strructtion
n of
o res
r ource
es wil
w l re
edu
uce e th
he maaximuum ou utp
put a cou
c unttry ca
an pro
p odu
uce
e (1
1)
• his will mov
th m ve the p ductio
e pro on po
oss
sibility
y cu
urv
ve to
t tthe
e le
eft/c
clo
ose
er to he origin
o th n (1)
© Ca
amb
brid
dge
e In
nterrnattion
nal Ex
xam
mina
atio
ons
s 20
015
5
PAGE 111

(d) Discuss whether a country will benefit from the emigration of some of its people. [8]
• emigration of dependents (1) would reduce the burden on the working population (1)
reduce government spending on benefits/pensions (1) which means government
spending on other items can increase (1)
• if there is overpopulation/population above the optimum level (1) output per head should
rise/more efficient use can be made of resources (1)
• workers who emigrate may send money back to relatives (1) this may increase living
standards (1)
• emigrants may later return to the country bringing new skills with them (1) this may raise
the productivity of the labour force (1)
• skilled workers may emigrate (1) this will reduce the quality of the labour force (1)
lowering productivity (1) discouraging multinational companies setting up in the country
(1)
• if people of working age emigrate (1) the dependency ratio will increase (1)
• if there is under-population/population below the optimum level (1) output per head
would fall/less efficient use can be made of resources (1)
• with lower output less advantage can be taken of economies of scale (1)

PAGE 112

3 (a) Define ‘equilibrium price’. [2]
• the price which equates demand and supply (2)

• market clearing price (1) which ensures no surplus or shortage (1)
• the price which will not change (1) unless market conditions change (1)
Note: award 2 marks if they show a correct diagram showing demand = supply
(b) Explain two reasons why borrowing may decrease. [4]
1 mark for identification and 1 mark for explanation:
• a rise in the rate of interest (1) will increase the cost of borrowing (1)
• a reduction in the availability of loans (1) will make it more difficult to borrow (1)
• a rise in income (1) may reduce the need to borrow (1)
• an increase in the state provision of health care/education (1) may mean that people do
not have to borrow to cover health care/education expenses (1)
• a reduction in the price of expensive items e.g. houses, cars (1) may mean that people
can buy the items without borrowing (1)
• a reduction in confidence about the future (1) may mean that people will be afraid they
will not be able to repay loans (1)
• a change in age structure (1) the young may borrow more than those of middle age (1)
• a change in social attitudes (1) it may become less acceptable to borrow (1)
• an increase in government subsidies to firms (1) may reduce the need for firms to borrow
from banks (1)

PAGE 113
Pag
P ge 8 Mar
M k Sch
S hemmee Sylllab
S bus Pape
P er
Cam
mbrrid
dge
e O Le
eve
el – M
May/J
Jun
ne 20
015
5 2 81
228 2
21
(
(c) Usiing
U g a de
emman
nd and sup
s ppply dia
agram
m, an
naly
yse wh
w y a fa
all in inco
ome
es ma
ay re
edu
uce
e th
he
m rke
ma et pri e off hou
p ice use
es. [6
6]
U to 4 ma
Up marks
s fo
or the
t e diag
gram:
• axxess acc
a cura ate
ely lab
belledd (1
1)
• deemmannd and sups pply
y curv
c ves s acc
a curaate
ely lab belled
d (1
1)
• th
he shi
s ift of
o tthe
e deem
mannd curve e to he lefft (1
o th 1)
• originaal and
a d ne ew
w eqquiilibriumss in
ndic
catted
d eiitheer by lin
nes
s to
o th
he a es or eq
axe quilibrrium
m pric
p cess
cllea
arly
y highhlighte
ed (1))
U to 2 ma
Up marks
s fo
or wri
w itte
en ana
a aly
ysis
s:
• a fall in
n in
nco
ome red
r duc
cess pu
urc
cha
asinng po
owe er/aabilityy to
o sp
pen
nd (1)
• due to low we d mand, prod
er dem cerrs low
duc werr prrice
e (1
1)
© Ca
amb
brid
dge
e In
nterrnattion
nal Ex
xam
mina
atio
ons
s 20
015
5
PAGE 114

(d) Discuss whether the building of houses should be subsidised. [8]
Up to 5 marks for why they should be:
• subsidising houses will provide an incentive to build houses (1) increase the supply of
houses (1) reduce the price of houses (1) this may make it easier for the poor to buy
houses (1) increase the quality of the lives of the poor (1)
• subsidising houses will increase economic activity (1) to produce more houses would
require more labour (1) this would reduce unemployment (1)
• housing is a necessity (1) so building more houses may reduce poverty/homelessness
(1)
Up to 5 marks for why they should not be:
• would involve an opportunity cost (1) government spending could be used on other
areas e.g. education/health care (1)
• may generate external costs (1) for example, pollution and destruction of the natural
environment (1)
• there may be no demand for extra houses (1) in this case there will be an oversupply of
houses/inefficient use of resources (1)
• building firms may become reliant on subsidies (1) and this increase inefficiency (1)

PAGE 115

4 (a) Define ‘multinational company’. [2]
• a company that has its headquarters/is based in a country (1) but produces in a number
of countries (1)
(b) Explain why governments may discourage strikes. [4]
• strikes disrupt output/service provision (1) this may result in customers being lost (1)
• increase firms’ costs of production (1) and lose international competitiveness (1)
• lower output/incomes/GDP (1) and therefore lower living standards (1)
• may reduce exports (1) and so harm the balance of payments position (1)
• may cause unemployment (1) leading to higher spending on welfare benefits (1)
• may discourage FDI (1) and job opportunities (1)
• lower output will reduce tax revenue (1) and so reduce the government’s ability to spend
(1)
(c) Analyse three reasons why trade union membership may decrease in a country. [6]
• trade union subscriptions may increase (1) making it more expensive for people to join a
trade union (1)
• legislation may reduce the power of trade unions (1) this would make membership less
valuable (1)
• employers may not recognise trade unions/be reluctant to employ members of trade
unions (1) this may make people reluctant to join as it would reduce their employment
opportunities
• unemployment may mean that there are fewer people in employment to belong to trade
unions (1) it will weaken the power of trade unions (1)
• in a boom period/high level of economic activity (1) workers may gain wage rises/better
working conditions without belonging to a trade union (1)
• workers may be satisfied with pay and conditions (1) may not agree with actions of trade
union (1)
• government action to improve the pay and/or conditions of workers e.g. introduction of
national minimum wage (1) reduces the need for collective bargaining (1)
(d) Discuss whether a rise in the wages a firm pays would reduce its profits. [8]
• higher wages will mean a higher wage bill (1) if output does not increase by more than
wages, labour costs per unit will increase (1) costs of production will increase (1) profit is
revenue minus costs (1) with higher costs and the same revenue, profit will fall (1)
• paying higher wages may prevent strikes (1) this can reduce costs of production (1)
• higher wages may motivate workers (1) this can increase productivity (1) reduce costs of
production (1)
• higher wages may make it easier to recruit workers (1) this can reduce costs of
production (1)
• higher wages may make it easier to recruit skilled workers (1) this will raise productivity
(1) reduce costs of production (1)
• other costs may be falling (1) e.g. rent, corporation tax (1)
• demand for the firm’s products may be increasing (1) this will raise revenue (1)
• higher wages may be paid to a smaller labour force (1) reducing the wage bill (1)

PAGE 116

5 (a) What is meant by ‘tax’? [2]
• a payment/finance (1) to the government/local authority (1) example e.g. sales tax/
income tax (1)
(b) Explain two reasons why an increase in unemployment may reduce tax revenue. [4]
• higher unemployment will reduce people’s incomes (1) this will reduce the amount of
income tax paid (1)
• higher unemployment will reduce the amount people spend/reduce demand for goods
and services (1) this will reduce indirect tax revenue (1)
• higher unemployment will reduce firms’ revenue (1) this will reduce corporation tax
revenue (1)
• the existence of unemployment may encourage government to cut tax rates (1) in an
attempt to reduce unemployment (1)
(c) Analyse two reasons why unemployment may increase. [6]
Up to 4 marks for one reason analysed.
• a fall in total (aggregate demand) (1) will cause firms to reduce their output (1) lower
their need for labour (1) increase cyclical unemployment (1)
• a reduction in the skills/mobility of workers (1) may result in firms being unable or
unwilling to employ workers (1) leading to structural unemployment (1)
• a rise in unemployment benefits (1) may lead to workers taking longer moving between
jobs/less willing to search for work (1) causing an increase in frictional/voluntary
unemployment (1)
• an increase in a country’s exchange rate (1) will make exports more expensive and
imports cheaper (1) this will reduce international competitiveness (1) reduce demand for
labour in affected industries (1) cause international/structural unemployment (1)
• a rise in wages above the equilibrium level (1) this may be the result of industrial action/
imposition of a national minimum wage (1) workers may be replaced by machines (1)
firms may reduce the size of their labour forces in order to cut costs of production (1)
• advances in technology (1) may make certain skills redundant (1) leading to structural
unemployment (1)

PAGE 117

(d) Discuss whether a reduction in government spending on education will reduce living
standards. [8]

• it may reduce the quality/availability of education (1) this could reduce the skills of
workers (1) lower their chances of getting a job (1) getting a well-paid job (1) reduce
income (1) reduce goods and services people can enjoy (1)
• it may reduce people’s access to knowledge about good nutrition/health care (1) this
could increase illness (1) lower life expectancy (1)
• a less skilled labour force (1) may discourage multinational companies setting up in the
country (1) this could reduce employment opportunities/reduce wages (1) reduce
incomes (1) reduce goods and services people can buy (1)
• a reduction in government spending e.g. education may reduce aggregate demand (1)
lower aggregate demand may reduce output and incomes (1)
• it will reduce the country’s HDI value (1) which is an indicator of living standards
• instead of spending money on education, the government might spend money on e.g.
health care (1) a healthier population can enjoy life more and live longer (1) a healthier
labour force may raise productivity (1) increase wages (1) increase the goods and
services people can buy (1) this could increase the HDI value (1)
• instead of spending money on education, the government might spend money on e.g.
infrastructure (1) better infrastructure can reduce firms’ costs of production (1) make
domestic firms more internationally competitive (1) encourage firms to expand (1) raise
employment (1) increase incomes (1) increase the goods and services people can buy
(1)
• a country’s birth rate may be falling (1) so there may be fewer children in education (1)
the amount spent per child may still be rising (1) improving productivity (1) raising wages
(1) increasing consumption (1)
• less may be spent but it might be spent more effectively (1) this will raise the quality of
education (1) raise productivity (1) raising employment (1) increasing consumption (1)

PAGE 118

6 (a) Define ‘birth rate’. [2]
• the number of births per 1,000 of the country’s population per year (2)
• the number of births per 1,000 of the country’s population (1)
(b) Explain two causes of a high birth rate. [4]
• a high infant mortality rate (1) people having a high number of children not expecting all
of them to live (1)
• a lack of financial support for the elderly (1) people having children to support them in
old age (1)
• women marrying at a young age (1) giving them longer time in which to have children (1)
• a young population (1) with a high proportion of people of child bearing age (1)
• a lack of availability/willingness to use contraception (1) resulting in more births than
planned (1)
• not many women working (1) not restricting the number of children they have in order to
follow a career (1)
• a lack of education (1) reduces knowledge of contraception/cost of bringing up children/
proportion of women working (1)
• government incentives to have children (1) high state benefits would increase willingness
and ability of people to have children
(c) Analyse how an increase in the size of farms may affect the cost of producing food.
[6]
• larger farms may produce higher output (1) this will increase total cost (1)
• larger farms may be able to take advantage of economies of scale (1) examples of
economies of scale available to farmers e.g. buying (purchasing seed in bulk), technical
(using e.g. combine harvesters), managerial (specialist workers e.g. shepherds) up to (2)
will lower average costs (1)
• larger farms may experience diseconomies of scale (1) examples e.g. worse labour
relations (1) will increase average costs (1)
• larger farms are likely to have higher fixed and variable costs (1) but their average fixed
costs are likely to be lower (1) as these costs will be spread over a higher output (1) their
average variable costs may be lower due to economies of scale/or higher due to
diseconomies of scale (1)

PAGE 119

(d) Discuss whether a reduction in its imports will always benefit an economy. [8]
• a reduction in imports may improve the trade in goods/trade in goods and services
balance (1) this will improve the current account position/reduce a current account deficit
(1) this may reduce a country’s debts (1) avoid downward pressure on the exchange rate
(1)
• spending on imports may be replaced by spending on domestically produced products
(1) this would increase the country’s output/cause economic growth (1) this would
increase demand for labour (1) raise employment/reduce unemployment (1) increase
incomes and living standards (1)
• fewer imports may enable infant industries to grow (1) may protect declining strategic
industries (1)
• may prevent dumping (1) explanation of what is meant by dumping (1)
• imports of capital goods/raw materials may decline (1) these might be cheaper/lower
quality than domestically produced capital goods and/or raw materials (1) this will raise
costs of production (1) make the country’s products less internationally competitive (1)
lower output/reduce economic growth (1) worsen the current account position (1) raise
unemployment (1)
• fewer imports may reduce choice (1) reduce competition (1) may raise prices (1) lower
quality of people’s lives (1)
• exports may be falling by more than imports (1) so current account position may be
worsening (1)
• quantity of imports may be falling but value of imports may be rising (1)
• if the reduction is caused by protectionist measures (1) this would reduce benefits of free
trade (1)

PAGE 120

7 (a) Define ‘recession’. [2]
• fall in a country’s output/GDP (1) over a period of six months/two successive quarters (1)
(b) Explain two reasons why an economy may have a high foreign exchange rate. [4]
• a high demand for the currency (1) this may arise from e.g. good quality/lower price of
exports/speculation that the currency will rise in the future (1)
• a low supply of the currency (1) due to, for instance, a low demand for imports/a low
level of investment abroad (1)
• government setting a high exchange rate (1) by buying the currency/raising the
exchange rate (1)
(c) Analyse how supply-side policy measures could increase productivity. [6]
Up to 4 marks for any one policy measure analysed:
• improved education/training (1) may raise workers’ skills (1) increase output per worker
hour (1)
• privatisation (1) may increase competitive pressure on firms to keep costs low (1)
encourage more investment (1) increase output per factor hour (1)
• reforming trade unions (1) may reduce restrictive practices (1) this may allow firms to
use their workers more efficiently (1) increase output per worker hour (1)
• cutting corporation tax (1) may increase profit (1) increase investment (1) increase
output per factor hour (1)
• giving subsidies (1) to encourage firms to invest in advanced technology, engage in
research and development and/or train workers (1)
(d) Discuss whether a fall in the international value of its currency will always benefit an
economy. [8]
• it will lower export prices (1) and raise import prices (1) make domestic products more
internationally competitive (1) this may raise export revenue and lower import
expenditure (1) if demand for exports and imports is elastic (1) this may improve the
current account position/reduce a current account deficit (1)
• producing more domestic products (1) may raise output/GDP (1) cause economic
growth (1) raise employment/reduce unemployment (1) increase income (1) and living
standards (1)
• if the value was being maintained by the government above the equilibrium level (1)
reserves of foreign currency may not now have to be used (1) these could be used for
another purpose (1) interest rate may not have to be as high (1) a lower interest rate
may stimulate economic activity (1)
• higher import prices may cause inflation (1) raise costs of raw materials (1) increase
costs of production (1) put less downward pressure on domestic firms to be price
competitive (1)
• lower prices of exports may be offset by low quality of exports (1) fall in incomes abroad
(1) increase in trade restrictions imposed by foreign governments (1)
• demand for exports and imports may be price inelastic (1) in this case export revenue
may fall (1) and import expenditure may rise (1)

PAGE 121

ECONOMICS 2281/22
2 hours 15 minutes
* 0 1 5 2 2 8 9 2 1 8 *
Section A
Answer Question 1.
Section B
DC (ST/CGW) 109049
PAGE 122
Section A
1 Peru and Panama
Between 2005 and 2012, Peru and Panama experienced the fastest economic growth rates in the
Americas. The two countries differ in the size of their populations and the size of their economies. In
2013, Peru had a population of 30 million and a Gross Domestic Product (GDP) of US$340 billion.
In contrast, Panama had a population of 3.6 million and a GDP of US$60 billion. Life expectancy
was higher in Panama with people, on average, living three years longer than in Peru.
Between 2008 and 2013, Peru had an average annual inflation rate of 2.7%. This was, in part
because of careful control of the country’s interest rate and exchange rate by Peru’s Central Bank.
Panama does not have a central bank and experienced a different average annual inflation rate
(see Fig. 1).
Fig. 1: The inflation rate in Panama, 2008–2013
10
8
inflation 6
rate (%) 4
2
0
2008 2009 2010 2011 2012 2013
years
Between 2008 and 2013, the unemployment rate fell more in Panama than in Peru. The decline in
Panama’s unemployment rate was largely due to the building work being undertaken on a seven-
year project to enlarge the Panama Canal. The lower unemployment rate enjoyed by Panama was
one of the reasons why the level of poverty was lower than in Peru in 2013.
Peru experienced a trade in goods surplus whilst Panama had a trade in goods deficit. Both
countries export gold and fish and import oil and cars. For both countries, the USA, China and
Japan are important trading partners.
About 75% of workers in Peru are employed in the service (tertiary) sector compared with
80% in Panama. Among Panama’s key service industries are insurance and banking. Panama
has the largest insurance market in Central America. The number of companies in the market,
including multinational companies, is increasing. This is making the market more competitive.
Multinational companies also operate in the country’s banking sector. It has a number of private
sector commercial banks. It does not have a central bank and, therefore, does not have direct
government regulation of its banking sector. Recent years have seen an increase in the average
size of the commercial banks. There is some debate about whether larger banks benefit their
customers.
© UCLES 2015 2281/22/M/J/15

PAGE 123
(a) Using information from the extract, identify two reasons why Panama had a higher Human
Development Index (HDI) value than Peru in 2013. [2]
(b) Using information in Fig. 1:
(i) describe what happened to the price level in Panama between 2008 and 2009 [2]
(ii) explain in which year the price level was highest in Panama. [2]
(c) Using information from the extract and in Fig. 1, explain the likely effects of Peru and Panama
having different average annual inflation rates between 2008 and 2013. [4]
(d) Discuss whether a fall in the unemployment rate will reduce poverty. [5]
(e) Analyse why countries specialise and trade. [5]
(f) Using information from the extract, describe two functions of a central bank. [4]
(g) Discuss whether the growth of a commercial bank will benefit its customers. [6]

PAGE 124
Section B
2 Students have to consider the opportunity cost of going to university. University graduates usually
earn more than people who have not gone to university. Having more graduates influences a
country’s production possibility curve. Some economists suggest that students should pay the full
cost of their university courses and accommodation. Others say that the government should pay
some or all of the cost.
(a) Describe a possible opportunity cost of a student going to university. [2]
(b) Explain why university graduates usually earn more than people who have not gone to
university. [4]
(c) Using a production possibility curve diagram, analyse what effect an increase in the number
of graduates will have on an economy. [6]
(d) Discuss whether graduates should pay the full cost of their university education. [8]
3 China is the world’s largest producer of gold and India is the world’s largest buyer of gold. Gold
mining in China is becoming more capital-intensive which is making the supply of gold less price
inelastic. The wages of workers employed in the industry are rising but other costs of production
are falling.
(a) What is meant by an industry being ‘capital-intensive’? [2]
(b) Explain two reasons why the supply of a product may be price inelastic. [4]
(c) Analyse what effect an increase in output will have on fixed, variable and average costs. [6]
(d) Discuss whether a rise in the wages paid by an industry will encourage more people to work
in that industry. [8]
4 Chile produces a third of the world’s supply of copper. A change in demand for, or supply of,
copper affects Chile’s Gross Domestic Product (GDP) and the current account position on its
balance of payments.
(a) Define ‘Gross Domestic Product’. [2]
(b) Explain two benefits of an increase in Gross Domestic Product. [4]
(c) Using a demand and supply diagram, analyse the effect of an increase in the costs of
producing copper on the market for copper. [6]
(d) Discuss whether a rise in demand for copper would cause Chile to experience a current
account surplus. [8]
© UCLES 2015 2281/22/M/J/15

PAGE 125
5 Both the annual inflation rate and the economic growth rate fell in Pakistan between 2012 and
2013. Some economists suggested that the Government should try to lower inflation further by
reducing government spending. Lower inflation might increase economic activity and reduce
unemployment.
(a) Define ‘unemployment’. [2]
(b) Explain two causes of economic growth. [4]
(c) Analyse why a fall in the inflation rate may reduce a country’s unemployment rate. [6]
(d) Discuss whether a decrease in government spending will reduce inflation. [8]
6 Poland is experiencing changes to its population and economy. The country’s death rate is falling.
Despite Poland’s high unemployment rate, more people are migrating to the country, especially
from Spain and Italy. Poland is moving closer to a market economy with an increasing proportion
of its labour force employed in the private sector.
(a) Define ‘death rate’. [2]
(b) Explain two causes of a fall in a country’s death rate. [4]
(c) Analyse why people may migrate to a country with a high unemployment rate. [6]
(d) Discuss whether the advantages of a market economy are greater than its disadvantages.
[8]
7 The Mexican economy has recently been performing well. Its monetary policy has lowered inflation
which has helped money in the country perform its functions more efficiently. The level of efficiency
of a country’s industries is influenced by a range of factors. These include the use of division of
labour and the level of the country’s trade protection.
(a) Define ‘monetary policy’. [2]
(b) Explain two functions of money. [4]
(c) Analyse why engaging in division of labour may increase a firm’s costs of production. [6]
(d) Discuss whether a reduction in a country’s trade protection will improve its economic
performance. [8]
© UCLES 2015 2281/22/M/J/15

PAGE 126

2281 ECONOMICS

PAGE 127

1 (a) Using information from the extract, identify two reasons why Panama had a higher
Human Development Index (HDI) value than Peru in 2013. [2]
• higher GDP per head/average income (1)

• higher life expectancy (1)
(b) (i) Using information in Fig. 1, describe what happened to the price level in Panama
between 2008 and 2009. [2]
The price level rose (1) at a lower rate in 2009/at a higher rate in 2008 (1).
(ii) Using information in Fig. 1, explain in which year the price level was highest in
Panama. [2]
2013 (1) as price level rose every year/there was inflation throughout the period (1)
(c) Using information from the extract and in Fig. 1, explain the likely effects of Peru and
Panama having different average annual inflation rates between 2008 and 2013. [4]
• the average inflation rate was higher in Panama (1) it was approximately 5% in
Panama (1)
• the implication is that Panama’s inflation rate is less stable than Peru’s (1) an unstable
inflation rate can make planning more difficult/may discourage investment and saving (1)
• a higher inflation rate may make a country’s products less internationally competitive (1)
worsening the trade position (1)
• a higher inflation rate may discourage MNCs setting up in the country/discourage
investment (1) reducing potential output/employment (1)
• a higher inflation rate may result in greater costs to consumers (1) lower purchasing
power (1)
• a higher inflation rate may create costs for firms (1), e.g. administrative costs (1)
• a higher inflation rate may disadvantage savers (1) but reward borrowers (1)
• a higher inflation rate may increase unemployment (1) increasing costs of
unemployment/result of lower demand for products (1)
• a higher inflation rate may reduce unemployment (1) if it is the result of increased total
demand (1)
• a higher inflation rate may indicate a less successful monetary policy (1), e.g. not good
use of interest rate/exchange rate/money supply changes (1)
Note: candidates may answer the question by explaining the benefits to Peru of having a
lower inflation rate.
Note: 1 mark is reserved for recognising higher inflation in Panama/lower inflation rate in
Peru.

PAGE 128

(d) Discuss whether a fall in the unemployment rate will reduce poverty. [5]

• a lower unemployment rate may mean that more people are in work (1)
• more employment may mean higher incomes (1) more people earning may reduce
relative poverty (1)
• more people will have access to basic necessities/enjoying more goods and services (1)
being able to enjoy more products may increase living standards (1) access to more
goods and services should reduce absolute poverty (1)
• more people will be able to afford education/health care (1) increasing their earning
potential and the earning potential of their children (1)
• lower unemployment can increase tax revenue/reduce spending on welfare benefits (1)
government may be able to spend more on, e.g. education and health care, which can
reduce poverty (1)

• a fall in unemployment may not increase the number of people employed (1) the rate
may have fallen because some of those who were previously unemployed may have
retired/emigrated/entered education (1)
• a reduction in unemployment may raise the wages of skilled workers more than unskilled
workers (1) increasing relative poverty (1)
• the resulting higher demand may result in inflation (1) wages may rise by less than
prices (1) leading to a fall in real incomes (1) which may increase poverty (1)
• other causes of poverty may increase (1), e.g. increase in sickness/increase in the
number of dependants/reduction in skills (1)
• some people may earn very low wages (1) which may be less than they received in
benefits (1)
(e) Analyse why countries specialise and trade. [5]
• specialising allows countries to concentrate on what they are best at (1) influenced by
factor endowment (1)
• specialisation can reduce the (average) costs of production (1) raise productivity (1)
efficiency (1) enabling lower prices to be charged (1)
• specialisation could increase export revenue/improve trade position (1)
• specialisation can increase output/income/GDP (1)
• specialisation can improve the quality of output (1)
• higher output/income/GDP may raise living standards (1)
• increasing the size of the market (1) can lead to economies of scale (1)
• countries may import products from countries that can produce them more efficiently (1)
• countries may import products to gain a greater variety of goods and services (1)
• countries may import products they cannot produce themselves (1)
Note: reward reference to comparative advantage and/or absolute advantage (max 2 marks)
but do not expect it.

PAGE 129

(f) Using information from the extract, describe two functions of a central bank. [4]
One mark for each of two relevant identifications and one mark for each of two explanations:
• may set interest rates/operates monetary policy (1) to influence the level of demand in
the economy/keep inflation rate within target (1)
• may influence the exchange rate (1) by buying and selling the currency/using reserves/
changing the interest rate (1)
• regulates the banking system (1) it will try to ensure banks follow sound policies (1)
(g) Discuss whether the growth of a commercial bank will benefit its customers. [6]

• a larger commercial bank may be more financially sound (1) less likely to go out of
business (1)
• a larger bank may have more funds available (1) this may enable customers to borrow
more (1)
• a larger commercial bank may be able to take advantage of economies of scale (1)
example (1) this will reduce costs of production (1) with lower costs, the bank may lower
the interest it charges borrowers/reduce prices to customers (1) increase interest rate it
pays savers (1)
• a larger bank may open more branches (1) have longer opening hours (1)
• a larger bank may be more able to invest in new technology (1), e.g. online banking (1)
• a larger commercial bank may offer a greater range of services (1) a better quality of
services (1) take greater advantage of risk bearing economies of scale (1)

• a larger commercial bank may have more market power/may have become a monopoly
(1) it may have grown by eliminating competition (1) this may result in it charging higher
interest to borrowers/increase price (1) lower interest rate it pays to savers (1) lower the
quality of its services (1)
• a larger commercial bank may experience diseconomies of scale (1) example (1) this will
raise costs of production (1) this may lead the bank to increase interest rate charged to
borrowers/price (1) lower the interest rate it pays savers (1) reduce quality of services (1)

PAGE 130
Pag
P ge 5 Mar
M k Sch
S hemmee Sylllab
S bus Pape
P er
Cam
mbrrid
dge
e O Le
eve
el – M
May/J
Jun
ne 20
015
5 2 81
228 2
22
2 (
(a) D scrribe a pos
Des p ssible
e opp
o porrtunitty cos
c st of a stu
s ude
entt goin
ng to un
niv
verrsitty. [2
2]
• oppoorttunity co
ost is the
e (n
nexxt) beest altternattive
e fo
org
gonne (1))
• ge g a job
etting b/e
earrnin
ng a livin wer outp
ng//low putt in the ssho
ort run
n (1)
( ) E
(b) Exp
pla
ain wh hy un
niv
vers
sitty gra
g adu
uattes
s us
sually ear
e rn mo
ore
e th
han
n peo
p oplle wh
who ha
ave
e no
ot go
one
e to
o
u ve
uni ersiity. [4
4]
• grad
duaate
es a
are
emmore e liike
ely to
t be skkille
ed (1)) th
his ma akees the em
mm more p ductivve (1)
e pro
• grad
duaate
es a
are
e lik
kely
y toobbe mo
more hig ghly qua
q aliffied
d (11)
• grad
duaate
es a
are
e lik
kely
y toobbe in
i hig
h ghe
er ddemmand (1) d demman nd forr seerv
vice
es mo oree in
nela
asttic (1))
• grad
duaate
es a
are
e lik
kely
y toobbe in
i sho er supply (1)
s orte ( su upp ply mo ore
e in
nela
asttic (1))
• grad
duaate
es m
may belo
b ong to stros onggerr prrofe
ess
sioona al b
boddiess/trrad
de u
uniion ( wh
ns (1) hich hav
h ve
grea
ater barg
b gaiininng poowe er (1)
(
(
(c) Usiing
U g a prrod duc on po
ctio osssibbilitty cu
urve
eddia
agra
amm, ana
a aly
yse
e wha
w at e ectt an inc
effe crea e in the
ase t e
n mb
num berr off grad
duaate
es will h
havve on n an e
ecoono
ommy. [6
6]
U to 4 ma
Up marks
s fo
or the
t e diag
gram:
• ax
xes s corr
c recctlyy la
abeelled ((1)
• origina al curv
c ve//do own nward d slopping
g to
o the ax
xes
s and touchin ng the
t e ax s (1)
xes
• ne
eww cu urvve p
preeseent (1)
• sh
hiftt to
o th ht ind
he rrigh dicaate
ed eith
e herr by
yaan arr
a row
w or la
abe
ellin
ng (1))
Up to 2 ma
U markss fo
or the
t ewwritttenn an
nallys
sis:
• mor
m re gra
g aduuatees will in
ncrrea
asee th
he ski
s lls//pro
odu
ucttivity of wo
workeerss (1
1)
• with
w a hig ghe er qua o labour, a c
q alitty of cou
untrry will
w l be
e ccappab oduciing
ble of pro gmmorre/there willl b
be
ec
connom
miccggrowwth
h (1)
© Ca
amb
brid
dge
e In
nterrnattion
nal Ex
xam
mina
atio
ons
s 20
015
5
PAGE 131

(d) Discuss whether graduates should pay the full cost of their university education. [8]
Up to 5 marks for why they should:

• graduates will learn new skills/gain qualifications (1) their employment opportunities are
likely to increase (1) they are likely to earn a high wage (1) the private benefits of
education are likely to be high (1)
• subsidising graduates involves an opportunity cost (1) requiring students to pay the full
cost may enable more to be spent on, e.g. health care (1) government has limited
finance (1)
• subsidising graduates may result in a budget deficit (1) or high taxes (1)
• charging the full cost may ensure prospective students consider the opportunity cost to
themselves carefully (1)
• some graduates may come from relatively rich families (1) and so may not need to be
helped (1)
• some graduates may emigrate (1) and so other countries may receive the benefit (1)
Up to 5 marks for why they should not:

• more educated labour force (1) leading to higher output (1) reduced unemployment (1)
increased living standards (1) generating external benefits (1) increasing tax revenue in
the long run (1)
• people from poor families may not be able to afford the cost (1) this could reduce the
number of graduates (1) lowering potential output (1) increasing income inequality (1)
• there is an argument for the government paying part of the cost (1), e.g. based on the
ability to pay (1)
3 (a) What is meant by an industry being ‘capital-intensive’? [2]
An industry which has a high amount of capital/machinery compared with the amount of
other factors, e.g. labour employed (2)
An industry which uses a large amount of capital/uses capital instead of labour (1)
(b) Explain two reasons why the supply of a product may be price inelastic. [4]
• long production period (1) this will make it difficult to adjust supply quickly (1)
• inability to store the product (1) this means goods cannot be taken out of storage to meet
higher demand (1)
• time period under consideration (1) supply is more inelastic in the short run (1)
• if there is a shortage of the raw material (1) it will be difficult to supply more in response
to a rise in demand/price (1)

PAGE 132

(c) Analyse what effect an increase in output will have on fixed, variable and average
costs. [6]
• fixed costs will remain unchanged (1) these costs do not change with output (in the short
run) (1) example of a fixed cost (1) costs which are still present when output is zero (1)
up to 2 marks
• variable costs will rise (1) vary with output (1) example of a short run variable cost (1) all
costs are variable in the long run (1) up to 2 marks
• effect on average cost is uncertain (1) average cost may fall if economies of scale are
experienced (1) average cost may rise if diseconomies of scale are experienced (1) up
to 2 marks
Note: maximum of 2 marks for each type of cost.
(d) Discuss whether a rise in the wages paid by an industry will encourage more people
to work in that industry. [8]
Up to 5 marks for why more people may be encouraged:
• higher wages enable workers to enjoy more goods and services (1) increase living
standards (1)
• higher wages enable people to borrow more (1) banks are more likely to lend to high
earners (1)
• higher wages will enable workers to save more (1) increase ability to, e.g. finance
children’s education/provide for retirement (1)
• higher wages may motivate some workers to work in the industry/wages are a key
influence (1) increase workers’ self esteem (1)
• workers will be encouraged to switch from other industries (1) to undertake training to
work in the industry (1) to gain the necessary qualifications to work in the industry (1)
Up to 5 marks for why people may not be encouraged:
• wages may still be below those in other industries (1)

• earnings may be higher in other industries (1) because of, e.g. higher bonuses or
overtime payments (1)
• workers may not be aware of the wage rise (1)
• workers may lack the appropriate skills/qualifications (1)
• workers take into account other factors/non-pecuniary factors (1)
• may not work in that industry in that industry if, e.g. working hours are longer, holidays
are shorter, worse working conditions, less chance of promotion, lower pensions, fewer
fringe benefits, less job security, less job satisfaction, industry is based some distance
away (maximum of 3 marks for reasons identified).

PAGE 133

4 (a) Define ‘Gross Domestic Product’. [2]
Output/total output (1) produced in a country (1)
(b) Explain two benefits of an increase in Gross Domestic Product. [4]
One mark each for each of two benefits:

• higher living standards
• higher employment
• more tax revenue
• less government spending on benefits
• more exports
• reduced poverty
One mark each for each explanation:

• higher living standards as people can consume more goods and services (1) reduces
poverty (1)
• higher employment as more workers will be needed to produce the higher output (1)
• more tax revenue as higher incomes will generate more direct tax revenue (1) higher
spending will generate more indirect tax (1) more tax revenue can increase government
spending on, e.g. health care and education (1)
• less government spending on unemployment benefit would enable the government to
spend more on other items (1)
• higher exports if demand is present in other countries (1)
• reduced poverty as incomes will rise (1)

PAGE 134
Pag
P ge 9 Mar
M k Sch
S hemmee Sylllab
S bus Pape
P er
Cam
mbrrid
dge
e O Le
eve
el – M
May/J
Jun
ne 20
015
5 2 81
228 2
22
(
(c) Usiing
U g a de
emmannd and sup
s pp
ply dia
agramm, annaly
yse the
t e efffect of an
n in
ncrrea
ase
e in
n th
he co
ostts o
of
p odu
pro ucing oppe
g co er on
o theem
marke et for
f r co
op
ppeer. [6
6]
U to 4 ma
Up marks
s fo
or the
t e diag
gram:
• xes
ax s acc
a curaate
ely lab
belledd, e.g
e . price ea andd quantity/P and
a d Q (1
1)
• de
emman nd and sup
s pply
y curv
c ves s la
abe ed accurattely
elle y (1
1)
• sh
hiftt off su
upp
ply
y cu
urve to
t tthe e left (1)
(
• origina al and
a d ne
ew
w eqquiilibrium po ointts cclea
arly
y in
ndicatedd (1
1)
Up to 2 ma
U marks s fo
or wri
w itte
en exp
e pla
ana atio
on:
• high her coostss will
w ca aus se a dec
d crea asee in
n sup
s pply
y (1
1)
• price e will
w be e exxpe ectted
d to
o ris
se an q antity
nd qu y (trad
ded f (1)
d) fall
© Ca
amb
brid
dge
e In
nterrnattion
nal Ex
xam
mina
atio
ons
s 20
015
5
PAGE 135

(d) Discuss whether a rise in demand for copper would cause Chile to experience a
current account surplus. [8]

• buyers may chose to buy copper from Chile (1) if Chilean copper is price competitive (1),
e.g. due to low exchange rate (1) quality competitive (1) higher demand may increase
exports (1) this may increase export revenue (1) higher export revenue may improve the
trade in goods position (1) an improved trade position may turn a deficit into a surplus (1)
or increase a surplus (1)

• the demand for copper may be the result of a fall in the price of copper (1) more may be
purchased but export revenue may fall (1)
• the demand for copper may rise but it may not be possible to supply more (1) as, e.g.
mines may be working at full capacity/there may be a lack of skilled workers (1)
• other countries may have become more price (1) or quality competitive (1) so the rise in
demand may affect other countries’ current account positions (1)
• Chile may have a large current account deficit (1) so even with higher export revenue, a
surplus may not be generated (1)
• a trade in goods surplus may be offset by an increasing deficit/lower surplus on another
part of the current account (1), e.g. trade in services position may deteriorate (1) or by a
rise in imports (1)
• higher demand for copper may increase demand for labour (1) this could push up wages
(1) increasing costs (1) making Chilean copper less competitive in the longer run (1)
• higher demand for copper may push up the exchange rate (1) and so may, in the longer
run, reduce a surplus (1)
5 (a) Define ‘unemployment’. [2]
People without jobs (1) who are willing/able to work/who are members of the labour force/
economically active (1)
(b) Explain two causes of economic growth. [4]

• improvements in education or other supply-side policy (1) may raise the quality of
resources/this will increase productive capacity (1)
• advances in technology (1) will increase total demand/productive capacity (1)
• net investment/MNCs entering the country (1) will increase total demand/productive
capacity (1)
• increase in net exports (1) will increase total demand (1)
• a consumer boom (1) will increase total demand/which will encourage firms to produce
more (1)
• expansionary fiscal or monetary policy (1) may increase total demand/which may make
use of previously unused resources (1)
• increase in size of labour force/employment rate (1) will increase total
demand/productive capacity (1)
• fall in unemployment (1) will increase total demand (1)
• discovery of minerals (1) more raw materials will enable firms to produce more (1)

PAGE 136

(c) Analyse why a fall in the inflation rate may reduce a country’s unemployment rate. [6]
• a fall in the inflation rate may make the country’s products more internationally
competitive (1)
• purchasing power will be higher than in the case of a higher inflation rate (1)
• demand for the country’s products may increase (1)
• to produce more, a higher number of workers will be employed (1)
• cyclical unemployment may fall (1)
• a lower inflation rate may reduce the growth in wage rates (1) this may encourage firms
to take on more workers (1)
• a lower inflation rate may attract multinational companies to set up in the country (1) this
may create new jobs (1)
• a lower inflation rate may enable a country to have a lower interest rate (1) this would
reduce the cost of borrowing/may encourage investment/encourage more total
demand (1)
(d) Discuss whether a decrease in government spending will reduce inflation. [8]

• lower government spending is contractionary fiscal policy (1) it will reduce demand for
goods and services (aggregate demand) (1)
• lower demand may discourage firms from raising prices (1) reduce demand-pull inflation
(1)
• lower government spending may increase unemployment (1) this could put downward
pressure on wages (1) lower cost-push inflation (1)

• lower government spending on education and health care (1) may reduce the quality of
the labour force (1) this could lower productivity (1) raise wage costs (1) cause cost-push
inflation (1)
• lower government spending on infrastructure (1) will increase firms’ transport costs (1)
causing cost-push inflation (1)
• lower government spending may be offset by other causes of inflation (1), e.g. a lower
exchange rate/consumer boom (1)
• reduction in government subsidies to firms (1) will raise costs of production (1) causing
cost-push inflation (1)
• inflation may be caused by other factors (1) identification of another cause (1) policy
measure to correct other cause (1) explanation of how policy measure would work (1)

PAGE 137

6 (a) Define ‘death rate’. [2]
The number of deaths per 1,000 of the country’s population per year (2)
The number of deaths per 1,000 of the country’s population (1)
(b) Explain two causes of a fall in a country’s death rate. [4]
• improvements in nutrition (1) will improve the health of the population (1)
• improvements in medical care (1) will enable people to live longer/due to, e.g. better
hospitals (1)
• improvements in education (1) may result in more informed choices on, e.g. diet and
exercise (1)
• improvements in housing (1) will reduce number of people suffering from a range of
illnesses (1)
• improvements in working conditions (1) reduce accidents at work/improve health of
workers (1)
• reduction in/end of military conflicts (1) reduce number of casualties (1)
• improvements in sanitation (1) reduce the risk of disease (1)
• improvements in water quality (1) reduce the risk of disease (1)
• people following a healthier lifestyle (1), e.g. giving up smoking (1)
• increase in income (1) people may be able to afford a healthier lifestyle/better living
standard (1)
(c) Analyse why people may migrate to a country with a high unemployment rate. [6]
• the unemployment rate may still be below that in the countries they are migrating from (1)
• the unemployment rate may be falling whilst it may be rising in their own countries (1)
• there may still be job vacancies in areas that they have skills in (1)
• people may move to set up a firm (1) as wage cost may be lower (1)
• living conditions (1), e.g. health care/education may be better in the country (1)
• people may be escaping persecution/wars/famines or moving due to family ties (1)
• people may not be aware of the high unemployment rate (1)
• there may be fewer restrictions on migrating to the country than to other countries (1)
• unemployment benefits may be higher in the country (1)
• the people may be rich and not have to work (1) and may be attracted by lower prices in
the country (1)

PAGE 138

(d) Discuss whether the advantages of a market economy are greater than its
disadvantages. [8]
Up to 5 marks for the advantages:

• consumer sovereignty (1) consumers determine the goods and services produced (1)
producers make what consumers want (1)
• may be more choice (1) people can decide who to work for (1) may be choice of
suppliers (1)
• may be efficient (1) due to competition (1) drive down costs (1) lower prices (1) profit
incentive (1) ability to earn high wages (1)
Up to 5 marks for the disadvantages:

• may be inequality of income (1) the rich can increase their earning potential through
saving/receiving a better education (1) some vulnerable groups, e.g. the sick may find it
difficult to earn an income (1)
• private sector monopolies may develop (1) these may charge high prices (1) reduce
quality (1) restrict choice (1)
• decisions will be based on private costs and benefits (1) existence of external costs and
benefits (1) can cause inefficient choices (1)
• certain beneficial products (merit goods) (1) may be under-consumed and so under-
produced (1)
• certain harmful products (demerit goods) (1) may be over-consumed (1) and so over-
produced (1)
• some products (public goods) (1) may not be produced (1) difficult to stop non-buyers
consuming the product (1)
• advertising can distort choice (1) producers can influence what consumers want to
buy (1)

PAGE 139

7 (a) Define ‘monetary policy’. [2]
Decisions on interest rates (1) the money supply (1) the exchange rate (1)
(b) Explain two functions of money. [4]
• medium of exchange (1) money can be used to trade products/generally acceptable in

buying and selling (1)
• store of value (1) money can be saved/used in the future (1)
• unit of account/measure of value (1) money can be used to compare the value of
different products (1)
• standard for deferred payments (1) money can allow people to borrow and lend (1)
(c) Analyse why engaging in division of labour may increase a firm’s costs of
production. [6]
• division of labour involves workers specialising in particular tasks (1)

• workers may become bored (1) they may make mistakes (1) products may have to be
rejected (1) productivity may fall (1)
• there may be a high turnover of workers (1) this will increase the cost of hiring
workers (1)
• workers may not be employed on tasks they are best at (1) this will mean productivity will
be below potential (1)
• if key workers are sick or leave (1) it may be difficult to cover for their absence (1) this
can disrupt the production process (1)
• more specialised workers may demand higher wages (1) increasing labour costs (1)
(d) Discuss whether a reduction in a country’s trade protection will improve its economic
performance. [8]

• may increase competition (1) this may put pressure on domestic firms to keep prices low
(1) reduce inflation (1)
• price of imported raw materials may fall (1) this may lower costs of production (1) reduce
cost-push inflation (1)
• finished imports may be cheaper (1) more imports can increase choice for consumers (1)
• other countries may reciprocate (1) lower trade protection measures (1) enable the
country to export more (1) raise output (1) increase employment (1)

• may drive infant industries out of business (1) reduce output and employment in the long
run (1) may harm the current account position (1)
• may cause declining industries to go out of business more quickly (1) causing
unemployment (1)
• may increase dumping (1) foreign firms may be selling below cost price (1) unfair
competition that may drive domestic firms out of business (1)
• may lower government tax revenue (1) reduce expenditure on, e.g. health care,
education (1)
• may become dependent on other countries (1) risk of a supply-side shock (1)

PAGE 140

ECONOMICS 2281/22
Paper 2 Structured Questions October/November 2015
2 hours 15 minutes
* 0 9 7 7 1 7 5 2 8 8 *
Section A
Answer Question 1.
Section B
DC (ST) 117232
PAGE 141
Section A
1 Mexico: rising to the top?
It has been predicted that Mexico will be one of the world’s top ten economies by 2020. Changes
in the industrial structure of the country have been occurring for some time. In 2008, 12% of
the labour force were employed in the primary sector (mainly agriculture), 26% in the secondary
sector (mainly manufacturing) and 62% in the tertiary sector (services). By 2012, employment had
fallen by 1% in the primary sector and by 2% in the secondary sector.
In recent years, Mexico has been removing trade protection measures such as tariffs and quotas.
The country now has free trade with more than 40 other countries. International trade plays a key
role in the Mexican economy, with a third of its output being exported and imports accounting
for more than a third of the products bought in Mexico. Nearly 80% of Mexico’s exports go to the
United States of America (US). Mexican firms have a wide choice of sources for imported raw
materials and a large international market in which to sell their products. The main destination of
Mexico’s falling number of emigrants is the US.
After an economic downturn in 2009, the Mexican economy has been growing. Incomes have
risen and life expectancy has increased. Table 1 shows the income levels and life expectancy for a
number of countries.
Table 1: Gross Domestic Product (GDP) per head and life expectancy
in selected countries in 2012
Country GDP per head (US$) Life expectancy

(years)
Bangladesh 700 69
Canada 48 000 83
Mexico 9 200 77
Peru 5 400 72
Portugal 22 100 80
South Africa 7 500 55
Although the standard of Mexico’s education is not very high, poverty is declining in the country as
living standards are rising. More people now have access to better quality health care. In contrast
to its neighbour the US, unemployment has been declining in Mexico.
Costs of production in Mexico are rising more slowly than in China. Mexico imports products from
China and also competes with China in a number of export markets.
Some of Mexico’s top exporting firms are monopolies within the country. One is Pemex, the state-
owned oil and gas monopoly. The firm sells oil throughout the world. Some economists claim that
Mexican consumers would benefit from Pemex being sold to the private sector.
© UCLES 2015 2281/22/O/N/15

PAGE 142
(a) Using information from the extract, calculate what percentage of Mexico’s labour force was
employed in the tertiary sector in 2012. [2]
(b) Using information from the extract, explain two benefits of free trade for Mexican firms. [4]
(c) (i) Explain why people in countries with a higher GDP per head have a longer life expectancy
than people in countries with a lower GDP per head. [2]
(ii) Using Table 1, comment on whether the information supports the view that countries with
a higher GDP per head have a longer life expectancy than countries with a lower GDP
per head. [3]
(d) Using information from the extract, explain two reasons why emigration from Mexico has
fallen. [4]
(e) Discuss whether rises in costs of production in China will benefit the Mexican economy. [5]
(f) Explain two ways in which a monopoly differs from perfect competition. [4]
(g) Discuss whether selling a state monopoly, such as Pemex, to the private sector would benefit
consumers in Mexico. [6]

PAGE 143
Section B
2 The United Nations’ World Tourism Organisation has estimated that the proportion of the world’s
population who have visited another country will have reached only 7% by 2020. Increasing
international travel might create jobs and influence incomes. However, it would also put pressure
on finite resources and would create external costs.
(a) Define ‘resources’. [2]
(b) Explain how international travel may create external costs. [4]
(c) Analyse how an increase in international travel may influence incomes. [6]
(d) Discuss whether demand for international travel is likely to continue to increase. [8]
3 A heatwave in July 2013 in the United Kingdom resulted in sales of ice cream more than doubling.
Extra workers were taken on to meet the higher demand. In recent years, the demand and supply
conditions of ice cream have changed, leading to demand and supply becoming more elastic.
The market has also been influenced by government policies and by changes in the country’s
economic growth rate.
(a) Define ‘supply’. [2]
(b) Explain two ways a government could influence the price of a product. [4]
(c) Analyse why demand for a product may become more price elastic. [6]
(d) Discuss whether the wages of all workers will increase during a period of economic growth.
[8]
4 On average, Norwegians work only 27 hours a week. They also take more, and longer, holidays
than most other countries’ workers. In 2013, Norway had the second highest productivity in the
world. It was also ranked number one in the Human Development Index (HDI). Unlike many other
countries, Norway has had almost full employment in recent years.
(a) Define ‘productivity’. [2]
(b) Explain two reasons why productivity may increase. [4]
(c) Analyse why a country may have a high HDI value. [6]
(d) Discuss whether a country would benefit from having full employment. [8]
© UCLES 2015 2281/22/O/N/15

PAGE 144
5 In 2009, a digital currency called Bitcoin was invented. Between 2009 and 2014 there was a
growth in the number of people and firms accepting it as a medium of exchange and store of
value. Financial experts have called for digital money to be regulated by central banks. One of their
concerns is that it could increase the money supply and cause inflation.
(a) Define ‘medium of exchange’. [2]
(b) Explain two ways in which a central bank differs from a commercial bank. [4]
(c) Analyse how an increase in the money supply may cause inflation and a fall in saving. [6]
(d) Discuss whether price stability should be a government’s main economic aim. [8]
6 Capital goods make up over half of Japanese exports. In 2013, although Japan’s imports rose
more rapidly than its exports, there was still a surplus on the current account of its balance of
payments. Across the world, increasing trade was leading to new airports being opened to meet
the demand for transporting goods.
(a) Define ‘capital good’. [2]
(b) Explain two reasons why a country’s export revenue might increase when export prices rise.
[4]
(c) Analyse how a government could increase the surplus on the country’s current account of the
balance of payments. [6]
(d) Discuss whether new airports should be built and operated by governments or the private
sector. [8]
7 Myanmar (Burma) is seeking to move from being a developing to a developed country. It has a lower
savings ratio than most other Asian economies, with its people spending most of their income. The
country’s Government is encouraging investment from abroad to increase its economic growth.
The Government is using fiscal policy in an attempt to reduce poverty, which affects a third of its
population.
(a) Identify two characteristics of a developed country. [2]
(b) Explain two reasons why people may spend most of their income. [4]
(c) Analyse how an increase in investment may increase a country’s economic growth rate. [6]
(d) Discuss whether fiscal policy measures will reduce poverty. [8]
© UCLES 2015 2281/22/O/N/15

PAGE 145

2281 ECONOMICS

PAGE 146

1 (a) Using information from the extract, calculate what percentage of Mexico’s labour force
was employed in the tertiary sector in 2012. [2]
65% (2)
100% – 35%/62% + 1% + 2% (1)
Also accept: 62.64% (2)

12% – 1% = 11.88%
26% – 2% = 25.48%
100% – 37.36%
(b) Using information from the extract, explain two benefits of free trade for Mexican
firms. [4]
One mark each for each of two benefits identified:

• ability to buy raw materials from abroad/a wide choice of sources for imported raw
materials (1)
• a large market/a large international market in which to sell their products (1)
One mark each for each of two explanations given:

• raw materials may be of higher quality or lower price/reduce firms’ costs of production (1)
• a large market may increase potential revenue/increase profits/allow greater advantage
to be taken of economies of scale (1)
Note: explanation marks dependent on identification marks.
(c) (i) Explain why people in countries with a higher GDP per head have a longer life
expectancy than people in countries with a lower GDP per head. [2]
• higher income is likely to mean better nutrition (1)

• people will be able to afford more/better quality healthcare (1)
• higher income is likely to mean better housing (1)
• higher income is likely to mean better education (1)
• higher income may raise living standards (1)
• countries with higher incomes may have better sanitation (1)
• higher income may increase government tax revenue (1) and so greater ability to
provide good quality healthcare (1)
Note: any of these points may be developed for the second mark e.g. better healthcare can
reduce the illnesses people experience.
(ii) Using Table 1, comment on whether the information supports the view that
countries with a higher GDP per head have a longer life expectancy than countries
with a lower GDP per head. [3]
One mark for decision:

• yes/generally yes (as an overall judgement)
One mark for supporting evidence e.g.:

• Canada has highest income and longest life expectancy

PAGE 147

• the four countries with the highest GDP per head (Canada, Portugal, Mexico and
Peru) have the longest life expectancy
One mark for conflicting evidence e.g.:
• South Africa has a higher GDP per head than Bangladesh but a lower life
expectancy
• Peru has lower GDP per head than South Africa but a longer life expectancy
• Bangladesh does not follow the trend
(d) Using information from the extract, explain two reasons why emigration from Mexico
has fallen. [4]
• improved economic performance/expected to be one of the top ten economies (1) likely
to increase employment opportunities/incomes (1)
• higher incomes/reduced poverty (1) improved living standards (1)
• improved healthcare/longer life expectancy (1) improved quality of life (1)
• falling unemployment in Mexico/rising unemployment in USA (1) increased employment
opportunities/living standards in Mexico (1)
(e) Discuss whether rises in costs of production in China will benefit the Mexican
economy. [5]

• price of Chinese exports may increase (1) this may make Mexican exports/Mexican
products relatively more price competitive (1) Mexico may be able to capture some of
China’s share of foreign markets/domestic firms may gain (1) improve current
account/balance of payments position (1) reduce unemployment (1) increase GDP (1)
• may encourage Chinese MNCs to set up in Mexico to take advantage of lower costs (1)
may raise GDP in Mexico (1) increase employment in Mexico (1)

• imports from China will be more expensive (1) if there are not domestic substitutes (1)
this may cause inflation in Mexico (1) due to higher raw material costs (1) and less
pressure on domestic firms to keep prices low (1)
• any Chinese MNCs based in Mexico may experience lower profits/losses in plants in
China (1) this may lead to a reduction in investment in their plants in Mexico (1) and/or
cause them to raise prices in Mexico to compensate for their losses in China (1)
• costs may rise in China but these may reflect higher quality (1) if quality of Chinese
products does rise, demand for Chinese products may remain high (1)
(f) Explain two ways in which a monopoly differs from perfect competition. [4]
• many firms in perfect competition (1) but only one in monopoly (1)
• barriers to entry into and exit from the industry in monopoly(1) none in perfect
competition but high in monopoly (1)
• perfectly competitive firms are price takers (1) whereas monopolists are price makers (1)
• homogeneous product in perfect competition (1) whereas unique in monopoly (1)
• perfect information in perfect competition (1) but not monopoly (1)
Note: maximum of 2 marks for two or more characteristics identified with no explicit
comparison.

PAGE 148

(g) Discuss whether selling a state monopoly, such as Pemex, to the private sector would
benefit consumers in Mexico. [6]

• may introduce more competition (1) this may lower prices (1)
• may provide a greater profit incentive (1) this may raise efficiency (1) encourage firms to
produce what consumers want (1) lower costs of production (1)
• may increase investment (1) this could improve the quality of products (1)
• firms knowing they will not be supported by the government (1) may be forced to be
more efficient (1)
• may be easier to raise finance (1) can sell shares (1)

• a private sector monopoly may abuse market power (1) may restrict supply (1) raise
price (1) reduce quality (1)
• private sector firms are unlikely to charge prices below cost to help poor consumers (1)
• private sector firms may not take into account external costs and benefits/welfare (1) so
they may under or over-produce (1)
• the state may have financial resources (1) be able to invest on a larger scale (1).
2 (a) Define ‘resources’. [2]
• factors of production/inputs (1) used to produce goods and services (1)

• identification of type of factor of production – land (natural resource), labour (human
resource), capital, entrepreneur (1)
(b) Explain how international travel may create external costs. [4]
• external costs are harmful effects (1) imposed on third parties (1) social costs minus
private costs (1)
• reason why international travel may cause negative externalities e.g. planes burning fuel
creating carbon dioxide (1)
• examples of external costs caused by international travel e.g. air pollution, noise
pollution, visual pollution, congestion, damage to wildlife and damage to the health of
those not travelling (up to 2 marks)
(c) Analyse how an increase in international travel may influence incomes. [6]
• likely to increase incomes (1)

• more jobs are likely to be created in the tourist/travel industry (1) previously unemployed
people who gain jobs will now have an income (1) people already in the industry may
gain higher wages (1)
• more jobs are likely to be created in industries linked to the tourist/travel industry e.g.
insurance, banking, retailing (1)
• the increased spending of people in the tourist/travel industry (1) is likely to increase
demand for a range of other goods and services (1) leading to higher employment and
incomes in other industries (1)
• increases geographical mobility of labour (1) workers can move in search of higher
incomes (1)
• more people visiting a country may raise government tax revenue (1) enabling the
government to pay higher wages to workers in the public sector (1).

PAGE 149

• holidays/business at home may be a substitute for holidays/business abroad (1) if e.g.

more people holiday abroad, incomes at home may fall due to fall in demand for
domestic holidays (1).
(d) Discuss whether demand for international travel is likely to continue to increase. [8]

• if incomes rise (1) international travel is a luxury good (1) business travel as well as
tourism is likely to rise (1)
• if the price of international travel falls (1) demand is likely to rise/extend (1)
• a rise in population (1) more people to travel (1)
• a fall in the price of complements (1) for instance, hotel prices (1)
• people may travel for a better future (1) in search of better employment opportunities (1)

• incomes may fall (1) there may be a global recession (1)
• price may rise (1) causing a contraction in demand (1)
• population may fall (1) fewer people to travel (1)
• a rise in the price of complements (1) for instance taxi fares to airports/holiday insurance
(1)
• accidents or fear of terrorism may dissuade people from travel (1)
• rise in availability of substitutes e.g. Skype, videoconferencing (1)
3 (a) Define ‘supply’. [2]
The willingness (1) and ability to sell a product/good(s) or service(s) (1)

The idea of making a product available/putting it on the market/producing a product (1)
(b) Explain two ways a government could influence the price of a product. [4]
One mark each for each of two ways identified:

• a subsidy
• a tax/indirect tax/tariff
• the setting of a maximum price
• the setting of a minimum price
• changing the price of product produced by the public sector
One mark for each of two explanations:

• a subsidy will be likely to lower price (as a payment is given to producers)
• a tax/tariff will be likely to raise prices (as an extra cost is imposed on firms)
• a firm would not be able to charge more than a maximum price
• a firm would not be able to charge less than a minimum price
• the government may produce a range of products e.g. energy
(c) Analyse why demand for a product may become more price-elastic. [6]
• there may be closer substitutes (1) making people more willing to switch between
products (1)
• the price may rise (1) as products more expensive, people become more sensitive to
price changes (1)

PAGE 150

• the product may become less of a necessity/more of a luxury (1) this would mean a
change in price would have more impact on demand (1)
• the product may be taking up a larger proportion of people’s income (1) this would mean
that a change in the price would be more noticeable (1)
• the product has become less addictive (1) this would mean that people will become more
willing to alter their demand (1)
• it may become easier to postpone buying the product (1) this would mean that a rise in
the price of the product would cause a greater percentage fall in demand (1)
• a longer time period (1) gives people more time to find substitutes (1)
Note: maximum of 3 marks for a static approach e.g. luxuries, and products with a high
number of substitutes, and products whose purchase would take up a large proportion of
income would be likely to have elastic demand.
(d) Discuss whether the wages of all workers will increase during a period of economic
growth. [8]
Up to 5 marks for why they might:
• output will be increasing (1) this will raise demand for labour (1) putting upwards
pressure on wages (1)
• higher demand for labour will reduce unemployment (1) this will increase competition for
workers (1) firms may have to raise wages (1) to attract workers (1) unions will have
stronger bargaining power (1)
• higher output will increase the wages paid to workers on piece-rates (1) pay linked to
output (1)
• economic growth may be associated with higher profits/higher revenue (1) increasing
firms’ ability to pay higher wages (1)
Up to 5 marks for why they might not:

• whilst total demand may be increasing (1) demand for certain products/skills may be
falling (1) structural unemployment may lower the bargaining power certain group of
workers (1)
• economic growth may arise due to advances in technology/higher investment (1) this
may increase the demand for skilled workers relative to unskilled workers (1) this may
reduce the wages of unskilled workers (1)
• economic growth may be combined with inflation (1) workers’ wages may not rise in line
with inflation (1)
• some workers may have long term contracts with set wages (1) it may take time for their
wage rates to adjust (1)
• the supply of some workers may increase by more than others (1)
• economic growth is likely to involve change (1) workers who are geographically or
occupationally immobile may have to stay in low paid jobs (1)
• may just increase employment (1)
4 (a) Define ‘productivity’. [2]
Output per worker/factor (1) per hour/time period (1)
Note: second mark is dependent on the candidate gaining the first mark.

PAGE 151

(b) Explain two reasons why productivity may increase. [4]
One mark each for each of two reasons identified:

• improved education/training
• increased investment /advances in technology
• increase in wages
• increase in monetary rewards
• shorter working hours
• higher unemployment
• greater specialisation
One mark for each of two explanations given:

• improved education/training may raise skills and more skilled workers can produce more
• increased investment /advances in technology – more up to date capital goods are likely
to produce more
• increase in wages may motivate workers to work harder
• provision of e.g. a free car/good pension scheme may motivate workers to work harder
• shorter working hours may mean that workers may have more energy
• higher unemployment may mean that those who retain their jobs may be more the more
skilled workers
• greater specialisation may make workers more efficient
(c) Analyse why a country may have a high HDI value. [6]
• a good healthcare system/high spending on healthcare (1) high investment in hospitals

(1) will increase people’s life expectancy (1)
• a good education system/high spending on education (1) high income/more schools
enabling families to send their children to school for a number of years (1) positive
attitudes to education (1) may lead to higher mean/expected years of schooling (1)
• a high level of total demand (1) good quality of resources/high productivity (1) sound
economic policies (1) can result in a high GDP per head/high income (1)
Note: no marks for just stating the three components of the HDI – must relate to an increase
in HDI.
(d) Discuss whether a country would benefit from having full employment. [8]

• efficient use of resources (1) working at full capacity/producing on the production
possibility curve (1) making as much output as possible/increase output (1) high living
standards (1) low poverty (1)
• low spending on unemployment benefits (1) high tax revenue (1) government spending
on other areas e.g. healthcare and education can increase (1)
• government policy measures do not have to be used to lower unemployment (1) they
can concentrate on other areas e.g. a balance on the current account of the balance of
payments (1)
• may reduce crime rates (1) lower government spending on e.g. prisons (1)

• productivity may fall (1) the last people employed may not be as skilled (1)

PAGE 152

• inflation may occur (1) shortage of workers can raise wages (1) cause cost-push inflation
(1) high incomes will lead to high demand (1) cause demand-pull inflation (1)
• firms may find it difficult to expand (1) as hard to recruit extra workers (1) supply
constraint (1) rising demand with a supply constraint may result in more imports (1)
worsening the current account position (1)
• resulting high incomes may increase demand for imports (1) which may cause a current
account/balance of payments deficit (1)
• full use of resources may result in environmental damage (1) depletion of natural
resources (1)
5 (a) Define ‘medium of exchange’. [2]
A form of money (1) that is used to buy and sell products (1) generally acceptable (1)
• it is one of the functions of a central bank to issue notes and coins (1) a commercial
bank is usually not allowed to issue notes and coins (1)
• the customers of the central bank are commercial banks and the government (1) people
and firms are the customers of commercial banks
• the central bank implements monetary policy (1) commercial banks are affected by
monetary policy (1)
• the central bank is government owned (1) commercial banks are usually in the private
sector (1)
(c) Analyse how an increase in the money supply may cause inflation and a fall in saving.
[6]
• an increase in the money supply may increase spending (1)

• may increase the circular flow (1)
• spending may increase by more than output (1)
• too much money chasing too few goods (1) causing demand-pull inflation/monetary
inflation (1)
• people may spend more now before prices rise (1) also less income may be available to
save with higher prices (1)
• the rate of interest may rise by less than inflation (1) and so people will lose by saving (1)
• an increase in the money supply usually reduces the rate of interest (1) a lower interest
rate reduces the incentive to save (1)
(d) Discuss whether price stability should be a government’s main economic aim. [8]

• price stability is the avoidance of fluctuations in the price level
• price stability can lessen the chance of purchasing power being eroded (1) meaning
people will be able to buy fewer goods and services with the same amount of money (1)
protecting living standards (1)
• price stability can give firms confidence (1) this will encourage them to invest (1)
• price stability can give people confidence (1) this will encourage them to save (1)
• price stability can increase international competitiveness (1) improve the current account
position (1)

PAGE 153

• price stability can discourage people and firms from acting in ways that will cause
inflation (1) e.g. asking for wage rises (1)
• price stability can encourage MNCs to set up in the country (1) creating output and
employment (1)
• price stability can benefit those on fixed incomes (1) as their purchasing power will not
be eroded (1)
• price stability reduces menu costs (1) firms will not have to change prices so frequently
(1)
• price stability lowers shoe leather costs (1) firms will not have to move money in search
of the highest interest rate (1)
Note: candidates may approach this by examining the problems of inflation e.g. inflation may
discourage MNCs setting up in the country.

• inflation can have benefits (1) may stimulate output (1) if demand-pull inflation (1) may
reduce debt burden (1) may cut real wage bill (1)
• policy measures designed to reduce inflation may cause unemployment/slow economic
growth (1) e.g. high interest rates may discourage spending and investment (1) lower
demand (1)
• pursuing other aims may bring benefits (Up to 2 marks for identifying other aims). Up to
2 marks for developing another aim e.g. economic growth can create employment (1)
raise living standards (1)
• what should be the main aim will be influenced by the level of economic activity (1) e.g. if
unemployment is very high that may be causing significant problems (1)
6 (a) Define ‘capital good’. [2]
A human-made good (1) used to produce other goods and services (1) example e.g.
machinery (1).
Note: do not accept money as an example.
(b) Explain two reasons why a country’s export revenue might increase when export
prices rise. [4]

• inelastic demand for exports
• fall in exchange rate
• increase in demand
• rise in investment
• removal of trade restrictions abroad
• inflation in other countries
One mark each for each of two reasons given:

• inelastic demand for exports would mean demand falling by less than the rise in price
• fall in exchange rate would make exports relatively cheaper
• demand may increase as a result of e.g. a rise in incomes abroad
• rise in investment may make exports more quality competitive
• removal of trade restrictions abroad may make exports cheaper in foreign markets
• prices may rise by more in other countries

PAGE 154

(c) Analyse how a government could increase the surplus on the country’s current
account of the balance of payments. [6]
• reduce the value of the currency (1) lower export prices (1) raise import prices (1)
increase demand for exports (1) decrease demand for imports (1)
• impose trade protection (1) e.g. a tariff would increase the price of imports (1) which is
likely to reduce the demand for imports (1)
• subsidise domestic output (1) lower price of exports (1) increase demand for exports (1)
lower demand for imports (1)
• increase income tax (1) lower demand for imports (1) put pressure on domestic firms to
export due to lower demand at home (1)
• improve education and training (1) raise productivity (1) cut costs of production (1) make
domestic products more internationally competitive (1)
• reduce inflation (1) may make domestic products more internationally competitive (1)
(d) Discuss whether new airports should be built and operated by governments or the
private sector. [8]
Up to 5 marks for why governments should:

• more likely to take into account social costs and benefits/welfare (1) will not base
decisions just on private costs and benefits (1) will consider external costs and benefits
(1) e.g. lowering pollution (1)
• a government may set price relatively low (1) in order to allow more people to use it (1)
to lower costs for domestic firms (1) to increase international competitiveness (1)
• a government may have the finance available (1) tax revenue (1)
Up to 5 marks for why the private sector should:

• may be more efficient (1) keep costs low (1) quality high (1) due to the desire to make a
profit (1)
• may have experience of building and operating an airport (1) increase efficiency (1)
• a government spending money on an airport involves an opportunity cost (1) if the
private sector builds and operates an airport, the government can spend money on other
areas (1)
7 (a) Identify two characteristics of a developed country. [2]
1 mark for each of two of the following e.g.:

• high GDP per head/high average income
• high living standards
• high life expectancy/low death rate
• high proportion of the labour force in the tertiary sector/low proportion in the primary
sector
• low infant mortality rate
• high labour productivity
• high level of saving
• high investment
• high level of literacy
• low birth rate
• good infrastructure
• good healthcare
Note: do not accept high GDP.

PAGE 155

(b) Explain two reasons why people may spend most of their income. [4]

• low income
• low interest rate
• may be confident about the future
• may be a lack of sound financial institutions in the country
• tax rates
• high cost of living/inflation/fear of inflation/ low prices
One mark each for each of two explanations given:

• buying basic necessities may take up most of the income of the poor
• low interest rate would mean it is not financially rewarding to save
• if people expect higher income in the future, they may start spending more now
• a lack of sound financial institutions in the country may mean that people may not have
the ability or willingness to save
• high tax rates may mean low disposable income and so people have to spend a high
proportion to buy necessities/cut in tax rates may allow people to spend a higher
proportion of total income
• high cost of living/inflation would mean people would have to spend more to purchase
products or fear of inflation may encourage people to spend more now or low prices may
encourage people to spend more
(c) Analyse how an increase in investment may increase a country’s economic growth
rate. [6]
• higher investment adds to total demand (1) higher demand for capital goods will
encourage the capital goods industry to produce more (1)
• higher investment can enable firms to take advantage of advanced technology (1) raise
productivity (1) reduce costs of production (1) lower costs can reduce prices (1) lower
prices can raise expenditure (1) this will encourage firms to raise output (1)
• higher investment in education/training (1) can raise labour productivity (1) increase
productive capacity (1)
• higher investment in healthcare (1) can raise labour productivity (1) reduce absenteeism
(1)
• higher investment on infrastructure (1) can facilitate greater production by lowering costs
(1)
• higher investment can increase international competitiveness (1) raising demand for
domestically produced products (1)
• higher investment will increase the amount of goods and services that can be produced
(1) increasing productive capacity (1)
(d) Discuss whether fiscal policy measures will reduce poverty. [8]

• increased government spending on education and healthcare (1) can raise people’s
skills (1) increase their opportunity to gain employment (1) raise earning potential (1) this
may be financed by increased taxation (1)
• increased government spending will add to total demand (1) this will encourage firms to
produce more (1) increasing employment (1)

PAGE 156

• increased government spending on benefits (1) can raise the income of some of the
poor (1) increase ability to buy basic necessities (1)
• lower indirect taxes (1) will provide the poor with the opportunity to buy more products
(1)
• lower direct taxes (1) may increase consumer expenditure and investment (1) creating
job opportunities (1) increase incentive to work (1)
• government subsidies (1) may lower prices faced by the poor (1) increase output (1)
create jobs (1)

• increased government spending and lower taxes may benefit the rich more (1) this will
increase relative poverty (1)
• reduced government spending may lower demand (1) reduce output (1) increase
unemployment (1)
• increased taxation may lower demand (1) reduce spending power of the poor (1) may
act as a disincentive to work (1).
• expansionary fiscal policy can cause inflation (1) this can reduce the purchasing power
of the poor (1)

PAGE 157

ECONOMICS 2281/23
2 hours 15 minutes
* 7 5 1 3 0 7 8 0 7 7 *
Section A
Answer Question 1.
Section B
At the end of the examination, fasten all your work securely together.
DC (GB) 117231
PAGE 158
Section A
1 Progress in Rwanda
Rwanda is a small, landlocked African country. In recent years, its economic performance has
improved significantly. For instance, in 2012 it achieved an increase in its Gross Domestic Product
(GDP) of 7.5%, stable inflation and a fall in unemployment. Perhaps most noticeably, poverty is
being reduced. Between 2006 and 2012, more than 1 million were taken out of poverty and by
2012, 58% of the population of 12 million were not in poverty.
The government is following a number of policies to reduce poverty. One of these is to increase
government spending on education and healthcare. Now more than 90% of children attend primary
school and the percentage of children going to secondary school is increasing. Child mortality has
fallen and the population’s general health has improved.
Half of the country’s population is aged under 25. The country is densely populated, with 430
people per square kilometre. In 2013 it experienced net immigration, giving the country a positive
migration rate, with more people entering the country than leaving it. Migration is one influence on
a country’s economic growth rate (see Table 1).
Table 1: Migration and economic growth rates for selected countries in 2012
Country Migration rate Economic growth rate

(per 1000 population) (% change in GDP)
Cuba –3.6 3.1
Macau +3.5 10.0
Rwanda +1.0 7.5
South Africa –6.2 2.6
Uganda –0.1 4.2
Another influence on the economic growth rate is productivity. The Rwandan Government is
seeking to raise productivity in agriculture, which accounts for 80% of employment. There has
been little investment in this sector. Many farms lack equipment such as ploughs and tractors.
Domestic agricultural output does not always match domestic demand. This results in the country
often having to import food. The government is trying to encourage farmers to farm in a sustainable
way and to concentrate on products that have a price-inelastic demand.
Rwanda is facing a number of challenges. The Rwandan Government has removed import tariffs
on a number of products, including some food items. Energy costs are relatively high and the
banking sector is not very developed. In 2012 only a fifth of Rwandan adults had a bank account
but reductions in poverty and a growth in the banking sector are likely to change saving and
borrowing in Rwanda in the future.
© UCLES 2015 2281/23/O/N/15

PAGE 159
(a) Using information from the extract, calculate the number of people living in poverty in Rwanda
in 2012. [2]
(b) Explain how in a country such as Rwanda, an increase in government spending on education
and healthcare could reduce poverty. [5]
(c) Using information from the extract, explain one reason why the average age of Rwanda’s
population may increase in the future. [2]
(d) Using Table 1, comment on whether economists would expect to see the relationship shown
between the migration rates and the economic growth rates. [4]
(e) Using information from the extract, explain whether agriculture in Rwanda is capital-intensive
or labour-intensive. [2]
(f) Discuss whether concentrating on products with inelastic demand will benefit farmers. [5]
(g) Using information from the extract, explain two reasons why the price of food in Rwanda
may fall. [4]
(h) Discuss whether an increase in borrowing by households and firms in a country will benefit its
economy. [6]

PAGE 160
Section B
2 Demand for luxury products, including expensive perfume, increased significantly in China from
2007 to 2012. The average revenue from selling these products also rose. Many luxury products
have elastic demand. A high proportion of the luxury products sold in China are currently imported.
Some firms are now considering producing in China rather than exporting to China.
(a) Define ‘average revenue’. [2]
(b) Explain two reasons why luxury products often have elastic demand. [4]
(c) Analyse how a perfume producer could make the supply of its products more price elastic.
[6]
(d) Discuss whether a firm would make more profit from producing in a foreign market rather than
exporting to that market. [8]
3 An increasing number of people in both market and mixed economies are becoming overweight.
In 2013 the Dubai Government offered residents a gram of gold for every kilogram of weight lost
over a period of 30 days. Such a policy measure was designed to reduce the external costs arising
from overeating, including the eating of too much chocolate. To reduce market failure, governments
give subsidies to both consumers and producers.
(a) Define ‘market economy’. [2]
(b) Explain two external costs that could arise from people overeating. [4]
(c) Analyse three reasons why the demand for chocolate may rise in the future. [6]
(d) Discuss whether a government subsidy to producers will reduce market failure. [8]
4 One Finnish mobile (cell) phone manufacturing firm makes about 20% of the total output of all
goods produced in Finland. This public limited company employs a higher number of workers and
buys more capital goods than most other Finnish firms. It also supplies a high proportion of the
country’s exports.
(a) Define ‘public limited company’. [2]
(b) Explain two reasons for the differences in the size of firms in the same industry. [4]
(c) Analyse why a firm may decide to change the proportion of capital and labour it employs. [6]
(d) Discuss whether a large firm is likely to sell its products at a lower price than a small firm. [8]
© UCLES 2015 2281/23/O/N/15

PAGE 161
5 Between 2011 and 2012 the number of people employed by the public sector in Egypt increased
significantly. Egyptian trade unions which represent labour employed in the public sector welcomed
this increase. However, more powerful trade unions might cause inflation which, in turn, might
cause unemployment.
(a) Define ‘labour’. [2]
(b) Explain why a rise in employment would benefit trade unions. [4]
(c) Analyse how trade union action could cause inflation. [6]
(d) Discuss whether inflation would cause unemployment. [8]
6 In 2013 the Argentinian Government was trying to stop the fall in the international value of the
Argentinian peso, by imposing quotas. The depreciation of the peso was unexpected as the
country was experiencing a rising current account surplus on its balance of payments. Usually
such a change in the current account would lead to an appreciation.
(a) Define ‘quota’. [2]
(b) Explain the structure of the current account of the balance of payments. [4]
(c) Analyse why it would be expected that a rising current account surplus would lead to an
appreciation in the country’s foreign exchange rate. [6]
(d) Discuss whether a government should try to prevent a depreciation in the country’s currency.
[8]
7 The Netherlands is a country with a high Human Development Index (HDI) ranking and a high
Gross Domestic Product (GDP). A recession in 2012 resulted in a fall in consumer expenditure.
This caused a gap between government spending and tax revenue. In order to close the gap,
the Netherlands’ Government cut its spending. It might have used monetary policy to increase
economic growth and raise tax revenue.
(a) Identify two influences on the amount households spend. [2]
(b) Explain why tax revenue may fall during a recession. [4]
(c) Analyse how a cut in government spending may reduce a country’s HDI ranking. [6]
(d) Discuss whether use of monetary policy will increase economic growth. [8]
© UCLES 2015 2281/23/O/N/15

PAGE 162

2281 ECONOMICS

PAGE 163

1 (a) Using information from the extract, calculate the number of people living in poverty in
Rwanda in 2012. [2]
• 5.04 m or 5 040 000 (2)

• 42% of 12 m or 42 / 100 × 12 m (1)
(b) Explain how in a country such as Rwanda, an increase in government spending on

education and healthcare could reduce poverty. [5]
• spending on education should raise the skills of workers (1) increase productivity (1)
raise employment opportunities (1) increase earnings (1)
• spending on healthcare should increase productivity (1) reduce time away from work due
to illness (1) enable people to work to a higher age (1) increase earnings (1)
• access a basic necessity (1) spending on education/healthcare would increase access to
a basic necessity of life in today’s society (1)
(c) Using information from the extract, explain one reason why the average age of
Rwanda’s population may increase in the future. [2]
• improved/increased healthcare (1) could reduce infant mortality and death rate/increase
life expectancy (1)
• net inward migration (1) the average age of migrants may be higher than those originally
born in the country (1)
• improved/increased education (1) could lead to better planning/reduction in birth rate
(d) Using Table 1, comment on whether economists would expect to see the relationship
shown between the migration rate and the economic growth rates. [4]
• Yes, they would/it does support (1)

• Up to 2 marks for evidence from the table e.g. Macau with net immigration of +3.5 had
the highest economic growth of 10.00% and South Africa with net migration of –6.2 had
the lowest economic growth rate of 2.6%.
• Up to 2 marks for an explanation of the relationship e.g. high economic growth leads to
higher inward migration because more jobs are available
(e) Using information from the extract, explain whether agriculture in Rwanda is capital-
intensive or labour-intensive. [2]
• labour-intensive (1)
• little investment/farmers lack equipment (1)
(f) Discuss whether concentrating on products with inelastic demand will benefit farmers.
[5]
• will be able to raise price (1) demand will fall by a smaller % (1) raise revenue (1)
• inelastic demand suggest a lack of competitors (1) gives farmers more market power (1)
• specialisation can increase efficiency (1) raise output (1)
• provides a steady source of income (1) even with changes in prices (1)

PAGE 164


• Risk of demand decreasing (1)
• PED can change over time (1) may become more elastic in the long run (1)
• PED may not have been calculated accurately (1)
• Demand is influenced by more than price (1) e.g. the products may become less popular
as income rises (1)
• Rwandans cannot afford to buy (1) if prices of staple products rise too much (1) which in
the longer term could reduce farmers’ income
• Farmers may concentrate on too narrow a range of crops (1) and could be adversely
affected by poor weather (1)
• If prices become too high (1) this may result in imports (1) reducing the revenue to local
farmers (1)
(g) Using information from the extract, explain two reasons why the price of food in
Rwanda may fall. [4]
• Reduction in tariffs on imported food (1) directly reduces the price of some food items (1)
increase competitive pressure on Rwandan farmers to keep price of food low (1)
• Increased productivity in farming (1) due to improved education/government policy
measures (1) lower costs of producing food (1)
(h) Discuss whether an increase in borrowing by households and firms in a country will
benefit its economy. [6]

• households may borrow to spend on their education or healthcare or the education or
healthcare of their children (1) this may raise productivity (1) increasing international
competitiveness (1) improving the current account position (1)
• firms may borrow money to invest (1) this may increase output (1) raise employment (1)
• increase in demand (1) leads to higher output (1) and reduced unemployment (1)

• households may borrow to buy imported products (1) worsen the current account
position (1)
• increase in spending may cause inflation (1) if close to or at full employment (1)
• households and firms who borrow may get into debt (1) firms may go out of business (1)
households who get into debt will be able to spend less in the future (1)

PAGE 165

2 (a) Define ‘average revenue’. [2]
Total revenue divided by (1) quantity sold/output (1)

Price (1)
(b) Explain two reasons why luxury products often have elastic demand. [4]
• take up a large proportion of people’s income (1) means any change in price is
significant (1)
• the purchase of luxury products can be postponed (1) not necessary to buy luxury
products now/not a regular purchase/does not have to be purchased (1)
• some luxury products may have close substitutes (1) this would mean a rise in the price
of the luxury product would cause consumers to switch to the substitute (1)
(c) Analyse how a perfume producer could make the supply of its product more price
elastic. [6]
• price elastic supply (PES) means that a percentage change in price will cause a greater
percentage change in supply/PES is greater than 1 (1)
• investing in new capital equipment (1) should mean firms have more productive
equipment (1) speed up the production process (1) make supply more responsive to
changes in price (1)
• increasing storage facilities (1) increasing the shelf life of the perfume (1) if price rises,
perfume can be taken out of storage to meet the higher demand (1)
• improve supply chain (1) source from different countries/providers (1)
(d) Discuss whether a firm would make more profit from producing in a foreign market
rather than exporting to that market. [8]

• cheaper transport costs (1) may be significant if the foreign market is large or a long
distance from the country (1)
• may be able to hire workers at a lower wage rate (1) employ more productive workers (1)
may be able to purchase cheaper raw materials (1)
• may have closer contact with foreign consumers (1) more awareness of changes in
demand in the market (1) may overcome any resistance to foreign produced products (1)
• may gain government subsidies to set up in the country (1)
• may get round import restrictions (1) this would enable them to sell products more
cheaply in the foreign market (1)
• locally based means better understanding of market (1) and can react more quickly to
changes in demand (1)

• having some of its production in a foreign market rather than producing it all at home
may mean branches are smaller (1) may mean less advantage can be taken of
economies of scale (1) for instance, technical economies of scale (1)
• there may be some problems co-ordinating the branches (1) this could raise costs of
administration (1)
• a firm may be able to gain subsidies from its own government to export (1)
• costs may be higher in a foreign market (1) e.g. rent may be higher (1)
• higher costs of opening up production in another country (1) may reduce profits in the
short run (1)

PAGE 166

3 (a) Define ‘market economy’. [2]
• consumers determine what is produced/consumers are sovereign (1)

• resources are allocated by price mechanism/driven by market forces of demand and
supply (1)
• absence of government intervention (1)
(b) Explain two external costs that could arise from people overeating. [4]
Up to 2 marks for defining an external cost:

• social costs minus private costs (1)
• harmful effects (1) imposed on third parties (1)
Up to 4 marks for relating concept to overeating:

• overeating can result in healthcare problems (1) this imposes a burden on the healthcare
system (1) reducing healthcare resource available for those who do not overeat/rising
tax payments on those who do not overeat (1)
• overeating can result in healthcare problems (1) reducing labour productivity (1) lowering
quality and quantity of output (1)
• overeating can result in more litter (1) extra costs of collection/landfill/recycling (1) fewer
resources for merit goods
(c) Analyse three reasons why the demand for chocolate may rise in the future. [6]
• a fall in price (1) increases willingness and ability to buy a product (1)
• a rise in income (1) increase ability of people to buy the product/chocolate is something
of a luxury product (1)
• a rise in the price of a substitute e.g. sweets (1) people will switch away from the
substitutes towards chocolate (1)
• a rise in population (1) more people to consume chocolate (1)
• an advertising campaign (1) making chocolate more popular (1)
• change in preferences/tastes (1) towards chocolate (1)

PAGE 167

(d) Discuss whether a government subsidy to producers will reduce market failure. [8]

• a subsidy to producers is a payment designed to encourage production (1)
• it will reduce costs of production (1) increase supply (1) lower price (1) cause demand to
rise (1)
• if there is under-consumption of the product/the product is a merit good, it can reduce
market failure (1)
• if the product generates external benefits, a subsidy can reduce market failure (1)
Note: Accept an accurate diagram for 3 marks: correct labelling (1) shift in supply curve to
right (1) new equilibrium shown (1)
Price
D
S
S1
P
P1
S
S1 D
0 Q Q1 Quantity

• producers may not pass on the subsidy to consumers (1) so demand may not rise (1)
• a subsidy given to products that are over-consumed (1) will make the market failure
worse (1) by increasing supply and consumption of the product (1)
• a subsidy involves an opportunity cost (1) government revenue could be used for other
purposes which might reduce market failure more (1)
• a subsidy may be ineffective (1) if wrong level of subsidy is applied (1)
4 (a) Define ‘public limited company’. [2]
• sells shares to the general public (1)

• has limited liability (1)
• in the private sector (1)
(b) Explain two reasons for the differences in the size of firms in the same industry. [4]
• share of the market (1) firms that sell more products will be producing on a larger scale
(1)
• age of the firm (1) firms that have just started in the industry are likely to be smaller (1)
• access to financial capital (1) firms that can borrow or sell shares more easily are likely
to be larger (1)
• goal of owners (1) some owners may want to keep their firm small in order to maintain
control and avoid stress (1)

PAGE 168

(c) Analyse why a firm may decide to change the proportion of capital and labour it
employs. [6]
• a change in the relative price of capital and labour (1) if wages increase, firms may seek
to employ more capital (1)
• a change in the productivity of resources (1) improved education, for instance, may
increase the skills of workers (1) advances in technology (1) may rise the productivity of
capital goods (1)
• availability of resources (1) difficulty of recruiting labour may encourage a firm to seek
capital substitutes (1)
• government incentives (1) a government may provide tax incentives/subsidises to firm to
spend on capital goods/hire workers (1)
• recession leads to firms laying off workers (1) as they are variable costs (1)
Note: A maximum of 3 marks for a static approach to analysis of why a firm may be capital or
labour intensive.
(d) Discuss whether a large firm is likely to sell its products at a lower price than a small
firm. [8]

• may be more able to take advantage of economies of scale (1) examples e.g. buying,
technical, managerial, risk bearing due to lower average costs (up to 3) may be able to
charge a relatively low price and still make a significant profit (1)
• a large firm may have captured most of the market and gained monopoly power (1) this
may mean it has profit to spend on research and development/investment (1) lowering
costs (1)
• a large firm may be a nationalised industry (1) may charge a low price in order to ensure
everyone can afford it (1)

• a small firm may be in a more competitive market (1) pressure from rivals to keep price
down (1)
• a small firm is less likely to experience diseconomies of scale (1) e.g. less likely to
experience problems with control and poor labour relations (1) as a result may
experience lower average costs (1)
• a small firm may combine with other small firms to take advantage of some economies of
scale (1) e.g. buying raw materials together/farms sharing a combine harvester (1)
• a small firm may be closer to its markets (1) reducing transport costs (1)
• a large firm may have monopoly powers/have a large share of the market (1) and
therefore sell at a higher price due to lack of competition (1)
5 (a) Define ‘labour’. [2]
• human effort/physical and mental effort/workers/workforce (1) used in producing goods

and services (1)

PAGE 169

(b) Explain why a rise in employment would benefit trade unions. [4]
• more workers is likely to raise membership (1)

• will increase subscriptions/fees/revenue (1)
• likely to strengthen bargaining power (1)
• more difficult for employers to replace workers/employers more anxious to retain workers
(1)
• higher employment is likely to raise demand (1) higher demand may increase firms’
profits and so possibly their willingness to pay higher wages (1)
(c) Analyse how trade union action could cause inflation. [6]
• trade unions may press for higher wages (1) if successful would increase wage rates (1)
this would increase costs of production (1) leading to cost-push inflation (1)
• trade unions might engage in strike action (1) this would increase firms’ costs (1) leading
to cost-push inflation (1)
• higher wages may increase workers’ purchasing power (1) this could lead to higher
demand (1) resulting in demand-pull inflation/a wage-price spiral (1)
• trade union action may restrict supply (1) lower supply may push up prices (1)
(d) Discuss whether inflation would cause unemployment. [8]

• inflation may make the country’s products less internationally competitive (1) export
prices may rise relative to import prices (1) this may reduce demand for the country’s
products (1) causing cyclical unemployment (1)
• if inflation is caused by rises in wages/increases in costs of production (1) firms may
make workers redundant to reduce costs (1) higher costs may force firms out of
business causing unemployment (1)

• inflation rate may be below rival country’s inflation rates (1) increasing international
competitiveness (1) increasing demand for the country’s products (1) reducing cyclical
unemployment (1)
• a low level of demand-pull inflation/stable inflation (1) may encourage firms to expand (1)
reducing unemployment (1)
• frictional and structural unemployment may fall despite inflation (1) if, for instance,
information about job opportunities/labour mobility increase (1)
6 (a) Define ‘quota’. [2]
• A limit/restriction (1) on imports/exports (1)
(b) Explain the structure of the current account of the balance of payments. [4]
• trade in goods (visibles)

• trade in services (invisibles)
• income flows (primary income)
• current transfers (secondary income)
1 mark for good explanation of each section

PAGE 170

• good explanation of two sections and identification of one other section (4)
• good explanation of two sections; or a good explanation of one section and identification
of the other three sections (3)
• identification of four sections (2)
• identification of two/three sections (1)
(c) Analyse why it would be expected that a rising current account surplus would lead to
an appreciation in the country’s foreign exchange rate. [6]
• current account surplus involves more money coming into the country than going out (1)
• appreciation means a rise in the value of a currency (1)
• demand for the peso may be increasing (1) as more pesos would be being purchased to
e.g. buy Argentinian exports (1) higher demand would tend to push up price (1)
• supply of the peso may be decreasing (1) as less pesos may be sold to e.g. buy imports
(1) lower supply will tend to push up price (1)
(d) Discuss whether a government should try to prevent a depreciation in the country’s
currency. [8]
Up to 5 marks for why it should:

• a depreciation can cause inflation (1) price of imported raw materials will rise (1)
increasing costs of production (1) causing cost-push inflation (1) firms lose competitive
edge (1)
• may lower living standards (1) as people will not be able to afford to buy as many
imports (1)
• to prevent a fall in the value of the currency a central bank may have to use reserves to
buy the currency (1) would involve an opportunity cost (1) or raise interest rate (1) which
could reduce demand (1) cause lower output/employment (1)
• currency may initially have been undervalued (1)

• may improve the current account position (1) lower export prices may increase export
revenue (1) higher import prices may reduce import expenditure (1)
• higher import prices may increase demand for domestically produced products (1) may
increase output (1) and employment (1) higher demand for the country’s products (1)
may encourage firms to expand and take on more workers (1)
• currency may initially have been overvalued (1)
7 (a) Identify two influences on the amount households spend. [2]
1 mark each for two of the following:

• income/benefits
• wealth
• confidence
• rate of interest savings
• age structure
• taxation
• size of family/household

PAGE 171

(b) Explain why tax revenue may fall during a recession. [4]
• lower incomes (1) will mean less income tax revenue (1)
• firms are likely to earn less profit (1) so less corporation tax revenue (1)
• less spending (1) so less indirect tax revenue (1)
• government may decide to cut tax rates (1) to stimulate the economy (1)
(c) Analyse how a cut in government spending may reduce a country’s HDI ranking. [6]
• lower government spending may reduce total demand (1) lower demand may reduce
output (1) lowering GDP per head (1)
• lower government spending on healthcare may reduce the quality and availability of
healthcare (1) reducing life expectancy (1)
• lower government spending on education (1) may reduce the years of education children
will receive/mean and expected years of schooling (1)
(d) Discuss whether use of monetary policy will increase economic growth. [8]

• a cut in the rate of interest (1) may increase borrowing (1) reduce saving (1) increase
spending/demand (1) encourage firms to produce more (1) stimulate investment (1)
increase productive capacity (1)
• a rise in the money supply (1) may increase demand (1) encouraging firms to produce
more (1)
• a devaluation of the currency (1) may increase demand (1) as export prices fall and
import prices rise (1) encouraging firms to produce more (1)
• a sound monetary policy may increase confidence (1) which may increase investment
(1) e.g. an inflation target (1) may encourage people and firms to believe inflation will be
low (1)

• a rise in the rate of interest (1) may discourage borrowing (1) increase saving (1) reduce
spending/demand (1) encouraging firms to reduce output (1) reduce investment (1)
reduce productive capacity (1)
• a reduction in the money supply (1) may reduce demand (1) encouraging firms to reduce
output (1)
• a revaluation of the currency (1) may reduce demand (1) as exports prices rise and
import prices fall (1) encouraging firms to produce less (1)
• an expansionary monetary policy may cause inflation (1) this may reduce output in the
longer term as domestic products will be less internationally competitive (1)
• other policies might be more effective (1) example (1)
• the effects of monetary policy might be offset by other factors (1) e.g. a global recession
(1)

PAGE 172

ECONOMICS 2281/21
2 hours 15 minutes
* 1 2 7 3 3 5 8 2 0 1 *
Section A
Answer Question 1.
Section B
This document consists of 4 printed pages and 1 Insert.
DC (ST) 126324
PAGE 173
Section A
1 Changes in car production
Car production is changing. Until recently car manufacturing firms had the most power in the
market. Now, however, firms producing car parts are gaining more power. The markets for both
cars and car parts consist of a relatively high number of firms that range from very large to small.
In 2014 the market was dominated by sixteen major car firms, each selling more than one million
cars a year. In that year there were ten major car part firms and these were gaining more power
over the car producers.
The world’s largest car part supplier by revenue claims to supply at least one of the parts in every
car sold throughout the world. The firm has grown as a result of mergers and is moving towards
total control of the market. It is seeking to build up high barriers to entry and to become the sole
producer. The ten largest car part firms accounted for 63% of the total output of car parts in 2013,
producing US$250 billion of car parts in that year. These ten firms now have the ability to build
85% of a car’s internal systems, leaving the car manufacturing firms to make little more than the
engine.
Car production is increasing in a number of developing countries but declining in some developed
countries. Car manufacturing increased in the UK between 2013 and 2014, but the industry had
been experiencing problems before 2013. In 2008 the average wage of car workers fell. In that year
the UK experienced a recession. Real wages in the UK car industry for the lowest paid workers
also declined after 2008 and the number of workers employed fell between 2008 and 2012. This
was despite output per worker increasing, partly because some less skilled workers lost their jobs
and the industry replaced some of these workers with capital equipment.
Buyers of cars often borrow money from commercial banks to make their purchases. In some
cases buyers use their savings, which may be withdrawn from commercial banks, to buy cars.
The behaviour and performance of car firms are influenced by the economic system of the country
they are producing in. In countries with a market system there is likely to be greater consumer
sovereignty. Car firms in such countries may be more likely to innovate, bringing in new methods
of production and developing higher-quality products.
(a) Using information from the extract, identify two characteristics of monopoly. [2]
(b) Calculate the total output of car parts in US$ in 2013. [3]
(c) Explain, using information from the extract, why wages in the UK car industry fell in 2008. [2]
(d) Using information from the extract, explain two merits of a market system. [4]
(e) Analyse two reasons, referred to in the extract, why a decrease in employment may increase
labour productivity. [4]
(f) Discuss whether a declining car industry should be protected by the government. [5]
(g) Using information from the extract, explain two functions of commercial banks. [4]
(h) Discuss whether small car manufacturing firms can compete with large car manufacturing
firms. [6]
© UCLES 2016 2281/21/M/J/16

PAGE 174
Section B
2 Burundi is a country in Sub-Saharan Africa. In 2013 the government of Burundi introduced VAT, an
indirect tax, while lowering corporation tax (the tax on firms’ profits), from 35% to 30%. The United
Nations has encouraged Sub-Saharan African countries to increase their tax revenue in order
to have more funds available to spend on reducing poverty. There is, however, a debate about
whether imposing more taxes or removing some taxes is more beneficial for an economy.
(a) Define ‘an indirect tax’. [2]
(b) Explain how a cut in the rate of corporation tax could result in an increase in tax revenue. [4]
(c) Using a demand and supply diagram, analyse the effect of removing an indirect tax on the
market for the product. [6]
(d) Discuss whether an increase in taxes will reduce inflation. [8]
3 The Canadian economy in 2014 was generally doing well. Money was largely retaining its value
and unemployment was falling. The country did, however, have rising household debt and a deficit
on the current account of its balance of payments. The Canadian Government in 2014 was seeking
to increase exports whilst recognising that such an increase may have an impact on the exchange
rate.
(a) Identify two functions of money. [2]
(b) Explain two reasons why household borrowing may increase. [4]
(c) Analyse three ways in which international trade differs from internal trade. [6]
(d) Discuss whether an increase in exports will increase the exchange rate. [8]
4 Increasing demand from China has made New Zealand the world’s biggest exporter of dairy
products. Its exports of milk to China increased by 45% in 2013. More than 300 000 hectares of
land in New Zealand have been transferred to dairy use from other forms of farming and forestry
use since 2000. The increase in milk production has caused the average cost of its production to
fall and changes in production methods have affected the price elasticity of supply of milk.
(a) Why may less wheat be the opportunity cost of producing more milk? [2]
(b) Explain two reasons why the supply of a product may be price-inelastic. [4]
(c) Analyse how an increase in exports could increase a country’s employment rate and inflation
rate. [6]
(d) Discuss whether the average cost of production always decreases when a firm increases the
total output that it produces. [8]

PAGE 175
5 In January and February 2014 there were calls for the UK Government to build more flood
defences. Homes, factories and other resources were damaged and some destroyed by floods.
It was argued that government intervention was needed in this case as there was evidence of
market failure.
(a) Define ‘market failure’. [2]
(b) Explain how government regulation may reduce market failure. [4]
(c) Analyse the effect of a decrease in resources on government economic aims. [6]
(d) Discuss whether the social benefits of building flood defences will exceed the social costs
involved. [8]
6 The year 2014 saw the longest-ever strike by platinum miners in South Africa. It involved 70 000
miners out of a total of 200 000 employed in the industry. These miners included migrant workers
from neighbouring countries who had increased the size of the country’s labour force. The strike
cost the world’s three largest platinum producing firms US$1.4 billion and reduced the country’s
exports of platinum.
(a) Identify two reasons why workers go on strike. [2]
(b) Explain two disadvantages of a decrease in a country’s export revenue. [4]
(c) Analyse how a fall in a firm’s revenue may influence its spending on capital goods. [6]
(d) Discuss whether an increase in a country’s labour force will increase income per head. [8]
7 In 2014 Cuban doctors were given pay rises that significantly increased their salaries. This made
doctors’ pay more than twice that received by nurses. Cuba is devoting more resources to both
medical care and tourism, altering the country’s production possibility curve. Living standards are
increasing in the country but at a slower rate than some other nearby countries.
(a) What is meant by a production possibility curve? [2]
(b) Explain, giving examples, two factors of production used in the tourism industry. [4]
(c) Analyse why doctors are paid more than nurses. [6]
(d) Discuss whether living standards are always lower in developing countries than in developed
countries. [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 (UCLES) 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 Cambridge International
Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after
the live examination series.
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.
© UCLES 2016 2281/21/M/J/16

PAGE 176

ECONOMICS 2281/21
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PAGE 177

1 (a) Using information from the extract, identify two characteristics of monopoly. [2]
• High barriers to entry and exit (1)

• A sole producer (1)
• Gain total control of the market (1)
(b) Calculate the total output of car parts in US$ in 2013. [3]
• US$396.8 bn Accept US $396 bn or US $397 bn or US $3.968253968x1011 (3)

• Correct working i.e. US $250 bn x 100/63 (2)
• US$250 bn is 63% of the total (1)
(c) Explain, using information from the extract, why wages in the UK car industry fell in
2008. [2]
• A recession occurred in the UK in 2008 (1). Falling GDP may reduce demand for cars
(1). Demand for labour falls (1)
(d) Using information from the extract, explain two merits of a market system. [4]
• Consumer sovereignty (1) consumers having the power to decide what is produced /
firms allocate resources according to consumer demand (1) results in greater choice for
consumers (1)
• Firms respond to price changes (1) bring in new methods of production (1) may lower
costs / are more efficient / competitive (1)
• May encourage innovation (1) improve quality (1) due to the profit motive (1)
(e) Analyse two reasons, referred to in the extract, why a decrease in employment may
increase labour productivity. [4]
• Less skilled workers may lose their jobs (1) they may have relatively low productivity
(1).
• The industry may become more capital intensive (1) machines replacing workers / more
capital equipment per worker enables workers to produce more output (1).

PAGE 178

(f) Discuss whether a declining industry should be protected by the government. [5]

• Will save jobs / prevent unemployment (1) this can prevent living standards falling (1)
prevent government spending on unemployment benefits rising (1) prevent loss of tax
revenue (1) give workers time to find other jobs (1)
• Will stop real GDP / output falling (1) avoid a recession / fall in economic growth (1).
• Will assist exports / reduce imports (1) positive effect on Balance of Payments on current
account (1)
• Industry may be a strategic industry (1) such industries are important for the survival of
the country (1).
Up to 3 marks for why it should not:

• An inefficient use of resources (1) involves an opportunity cost (1) resources would be
better devoted to infant industries / expenditure on health and or education (1).
• May provoke retaliation (1) other countries may impose trade restrictions (1) this may
raise the cost of other firms/make it difficult for them to sell abroad (1).
• Industry becomes too dependent on government support (1) making it less competitive
(1)
(g) Using information from the extract, explain two functions of commercial banks. [4]
• Provide loans (1) interest will be charged on these / enable households and firms to
borrow (1).
• Enables customers to save (1) provides a secure place/pays interest (1).
(h) Discuss whether small car manufacturing firms can compete with large car
manufacturing firms. [6]

• Small firms can specialise in luxury models (1) cater for a small market (1). May provide
specialist parts for bigger firms (1)
• Small firms can provide a specialised product (1) build cars to suit individual customer
needs (1).
• Small firms may be subsidised / have taxes reduced by the government (1) reduce costs
of production (1).
• Large firms may experience diseconomies of scale (1) example (1) giving small firms a
cost advantage (1).
• May experience external economies of scale (1) example (1).

• Average costs may be higher (1) as large firms may experience economies of scale (1)
example (1).
• Large firms may have brand loyalty (1) well known/high spending on advertising (1) high
spending on research and development (1)
• Large firms may force small firms out of the market (1) by lowering prices (1)
NOTE: MAX of 4 marks if no mention of car manufacturing.

PAGE 179

2 (a) Define ‘an indirect tax’. [2]
A tax on spending / goods and services / consumption (1) the burden of the tax can be
moved on to someone else (1) example (1)
(b) Explain how a cut in the rate of corporation tax could result in an increase in tax
revenue. [4]
• A lower tax will increase the profit firms can keep / lower the cost of production (1)
encourage them to increase output (1) increasing employment (1) pay higher wages (1)
direct tax revenue would rise (1).
• Spending / consumption may increase (1) more revenue from indirect taxes (1).
(c) Using a demand and supply diagram, analyse the effect of removing an indirect tax on
the market for the product. [6]
D S
S1
P
price
P1
S
S1 D
O Q Q1
quantity
Up to 4 marks for the diagram:

• axes correctly labelled – price and quantity or P and Q (1)
• demand and supply curves correctly labelled (1)
• supply curve shifted to the right (1)
• correct equilibriums identified either by a line drawn to both axes or equilibrium points
clearly identified e.g. E and E1 (1).
Up to 2 marks for written comments:

• removing an indirect tax effectively reduces costs of production (1)
• A greater supply will lower price (1).

PAGE 180

(d) Discuss whether an increase in taxes will reduce inflation. [8]

• Increases in income tax (1) will reduce disposable income (1) spending may fall (1) lower
demand will reduce demand-pull inflation (1).
• Increases in corporation tax (1) reduces profits firms can keep (1) reduces demand for
capital goods/investment (1).
• Increases in indirect taxes (1) will reduce spending (1) lowering demand-pull inflation
(1)

• Consumers and firms may respond by reducing saving (1) rather than spending (1).
• Higher indirect taxes and corporation tax (1) increase costs of production / higher prices
(1) may cause cost-push inflation (1).
• Higher income tax may encourage workers to press for wage rises (1) increasing costs
of production (1) causing cost-push inflation (1).
3 (a) Identify two functions of money. [2]
1 mark each for any two of the following:

• medium of exchange / means of payment
• store of value
• unit of account/measure of value
• standard of deferred payment.
(b) Explain two reasons why household borrowing may increase. [4]
1 mark for identifying a reason and 1 mark for explaining:
• The rate of interest may fall (1) making it cheaper to borrow (1).
• Incomes may fall / prices may rise / inflation (1) so people may borrow to purchase basic
necessities (1).
• People may become more optimistic about the future (1) more confident that they will
repay loans (1).
• The price of housing may fall (1) encouraging people to take out mortgages (1).
• Increase in family size (1) creates a greater need to borrow to support more children
(1)
• The cost of health care/education may increase (1) requiring people to pay more for the
services (1).

PAGE 181

(c) Analyse three ways in which international trade differs from internal trade. [6]
1 mark for identification of a difference and 1 mark for analysis:

• International trade usually covers greater distances (1) which increases the cost of
transport (1) may take longer for delivery (1).
• International trade means a bigger market than the internal market (1) and more
competitive (1) enabling firms to gain economies of scale (1)
• Internal trade involves using the same currency (1) international trade may involve two or
more currencies (1) increasing transaction costs (1).
• International trade means a wider range of goods & services (1) this gives consumers
greater choice (1)
• Trade restrictions may be imposed on products traded internationally (1) raising costs of
production (1).
• Tastes and cultures may differ (1) requiring differences in products offered (1).
• Regulations may differ (1) requiring adjustments in products (1).
• Languages may differ (1) e.g. incurring costs of translation (1).
(d) Discuss whether an increase in exports will increase the exchange rate. [8]
• The exchange rate is the price of a currency (1)

• An increase in exports may increase export revenue (1) this will increase demand for the
currency (1) higher demand pushes up the price of the currency (1) raising the value of a
floating exchange rate (1) which is determined by market forces (1).

• Exports may increase but export revenue may not (1) more exports may be bought for a
lower price (1) and so demand for the currency will not rise (1).
(1) An increase in exports may be offset by an increase in imports / lower interest rate
(1) or government intervention by selling domestic currency (1) so demand and supply of
the currency will increase (1) which may leave the exchange rate unchanged (1).
4 (a) Why may less wheat be the opportunity cost of producing more milk? [2]
• Opportunity cost is the cost of the (next) best alternative foregone (1).
• Land / resources used for growing wheat may be used to keep cows (1) reducing the
amount of wheat that can be produced (1).

PAGE 182

(b) Explain two reasons why the supply of a product may be price-inelastic. [4]
1 mark for each reason identified and 1 mark for explanation:

• It may take time to produce the product (1) this means that it will take time to adjust
supply in response to a change in price / example of a product that it takes time to
produce (1).
• It may not be possible to store the product (1) this means that it cannot be taken out of
storage when price rises / products cannot be put into storage when price falls (1).
• It may be costly to adjust supply (1) e.g. it might be necessary to build new factories and
this may discourage firms from adjusting supply (1).
• The supply of a natural resource may become limited (1) e.g. gold maybe close to
depletion (1)
(c) Analyse how an increase in exports could increase a country’s employment rate and
inflation rate. [6]
• An increase in exports may mean a higher total demand (1). Higher demand may
encourage firms to increase their output (1) to produce more products firms may take on
more workers (1) reducing cyclical unemployment (1).
• Higher demand may cause demand-pull inflation (1). A higher demand for workers may
push up wages (1). Higher demand for raw materials may push up the price of raw
materials (1). Costs of production may increase (1) causing cost-push inflation (1).
Note: a maximum of 4 marks for analysis of the effect on either the employment rate or the
inflation rate.

PAGE 183

(d) Discuss whether the average cost of production always decreases when a firm
increases the total output that it produces. [8]

• The firm may experience economies of scale (1) total cost will rise by less than total
output (long run average cost may fall as output increases) (1).
• The firm may experience buying/purchasing economies of scale (1) may be offered a
discount price when buying raw materials in bulk (1).
• The firm may experience technical economies of scale (1) larger, more cost efficient
technological equipment may be purchased to produce a higher output (1).
• The firm may experience managerial economies of scale (1) specialist staff may be
employed when output is high (1)
• The firm may experience financial economies of scale (1) as output increases, it may be
able to borrow more cheaply / or sell its shares at a lower price (1)
• The firm may experience R & D economies of scale (1) the R & D expenditure can be
spread over a higher output (1).
• The industry may also be growing in size (1) enabling advantage to be taken of external
economies of scale (1).

• The firm may experience diseconomies of scale (1) total cost may rise by more than total
output (long run average cost may increase as output increases) (1).
• The firm may experience diseconomies of scale (1) this may make the firm slower to
respond to changing market conditions / more difficult to keep costs down (1).
• The firm may experience communication problems (1) ideas may not be communicated
or may be misunderstood (1).
• The firm may experience poor industrial relations (1) e.g. strikes may increase costs of
production (1).
• External diseconomies of scale may occur (1) e.g. pushing up the costs of production
(1).
• Allow up to 2 marks for a correctly labelled average cost diagram which shows
economies and diseconomies of scale as an alternative to describing average costs
rising / falling as output increases
5 (a) Define ‘market failure’. [2]
• Where the market forces of demand and supply (1) do not achieve efficiency (1)
• When social costs are greater than social benefits (1) example of external cost e.g.
monopoly or external benefit e.g. merit or public goods (1)

PAGE 184

(b) Explain how government regulation may reduce market failure. [4]
• Regulation involves rules and laws (1).

• Firms may be banned (1) from producing products that create external costs (1) example
such as water pollution (1).
• Firms may be fined (1) if they create external costs (1) example e.g. air pollution (1).
• Consumers may be banned from consuming products that create external costs (1) or
where there are high private costs (1) some of which people are unaware of (1) example
e.g. cigarettes (1)
• Consumption of some products that have external benefits (1) and/or high private
benefits (1) some of which people are unaware of (1) may be made compulsory (1) e.g.
primary school education (1).
(c) Analyse the effect of a decrease in resources on government economic aims. [6]
• Fewer resources will make it more difficult to achieve economic growth (1) there will be
fewer factors of production to produce goods and services (1) output may fall or rise
more slowly (1).
• Fewer resources may increase costs of production (1) supply may fall by more than
demand/there may be a shortage of e.g. raw materials (1) cost-push inflation may occur
(1).
• Natural disasters (1) can lead to cost push inflation (1) loss of employment (1)
government expenditure exceeding government income (1)
• The current account may move into a deficit/larger deficit (1) as exports may decline (1)
while e.g. food may have to be imported (1).
• Destruction of factories may reduce unemployment opportunities (1) which may increase
unemployment (1) but more workers may be needed to e.g. rebuild factories (1).
(d) Discuss whether the social benefits of building flood defences will exceed the social
costs involved. [8]
Up to 5 marks for a discussion of why social benefits maybe greater:

• Social benefits are private benefits plus external benefits (1).
• Explain private benefits (1) e.g. greater employment, greater revenue for firms,
protection of homes / reduction in high risk of flooding (up to 3)
• Explain external benefits (1) e.g. increase in house prices in the area, greater tourism,
reduced cost to emergency services and benefit payments (up to 3)
Up to 5 marks for why social costs maybe greater:

• Social costs are private costs and external costs (1).
• Explain private costs (1) e.g. cost of land, raw material labour and buildings, may only be
a low risk of flooding (up to 3)
• Explain external costs (1) e.g. pollution, destruction of wildlife habitats, opportunity cost
of resources (up to 3).

PAGE 185

6 (a) Identify two reasons why workers go on strike. [2]
1 mark for each of two reasons identified e.g.:

• to gain higher wages / to resist wage cuts
• to improve working conditions
• to resist job losses.
(b) Explain two disadvantages of a decrease in a country’s export revenue. [4]
• May increase a current account deficit / reduce a current account surplus (1) export
revenue is part of the current account / export revenue is a credit items (1).
• May increase unemployment (1) exporting firms may reduce their output (1) which would
lower demand for workers (1).
• May reduce economic growth (1) exporting firms may reduce output (1) can lose tax
revenue from lower exports / lower output (1)
(c) Analyse how a fall in a firm’s revenue may influence its spending on capital goods. [6]
• A fall in revenue may reduce a firm’s profit (1).

• Lower profits will reduce the funds (1) a firm has to reinvest / spend on capital goods
(1).
• Lower profit will reduce the incentive to spend on capital goods (1) the expected return
will be lower (1).
• Lower revenue / profit may make it more difficult for a firm to borrow (1) sell shares (1) to
finance spending on capital goods (1).
• Lower revenue may make a firm realise it needs to cut costs of production (1) improve
quality of products (1) and this may require the firm to buy new capital equipment (1).
• If the fall is the result of a strike the firm may seek to replace labour by capital equipment
(1).

PAGE 186

(d) Discuss whether an increase in a country’s labour force will increase income per
head. [8]

• A larger labour force may enable greater advantage to be taken of division of
labour/specialisation / economies of scale (1) this can reduce average costs of
production (1) as workers can concentrate on what they are best at (1) can be trained
more quickly (1) reduces the amount of capital equipment needed (1) lower costs may
increase sales at home and abroad (1) increasing output and raising incomes (1).
• A larger labour force may reduce the dependency ratio (1) a higher proportion of workers
to non-workers will increase income per head (1).
• A larger labour force will enable successful firms to expand (1) this will increase GDP
(1).
• Multinational companies may be attracted to set up in the country by a larger labour
force (1) this may result in a rise in wages (1).

• Population may increase by more than the labour force (1) this will increase the
dependency ratio (1).
• The labour force may increase but demand for labour may not (1) so the unemployment
rate may increase (1) so income divided by population may fall (1).
• The quantity of the labour force may increase but the quality of the labour force may fall (1)
productivity may decline (1) reducing output and incomes per head (1).
• An increase in the labour force may increase competition in the labour market (1) lowering
wages (1).
7 (a) What is meant by a production possibility curve? [2]
• A curve that shows the maximum output of two types of products / combination of two
products (1) that can be made with given resources/technology (1) it shows opportunity
cost (1)
• Allow 1 mark for some understanding shown about potential maximum output
• Allow up to 2 marks for a diagram which is explained – with correct labelling (1) and
correct curve (1)
(b) Explain, giving examples, two factors of production used in the tourism industry. [4]
• Labour which is human effort (1) e.g. tourist guides (1).

• Land which is natural resources (1) e.g. beaches (1).
• Capital which is human-made goods and services used in production (1) e.g. hotels (1)
• Enterprise which is risk bearing and decision making (1) e.g. may be undertaken by the
owner of a hotel (1).

PAGE 187

(c) Analyse why doctors are paid more than nurses. [6]
• Doctors need higher qualifications (1) take longer to train (1) reduces supply (1) makes
supply more inelastic (1).
• Doctors are more skilled (1) more productive / efficient (1) in higher demand (1).
• Doctors may have a more powerful professional organisation / trade union (1) giving
them greater bargaining power (1).
• Doctors maybe a different gender to nurses (1) discrimination may occur (1)
(d) Discuss whether living standards are always lower in developing countries than in
developed countries. [8]
Up to 5 marks for why they might be:

• Developing countries tend to have lower income per head / greater poverty (1) reducing
the goods and services their people can buy (1).
• Developing countries tend to have higher population growth (1) this can increase the
dependency ratio (1) reducing resources available to e.g. improve housing conditions (1)
• Developing countries tend to have lower life expectancy (1) health care tends to be less
readily available / lower quality (1).
• Developing countries tend to have a lower standard of education (1) children likely to
have fewer years at school / attend university / gain well paid employment / more
productive (1)
• Developing countries tend to have more people employed in the primary sector (1) work
in the primary sector tends to be more physically demanding/lower paid (1).
NOTE: Accept the reverse argument why living standards are always higher in developed
countries.
Up to 5 marks for why they might not be:

• Some people in developed countries may experience lower living standards (1) as
income may be unevenly distributed / there is relative poverty (1).
• Working hours may be lower in developing countries (1) which increases leisure time
(1).
• The informal economy may be greater in some developing countries (1) meaning that
output may be higher (1).
• Obesity may be more of a problem in developed countries (1) reducing the health of the
population (1).
• Some jobs in the primary sector are well paid (1) e.g. in the oil industry (1).

PAGE 188

ECONOMICS 2281/22
2 hours 15 minutes
* 0 7 9 0 5 2 2 2 9 3 *
Section A
Answer Question 1.
Section B
This document consists of 5 printed pages, 3 blank pages and 1 insert.
DC (ST) 126461
PAGE 189
Section A
1 Crisis in the chocolate market
There are concerns that the price of chocolate could rise significantly in the next few years. This
is because of increasing demand for chocolate, particularly in emerging countries, and supply
problems in the countries that produce cocoa beans.
Cocoa beans, the main ingredient in chocolate, are grown mainly in the west coast of Africa by
small farms using labour-intensive methods. In 2012 Côte d’Ivoire (Ivory Coast) produced 37% of
the world’s output of cocoa beans, followed by Indonesia which produced 13%.
Côte d’Ivoire is becoming well known for supplying good quality cocoa beans. Concentrating on
supplying the product its resources are most suited to has increased output in the country. Gross
Domestic Product per head rose to US$1240 in 2013. Some farmers and farm workers, however,
still live on less than US$2 a day.
In Indonesia, the income of most cocoa farmers and farm workers increased along with the rise
in the country’s average income between 2013 and 2014. Their purchasing power was, however,
affected by the consumer prices index rising from 108.0 in 2013 to 115.2 in 2014. While people’s
medical care in Indonesia is improving with more doctors per head, the government is seeking to
raise education standards.
Among the problems being experienced by cocoa bean producers are an ageing labour force,
with the industry experiencing difficulties attracting young farmers and farm workers. The industry
also regularly experiences problems caused by pests and diseases, including black pod disease.
At the same time people in Asia, particularly China, are eating more chocolate and drinking more
chocolate drinks. People in the United States of America and the European Union are also eating
more chocolate, although concerns about the health effects of eating large quantities of chocolate
are beginning to affect demand. For many people, however, chocolate is addictive. Chocolate
producers seek to take advantage of this by increasing the gap between revenue and costs. Most
chocolate producers come from developed countries and most are public limited companies trying
to keep their shareholders happy. These producers take advantage of their market power to keep
the price they pay for cocoa beans relatively low whilst the price they charge to consumers who
buy their chocolate is kept relatively high.
© UCLES 2016 2281/22/M/J/16

PAGE 190
(a) Using information from the extract, identify two indicators of improved living standards in
Indonesia. [2]
(b) Explain whether the extract suggests the demand for chocolate is price-elastic or price-
inelastic in developed countries. [2]
(c) Using information from the extract, explain two reasons why cocoa bean farmers do not use
much capital equipment. [4]
(d) Calculate the rate of inflation in Indonesia in 2014. [3]
(e) Analyse two benefits of specialisation referred to in the extract. [4]
(f) Discuss whether the price of chocolate is likely to increase in the future. [5]
(g) Using information from the extract, explain what is likely to be the main goal of chocolate
producers. [4]
(h) Discuss whether free trade always benefits producers. [6]

PAGE 191
Section B
Answer any three questions in this section.
2 In 2013 the Mexican Government was considering imposing a sales tax of one peso per litre
on the price of fizzy drinks. The Government wanted to discourage people from consuming too
many fizzy drinks – 40% more fizzy drinks per person are consumed than in the United States of
America. A number of multinational fizzy drinks companies have threatened to leave the country if
taxes are increased.
(a) Giving an example, define ‘a sales tax’. [2]
(b) Explain the difference between private costs and social costs. [4]
(c) Using a demand and supply diagram, analyse the effect of imposing a tax on fizzy drinks. [6]
(d) Discuss whether a country’s economy would be harmed if multinational companies moved
out. [8]
3 It is forecast that India’s working-age population aged between 15 and 64 will rise by 125 million
between 2015 and 2025 and by a further 103 million over the following decade. Of course, not
everyone of working age will be in work or will be seeking work. Changes in population and the
labour force affect a government’s ability to achieve its economic aims.
(a) Identify two government economic aims. [2]
(b) Explain two reasons why someone may be of working age but not in the labour force. [4]
(c) Analyse what may cause an increase in a country’s labour force. [6]
(d) Discuss whether an economy will benefit from having a younger labour force. [8]
4 Tuk-tuks, three-wheeled motorised rickshaws, are driven in a number of countries. India is the
largest producer of the vehicle. India’s largest tuk-tuk producing firm faces competition from
firms at home and from imported tuk-tuks. The industry is becoming more capital-intensive and
competitive but is still some way from perfect competition.
(a) Define ‘capital-intensive’. [2]
(b) Explain two characteristics of perfect competition. [4]
(c) Analyse two internal diseconomies of scale that a large firm may experience. [6]
(d) Discuss whether consumers would benefit from an increase in imports. [8]
© UCLES 2016 2281/22/M/J/16

PAGE 192
5 In July 2016 the Sveriges Riksbank, Sweden’s central bank, cut the rate of interest to 0.25%. The
Swedish economy was experiencing deflation, with the weighted price index falling by 0.2% on the
previous year. The fall in the rate of interest reduced the value of the krona, Sweden’s currency,
and was expected to end deflation.
(a) Define a ‘weighted price index’. [2]
(c) Analyse how a fall in the value of a currency may increase a current account surplus on the
balance of payments. [6]
(d) Discuss whether a cut in the rate of interest would end deflation. [8]
6 Deposits in banks in Dubai rose by 40% in 2013. More financial companies are locating in Dubai.
The growth in its financial sector is being accompanied by horizontal mergers between financial
companies and workers becoming more specialised. The economy is becoming richer but the
economic problem will never be solved here or elsewhere in the world.
(a) Why can the economic problem never be solved? [2]
(b) Explain two reasons why workers specialising can reduce the average cost of production.
[4]
(c) Analyse how an increase in bank lending can increase economic growth. [6]
(d) Discuss whether consumers benefit from horizontal mergers. [8]
7 Countries have to decide how to use their scarce resources. A number of countries are devoting
more of their resources to tourism. Some of the jobs in the industry are, however, low-paid and
offer little job security. The average age of workers employed, for example, in hotels is relatively
young although some older workers have spent their working life in the hotel industry.
(a) What is meant by ‘scarce resources’? [2]
(b) Explain two reasons why someone may be willing to do a low-paid job with little job security.
[4]
(c) Analyse how the spending, saving and borrowing patterns of young workers may differ from
older workers. [6]
(d) Discuss whether developing countries should encourage foreign tourism. [8]
© UCLES 2016 2281/22/M/J/16

PAGE 193

ECONOMICS 2281/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.

PAGE 194

1 (a) Using information from the extract, identify two indicators of improved living
standards in Indonesia. [2]
• A rise in incomes/increase in purchasing power (1) improved medical care/an increase in

doctors per head (1).
(b) Explain whether the extract suggests the demand for chocolate is price-elastic or
price-inelastic in developed countries. [2]
• It suggests it is price-inelastic (1) as it is addictive (2).
(c) Using information from the extract, explain two reasons why cocoa bean farmers do
not use much capital equipment. [4]
• Low incomes of cocoa bean farmers (1) mean they cannot afford capital equipment
(1).
• Small size of cocoa bean farms (1) makes it impractical to use much capital equipment (1).
• Low wages of cocoa bean farm workers (1) makes it more cost effective to employ
labour rather than capital/high cost of capital equipment (1).
• Lack of education/unskilled/older workers (1) may not know how to use capital
equipment (1).
(d) Calculate the rate of inflation in Indonesia in 2014. [3]
• 6.67% / 6.7% / 6.6% / 6.666666% (3)

• Correct working: 7.2/108 x 100/115.2 – 108 x 100/108 or 6.67/6.7/6.6/6.66666/
1.067 or version of (2)
• 7.2 / 7.2% (1).
(e) Analyse two benefits of specialisation referred to in the extract. [4]
• A country can specialise in what it is best at producing/increase efficiency/increase

productivity (1) so leading to higher output/higher income (1). Maximum mark = 2.
• A country can gain a good reputation in producing the product/produce a high quality
product (1) this may increase demand for the product (1). Maximum mark = 2.

PAGE 195

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

• Demand is increasing/high demand (1) as incomes are rising/population increasing
(1)
• Sellers may raise price as demand is inelastic (1) market power enables producers to
raise price (1)
• Supply may fall/low supply (1) due to pests and disease (1).
• Farmers may switch to other products (1).
• Farmers and farm workers may become less productive (1) becoming older (1).

• Farms may be merged (1) enabling greater advantage to be taken of economies of scale (1)
lowering average costs (1).
• Concerns about obesity/diabetes/health effects (1) may reduce demand for chocolate (1)
• If more producers enter the market (1). This will increase competitive pressure/increase
supply which will drive down price (1)
• Up to a maximum of 2 marks for showing relevant shifts in demand and supply curves in
place of statements about e.g. increase in demand.
(g) Using information from the extract, explain what is likely to be the main goal of
chocolate producers. [4]
• Profit maximisation (1) 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).
(h) Discuss whether free trade always benefits producers. [6]

• Enables producers to specialise/expand (1) selling to a large market (1) can take
advantage of economies of scale (1).
• May be able to purchase raw materials more cheaply from foreign suppliers (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).
• May be able to import new technology (1) ideas on new production methods (1) which
could lower costs of production (1).

• Increases competition from other producers (1) if cannot compete due to higher costs may
go out of business (1) may need protection to survive (1).
• If there is inflation in the countries they import from (1) will raise costs of production (1).
• Will not be able to compete when there is dumping (1) will go out of business (1).
Note: the focus of the question is on the benefits to producers and not consumers.

PAGE 196

2 (a) Giving an example, define ‘a sales tax’. [2]
• A tax on spending/an indirect tax/ a tax on goods and services/ a tax on consumers (1)
e.g. VAT, GST, a tax on a specific product e.g. petrol (1).
(b) Explain the difference between private costs and social costs. [4]
Up to 2 marks for private costs:

• Private costs are costs borne by those consuming the product (1) producing the product (1)
example of such a cost (1) Social costs – external costs (1).
Up to 2 marks for social costs:

• Social costs are private costs plus external costs (2) total costs to society/total cost (1)
(c) Using a demand and supply diagram, analyse the effect of imposing a tax on fizzy
drinks. [6]
D S1
S
P1
price P
S1
S D
O Q1 Q
quantity

• axes correctly labelled – price and quantity or P and Q (1)
• demand and supply curves correctly labelled (1)
• supply curve shifted to the left (1)
• correct equilibriums identified either by lines drawn to both axes or equilibrium
prices clearly identified e.g. E and E1 (1)
• the tax per unit shown (1).
• an indirect tax is an extra cost on firms (1)
• a decrease in supply will raise the price of fizzy drinks (1).

PAGE 197

(d) Discuss whether a country’s economy would be harmed if multinational companies

moved out. [8]

• Employment may fall (1) and output/income/GDP/economic growth may decline (1).
• The current account position may worsen (1) as the MNC may have contributed to
exports (1).
• Wages may fall (1) if the MNC was paying above wages paid by domestic employers (1).
• Government tax revenues may fall (1) reducing its ability to spend on e.g. education (1).
• Less variety of products may be available to consumers (1).
• Discourage other MNCs setting up (1).

• The MNC may have been depleting the country’s resources (1) reducing its ability to
grow in the future (1).
• More domestic firms may set up/expand (1) to meet the demand that had previously
been supplied by the MNC (1).
• The MNC have been sending profits home (1) and so tax revenue may not fall
significantly (1).
• The MNC may have been putting pressure on the government to follow policies not
in the country’s interest (1).
• The MNC may have not have created much employment (1) keeping top jobs for
workers from own country (1).
• MNCs may have been subsidised (1) can use tax revenue for other purposes (1)
3 (a) Identify two government economic aims. [2]
• 1 mark for each of two economic aims identified:

• full employment/low unemployment/high rate of employment
• price stability/low inflation/control inflation
• economic growth
• redistribution of income
• high living standards/low poverty
• balance of payments stability/favourable balance of payments/ reduce deficit or move to
a surplus on the current account of the balance of payments.

PAGE 198

(b) Explain two reasons why someone may be of working-age but not in the
labour force. [4]
• A person may be a homemaker (1) deciding to stay at home to e.g. look after children (1).
• A person may be a student (1) staying in education to improve qualifications/increase
employment prospects/increase earning potential (1).
• A person may have taken early retirement (1) as may not need to work/may be unfit to work (1).
• A person may be sick/disabled (1) and so not able to work (1).
• Some people who have been unemployed for a long time may give up the search for
employment and so exit the labour force (1). These people are sometimes called
discouraged workers (1).
• A person may be working in the informal economy (1) not in official figures (1).
(c) Analyse what may cause an increase in a country’s labour force. [6]
• Net immigration (1) of people of working-age (1) will increase the supply of potential
workers (1).
• A decrease in the number of people of working-age who are economically inactive (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).
• An increase in the size of the population (1) due to a fall in death rate/rise in birth
rate/rise in the birth rate some years before (1).
• An increase in the cost of living (1) may force more family members to work/seek work (1).
(d) Discuss whether an economy will benefit from having a younger labour force. [8]

• A younger labour force may be more adaptable to new ideas (1) more up to date with
advances in technology (1) received up to date education (1).
• A younger labour force may be occupationally mobile (1) more willing and able to
switch jobs (1) enabling the economy to adjust to changes in demand (1) reducing
structural unemployment (1).
• A younger labour force may be more geographically mobile (1) reducing structural
unemployment (1).
• A younger labour force may be physically stronger (1) have less health problems (1)
be more productive/efficient (1) be prepared to work longer hours (1) increase
output/GDP (1).
• A younger labour force may work for lower wages (1) reduce firms’ costs of
production (1).

• A younger labour force may be less experienced (1) not built up skills (1) less
productive (1).
• A younger labour force may require more training (1) increasing firms’ costs of
production (1).
• A younger labour force may be less reliable and patient than the older population
(1) this may reduce demand for some products (1).
4 (a) Define ‘capital-intensive’. [2]
• A production method that uses a large proportion of capital (1) relative to labour (1).

PAGE 199

(b) Explain two characteristics of perfect competition. [4]
• Many buyers and sellers (1) making each firm a price taker/a very low market
concentration ratio (1).
• Free entry and exit (1) absence of barriers to entry and exit/results in only normal
profits being earned in the long run (1).
• Homogeneous product (1) an absence of anything that differentiates the product e.g.
branding / demand for one firm’s product will be perfectly elastic (1).
• Perfect knowledge (1) firms and buyers aware of profits/prices (1).
(c) Analyse two internal diseconomies of scale that a large firm may experience. [6]
• Difficulties controlling/managing the firm/managerial diseconomies (1) there are

more layers of management in a large firm (1) may take longer to make decisions (1).
• Communication problems (1) there are more layers of communication/communication
may be indirect (1) messages may be misinterpreted/take time to reach recipients (1).
• Labour diseconomies (1) Workers may feel less appreciated/have low morale (1) so
may become demotivated (1) which could reduce labour productivity/efficiency (1).
• Poor industrial relations (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).
(d) Discuss whether consumers would benefit from an increase in imports. [8]

• Imports may make available products not produced in the country (1) due to e.g.
differences in climate/resources (1).
• Imports may increase choice (1) provide differentiated products (1) provide good
quality products (1)
• Imports may be cheaper (1) this may also put pressure on domestic firms to
improve the quality of their products (1).
• The price of imported raw materials may be cheaper (1) this could lower costs of
production (1) lowering prices (1).

• Imports may drive domestic firms out of business may be created and this may
increase prices in the long run (2)
• A monopoly may be created which may reduce quality in the long run (2)
• Foreign firms may be engaging in dumping (1).
• Imports may be of harmful products/demerit goods (1) example (1) such products
would harm people’s health (1).

PAGE 200

5 (a) Define ‘a weighted price index’. [2]
• A measure of changes in the price level/measure of inflation (1) which takes into
account the different proportions spent on items in a basket of goods and services (1).
• A central bank is the bank of the government and commercial banks (1) whereas a
commercial bank is the bank of firms and households (1).
• A central bank issues notes and coins (1) which a commercial bank cannot do (1).
• A central bank implements monetary policy measures e.g. changes in the rate of
interest (1) whereas a commercial bank responds to monetary policy measures (1).
• A central bank is owned by the government (1) a commercial bank is usually
privately owned (1),
(c) Analyse how a fall in the value of a currency may increase a current account
surplus on the balance of payments. [6]
• A fall in the value would mean that more of the currency has to be sold to buy a
given unit of another currency (1).
• A fall in the value of the currency would reduce export prices (1) and increase
import prices (1).
• Demand for exports may increase/more exports (1) this may increase export
revenue (1) if demand for exports is price elastic (1).
• Demand for imports may fall/lower imports (1) this will reduce import expenditure
(1) if demand for imports is price elastic (1).
• A rise in export revenue and/or a fall in import expenditure will increase a trade in
goods/ and services surplus (1).
• Trade in goods and trade in services appear in the current account (1) credit items
in the current account would increase (1) while debit items would fall (1).
(d) Discuss whether a cut in the rate of interest would end deflation. (8)

• A reduction in the rate of interest will reduce the return from saving/discourage saving
(1) instead of saving households may spend (1).
• A lower interest rate will cut the cost of borrowing (1) this may encourage households
to take out loans and spend (1).
• Firms may spend more on capital goods/invest (1) as it will be cheaper to borrow
(1) they may expect a rise in consumer expenditure (1).
• Higher total (aggregate) demand (1) may push up the price level (1).

• Households may be pessimistic about the future/may expect prices to fall further in
the future or that a recession will occur (1) and so may not spend more despite a
lower interest rate (1). May choose to repay past debts (1).
• Firms may be pessimistic about the future/may expect prices to fall in the future (1)
and so may not borrow/ invest more despite a lower interest rate (1).
• The interest rate may initially have been low (1) and so a cut may make little
difference (1).
• Households and firms may not expect the cut to last (1) and so will not alter their
spending and investment plans (1).

PAGE 201

• Banks may be reluctant to lend (1) may be a lack of credit worthy borrowers (1).
Note: not rewarding other policy measures.
6 (a) Why can the economic problem never be solved? [2]
• Wants will grow more (1) than resources (1).

Or:
• Wants are infinite/unlimited (1) whilst resources are finite/limited (1).
(b) Explain two reasons why workers specialising can reduce the average cost of
production. [4]
• Workers can specialise in what they are best at (1) increasing productivity/efficiency (1).
• Workers can be trained more quickly (1) cost of training reduced/do not have to be
trained in every task (1).
• Less equipment is needed (1) cutting the amount of capital needed (1).
• Less time needs to be taken in moving between tasks (1) more time focused on
production (1).
• It may be easier to mechanise the process (1) increase productivity (1).
• Increased efficiency/higher quality production (1) reduces wastage (1).
(c) Analyse how an increase in bank lending can increase economic growth. [6]
• An increase in bank lending to households may increase consumer expenditure (1)

higher total (aggregate) demand (1) may encourage firms to increase their output (1)
this will raise real GDP (1).
• An increase in bank lending may increase investment/spending on capital goods/
expand business (1) this will increase demand for capital goods (1) it will also
increase productive capacity (1) causing potential economic growth (1).
• An increase in bank lending to people undertaking education/training (1) may
increase labour productivity (1) increasing GDP (1) and potential economic growth (1).
(d) Discuss whether consumers benefit from horizontal mergers. [8]
• A horizontal merger is a merger between two firms at the same stage of production
producing the same product (1).

• They may enable the firms to take greater advantage of economies of scale (1)
example (1) this will reduce average cost of production (1) this may lower prices to
consumers (1).
• They may enable the firms to earn more profit (1) which they can spend on research
and development (1) increasing innovation (1) raising the quality of the product (1).

• They may result in the firms experiencing diseconomies of scale (1) example (1) this
will increase average cost of production (1) this may raise prices to consumers (1).
• The firms may gain greater market share (1) move it closer to monopoly (1) this may
result in higher prices (1).

PAGE 202

• The reduction in competition (1) may discourage research and development (1) this
may reduce innovation (1) reduce quality (1).
7 (a) What is meant by scarce resources? [2]
• Factors of production (1) that are limited in supply (1).
(b) Explain two reasons why someone may be willing to do a low-paid job with little
job security. [4]
• Job satisfaction (1) some people undertake jobs because of the pleasure they gain
from e.g. nursing (1).
• Working hours (1) some people place a high value on leisure (1).
• Working conditions (1) e.g. a clean working environment (1).
• May not be able to take up a better job in another part of the country/geographically
immobile (1) due to family ties/housing costs (1).
• Lack of qualifications/ lack of occupational mobility (1) some people may have no
choice because they are not qualified to do better paid jobs (1).
• Lack of skills (1) workers may not be able to undertake the tasks required (1).
• Lack of experience (1) employers expecting lower productivity (1).
• Reluctance to accept responsibility (1) not wishing to take on a stressful job/position (1).
• Promotion chances (1) a worker may accept a low wage now in expectation of a
high wage in the future (1).
• Fringe benefits (1) such as a company car given to a sales person (1).
• Some workers may be forced to accept such jobs because of lack of skills (1) high
rate of unemployment (1) cut in or lack of unemployment benefits(1).
• Lack of awareness of availability of better paid more secure jobs (1).
(c) Analyse how the spending, saving and borrowing patterns of young workers may
differ from those of older workers. [6]
• Young workers may spend more as they may not have a family to save for (1) old
workers may spend a smaller proportion of their income (1) as they may be paid
more and so can afford to save (1).
• Young workers may save more to e.g. purchase a house (or other valid reason) (1)
older workers may already have sufficient savings (1).
• Younger workers may spend more on high tech products (1) older workers more on
healthcare (1)
• Young workers may save less as they do not have sufficient income (1) older
workers may save more as they are preparing for retirement (1).
• Young workers may borrow more because they may be buying a car/house (1).
• Young workers may borrow less because banks may be more reluctant to lend to
young workers/young workers may have less collateral/job security (1).

PAGE 203

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

• Foreign tourism brings in foreign currency (1) it is an export of services (1) improves
the current account balance (1).
• Foreign tourism may increase government tax revenue (1) this could be spent on e.g.
education which could improve living standards (1).
• Foreign tourism creates jobs (1) in e.g. hotels (1) reduces unemployment (1).
• Foreign tourism increases output (1) contributes to economic growth (1).
• Foreign tourism may attract MNCs/foreign investment (1) e.g. foreign hotel chains
may set up in the country (1).
• More revenue from tourism may result in a rise in the exchange rate (1) this may
reduce the price of imports (1).

• Foreign tourism may create external costs (1) e.g. destroy areas of natural beauty (1).
• Foreign tourism may deplete resources (1) e.g. water (1).
• Foreign tourism may only provide low-paid (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 tourist firms may send profits home (1) foreign hotels may be supplied by
foreign firms (1).
• A higher exchange rate may reduce exports/international competitiveness (1).
• Foreign tourism may increase demand in the economy (1) pushing up the prices
the local population have to pay (1).
Note: not accepting increased crime.

PAGE 204

ECONOMICS 2281/22
2 hours 15 minutes
* 2 4 5 9 6 3 4 2 7 1 *
An 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 A
Answer Question 1.
Section B
DC (AL) 133132
PAGE 205
Section A
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 2014. They also have high birth rates, from 17 in Turkey to
LQ1LJHULDSHUSHRSOH%RWKLQFRPHSHUKHDGDQGWKHFRXQWULHV·+XPDQ'HYHORSPHQW
Index ranking are improving. The changes, however, do not mean that everyone in the four
FRXQWULHVLVVDWLVILHG$VLQFRPHVLQFUHDVHVRGRSHRSOH·VZDQWVDQGZKDWSHRSOHZRXOGOLNHWR
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
SUHGLFWHG WR EH RQH RI WKH ZRUOG·V ODUJHVW HFRQRPLHV E\ 3URGXFWLYLW\ LV ULVLQJ LQ PRVW
sectors of the Nigerian economy although it remains low in agriculture. Despite some security
concerns, more multinational companies are setting up in the country, attracted by its expanding
markets.
1LJHULDDQG7XUNH\ERWKKDGDQQXDOLQIODWLRQUDWHVDERYHLQ,QGRQHVLD·VZDVDQG
0H[LFR·V 7KH 0H[LFDQ *RYHUQPHQW KDG XVHG PRQHWDU\ SROLF\ PHDVXUHV LQ WKDW \HDU WR
keep the inflation rate down. In August 2014 it opened up its energy market, allowing private sector
ILUPVWRFRPSHWHDJDLQVWWKHFRXQWU\·VVWDWHRZQHGSHWUROHXPILUP,WDOVRLQFUHDVHGVSHQGLQJRQ
VWDWHSURYLGHGKHDOWKFDUHZKLFKRSHUDWHVDORQJVLGHSULYDWHPHGLFDOFDUH
7KH IRXU FRXQWULHV VDZ IOXFWXDWLRQV LQ WKHLU H[FKDQJH UDWHV LQ ,QGRQHVLD·V FXUUHQF\ WKH
UXSLDKFKDQJHGIURPSHU86WKH\HDUEHIRUHWRSHU86LQ7XUNH\·VFXUUHQF\
the Turkish Lira, followed a similar trend.
&KDQJHV LQ WKH H[FKDQJH UDWH FDQ DIIHFW ILUPV· FRVWV RI SURGXFWLRQ DV FDQ LQGXVWULDO DFWLRQ ,Q
June 2014 Turkish trade unions organised a number of strikes seeking to gain better wages and
ZRUNLQJ FRQGLWLRQV IRU WKHLU PHPEHUV +RZHYHU WKH SRZHU RI7XUNLVK WUDGH XQLRQV LV OLPLWHG E\
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) Calculate how many children were born in Turkey in 2014. [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) $QDO\VHKRZWKHFKDQJHLQ,QGRQHVLD·VH[FKDQJHUDWHLQLVOLNHO\WRKDYHDIIHFWHGWKH
FRXQWU\·VLPSRUWH[SHQGLWXUH >@
(f) 'LVFXVVZKHWKHUWKH+XPDQ'HYHORSPHQW,QGH[LVDJRRGPHDVXUHRIOLYLQJVWDQGDUGV >@
(g) Using information from the extract, explain two functions of a trade union. [4]
(h) Discuss whether countries with high population growth have high economic growth. [6]
© UCLES 2016 2281/22/O/N/16

PAGE 206
Section B
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
PDGHGHPDQGIRUMHDQVPRUHSULFHHODVWLF)RULQVWDQFHDJRYHUQPHQWUHSRUWKDVHVWLPDWHGWKDW
WKHSULFHHODVWLFLW\RIGHPDQGIRURQHRIWKHROGHVWILUP·VMHDQVLQ$VLDLV²
(a) :KDWLVPHDQWE\DSULFHHODVWLFLW\RIGHPDQGRI²" >@
(b) Explain the importance of price elasticity of demand for a government. [4]
(c) 8VLQJDGHPDQGDQGVXSSO\GLDJUDPDQDO\VHWKHHIIHFWRIDULVHLQWKHSULFHRI)LUP;·VMHDQV
RQWKHPDUNHWIRU)LUP<·VMHDQV >@
(d) 'LVFXVVZKHWKHUORQJHVWDEOLVKHGDQGZHOONQRZQILUPVDUHOLNHO\WREHPRUHVXFFHVVIXOWKDQ
firms that are new to an industry. [8]
3 In recent years productivity growth has been low in Brazil, which has kept average costs relatively
high. Some economists claim this low growth in productivity is due to protectionism. The Brazilian
*RYHUQPHQWLPSRVHVKLJKWDULIIVRQDUDQJHRILPSRUWVLQFOXGLQJVPDUWSKRQHVLWDUJXHVWKDWVXFK
protectionism saves Brazilian jobs.
(a) 'HILQH¶SURGXFWLYLW\· >@
(b) Explain the difference between average fixed cost and average variable cost. [4]
(c) Analyse the advantages that a country may gain from specialising in a product such as
smartphones. [6]
(d) Discuss whether protectionism saves jobs. [8]
4 +RXVHKROGGHEWLQ6RXWK.RUHDLQZDVUHDFKLQJUHFRUGOHYHOV3HRSOHZHUHERUURZLQJPRUH
and saving less: the savings ratio fell from 19% in 1985 to 4% in 2014. Despite the low rate of
VDYLQJWKHUHZDVOLWWOHGHPDQGSXOORUFRVWSXVKLQIODWLRQ,QGHHGLQWKHFRXQWU\FDPHFORVH
to experiencing deflation.
(a) 'HILQH¶GHIODWLRQ· >@
(b) ([SODLQWKHGLIIHUHQFHEHWZHHQGHPDQGSXOOLQIODWLRQDQGFRVWSXVKLQIODWLRQ >@
(c) Analyse how a central bank might reduce household borrowing. [6]
(d) Discuss whether a government should encourage an increase in saving. [8]

PAGE 207
5 The unemployment rate in Wales fell from 8.2% in March 2013 to 6.8% in March 2014. One in four
workers in Wales is employed in the public sector. A high proportion of workers are employed in
PXOWLQDWLRQDOFRPSDQLHVLQFOXGLQJD-DSDQHVHFDUSURGXFHUDQGD6RXWK.RUHDQHOHFWURQLFVILUP
(a) 'HILQH¶XQHPSOR\PHQW· >@
(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
RQDQHFRQRP\·VRXWSXW >@
(d) Discuss 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 1976. 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) ([SODLQZK\IL[HGFRVWVDUHKLJKLQWKHDLUFUDIWPDNLQJLQGXVWU\ >@
(c) $QDO\VHZKDWGHWHUPLQHVDILUP·VGHPDQGIRUFDSLWDOJRRGV >@
(d) Discuss whether the quality of products is likely to be higher in a monopoly or in a perfectly
competitive market. [8]
7 7D[UHYHQXHIURPERWKGLUHFWDQGLQGLUHFWWD[HVLQ*HUPDQ\URVHWR86ELOOLRQLQ7KH
LQFUHDVHZDVODUJHO\GXHWRDIDOOLQXQHPSOR\PHQW*HUPDQ\KDVDSURJUHVVLYHWD[V\VWHP,Q
*HUPDQSROLWLFLDQVGLVFXVVHGZKHWKHUWKHWD[UDWHVVKRXOGEHLQFUHDVHG&KDQJHVLQWD[
rates influence the amount of tax revenue received and the nature of the tax system.
(a) 'HILQH¶DSURJUHVVLYHWD[· >@
(b) Explain the difference between direct and indirect taxes. [4]
(c) Analyse how a fall in unemployment can increase tax revenue. [6]
(d) Discuss whether a government should increase tax rates. [8]
3HUPLVVLRQ WR UHSURGXFH LWHPV ZKHUH WKLUGSDUW\ RZQHG PDWHULDO SURWHFWHG E\ FRS\ULJKW LV LQFOXGHG KDV EHHQ VRXJKW DQG FOHDUHG ZKHUH SRVVLEOH (YHU\
reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the
publisher will be pleased to make amends at the earliest possible opportunity.
7RDYRLGWKHLVVXHRIGLVFORVXUHRIDQVZHUUHODWHGLQIRUPDWLRQWRFDQGLGDWHVDOOFRS\ULJKWDFNQRZOHGJHPHQWVDUHUHSURGXFHGRQOLQHLQWKH&DPEULGJH,QWHUQDWLRQDO
&DPEULGJH,QWHUQDWLRQDO([DPLQDWLRQVLVSDUWRIWKH&DPEULGJH$VVHVVPHQW*URXS&DPEULGJH$VVHVVPHQWLVWKHEUDQGQDPHRI8QLYHUVLW\RI&DPEULGJH/RFDO
© UCLES 2016 2281/22/O/N/16

PAGE 208

ECONOMICS 2281/22
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
®
components.

PAGE 209

1 (a) Using information from the extract, explain how the Mints illustrate the economic
problem. [2]
What people would like to consume/wants (1) exceeding the maximum output the countries
are capable of producing (1).
Note. no marks for just a definition of the economic problem.
(b) Calculate how many children were born in Turkey in 2014. [2]
1 275 000 or 1.275m (2).
Correct working: 17 u 75m/1000 or version of 1275 (1).
(c) Using information from the extract, explain two reasons why the earnings of workers
in Nigeria are likely to increase. [4]
1 mark for each of 2 reasons identified and 1 mark for each of 2 explanations.
Rising productivity (1) workers being able to produce more per hour/will become more
attractive to employers (1).
More MNCs setting up in the country (1) may increase demand for labour/may pay higher
wages than domestic producers (1).
Expanding markets (1) higher demand for products leads to higher demand for labour (1).
Inflation (1) workers may press for wage rises to keep up with inflation (1).
(d) Explain whether the extract suggests that Mexico operates a market economic system
or a mixed economic system. [3]
A mixed economy (1).

Has private sector and public sector firms (1).
Health care is provided by both the public and private sector (1).
The government intervenes in the economy in the form of monetary policy (1).
Note. 1 mark for identifying mixed economy. Up to 2 marks for relevant evidence on factors
that influence the type of economic system.
(e) Analyse how the change in Indonesia’s exchange rate in 2014 is likely to have affected
the country’s import expenditure. [4]
The value of the rupiah fell (1) more of the currency had to be exchanged to obtain a US
dollar (1) a lower exchange rate would increase the price of imports (1) this is likely to have
reduced demand for imports (1) import expenditure is likely to have fallen (1) if PED >1.
NOTE. OFR: if a candidate identifies a rise in the value of the rupiah, award a maximum of 2
marks for a good analysis based on this interpretation but no marks for just stating that the
rupiah rose in value.
© UCLES 2016
PAGE 210

(f) Discuss whether the Human Development Index is a good measure of living
standards. [5]
Up to 3 marks for why it is:

It is a wider measure than GDP per head (1).
It covers three important influences on living standards (1) income, education and health
care (1).
Produced by a reputable body (1) the United Nations (1).
Up to 3 marks for why it is not:

It does not take into account all the factors that influence living standards (1) examples, e.g.
distribution of income, environmental factors (up to 2).
The weightings may not reflect the relative contribution of the indicators to living standards
(1), e.g. some might argue life expectancy should be given a greater weighting than GDP per
head (1).
Do not expect other measures but reward appropriate ones such as the Multidimensional
Poverty Index which includes more indicators (1), e.g. access to sanitation (1).
(g) Using information from the extract, explain two functions of a trade union. [4]
Collective bargaining/protecting rights/negotiating (1) to improve wages and/or working

conditions (1).
Taking industrial action, i.e. strikes (1) in pursuit of higher wages and/or better working
conditions (1).
To influence government policy (1) on, e.g. a minimum wage (1).
(h) Discuss whether countries with high population growth have high economic growth. [6]

Population growth resulting from net immigration/natural increase (rise in birth rate/fall in
death rate) (1) may increase the labour force (1) increasing productive potential/ability to
produce products will rise (1).
The quality of the labour force may increase (1) if the high population growth is the result of
the immigration of skilled workers/more young people who have received better education
than their elders (1) this will increase productivity (1) increasing productive potential/ability to
produce products will rise (1).
A growing population increases total demand (1) this will encourage firms to increase their
output (1) may attract MNCs to set up in the country (1).
A higher population may make better use of resources (1) allow firms to take advantage of
economies of scale (1).

A higher population may increase economic growth in terms of output but not GDP per head
(1) if population grows at a greater rate than GDP (1).
A higher population may put pressure on resources (1) may be less capital/land per worker
(1) reducing productivity (1) resources may be diverted from increasing productive capacity
to coping with more dependents (1).
A rise in birth rate/fall in death rate/immigration of the elderly or children will increase
dependents (1) the very young and the old are not economically active (1).
Reward but do not expect reference to the optimum population.
© UCLES 2016
PAGE 211

2 (a) What is meant by a price elasticity of demand of – 2.5? [2]
It means that a 1% rise in price (1) would cause a 2.5% fall in demand (1).
It means demand is elastic (1) a change in price results in a greater percentage change in
demand (1).
(b) Explain the importance of price elasticity of demand for a government. [4]
Knowledge of PED would help a government estimate how much tax revenue (1) it may earn
from indirect taxes/changes in indirect taxes (1) may earn more on products with inelastic
demand (1).
Knowledge of PED may help a government to estimate how much of a subsidy to give (1) a
subsidy will have more of an impact on quantity (1) if demand is elastic (1).
Knowledge of PED will help a government estimate how successful it may be in reducing
consumption of a product (1) example, e.g. cigarettes (1) more likely to be successful if
demand is elastic (1).
Knowledge of PED may influence the price the government charges for the products it
supplies (1) example of a product (1).
(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]
D1
D S
P1
price P
S D1
D
O Q Q1
quantity

x axis correctly labelled – price and quantity or P and Q (1)
x demand and supply curves correctly labelled (1)
x demand curve shifted to the right (1)
x correct equilibrium points clearly identified, e.g. E and E1 (1).
Up to 2 marks for written explanation:

x the two types of products are substitutes (1)
x people switch demand between substitutes (1)
x increase in demand will increase price of Y’s jeans (1).
In terms of written explanation, reward but do not expect reference to positive cross elasticity
of demand.
© UCLES 2016
PAGE 212

(d) Discuss whether long-established and well-known firms are likely to be more
successful than firms that are new to an industry. [8]
Up to 5 marks for why they might be:

May have built up brand loyalty (1) their names and products may be well known (1) this may
attract more customers (1).
May have built up market power (1) may be a monopoly or moving towards a monopoly (1)
may enable the firms to earn more profit (1).
May have lower average cost of production (1) due to economies of scale (1) example (1).
Up to 5 marks for why they may not be:

May have become complacent/new firms may have more drive (1) not spending money on
R & D and innovation/new firms may introduce new versions of the product (1).
May have out of date capital equipment/new firms may have new capital equipment (1) low
labour productivity/high labour productivity in new firms (1).
May have higher average cost of production/new firms may have lower costs of production
(1) due to diseconomies of scale experienced by old firms (1) example (1).
New firms are likely to be small and so may be more flexible (1) have more/better contact
with customers/give more personal attention (1) specialise in a particular part of the market
(1).
New firms may be subsidised (1) and so may enjoy lower costs of production (1).
3 (a) Define ‘productivity’. [2]
Output per worker/factor (1) hour/time period (1).
Note: second mark is dependent on the candidate gaining the first mark.
A measure of efficiency (1).
(b) Explain the difference between average fixed cost and average variable cost. [4]
Average fixed cost is total fixed cost divided by output/fixed cost per unit (1) costs that fall
with output/may be illustrated on a diagram/example of a fixed cost (1).
Average variable cost is total variable cost divided by output/variable cost per unit (1) costs that
may fall or rise with output/may be illustrated on a diagram/example of a variable cost (1).
(c) Analyse the advantages that a country may gain from specialising in a product such
as smartphones. [6]
Output/GDP/GDP per head may be higher (1) resulting in higher living standards (1) as a
country can concentrate on what it is best at producing (1) make best use of resources (1).
Providing a product in a large quantity (1) may lower average cost/ enable advantage to be
taken of economies of scale (1) example of an economy of scale (1).
World demand for smartphones is high/increasing (1) smartphones are increasing in
popularity/becoming more of a necessity (1).
May gain a good reputation for producing the product (1) which will increase demand (1).
Specialising encourages countries to trade (1) providing consumers with more
variety/cheaper products (1).
Reward but do not expect analysis of comparative advantage.
© UCLES 2016
PAGE 213

(d) Discuss whether protectionism saves jobs. [8]

Tariffs raise the price of imports (1) quotas places a limit on imports/other method of
protectionism described (1) higher price of imports/lower quantity (1) may make imports less
competitive (1) consumers may switch from imports to domestic products/reduce quantity of
imports produced (1) maintain domestic production (1) stop unemployment occurring in
domestic firms (1).
Protectionism may stop declining (sunset) industries closing quickly (1) causing structural
unemployment (1).

Foreign products might still be cheaper (1) better quality (1).
There may be retaliation (1) with governments of other countries imposing trade restrictions
(1) which may reduce exports (1) causing unemployment in the export industries (1).
Tariffs may increase raw material costs (1) domestic firms may have to switch to more lower
quality imported raw materials (1) domestic firms’ international competitiveness could fall (1)
causing unemployment in, e.g. car industry dependent on imported steel (1).
Demand for labour may fall for other reasons (1), e.g. introduction of new technology by
domestic firms may result in structural unemployment (1).
May protect jobs in the home country but create unemployment in other countries (1) by
making their products less price competitive (1).
Note. if a candidate refers to two or more methods of protection, e.g. tariffs and quotas but
does not explain how they work, award only one mark.
Note. maximum mark of 4 if there is not an explicit link to jobs.
4 (a) Define ‘deflation’. [2]
A fall (1) in the price level (1)
Or:
An increase in the value (1) of money (1).
(b) Explain the difference between demand-pull inflation and cost-push inflation. [4]
Up to 2 marks for demand-pull inflation:

Demand-pull inflation is caused by excess demand (2).
Demand-pull is caused by total demand increasing more rapidly (1) than total supply (1).
Higher demand may be the result of higher consumer spending/higher government
spending/higher investment/ higher net exports (1).
An AD/AS diagram showing AD increasing (1).
Up to 2 marks for cost-push inflation:

Cost-push inflation is caused by increases in the costs of production (1), e.g. higher
wages/higher raw material costs/higher import costs/higher indirect taxes (1).
Firms pass on higher costs in the form of higher prices to maintain profit levels/margins (1).
An AD/AS diagram showing AS decreasing (1).
© UCLES 2016
PAGE 214

(c) Analyse how a central bank might reduce household borrowing. [6]
It might increase the rate of interest (1) this would increase the cost of borrowing (1) this may
discourage households from buying items/encourage saving (1) that would require them to
take out a loan (1).
It might impose restrictions on the amount that banks can lend (1) these may limit the size of
a loan a household can get (1) or increase the conditions that have to be met before a loan is
given (1).
It might reduce the money supply (1) which may reduce spending (1) and so may reduce
demand for loans (1).
(d) Discuss whether a government should encourage an increase in saving. [8]

Would provide funds for bank lending (1) this may increase investment (1) leading to
economic growth (1).
May enable people to save for their retirement (1) which may reduce the need for state
pensions (1).
May enable people to save in case of financial difficulties in the future/avoid getting into debt
(1) which may reduce their dependency on the state should unexpected events/problems
occur (1).
May reduce inflation (1) by reducing consumer expenditure (1).
May correct a current account deficit (1) lowering spending on imports (1).

Lowering consumer expenditure (1) may increase unemployment (1) cyclical
unemployment (1).
May lower economic growth/cause a recession (1) a government may need to encourage
spending rather than saving (1).
If there is deflation (1) higher saving could drive the price level lower (1).
5 (a) Define ‘unemployment’. [2]
People without jobs (1) who are willing and able to work (1).
Or:
Resources not being used (1) to produce goods and services (1).
(b) Explain two benefits that a firm may gain from producing in another country. [4]
Avoid trade restrictions (1), e.g. will not have to pay tariffs imposed on products (1).
Lower transport costs (1) enabling the firm to sell at a lower price (1).
Access to cheaper/more skilled labour (1) lowering costs of production/ improve the quality of
the products produced (1).
Access to cheaper/better quality raw materials (1) lowering costs of production/improve the
quality of the products produced (1).
Closer contact with foreign consumers (1) enabling the firm to pick up more quickly on
changes in demand (1).
Possible government subsidies (1) to set up in areas of high unemployment (1).
Lower taxes (1) which may increase profits (1).
© UCLES 2016
PAGE 215

(c) Using a production possibility curve diagram, analyse the effect of a decrease in
unemployment on an economy’s output. [6]
capital
goods B
A
O consumer goods

x axis correctly labelled in terms of two different products or types of products (1)
x the curve or downward sloping line drawn to axes (1)
x a production point inside the PPC (1)
x a production point on or moving closer to the frontier (1).

x unemployed resources mean an economy is producing inside the PPC (1)
x a decrease in unemployment means more resources are being used (1)
x greater use of resources increases output (1).
(d) Discuss whether it is better to work in the public sector or the private sector. [8]
Up to 5 marks for why it may be better to work in the public sector:

There may be greater job security (1) a government may be reluctant to dismiss workers (1) as
it will increase unemployment (1) greater job security may put less pressure on workers (1).
Working conditions may be better (1) and wages higher (1) as the government is not profit
motivated (1).
May be able to enjoy longer holidays (1) if the government is a generous employer (1).
Promotion chances may be higher (1) if there is a large public sector (1).
May be more able to join a trade union (1) to protect rights (1).
May be paid higher pensions (1).
Up to 5 marks for why it may be better to work in the private sector:

Working conditions/wages may be better in the private sector (1) if firms are competing for
workers (1).
Private sector firms may earn high profits (1) enabling them to pay high wages/provide good
working conditions (1).
There may be greater diversity of jobs in the private sector (1), e.g. could work for a small
firm (1).
6 (a) Identify who owns a public corporation and who owns a public limited company. [2]
The government (state) owns a public corporation (1).

Shareholders own a public limited company (1).
A public corporation is owned by the public sector whereas a public limited company is
owned by the private sector (1).
© UCLES 2016
PAGE 216

(b) Explain why fixed costs are high in the aircraft-making industry. [4]
Fixed costs are costs that do not change with output (1).
There is a considerable value of capital equipment used in making aircraft/it is a capital
intensive industry (1) loans may have to be taken out to pay for capital equipment (1) interest
on loans have to be paid even if no output is made (1) the equipment may have to be rented
(1) rent has to be paid even if no output is made (1).
Aircraft making factories have to be very large (1) high rental costs (1) high business rates (1).
(c) Analyse what determines a firm’s demand for capital goods. [6]
The expected demand for the product produced (1) the higher the output, the more capital
goods needed (1).
Advances in technology (1) new capital equipment is likely to be more productive (1).
The price of the capital equipment (1) the cheaper the price, the more capital equipment that
is likely to be bought (1).
The rate of interest (1) firms often borrow to buy capital equipment (1).
The level of profits (1) higher profits increase firms’ willingness and ability to buy capital
goods (1).
Corporation taxes (1) lower taxes will increase firms’ willingness and ability to buy capital
goods (1).
Government subsidies (1) these provide funds for firms to buy capital goods (1).
Note. a maximum of 3 marks for a list-like approach.
(d) Discuss whether the quality of products is likely to be higher in a monopoly or in a

perfectly competitive market. [8]

A monopoly can earn higher profits (1) some of the higher profits could be spent on research
and development (1).
A monopoly knows it can protect any profits it makes (1) due to high barriers to entry and exit
(1) this may encourage it to produce high quality products (1).
A monopoly may enjoy economies of scale (1) including R & D economy (1).

A monopoly may lack competitive pressure to produce a good quality product (1) consumers
may still buy the product even it is of a poor quality (1) as they have no choice (1).
A monopoly may experience diseconomies of scale (1) management problems (1) poor
industrial relations (1) may result in lower quality products (1).
Note. a candidate may answer the question the other way around, i.e. why the quality may
and may not be higher in a perfectly competitive market.
7 (a) Define ‘a progressive tax’. [2]
A tax that takes a higher proportion as income rises (2).

A tax that falls more heavily on the rich (1).
© UCLES 2016
PAGE 217

(b) Explain the difference between direct and indirect taxes. [4]
Direct taxes are taxes on income (1) the burden of the tax cannot be passed on/they are paid
directly to the government by those on whom the taxes are levied/example of a direct tax (1).
Indirect taxes are taxes on spending (1) the burden or some of the burden can be passed on
to others/example of an indirect tax (1).
(c) Analyse how a fall in unemployment can increase tax revenue. [6]
A fall in unemployment will increase income (1) more people working and people earning
higher wages (1) this will increase income tax revenue (1).
Spending will increase (1) more products will be purchased (1) which will increase indirect
taxes (1) example (1).
Higher spending will increase firms’ revenue (1) this may increase firms’ profits (1) which will
increase corporation/direct tax revenue (1).
(d) Discuss whether a government should increase tax rates. [8]

Higher tax rates may increase tax revenue (1) this would enable the government to spend
more on, e.g. education and health care (1).
Higher tax rates may reduce demand (1) this could lower demand-pull inflation (1).
Higher tariffs could reduce imports (1) improve the current account position (1) demand for
imports may also fall when income tax rates are raised (1).
Higher tax rates on, e.g. cigarettes and alcohol (1) could improve people’s health (1).
Higher taxes on products that create external costs/demerit goods (1) may result in a better
allocation of resources (1).
Higher taxes on monopolies (1) may encourage competition. (1).

Higher direct taxes may act as a disincentive to work (1) reducing employment (1).
Higher direct taxes may act as a disincentive to enterprise (1) reducing output (1).
Higher taxes may encourage tax evasion (1) and this may cause tax revenue to fall (1).
Higher corporation/indirect tax rates increase firms’ costs of production (1) causing cost-push
inflation (1).
Higher tax rates may reduce total demand (1) causing unemployment (1).
Higher income tax rates may cause workers to press for wage rises (1) this may increase
labour costs (1) or may provoke industrial action (1) which can disrupt production (1).
© UCLES 2016
PAGE 218

ECONOMICS 2281/23
2 hours 15 minutes
* 3 7 5 7 5 9 8 6 8 6 *
An 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 A
Answer Question 1.
Section B
DC (AL) 133131
PAGE 219
Section A
1 Fishing in Mauritania
0XFKRI0DXULWDQLD·VODQGLVGHVHUWDQGUHJXODUGURXJKWVSXWSUHVVXUHRQWKHFRXQWU\·VVXSSO\RI
food. The African country does, however, have the advantage of coastal waters which are among
WKHZRUOG·VPRVWSOHQWLIXORFHDQILVKLQJJURXQGV
$SSUR[LPDWHO\RIWKHILVKFDXJKWE\0DXULWDQLD·VVPDOOILVKLQJYHVVHOVDUHH[SRUWHG(DUQLQJV
IURPWKHVDOHRIILVKDEURDGFRQWULEXWHWRWKHFXUUHQWDFFRXQWRIWKHFRXQWU\·VEDODQFHRISD\PHQWV
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
QXPEHURIIDFWRULHVDW1RXDNFKRWWWKHFRXQWU\·VFDSLWDO7KLVIDLOXUHWRSURFHVVWKHILVKLVKDYLQJ
DQ LPSDFW RQ WKH FRXQWU\·V HDUQLQJV IURP WKH ILVK LW FDWFKHV DQG RQ LWV HFRQRPLF JURZWK 7KH
FRXQWU\·V WRWDO RXWSXW GLG DFWXDOO\ LQFUHDVH IURP 86 ELOOLRQ LQ WR 86 ELOOLRQ LQ
7KDW\HDUDOVRVDZDFKDQJHLQWKHFRXQWU\·VSRSXODWLRQ7KHELUWKUDWHZDVWKHGHDWKUDWH
ZDVDQGWKHPLJUDWLRQUDWHZDV²SHUWKRXVDQGRIWKHSRSXODWLRQ
Some economists in Mauritania criticise their government for allowing other countries, including
$OJHULD0RURFFR-DSDQDQG5XVVLDWRFDWFKODUJHTXDQWLWLHVRIILVKLQ0DXULWDQLD·VZDWHUV7KH\
have recently objected to the government signing an agreement with the European Union (EU)
WKDWDOORZVPRUHWKDQRQHKXQGUHG ODUJH(8YHVVHOVWRILVKLQ0DXULWDQLD·VZDWHUVLQUHWXUQIRU
DSD\PHQWRI86PLOOLRQSHU\HDU7KHVH(8YHVVHOVZLWKWKHLUKLJKO\VNLOOHGZRUNHUVDUH
catching large volumes of fish, including highly valued squid, and are thought to be threatening
WKHVXVWDLQDELOLW\RI0DXULWDQLD·VILVKLQJLQGXVWU\
Mauritanian economists are predicting that fish stocks could decline significantly in the next twenty
\HDUV7KHFRXQWU\·VHFRQRP\LVFXUUHQWO\KHDYLO\GHSHQGHQWRQWKHSULPDU\VHFWRU,PSURYHPHQWV
in the productivity of both its fishing and agricultural industries would help to reduce both the
unemployment and poverty in the country.
(a) Describe the opportunity cost of Mauritania exporting fish. [2]
(b) &DOFXODWH0DXULWDQLD·VHFRQRPLFJURZWKUDWHLQ >@
(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 SDUWVRIDFRXQWU\·VFXUUHQWDFFRXQWEDODQFHnot identified in the extract. [2]
(e) Analyse two reasons why the average cost of the EU fishing industry is lower than the
Mauritanian fishing industry. [4]
(f) Discuss 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 2013. [4]
(h) Discuss whether an economy should or should not conserve its fish stocks. [6]
© UCLES 2016 2281/23/O/N/16

PAGE 220
Section B
2 In March 2014, teachers in Argentina 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
ULVHDERYHWKHFRXQWU\·VLQIODWLRQUDWH7KHJRYHUQPHQWFODLPHGWKDWODUJHSD\ULVHVZRXOG
FDXVHXQHPSOR\PHQW,WDOVRVWDWHGWKDWWKHHFRQRP\·VSURVSHFWVZRXOGVRRQLPSURYHDVDUHVXOW
RILWVGHYDOXDWLRQRIWKHFRXQWU\·VH[FKDQJHUDWHDWWKHVWDUWRIWKH\HDU
(a) 'HILQH¶DWUDGHXQLRQ· >@
(b) Explain two influences on the strength of a trade union. [4]
(c) Analyse how wage rises may cause unemployment. [6]
(d) 'LVFXVVZKHWKHUDJRYHUQPHQWVKRXOGGHYDOXHWKHFRXQWU\·VH[FKDQJHUDWH >@
3 ,Q WKH 86·V VHFRQGODUJHVW FLJDUHWWH PDNHU PDGH D ELG WR WDNH RYHU WKH FRXQWU\·V WKLUG
largest 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) Analyse two ways, apart from imposing an indirect tax, in which a government could
discourage smoking. [6]
(d) Discuss whether a merger between two large firms in the same industry will increase the
SULFHRIWKHSURGXFW >@
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.
6RPHVPDOOILUPV·VKRUWWHUPJRDOLVSURILWPD[LPLVDWLRQZKLOVWRWKHUVDLPIRUJURZWK,QWKHORQJ
term these two goals may both be achieved. Some small firms develop into large firms listed on
WKHLUFRXQWU\·VVWRFNH[FKDQJH
(a) 'HILQH¶DPL[HGHFRQRP\· >@
(b) Explain why the growth of a firm may lead to profit maximisation in the long term. [4]
(c) $QDO\VHKRZDFRXQWU\·VVWRFNH[FKDQJHFDQEHQHILWLWVHFRQRP\ >@
(d) 'LVFXVVWKHDGYDQWDJHVDQGGLVDGYDQWDJHVRIVPDOOILUPV >@

PAGE 221
5 7KHFRXQWULHVZLWKWKHORZHVW+XPDQ'HYHORSPHQW,QGH[ +', YDOXHVKDYHPLOOLRQFLWL]HQV

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) +RZ GRHV WKH DPRXQW DQG WKH SURSRUWLRQ RI LQFRPH VSHQW RQ IRRG FKDQJH DV SHRSOH JHW
richer? [2]
(b) Explain the difference between saving and borrowing. [4]
(c) Analyse three ZD\VLQZKLFKDFRXQWU\·V+',YDOXHFRXOGLQFUHDVH >@
(d) 'LVFXVV ZKHWKHU D JRYHUQPHQW VKRXOG HQFRXUDJH VRPH RI WKH FRXQWU\·V SHRSOH WR ZRUN
DEURDG >@
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 Bangladesh. A study by the World Bank in 2014 found that microfinance
LQFUHDVHVFRQVXPHUH[SHQGLWXUHWKHYDOXHRIKRXVHKROGDVVHWVWKHVL]HRIWKHODERXUIRUFHDQG
VSHQGLQJRQFKLOGUHQ·VHGXFDWLRQ
(a) 'HILQH¶WKHUDWHRILQWHUHVW· >@
(b) Explain two reasons why the poor may find it difficult to get loans from commercial banks.
[4]
(c) Analyse how an increase in spending on education could increase inflation in the short run
but decrease it in the long run. [6]
(d) Discuss whether an increase in consumer expenditure would be beneficial for an economy.
>@
7 0R]DPELTXHLVDGHYHORSLQJHFRQRP\ZLWKDUHODWLYHO\KLJKHFRQRPLFJURZWKUDWH,QUHFHQW\HDUV
there has been a depreciation in the value of its currency, the metical, against the US dollar. This
KDVKDGDQLQIOXHQFHRQWKHFRXQWU\·VXQHPSOR\PHQWUDWH6RPHHFRQRPLVWVLQ0R]DPELTXHKDYH
called for an increase in tariffs on imports to reduce unemployment.
(a) 'HILQH¶DGHSUHFLDWLRQ·LQWKHYDOXHRIDFXUUHQF\ >@
(b) Explain two causes of a high economic growth rate. [4]
(c) Analyse how the pattern of employment within a country tends to change as the economy
develops. [6]
(d) 'LVFXVVZKHWKHUDQLQFUHDVHLQWDULIIVRQLPSRUWVZRXOGUHGXFHXQHPSOR\PHQW >@
3HUPLVVLRQ WR UHSURGXFH LWHPV ZKHUH WKLUGSDUW\ RZQHG PDWHULDO SURWHFWHG E\ FRS\ULJKW LV LQFOXGHG KDV EHHQ VRXJKW DQG FOHDUHG ZKHUH SRVVLEOH (YHU\
reasonable effort has been made by the publisher (UCLES) 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.
7RDYRLGWKHLVVXHRIGLVFORVXUHRIDQVZHUUHODWHGLQIRUPDWLRQWRFDQGLGDWHVDOOFRS\ULJKWDFNQRZOHGJHPHQWVDUHUHSURGXFHGRQOLQHLQWKH&DPEULGJH,QWHUQDWLRQDO
Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local
© UCLES 2016 2281/23/O/N/16

PAGE 222

ECONOMICS 2281/23
MARK SCHEME
Maximum Mark: 90
Published
Teachers.
®
components.

PAGE 223

1 (a) Describe the opportunity cost of Mauritania exporting fish. [2]
Opportunity cost is the (next) best alternative foregone (1).

The opportunity cost here may be Mauritania consuming the fish / producing other products /
exporting other products (1) or Mauritania processing the fish (1).
(b) Calculate Mauritania’s economic growth rate in 2013. [3]
6.25% (3).
Correct working: US$0.5bn/US8bn x 100 / or 6% / or 6.25 (2).
GDP increased by US$0.5bn (1).
(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 S1
S
P1
price P
S1 S D
O Q1 Q
quantity
Axes correctly labelled – price and quantity or P and Q (1).

Demand and supply curves correctly labelled (1).
Supply curves shown shifted to the left (1).
Correct equilibriums identified either by lines drawn to both axes or equilibriums points
identified e.g. E and E1 (1).
(d) State the two parts of a country’s current account balance not identified in the extract.
[2]
Trade in services balance/services/invisible balance (1).
Income balance / income / income flows (1).
© UCLES 2016
PAGE 224

(e) Analyse two reasons why the average cost of the EU fishing industry is lower than the
Mauritian fishing industry. [4]
The EU fishing industry has larger fishing vessels (1) benefit from economies of scale
/technical economies of scale (1) as a result costs e.g. fuel/labour costs per unit of fish
caught will be lower/costs can be spread over a higher output (1).
EU fishermen are more skilled (1) higher productivity / more efficient (1).
Note. Accept analysis based on why the Mauritian fishing industry has higher average cost.
(f) Discuss whether a decrease in unemployment will always reduce poverty. [5]

Lower unemployment may increase incomes (1) higher incomes enable people to buy more
basic necessities (1) more likely to be able to educate children (1) reduce future poverty (1)
reducing absolute poverty (1).
Less expenditure by government on benefits (1) enables government to increase spending
on education/healthcare (1) reducing gap between rich and poor (1)

A decrease in unemployment does not necessarily mean a rise in employment/income (1)
unemployment could fall due to e.g. people retiring early (1) or emigrated (1)
Unemployment may fall and relative poverty may increase (1) gap between rich and poor
may rise (1).
Income may still be below others (1) relative poverty remains (1) Income may still not be
enough to afford basic necessities (1).
Lower unemployment may increase inflation (1) making it more difficult for some people to
buy basic necessities (1).
Increased employment results in higher tax revenue for the government (1) which enables
them to spend on education/healthcare etc. that support the poor (1).
(g) Using information from the extract, explain whether the population of Mauritania
increased or decreased in 2013. [4]
Increased (1) birth rate exceeded death rate (1) by 23.48 (1) natural increase (1) natural
increase is greater than the loss from net emigration (1) by 22.63 (1).
Note. Accept a numerical approach to the question. If state population increases at a rate of
22.63 (per 1,000) award all 4 marks.
(h) Discuss whether an economy should or should not conserve its fish stocks. [6]

May avoid depleting fish stocks (1) enabling fishing to continue in the future / benefit future
generations / reduce imports in the long-term (1) reduces pollution from overfishing (1)
preserves the eco system (1).
Global demand may currently be lower (1) demand may be higher in the future (1).
The country’s skills catching and processing the fish may grow in the future (1).
Country should not be reliant on fishing (1) government should seek to develop other
industries whilst fishing stocks last / develop fish processing so that same value of exports
but fewer fish caught (1)’
© UCLES 2016
PAGE 225


May reduce income (1) and employment now (1).
May reduce export revenue (1) worsen the current account position (1).
Demand may fall in the future (1) so income earned in the future may be lower in the future
(1). Conservation may not work (1).
2 (a) Define ‘a trade union’. [2]
An association / body / organisation/group of people (1) which represents workers / members

(1).
(b) Explain two influences on the strength of a trade union. [4]
Level of economic activity/unemployment rate (1) if there is high income economic

growth/low unemployment demand for workers is likely to be high (1).
Size of membership/proportion of workers who are members (1) affects funds
available/makes it more difficult to replace workers (1).
Level of skills/qualifications of workers (1) more skilled workers are harder to replace (1).
If elasticity of demand for workers is elastic (1) trade unions unlikely to be successful in
raising wages (1).
If wages are a small proportion of total costs (1) unions have greater bargaining strength (1).
If an essential industry /example (1) unions more likely to be successful because important
that industry/service is not interrupted by industrial action (1).
Government legislation (1) the more restrictions placed on trade unions, the less power they
will have (1).
Quality of the leadership (1) skilful leaders are likely to be effective negotiators (1).
(c) Analyse how wage increases may cause unemployment. [6]
Wage rises may increase costs of production (1) if rise more rapidly than productivity (1)
higher costs of production may increase prices (1) higher prices may reduce demand (1)
lower demand will reduce firms. revenue/profits (1) firms may reduce output (1) fewer
workers will be needed to make a lower output (1).
Higher wages may increase costs of production (1) firms reduce costs by substituting capital
for labour (1).
Firms may relocate to areas where wages are lower (1) to reduce costs (1).
Expect higher skills if pay higher wages (1) so may make some unskilled workers redundant
(1) as return from their labour is not sufficient (1).
Higher wages may affect particular industries (1) resulting in structural unemployment (1).
© UCLES 2016
PAGE 226

(d) Discuss whether a government should devalue the country’s exchange rate. [8]
A devaluation will reduce the price of exports (1) raise the price of imports (1).
Export revenue may increase (1) and import expenditure may fall (1) improving the current
account position/reducing a current account deficit (1).
May increase total demand (1) causing economic growth (1) reducing unemployment (1).
The currency may initially be overvalued (1) foreign reserves may have to be used to buy the
currency (1).
Some MNCs may be attracted by a lower exchange rate (1) make exports from the country
more competitive (1).

It may cause inflation (1) rise in price of finished imported goods (1) rise in price of imported
raw materials (1) higher costs of production (1) higher total demand (1) because of rise in net
exports (1).
The currency may have initially been undervalued (1) there would have been upward
pressure on the exchange rate (1).
If a large devaluation other countries may retaliate (1) by putting on tariffs (1) making exports
less price competitive (1).
If country is reliant upon imported raw materials (1) may result in imported inflation (1) will
make exports less competitive (1).
If exports are inelastic in demand (1) export revenue may not rise (1).
Higher demand for exports without matching increase in production (1) can result in demand-
pull inflation (1).
May result in loss of confidence in MNCs (1) resulting in lower FDI and economic growth (1).
3 (a) Identify two external costs of smoking. [2]
1 mark for each of two external costs identified:

x air pollution
x damage to the health of non-smokers / second hand smoke
x burden on the health system
x litter
x pollution to environment (alternative to air pollution or litter)
(b) Explain how perfectly inelastic demand differs from inelastic demand. [4]
Perfectly inelastic demand occurs when a change in price has no effect on demand (1)
represented by a vertical demand curve/PED = 0 (1) example (1).
Inelastic demand occurs when a change in price results in a smaller percentage change in
demand (1) represented by a relatively steep downward sloping demand curve/PED <1 (1)
example (1).
Accept correctly drawn diagrams for one mark each.
© UCLES 2016
PAGE 227

(c) Analyse two ways, apart from imposing an indirect tax, a government could
discourage smoking. [6]
Regulation (1) a ban could be imposed on smoking (1) e.g. in public areas or raise age limit
(1) this could be backed up by law (1) fines would be imposed on those who smoke (1).
Provision of information (1) a health campaign could be undertaken (1) informing people of
the harmful effects of smoking (1) may include pictures of effects of smoking (1) reducing
demand for cigarettes/ consumption of cigarettes (1).
Government subsidy of alternatives/ substitutes (1) e.g. nicotine patches (1) will help reduce
consumption (1).
Quota on imports may be imposed (1) to restrict the supply of cigarettes (1).
N.B. a maximum of 4 marks for the analysis of one way.
(d) Discuss whether a merger between two large firms in the same industry will increase
the price of the product. [8]

Increase in size firm / reduction in competition (1) the firms may be able to raise price as
consumers may have no alternative / dominate the market (1). The firm may become a
monopoly (1) becoming a price maker (1).
Firm becomes too large (1) may experience diseconomies of scale (1) example (1) increases
average cost of production (1) and passes on higher costs in higher prices (1).
Firms may produce higher quality products (1) as a result of increased spending on research
and development/new technology (1) so demand for the products may be higher (1).

The firm may experience economies of scale (1) example (1) lowering average cost of
production (1) example (1) and lowers prices without affecting profits (1).
The firm may still face considerable competition in the industry (1) other mergers may have
taken place/may still be a high number of firms in the industry (1).
The firm may not be seeking to maximise profits (1) may be trying to increase the share of
the market (1) may do this by keeping price relatively low (1).
Government may intervene (1) and limit price increases (1).
4 (a) Define ‘a mixed economy’. [2]
An economy with a private sector (1) and a public sector (1).

Some prices determined by market forces (1) and some set by the government (1).
Market based (1) with some government intervention (1).
(b) Explain why the growth of a firm as a goal may lead to profit maximisation in the long
term. [4]
If a firm grows in size it may be able to take advantage of economies of scale (1) this would
reduce average cost of production (1). If prices are unchanged (1) profits will be higher (1).
A larger firm may have a larger share of the market / more customers (1) this will increase
the firm’s revenue (1).
A larger firm may have more market power (1) this may enable it to raise price (1).
© UCLES 2016
PAGE 228

(c) Analyse how a country’s stock exchange can benefit an economy. [6]
It enables firms to raise finance (1) as shares are sold on the stock exchange (1).
It enables firms to merge with/take over other firms (1) this enables them to grow in size (1)
leading to economic growth (1) and increased employment (1).
It enables the government to raise finance (1) by selling government bonds (1) example of
government expenditure (1).
It provides a destination for savings (1) which may be used for investment (1) or more
disposable income (1).
It may encourage more firms to set up in the country (1) due to a strong financial sector (1).
(d) Discuss the advantages and disadvantages of small firms. [8]
Up to 5 marks for advantages:

Able to provide a personal / specialised service (1) meet individual requirements / produce
unique goods (1).
May be quick to respond to changes in consumer demand (1) as owner can make decisions
without consulting anyone (1) has greater flexibility than bigger firms (1).
More personal contact with staff (1) staff more motivated (1) higher productivity (1).
Easy to set up (1) Able to cater for a small market (1) demand for the product may be low (1).
May be able to cater for a local market (1) has greater knowledge of local market (1) low
transport costs (1).
May receive subsidies from the government (1) making it easier to compete with bigger firms
(1).
Up to 5 marks for disadvantages:

May be too small to take advantage of economies of scale (1) example (1) as a result prices
are higher than larger firms (1) cannot compete on prices / profit margins are lower (1).
May have some difficulty raising finance (1) may not be able to sell shares (1) banks may be
reluctant to lend to them (1).
Some small businesses may be sole proprietors and so may have unlimited liability (1) may
risk losing personal wealth (1).
May lack a range of ideas (1) which may reduce innovation (1) may lack variety of goods
compared to large firms (1).
Small firms may not be well-known (1) and so may find it difficult to attract consumers (1).
Small firms may find it difficult to attract specialist staff (1) less ability to pay high wages (1)
less opportunities for promotion (1).
5 (a) How does the amount and proportion of income spent on food change as people get
richer? [2]
The amount spent is likely to increase (1) while the proportion spent is likely to fall (1).
(b) Explain the difference between saving and borrowing. [4]
Saving is income minus spending / putting money in the bank (1). Borrowing is money
obtained from a lender (1).
Saving involves spending less than income (1) whereas borrowing means spending more
than income (1).
Savings increase wealth (1) borrowing increases debt (1).
Savings earn interest (1) borrowing incurs charges / interest (1).
Savings allows spending later (1) borrowing allows spending now (1).
© UCLES 2016
PAGE 229

(c) Analyse the three ways a country’s HDI value could increase. [6]
Better health care (1) increase life expectancy (1).

Increased spending on education (1) would increase mean and expected years of schooling
(accept literacy) (1).
Increased employment/economic growth (1) would increase GNI/GDP per head/average
income (1).
N.B. max 2 marks for each component of HDI
(d) Discuss whether a government should encourage some of the country’s people to
work abroad. [8]

Income can be sent back home .1) to support dependents (1) increase incomes (1) raising
their standard of living (1).
May reduce unemployment (1) if people’s skills at not in demand at home (1) may reduce
government expenditure on benefits (1).
Workers can learn skills abroad (1) which they can bring back to increase labour productivity
(1).

Highly skilled workers may go abroad (1) vacancies may be left unfilled (1) labour
productivity may fall (1) wages may rise (1) causing cost push inflation (1).
The reduction in the quantity and quality of the labour force (1) may discourage MNCs setting
up in the country (1) creates greater dependency on those remaining (1).
Fall in working population (1) may reduce aggregate demand (1) may reduce government
revenue (1) less money for education/ health care / reducing income inequality etc. (1).
6 (a) Define ‘the rate of interest’. [2]
A charge / cost (1) for borrowing money (1).

Or:
The reward (1) for saving (1).
Or
A monetary policy measure (1) set by the central bank (1).
(b) Explain two reasons why the poor may find it difficult to get loans from commercial
banks. [4]
Banks may be worried that the poor will not be able to repay loans (1) due to low income (1)
The poor may not be able to offer collateral (1) due to lack of wealth (1) poor have low credit
rating (1).
The poor may not have a record of saving (1) as they may not have bank accounts (1).
Small loans are less profitable for banks (1) therefore poor often charged higher interest
rates (1).
Banks may be less accessible to the poor (1) due to e.g. greater distance to travel (1).
Note. max of 2 marks for one reason.
© UCLES 2016
PAGE 230

(c) Analyse how an increase in spending on education could increase inflation in the
short run but decrease it in the long run. [6]
In the short run an increase in spending on education will increase total (aggregate) demand
(1) higher total (aggregate) demand may cause inflation (1) demand-pull inflation (1) if close
to or at full capacity (1).
In the long run an increase in education spending may improve the quality/quantity of
education (1) this may increase the skills of workers (1) this will increase labour productivity
(1) output can increase by more than costs (1) this will reduce costs of production (1) reduce
cost-push inflation (1).
Note. max of 4 marks for short run or long run.
(d) Discuss whether an increase in consumer expenditure will be beneficial for an

economy. [8]

May increase living standards (1) as people will be enjoying more goods and services (1).
Firms increase output (1) may increase economic growth (1) if spare capacity (1) without
causing inflation (1).
May increase employment (1) firms may take on more workers to expand production (1).
May increase government income through indirect taxes (1) enabling expenditure on e.g.
infrastructure/education/health (1).

The spending may go on imports (1) may divert production from the export market to the
home market (1) worsen the current account position (1). GDP may fall (1).
Demand may increase faster than output (1) causing demand-pull inflation (1).
Increased consumer spending through borrowing (1) may increase debt (1).
7 (a) Define ‘a depreciation in the value of an exchange rate’. [2]
A fall in the value (1) of a floating exchange rate (1) compared to other currencies e.g. US$
(1).
(b) Explain two causes of a high economic growth rate. [4]
An increase in the quantity of resources (1) e.g. the size of the labour force may grow (1).
An increase in the quality of resources e.g. labour or technology (1) raises productivity of
resources (1).
Expansionary fiscal policy / lower tax rates (1) increasing total demand which may encourage
firms to increase employment (1).
Supply-side policy (1) e.g. privatisation to increase efficiency (1).
More MNCs setting up in the country (1) adding to the country’s output (1).
Use of unused resources e.g. newly found oil or gas reserves (1) increase s output (1).
Lower interest rates / greater money supply (1) increases total (aggregate) demand (1).
Increase in exports / increase in balance of payments surplus (1) leads to increase in total
(aggregate) demand (1).
© UCLES 2016
PAGE 231

(c) Analyse how the pattern of employment within an economy tends to change as the
country develops. [6]
The number/proportion employed in the primary sector tends to decline (1) productivity rises
meaning fewer workers are needed (1).
The number/proportion employed in the secondary sector tends to rise at first (1) and then
falls (1).
The number/proportion employed in the tertiary sector increases (1) most workers in
developed countries are employed in tertiary sector (1).
The number/proportion of skilled workers increases (1) as education levels develop (1).
The number/proportion of women employed increases (1) as social attitudes change (1).
The number/proportion of migrant workers may change (1) as income levels rise (1).
(d) Discuss whether an increase in tariffs on imports would reduce unemployment. [8]
Up to 5 marks for why they might;

Tariffs impose extra costs on importers (1) prices may rise (1) causing a fall in demand for
imports (1) with some consumers switching to domestically produced products (1) domestic
firms may expand output (1) taking on more workers (1).

Consumers may still buy imports (1) if their price is still lower (1) or quality is still higher (1).
Domestic firms may expand output (1) by employing more capital goods (1) getting existing
workers to work overtime (1).
Tariffs on imports may lead to other countries imposing tariffs on the country’s exports (1)
jobs may be lost in the exporting industries (1).
Tariffs increase costs of production (1) imported raw materials may rise in price (1) this may
cause cost-push/imported inflation (1) firms cut costs by reducing workers (1) thereby
increasing unemployment (1).
© UCLES 2016

OLevel Eco P1 &amp; P2 2015-2016

Uploaded by

Copyright:

Available Formats

You might also like

OLevel Eco P1 &amp; P2 2015-2016

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

OLevel Eco P1 &amp; P2 2015-2016

Uploaded by

Copyright:

Available Formats

PAGE 1

Cambridge International Examinations

Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Read the instructions on the Answer Sheet very carefully.

This document consists of 11 printed pages and 1 blank page.

1 The following are four ways factors of production are used.

What is likely to require the greatest use of the factor enterprise?

How does this illustrate the basic economic problem?

A Oil is a limited resource.

© UCLES 2015 2281/11/M/J/15

What is the opportunity cost if she takes a holiday on a working day?

5 What can be found in a mixed economy but not in a market economy?

A a national economic development plan

© UCLES 2015 2281/11/M/J/15 [Turn over

A new type of fishing boat increases production, which reduces costs.

Which point represents the new equilibrium?

Which economic ideas cannot be found in the above statement?

A external cost and private enterprise

9 Cigarettes have been used as money in exceptional circumstances.

A cigarettes lack durability

© UCLES 2015 2281/11/M/J/15

trade union trade union

2008 8.4 3.6

A Trade unions had least members in 2010.

Which supply curve, S, represents this situation?

wage S wage wage wage

O worker O worker O worker O worker

What term best describes this takeover?

© UCLES 2015 2281/11/M/J/15 [Turn over

13 When is a firm considered more capital-intensive than another firm?

If it did this, which of its costs would be directly affected?

15 The diagram shows the costs of a firm.

What is the firm's total variable cost at an output of 100 units?

A $100 B $500 C $10 000 D $50 000

© UCLES 2015 2281/11/M/J/15

16 A government lowers the rate of interest.

Who is most likely to be disadvantaged by this policy?

17 Which is a supply-side policy that would increase output in the long-run?

A an increase in benefit payments

What was the most likely outcome of the government’s action?

A prices were fixed by the wheat producers

© UCLES 2015 2281/11/M/J/15 [Turn over

20 What is most likely to cause economic growth?

A a better educated workforce

A a change in government spending

United States 7.6

A decreases in total demand

© UCLES 2015 2281/11/M/J/15

23 From 2012 to 2013, European economies experienced weak economic growth.

Percentage change 2012-2013

A UK +1.0 –2.3 –0.1

A Children offer the prospect of security in old age.

Farland Highland Lowland

What can be concluded from the table?

A Farland is the least developed economy.

© UCLES 2015 2281/11/M/J/15 [Turn over

OLevel Eco P1 & P2 2015-2016

OLevel Eco P1 & P2 2015-2016

OLevel Eco P1 & P2 2015-2016