Cambridge Ordinary Level

2281 Economics June 2021

Principal Examiner Report for Teachers

ECONOMICS

Paper 2281/11
Multiple Choice

Question Question Question

Key Key Key
Number Number Number

1 D 11 C 21 D

2 D 12 A 22 B

3 D 13 D 23 D

4 C 14 B 24 D

5 C 15 D 25 C

6 D 16 D 26 D

7 A 17 A 27 B

8 D 18 B 28 A

9 B 19 B 29 B

10 C 20 D 30 D

General comments

118 candidates sat this paper. The mean mark was 22.1 which was higher than the mean of 19.9 for June
2019. (The paper was not taken in June 2020).

The questions for which most candidates selected the correct answer were 1, 2, 3, 4, 5, 6, 14 and 21. These
questions were answered correctly by 80 per cent or more of the candidates. They covered different parts of
the syllabus and were set to test different skills.

The questions for which the fewest candidates selected the correct answer were 11 and 27. These questions
were answered correctly by fewer than 50 per cent of the candidates.

Comments on specific questions

Question 11

Question 11 was answered correctly by 36 per cent of the candidates who chose option C. 7 per cent chose
option A, 10 per cent chose option B and 45 per cent chose option D and 2 per cent did not attempt the
question.

The change in employment is shown by the difference between the level of employment demanded at the
original equilibrium and the level of employment demanded at the new wage. Those who chose option D
compared the demand for labour and the supply of labour at the new wage rate, not the change from the
original wage rate.

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 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

Question 27

Question 27 was answered correctly by 36 per cent of the candidates who chose option B. 14 per cent
chose option A, 29 per cent chose option C and 20 per cent chose option D and 1 per cent did not attempt
the question. International specialisation would result in goods and services being produced by the countries
that are most efficient at providing those goods and services. Countries that are less efficient at producing
the goods and services would import them. This could result in domestic firms in those countries becoming
uncompetitive. Their products would be more expensive, demand would switch to imports and this could lead
to unemployment (option B).

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

ECONOMICS

Paper 2281/12
Multiple Choice

Question Question Question

Key Key Key
Number Number Number

1 B 11 B 21 D

2 B 12 A 22 B

3 B 13 C 23 D

4 D 14 D 24 D

5 A 15 B 25 C

6 D 16 A 26 D

7 C 17 B 27 A

8 D 18 C 28 D

9 B 19 C 29 B

10 B 20 A 30 D

General comments

7161 candidates sat this paper. The mean mark was 16.2 which is slightly lower than the mean mark of 18.5
on this paper for June 2019. This paper was not taken in June 2020.

The questions for which most candidates selected the correct answer were 3, 5, 10 and 21. These questions
were answered correctly by 80 per cent or more of the candidates. They covered different parts of the
syllabus and were set to test different skills.

The questions for which the fewest candidates selected the correct answer were 6, 11, 12 and 19 and 20.
These questions were answered correctly by fewer than 40 per cent of the candidates.

Comments on specific questions

Question 6

Question 6 was answered correctly by 25 per cent of the candidates who chose option D. 14 per cent chose
option A, 37 per cent chose option B and 24 per cent chose option C. A subsidy will encourage the
production of a good at a cheaper price so consumers are more likely to purchase the good. If it were a merit
good, then any underconsumption would be reduced (option D). Public goods would not be provided by a
private firm (option A) and monopoly power would be increased, not reduced, by a subsidy (option B).
Overconsumption would be encouraged not reduced if a merit good was provided more cheaply (option C).

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
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Question 11

Question 11 was answered correctly by 34 per cent of the candidates who chose option B. 32 per cent
chose option A, 18 per cent chose option C and 16 per cent chose option D. If the supply of labour was
restricted by the government, it would be represented on the diagram by a movement of the supply curve to
S2. The new equilibrium would be the point of that new supply curve with the existing demand curve which is
option B. Those candidates who chose the other options might have thought that the wage line was a
maximum wage and so the equilibrium had to be somewhere on that line. It was, in fact, a minimum wage so
the actual wage could be above that.

Question 12

Question 12 was answered correctly by 26 per cent of the candidates who chose option A. 22 per cent
chose option B, 32 per cent chose option C and 20 per cent chose option D. Only average fixed cost
continues to fall as output increases because larger units of output are averaged over the same fixed cost.
The other costs are not averaged over the same total cost whether that cost is total variable cost (option D)
or total variable plus total fixed cost (option B). Average variable cost itself also increases after a certain
point (option C).

Question 19

Question 19 was answered correctly by 12 per cent of the candidates who chose option C. 15 per cent
chose option A, 27 per cent chose option B and 46 per cent chose option D. The question asks about the
increase in the rate of inflation. This requires a comparison of the change in the rate of inflation over the
previous year. The largest increase in the rate of inflation occurred in year 2 (option C).

Question 20

Question 20 was answered correctly by 17 per cent of the candidates who chose option A. 19 per cent
chose option B, 19 per cent chose option C and 45 per cent chose option D. When there is deflation, prices
are falling. Consumers might well expect prices to fall even more and would thus delay any spending in the
hope of obtaining goods at a cheaper price in the future (option A). Those who chose option D may have
confused the fall in prices and a fall in the real value of money. When prices fall the real value of money
rises. Option D presents the opposite case, it suggests there is a fall in the real value of money.

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

ECONOMICS

Paper 2281/21
Structured Questions

Key messages

It was good to see that so many candidates were able to take the exam this summer. The exam format was
different to June 2019 as Section B now includes only 4 rather than 6 questions for candidates to choose
from. It also means that each question may have a wider coverage of the syllabus than previously but there
is no evidence that this has had a detrimental effect on the performance of candidates. However, there have
been two trends that will have had a negative impact on the performance of candidates.

Compared to previous years, there was a much larger proportion of candidates that answered questions out
of sequence e.g., choosing to answer some parts of a question and coming back to the rest after attempting
another question. This may not affect the overall marks of most of the candidates, indeed some of the
answers at the end were very good, but it does increase the chances of forgetting to complete all parts of a
question and therefore a loss of potential marks. This was particularly true of Question 4(c) where 10 per
cent of candidates did not provide an answer.

There was also a significant increase in the number of candidates that attempted all 4 questions in
Section B. Again, in some cases candidates were not adversely affected and the final question attempted
gained higher marks than an earlier question. However, by answering all 4 questions, less time is available
for each question, and this could result in lower marks for each of the three question that gained the highest
marks.

General comments

The quality of answers to part (a) questions in Section B were generally weaker than in previous years.
These two-mark questions are usually based upon knowledge and understanding of basic concepts and
economic terms which candidates should know. Therefore, it was surprising that less than 30 per cent of
candidates were able to give a correct definition of cyclical unemployment.

There were some misconceptions of economic terms used in questions. For example, many candidates
thought that low inflation meant that prices were falling and that purchasing power of consumers increased.
This meant that many got low or no marks for Question 3(c) as they were analysing deflation. However,
answers were generally sound on 5(c) which was a question about deflation. Answers to Question 2(b)
showed that some candidates were not clear about the difference between a movement along a demand
curve and a shift in the demand curve

Another area where candidates need to improve related to two of part (d) questions in Section B, with
candidates broadening the scope of their answers beyond what was asked for in the question. This was
particularly the case with Question 2(d) where key words in the question were ‘countries’ and ‘consumers’.
Many answers focused on individuals or firms specialising rather than countries, perhaps because they knew
more about it. In addition, some answers focused on the benefits for the country rather than the consumer. It
is important that candidates do read the whole question and the key words within it before starting their
answers.

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 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

Comments on specific questions

Section A

Question 1

(a) Most candidates selected the right data of $32.7 bn (import of goods) and $10.4 bn (balance of
trade in goods) but a very high proportion made the wrong calculation. If the balance of trade of
goods is positive at $10.4 bn that means exports are higher than imports. So, the correct answer is
$32.7 bn + $10.4 bn = $43.1 bn, whereas many candidates calculated $32.7 bn – $10.4 bn =
$22.3 bn. A few candidates calculated it correctly but then they did not show that it was in billions.

(b) Nearly all candidates were able to identify two of the three capital goods mentioned in the source
material – delivery vehicles, machines and office equipment. A common error was either to name
capital goods not in the source material e.g., tractors or identify goods such as maize, footwear or
oil named in the source material, but which are consumable goods.

(c) Most candidates confirmed that Nigeria had a budget deficit; however, the reason given was often
incorrect. The correct answer was that government spending was greater than tax revenue and
some candidates stated this and used the figures set out in the source material. A few correctly
calculated the deficit as $6.6 bn. Those that stated it was a budget surplus relied on using the trade
data or combined the budget and trade data as evidence. A few simply did not understand what
was meant by a budget deficit or deficit and changed their answers several times.

(d) Candidates were generally good at explaining that training would result in workers gaining better
skills, higher wages, better job opportunities and becoming more productive. This would lead to
higher revenue and profits for firms. However, many answers did not explain why this led to an
increase in tax revenue. As the question states that it might lead to a rise in tax revenue,
candidates needed to state which taxes would rise e.g., higher salaries resulted in greater income
and tax revenue, and higher profits by firms would result in higher revenue from corporation tax. It
was insufficient to say that those higher wages would mean higher rate of tax being paid leading to
an increase in tax revenue and most importantly stating the specific taxes where revenue would
rise, e.g., income tax and sales tax. Too often the response was simply that tax revenue would rise
but this was in the question. A typical strong answer included ‘as firms increase their output and
make more profit, tax revenue from corporation tax will increase.’ A typical weak answer was ‘there
will be more tax revenue for the government as more people will be paying taxes.’

(e) There were some strong answers that showed candidates fully understood the data in Table 1.1
and many candidates were able to gain full marks. A strong answer included ‘Life expectancy at
birth in Nigeria is lower at 59 years than Ethiopia where it is 63 years, and this could be due to
better healthcare in Ethiopia.’ Whereas a weak answer was ‘life expectancy in Nigeria was 59
years and in Ethiopia it was 63’. The latter was simply description of the data in the table with no
analysis.

(f) Most candidates were able to identify one or more of the measures such as lower interest rates,
subsidies and reducing corporation tax as mentioned in the source material. The strong answers
were able to analyse how such measures would result in encouraging firms to increase their
investment. For example, ‘lowering corporation tax would increase profits for firms and encourage
them to invest to increase their profits further.’ Weaker answers did not make the link between the
measure and increasing investment. The weakest answers used measures not mentioned in the
source material, e.g., lowering income tax. Some used a named measure wrongly e.g., raising
interest rates so that firms could earn more by saving.

(g) Stronger answers were from candidates who generally understood that an increase in Nigeria’s
population was likely to lead to an increase in the labour force and in output but that there could be
shortages of food and increased pollution and gave valid reasons for this. Weaker candidates often
assumed there would be an increase in output per head, that there would be higher employment or
greater unemployment and that imports and exports would rise or fall without justifying why this
might happen. Some of the answers given speculated on information about Nigeria that was not in
the source material.

(h) Most candidates understood how the imposition of a tariff would increase the price of a good and,
in many cases, were able to explain why imposing a tariff could result in an increase in demand for

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 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

domestically produced rice. However, answers were generally weak in analysing why this would
lead to an increase in output of rice in Nigeria. The main reason for this was that candidates did not
make enough use of the source material. The source material indicated that costs of production
were higher in Nigeria, so even with higher import prices, imported rice might still be cheaper than
domestically produced rice. Strong answers identified this fact and also made comments about the
quality of Nigerian produced rice and that if demand was inelastic, which was likely for a basic
necessity such as rice, an increase in price as a result of a tariff might not reduce demand of
imported rice. Some weak answers made little reference to Nigerian rice production.

Question 2

(a) Generally, candidates correctly identified that private costs (internal costs) and external costs make
up social costs. A few did not know what social costs meant and gave other costs such as fixed
cost and variable cost or actual examples of social costs e.g., air and water pollution. Some
answers were simply guessing, e.g. ‘less fish and more pollution’

(b) Strong answers identified and explained two causes of a shift to the right in the demand curve for
fish. One common cause identified was a rise in the price of a substitute food, e.g. chicken. A
second was an increase in income which made it more affordable to buy more fish. A common
error was that the price of fish had increased but this would lead to a movement along the demand
curve. A second error was a change in the supply of fish; but this would not cause a shift in the
demand curve. A typical weak answer was ‘an increase in pollution will decrease the supply of fish
which will increase the price of fish and shift the demand curve to the right.’

(c) There was a wide variety of answers given to this question. Some strong answers focused on the
impact on individuals e.g., better health, the improved standard of living and job opportunities.
Others concentrated on the economy e.g., the reduction in air or water pollution, improvement to
the environment, attracting tourists and increase in production and GDP. Some concentrated on
the impact on the fishing industry which is a valid response. Weaker answers tended to cover why
pollution was bad for the economy rather than how cleaning up pollution benefits an economy.

(d) Most candidates understood what was meant by specialisation. However, relatively few applied this
to how it benefited consumers, and instead explained what specialisation meant for an individual or
the country. These were poor answers as they did not answer the question being asked. Where
candidates did focus on consumers, the answers to how consumers might benefit was usually well
done but even here answers to how consumers might not benefit were weak and were often limited
to comments about the cost of imports. Overall, the question was poorly answered as responses
lacked both focus and depth.

Question 3

(a) Cyclical unemployment should be one of the best understood types of unemployment, so it was
surprising that less than 30 per cent of the answers correctly related it to lack of total demand in an
economy due to a recession. A few understood that unemployment meant not having a job but
were unable to explain why. Answers included descriptions of seasonal and frictional
unemployment and a cycle of employment and unemployment. For example, ‘cyclical
unemployment happens when people keep losing their job’

(b) Most candidates correctly identified two ways in which a firm could increase the productivity of
workers. Common ways included paying higher wages, bonuses and providing fringe benefits such
as holidays and better working conditions. However, in quite a few cases, the reason why this led
to an increase in productivity was not explained. Weak responses often simply stated that the
identified way increased productivity which was the question rather than what caused the
productivity to increase.

(c) This was poorly answered by many candidates. Strong answers made clear that with low inflation
prices were still rising, but only slowly and then explained the positive impact that this would have
e.g., removing uncertainty for firms in investing and increased exports to countries where inflation
was at a higher rate. The high number of weak answers started from an incorrect assertion that
prices were falling and that this increased the purchasing power of consumers, resulting in higher
demand and economic growth.

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2281 Economics June 2021
Principal Examiner Report for Teachers

(d) Strong answers gave a balanced discussion of whether a reduction in unemployment would reduce
poverty. Such answers explained that poverty would be reduced because those gaining jobs would
have income which could be used to meet basic needs. Increased tax revenue could be used by
the government to support the poor. Answers also recognised that absolute poverty might still exist,
that incomes might still be very low, e.g. new jobs were at minimum wages or only part-time and
that not all those in poverty could work. Weak answers were restricted to just a brief comment on
rising income for those now employed. Some answers lacked balance and quite often lacked focus
by explaining that an increase in incomes would cause inflation which would lead to loss of jobs or
lack of purchasing power for the poor.

Question 4

(a) Quite a few candidates understood that the labour force included both the employed and the
unemployed. A strong answer was ‘The labour force consists of individual who are able and willing
to work and are actively looking for a job’ Many answers were only partially correct, e.g. those
willing to work or the working population or those who were employed, forgetting that the labour
force also includes those unemployed.

(b) Strong answers identified that a low birth rate and a low death rate were the main causes of an
ageing population and then explained what caused them e.g., the rising costs for raising children
meant families were having fewer children and better healthcare leading to people living longer.
Weaker answers either only identified and explained one reason or identified both but did not
explain why they were low. A few confused the word ‘causes’ with ‘effects’ and wrote about the
impact of a low birth rate and/or death rate on the economy.

(c) Strong answers explained that a fall in the value of a currency meant the currency had depreciated
and this resulted in exports becoming cheaper and imports more expensive. This meant that the
value of exports rose, and the value of imports fell resulting in a reduction of the trade deficit. Weak
answers tended to get the impact the wrong way around with exports becoming more expensive
and imports cheaper. Other weak answers wrote about the impact on prices within the country with
no mention of international trade. Ten percent did not attempt this question.

(d) Most candidates understood that an increase in consumption led to higher demand. Strong
answers provided a balanced argument that explained that countries benefited from an increase in
demand for goods and services. This led to more job opportunities and more tax revenue for the
government to spend on public services and goods such as education and healthcare. They also
explained that it could lead to demand-pull inflation and/or greater imports to meet consumption
leading to an adverse effect on the current account. Weaker answers provided less depth and, in
some cases, were limited to the benefits only. A few of the weak answers stated that the increase
in demand would lead to pollution, the using up of resources and little else.

Question 5

(a) The most common correct responses were fishing and mining, but less common answers included
felling trees, hunting and oil extraction. A few incorrectly mentioned farming or farm products which
were wrong as these relate to agriculture which was in the question.

(b) The strongest answers recognised that there would a shortage of food which might lead to famine
and starvation. Their second point often related to less exports/more imports of agricultural
products leading to an adverse effect on the balance of payments. A few also mentioned that it
could lead to a shortage of raw materials for secondary industries and could result in redundancy of
workers. Weak answers often did not make specific reference to agricultural products in their
answer, e.g. ‘low skilled workers will not be able to find other jobs and will be unemployed.’

(c) The term deflation was understood by most candidates, even by some of those candidates who
had given incorrect answers to 3 (c). Strong answers correctly identified that expansionary
monetary policy such as lower interest rates and an increase in money supply would lead to more
borrowing, rising demand and firms raising prices. Weaker responses fell into two camps. Some
correctly identified the role of the central bank but analysed the effect of a rise in interest rates and
a reduction in money supply probably because they confused deflation with inflation. Others
correctly analysed how expansionary fiscal policy could reduce deflation, but this was outside the
scope of the question as a central bank has no such powers to reduce taxes and increase
government expenditure.

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 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

(d) This questioned required a focus on the individual firm and how it might benefit from growth. Strong
answers discussed both the advantages of growth in gaining market dominance and gaining
economies of scale and the disadvantages often associated with diseconomies of scale. Some
explained that growth could be internal or external e.g., through mergers and takeovers. The
strongest answers were also able to discuss why firms may have other objectives, such as survival,
staying small and serving the community or maximising profits. Weak responses tended not to
make any reference to economies and diseconomies of scale and often wrote about the effect of
growth on the economy including lower unemployment and the downside of growth leading to
inflation and greater pollution.

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

ECONOMICS

Paper 2281/22
Structured Questions

Key messages

It is important that candidates:

• Follow the instruction at the start of Question 1, i.e. ‘Refer to the source material in your answers.’ For
example, in Question 1(b) in this session, candidates needed to identify two disadvantages of a country
specialising from the source material. Questions Question 1(a) – Question 1(f) rely heavily on the
source material. In answering Question 1(g) and Question 1(h), candidates also need to consider the
source material but have more scope to build on it.
• Answer only the required three optional questions from Section B. In this, and in every previous
session, some candidates waste their time by answering all the questions. These candidates wasted
time which could have been devoted to strengthening the three required questions.
• Answer the actual question set. Some candidates try to change the question to one they want to answer.
Other candidates seem to forget the question as they are writing. This second group of candidates often
write in long sentences. For example, one candidate wrote in answer to Question 5(d):

When businesses are being kept small it would benefit the people and the country as when it raises the
competition the prices would fall and the choices would increase as they would produce more variety of
goods to the market and it would improve and raise the GDP of the country as their proportion of output
would be included which will be rising it further and so GDP per capita would rise and unemployment would
reduce as more people get a job and the government income would raise and expenditure would fall as they
charge taxes on all businesses that is being operated and they would be able to have good infrastructure in
the country as it would be improved and some multinational companies might be attracted by this and they
might be interested in opening a new branch in the country which will raise the exports and less imports
would be made where balance of payments surpluses would be created by having good infrastructure so the
government will have to spend more in order to attract multinational businesses and in the long run the
environment is being affected due to more pollution where they might lose the advantage which will be
costlier to regain.

This answer did not make clear why competition would increase, and it moved away from the topic of the
question into the benefits of higher GDP and the effects of more MNCs being attracted into a country.

General comments

There was a full range of quality of answers in this examination. There were some excellent answers which
showed the ability to apply relevant economic concepts to current issues. Some other answers lacked
enough economic analysis.

There was a relatively small number of unanswered questions. Most candidates allocated their time
appropriately, although a number could have devoted rather more time to the (d) parts of the optional
questions and a little less time to the (a) and (b) parts.

As in previous sessions, there was some confusion shown over some key economic concepts. These
included productivity, social cost and cyclical unemployment. Stronger understanding was shown of other
concepts including merit goods, capital-intensive and foreign exchange rate. The understanding of a
recession has increased over time.

Most candidates showed an awareness of the need to consider both sides in their answers to the (d)
questions. There were some good answers to the (c) parts with a high proportion of candidates providing

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2281 Economics June 2021
Principal Examiner Report for Teachers

good analytical links. In response to the (b) parts, not all candidates explained the points they identified.
Most candidates were able to answer the (a) parts accurately.

Comments on specific questions

Section A

Question 1

As in other recent sessions, the performance on Question 1 was pleasing, although some candidates did
not make enough use of the source material.

(a) Most candidates calculated Chile’s agricultural output accurately. However, a few candidates
mistakenly gave the answer as $11.78 million. Some other candidates calculated 9.2 per cent (the
percentage of the labour force employed in agriculture) of Chile’s GDP.

(b) The two most common disadvantages identified were demand falling and supply being harmed by
bad weather. Some candidates did not consider the question carefully and wrote about the
disadvantages of workers rather than countries specialising. Others did make use of the source
material.

(c) This was generally well answered. Most candidates explained how the existence of close
substitutes make demand for cherries to be price-elastic.

(d) This was the first time that population pyramid diagrams have appeared in Question 1. Most
candidates coped well with interpreting the diagrams. For example, one candidate wrote:

Chile has a more ageing population than Haiti. It has a higher proportion of its population in the age
range over 60 than Haiti. This means life expectancy is longer in Chile. Chile also has a larger
proportion of its population who are of working age and in the labour force. So, Chile has a lower
dependency ratio than Haiti. In contrast, Haiti has more of its population under the age of 19 which
suggests a higher birth rate.

Some candidates wrote about features of the two countries’ population structures but did not
compare them. Others wrote about why the population structures may differ but not how they differ.

(e) This was generally well answered. Most candidates were able to identify the two reasons from the
source material and to analyse their effects.

(f) With questions on the relative pay of workers, it is always useful to consider the influence of
demand for and supply of workers. Here the strongest answers also made good use of the
information in the source material about the educational level of astronomers and how most work in
the public sector. An example of a good answer is:

Most of Chile’s astronomers have a university degree. As a result, they are well educated and very
productive. This results in them being highly demanded but in short supply. In contrast to
astronomers, farm workers are in higher supply as they need fewer qualifications. Furthermore,
most astronomers work in the pubic sector and so are more likely to belong to trade unions which
can increase their bargaining powers.

(g) There was a mixed performance on this question. There were some excellent answers which
showed a good understanding of the advantages and disadvantages for consumers of more
government intervention in the Chilean economy. These drew on the information provided in the
source material and built on that in discussing, for example, how a government could reduce the
under provision of merit goods but may reduce consumer sovereignty. An example of such an
answer is:

Chilean consumers may benefit as the government can reduce market failure by providing
subsidies to firms that produce merit goods that give positive externalities. The subsidies will lower
price which will increase their consumption as they are under consumed and under provided in a
market economy. Private firms are profit motivated. They would not provide public goods such as
street lighting. The government will produce public goods so that everyone can enjoy them. The

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government can also put taxes on demerit goods to reduce consumption and production as it
increases their cost of production and their price. It can set maximum prices to prevent exploitation
by monopolies and to ensure that the poor can afford the goods, reducing inequality.

On the other hand, government regulations can make it difficult to set up a firm. This can reduce
competition and stop consumers from enjoying a wide choice. Indirect taxes may reduce profits
which can reduce investment and stop the quality of products increasing. Market forces may also
be more efficient in the allocation of resources, reacting quicker to shortages and surpluses.

Some candidates did not focus on consumers and a number wandered off the central point of the
question.

(h) Some candidates found this a challenging question. Several candidates wrote about the
advantages and disadvantages of Haitians working in Chile. Some candidates, who did
concentrate on fewer Haitians working in Chile, assumed that productivity would increase without
linking this to the possible skill levels of workers who might remain. A number also suggested that
the number of the jobs in a country are limited whereas they change frequently with changes in the
total demand and total supply in a country. There were, however, some strong answers to the
question which explored a number of benefits and harmful effects of fewer Haitians working in
Chile. For example:

The Haitian economy may benefit from fewer people working in Chile. Workers from Haiti, who
chose to work in Chile may have high skills and productivity, so if these workers choose to stay in
Haiti, the labour force will be more productive, boosting economic growth. A larger labour force will
increase productive capacity. Also, a larger number of people staying in Haiti will result in higher
total demand, increasing output and tax revenue. With more tax revenue, the government can
invest more in education, healthcare and infrastructure.

However, Haiti’s economy may not benefit. Those workers who are unskilled may be able to earn a
higher wage in Chile. Not working in Chile can reduce the money that their families receive. If
Haitian people stop working in Chile, they may work somewhere else. Not necessarily coming back
to Haiti.

Section B

Question 2

Candidates performed reasonably well on this question but more accuracy on Question 2(b) and the
inclusion of more economic analysis on Question 2(c) and Question 2(d) would have been useful.

(a) The two most common necessities identified were food and water. A small proportion of candidates
did not read the question carefully enough and, as result, identified housing.

(b) The majority of candidates showed an awareness of the nature of frictional unemployment. A
relatively high proportion of candidates, however, showed less understanding of cyclical
unemployment. A number confused it with seasonal unemployment, thinking that it refers to
unemployment caused by the cycle of seasons. Even more candidates confused cyclical and
structural unemployment, writing about unemployment resulting from the decline of an industry.

(c) Some candidates wrote about why the children of the poor tend to become poor adults rather than
why the children of the rich tend to become rich adults. Other candidates wrote in very general
terms and did not analyse, for instance, why more education usually results in higher wages. There
were, however, some strong answers. A number of these were not particularly long but they made
clear links between relevant influences on why many of the children of the rich become rich adults.
For example:

Children of the rich tend to become rich adults because they can get a good education from private
schools, teachers, travelling abroad etc. Children of the rich also grow up in good quality housing
and good quality healthcare. They do not have to devote their time to working at a young age and
can go to university. This makes them skilled and increases their chances of gaining good jobs and
earning high incomes. As rich families have a lot of disposable income, they can buy assets such
as houses and businesses which can be passed down to their children. They also set up trust
funds and bank accounts for their children.

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 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

(d) The strongest points covered in answers to this question tended to focus on how subsidies to
families to spend on housing could improve living standards, enable families to spend more on
education and the opportunity cost involved in providing such subsidies.

The answers to this question, as with the other Question (d)s which gained Level 3, explored both
sides of the question in depth. Example of a Level 3 answer:

Subsidies are a form of financial assistance given by the government in order to encourage the
consumption of a public/merit good or improve the general welfare of the people.

Providing subsidies to families for housing makes this necessity more accessible, which will likely
lead to an increase in the standards of living and reduce poverty. Moreover, subsidies on housing
may encourage immigration and may attract more skilled labour into the country, increasing the
country’s output. Additionally, this can enable families to spend more on education. This can raise
the skills and qualifications of their children which can increase their chances of employment.

However, an increase in subsidies involves an opportunity cost in government spending, as the

money may be better spent on education or the government directly investing in housing stocks.
The subsidy may also be too small to make a difference as housing is a relatively large cost.
Subsidies may also go to families that do not need it, such as those who are rich and already own
multiple houses, which would not make a difference in relative poverty. Increased housing would
also increase noise pollution from construction and would cause habitat destruction which are
negative externalities.

Answers which achieved Level 2 explained some of the points made but either lacked depth, or
less frequently, were one-sided. Example of an L2 answer:

Subsidising houses could reduce the rate of homelessness for families and increase the standard
of living since houses are a necessity.

Subsidising a home for a family means the family does not have to spend a large proportion of their
income on housing. So, savings of families could go up and consumers could spend more on other
goods.

Subsidising a house may not be enough as house prices may be too expensive, causing the family
to still not afford a house. The government may not have adequate funds to provide a subsidy to all
poor families and so some families may be left out in the process.

Level 1 answers either defined subsidies or more often just stated points without explaining them.
Example of a Level 1 answer:

It might. First housing is a necessity. Some people can not afford to buy a house. Some people
may have more confidence about the future. However, it might not. First some people may rely on
subsidies and do not need to work hard. Second government can not do other things such as
education.

Question 3

This was a popular question with Question 3(c) being the best answered part.

(a) A relatively high proportion of candidates referred to decision making and risk taking. Several
candidates confused enterprise with capital.

(b) The majority of candidates defined opportunity cost and most gave an example of a possible
choice facing consumers. Not many candidates, however, explained how limited income means
that consumers cannot have all they want and forces them to make choices.

(c) This was generally well answered with some good links provided. For example:

The first reason is that the price of capital may fall which may make it more affordable than labour.
This could reduce firms’ costs of production and increase their profits. Capital can increase the
quality of products produced which can increase sales, and again increase profits. Also, capital

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

could be more productive. It does not get bored or affected by illnesses. Capital cannot organise
industrial action which disrupts production. There may be low availability of labour with more
candidates or retired people, making it difficult to find workers.
However, some candidates appeared to think that once purchased, capital equipment does not
involve any costs to operate it.

(d) Several candidates did not focus on the effects of inflation on a country’s industries. Some
candidates made unsupported statements such as it will cause industries to go out of business.
Other candidates did make some interesting comparisons between the different effects on
industries producing products in elastic demand and those producing products in inelastic demand.
There were also some good answers comparing the effects on industries that export a high
proportion of their output and those that import a high proportion of their raw materials and capital
goods. In addition, there were some interesting comments about the different effects of demand-
pull and cost-push inflation on industries.

Example of a Level 3 answer:

Inflation may harm a country’s industries in several ways. As the price of goods increase, they are
less internationally competitive and will face reduced demand from foreign countries. This will
reduce the potential to sell to foreign markets, thus reducing the revenue of the industries.
Additionally, as the price level increases, it may make these industries more susceptible to
dumping from foreign firms as they are less price competitive. Furthermore, as costs of production
increase, firms may lose sales. Cost-push inflation can result in firms losing sales and laying off
workers. Industries that produce goods with price elastic demand will be harmed if demand for their
products falls by more than the rise in their prices.

However, inflation may not always harm industries. Firms in the industries will find it easier to pay
outstanding debts if the rate of interest rises by less than inflation. Moreover, industries that
produce price inelastic goods may benefit from their products having higher price as their revenue
may rise. While inflation means that, on average prices are rising, not all industries may experience
a rise in the price of their products. Industries may also benefit from demand-pull inflation as the
higher demand may result in their revenue increasing by more than their costs.

Example of a Level 2 answer:

Inflation occurs when total demand is greater than total supply, causing money to lose its value.
Inflation can increase the price of exports, making them less price competitive in the international
market. The demand for exports will decrease and revenue will fall. Workers will demand higher
wages and may threaten industrial action. Higher wages and industrial action may cause industries’
costs to rise, leading to lower profits. This could cause cost-push inflation.

Inflation can benefit industries if they are able to enjoy higher demand for their products. Higher
total demand can push up prices and can encourage industries to produce more.

Example of a Level 1 answer:

First the value of money will decrease. People can not use the same value of money to buy the
same product during inflation. Second borrowers gain while lenders lose. Third, there will be menu
and shoe leather costs that firms will have to pay.

Question 4

This was a well answered question with some particularly good answers being given to Question 4(c) and
Question 4(d).

(a) Some answers to this question lacked precision. For example, the number of children born in a
country, is too vague. For some reason, some candidates confused the birth rate with a natural
increase in population. They wrote that the birth rate is the number of births minus the number of
deaths.

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

(b) Most candidates were able to identify two causes of an increase in the quality of labour but not all
explained them. The two most common causes identified were improved education and improved
healthcare. A small number of candidates did not read the question carefully enough and wrote
about causes of an increase in the quantity of labour in a country.

(c) There were some strong answers to this question with good links provided from a higher interest
rate to a recession. For example:

A rise in the interest rate will make it more expensive to borrow. This will discourage consumer
expenditure because people will not be willing to borrow as much money to make purchases. Also,
more people will choose to save their money because the financial return is high. This will result in
a fall in total demand. A high rate also discourages investment as it makes it more expensive to
take out loans for purchasing capital equipment and because demand for their products has fallen.
Lower demand for goods and capital equipment will reduce their output, causing a recession.

(d) Most candidates seemed well informed about the possible effects of multinational companies on
their host countries. There were some good points made particularly in terms of the technology
MNCs may introduce into the host countries and the effects on local industries. A few candidates
wrote about MNCs exploiting workers by paying lower wages than they pay in their home countries.
What they needed to consider was whether the wages paid were higher than those paid by other
firms in the host countries.

Example of a Level 3 answer:

MNCs may improve the economic performance of the host countries in which they operate. MNCs
may provide job opportunities for local workers, reducing unemployment hence reducing poverty
and increasing living standards. They may also pay corporation taxes which increases the
government’s tax revenue, enabling the government to spend more on e.g. healthcare improving
living standards and economic welfare.

MNCs contribute to GDP as it will increase the total output of the country and boost economic
growth. Some of the goods produced may be exported, resulting in a rise in exports of the country
improving the current account position.

However, MNCs may not improve the economic performance of the host countries. Not all its
profits will be taxed by the host countries’ governments. Some profits will be sent back to the home
country. They may compete with domestic firms, causing some of them to close down. They may
also deplete the resources of the host country, reducing the productive potential of the country in
the future. After the resources are used up, the MNCs may move to other countries.

Example of a L2 answer:

Yes they will. Because MNCs will create more jobs for host countries, so it will decrease
unemployment. In addition, they will improve consumption and bring more tax revenue to local
government so government can use this money to set up infrastructure and benefit citizens.
Furthermore, MNCs will increase the GDP of host countries.

However, they would not. Because although MNCs may bring lots of revenue, they may send this
back to their home countries. They may merge with local industries and may become a monopoly
that will be harmful to host countries. In addition, they may bring pollution to host countries, it will
have external costs and decrease living standards for host countries.

Example of a Level 1 answer:

MNCs are friendly to people so people buy their products. They can also improve the performance
of the host countries by employing workers, making less workers unemployed. However, it also
may not help as most of the profit would go back to the companies, countries.

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

Question 5

In the case of some candidates’ answers, there needed to be more economic content in Question 5(b) and
Question 5(d).

(a) The two most common functions identified were medium of exchange and store of value. Several
candidates identified characteristics of money rather than functions of money.

(b) There were some good answers to this question. These tended to concentrate on the possible
effect of a bank merger on costs of production and market power. Some candidates, however,
wrote in too general terms. For instance, some mentioned that a merger will result in a larger bank
but did not explain why the banks would want to be larger.

(c) This was generally well answered. A relatively high proportion of candidates were able to provide
good links between a fall in a country’s foreign exchange rate and an increase in employment.
Some candidates wrote about the fall in the value of the currency encouraging some of the
country’s people to work abroad. Such an approach often did not consider whether these people
were initially in employment and whether job opportunities would exist in other countries.

An example of a good answer:

A fall in the exchange rate will make exports relatively cheap. This will increase the value of exports
sold, hence the export firms will increase output. This will create more job opportunities, reducing
unemployment. Also, a fall in the exchange rate will make imports relatively more expensive, hence
the money spent on imports will be reduced and the demand for rival domestic production will
increase. So, the domestic firms will increase output, creating more jobs in domestic firms,
increasing employment.

(d) There was a range of responses to this question. Some candidates showed confused thinking by
writing about small firms having an advantage because their total wage and raw material costs are
lower than those of large firms. Those candidates did not consider how small firms’ total revenue is
likely to compare to those of large firms. They did not recognise the importance of considering the
relative average costs of small and large firms. Some also mentioned small firms pay less tax than
large firms. What they should have concentrated on was the tax rate paid.

There were, however, some strong answers which provided interesting comments on the ability of
small firms to respond quickly to changes in market conditions, supply goods in niche markets and
develop good relations with customers and workers. These also explored how small firms are
unlikely to take advantage of economies of scale and may experience a number of disadvantages
including the risk of being driven out of the market by large firms.

An example of a Level 3 answer:

Depending on the owners’ aims it can be a benefit to keep a firm small. It may operate as a local
monopoly, allowing a high level of profit despite it being small. It can provide a more personalised
service and experience and have a close relationship with its customers, causing loyal, high
spending customers. It can be flexible and can adjust to customers’ needs fast as it does not have
a complex organisational structure or many high-ranking staff it has to consult with it. It will also not
experience other diseconomies of scale including bad relations with its workers.

On the other hand, it can not benefit from economies of scale, such as bulk buying as it does not
purchase a large amount compared with a big firm, not allowing it to cut average costs, meaning
comparatively higher prices, resulting in lower demand. This will reduce its chance of survival. It is
also very hard to get funding compared to a big company as banks will see that big firms are less
likely to default and so less risky. They may also have a higher chance of business failure if the
owners have less expertise on how to run a business. They may also employ less advanced capital
equipment which may mean their average cost is higher than a small firm.

An example of a Level 2 answer:

The advantage of keeping a firm small is that it is easy to manage and is easier to communicate
with its workers. It may also be able to operate in a niche market, producing a high-quality product
with limited demand. Its good quality may attract consumers. However, if the firm it may not be able

© 2021
 Cambridge Ordinary Level
2281 Economics June 2021
Principal Examiner Report for Teachers

to take advantage of economies of scale which means the firm will have high average costs.
Another reason can be that if the firm is small, it may be taken over by a large firm.

An example of a Level 1 answer:

If it has a small size, it is easy to control. And it is flexible. It will only have a few workers so it can
keep its labour costs low. It can also pay its workers more which will motivate them to increase
output and not to strike. Small firms also pay less tax than large firms.

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