Cambridge International General Certificate of Secondary Education

0455 Economics June 2022

Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/11
Multiple Choice

Question Question Question

Key Key Key
Number Number Number

1 A 11 A 21 A

2 C 12 B 22 C

3 C 13 B 23 B

4 C 14 B 24 D

5 B 15 A 25 B

6 D 16 A 26 D

7 D 17 C 27 C

8 A 18 A 28 A

9 B 19 D 29 D

10 B 20 D 30 C

General comments

The questions for which most candidates selected the correct answer were 11, 18, 19, 20, 25 and
27. 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, 7,14 and 21.
These questions were answered correctly by fewer than 50 per cent of the candidates.

Comments on specific questions

Question 6

Question 6 was answered correctly by 47 per cent of the candidates who chose option D. 14 per
cent chose option A, 17 per cent chose option B and 22 per cent chose option C. At a price of
$2.50 per kilo the demand is shown as 400 000 tonnes and the supply is shown as 800 000
tonnes. Supply exceeds demand by 400 000 tonnes. (option D)

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

Question 7

Question 7 was answered correctly by 36 per cent of the candidates who chose option D. 22 per
cent chose option A, 10 per cent chose option B and 32 per cent chose option C. The question
shows a diagram indicating total fixed cost, total variable cost and total cost. The fixed cost is
represented by the horizontal line, or RS. Above that is added the variable cost of PR. However,
with no fixed cost the variable cost would start at zero and is shown as the upward sloping line
from O to Q. At output S, the variable cost is, thus, QS. PQ (option A) is the fixed cost; PS (option
B) is the total cost.

Question 14

Question 14 was answered correctly by 48 per cent of the candidates who chose option B. 27 per
cent chose option A, 11 per cent chose option C and 14 per cent chose option D. A consumer
prices index shows how prices change so they do not have to be stable. This eliminates options A
and D, leaving a choice of B or C. There has to be a comparison with a base year and weights are
used to reflect the relative importance of the expenditure patterns covered by the index. Option C
states that weights are not necessary. The correct option is B.

Question 21

Question 21 was answered correctly by 37 per cent of the candidates who chose option A. 47 per
cent chose option B, 10 per cent chose option C and 6 per cent chose option D. The economy in
the question could achieve point X if all its resources were used. Point Y in option A represents a
situation where some of the resources, in this case labour, are not fully used. Point Y in option B
represents a different economy where all the resources are completely used and point X is not
attainable.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/12
Multiple Choice

Question Question Question

Key Key Key
Number Number Number

1 D 11 B 21 B

2 B 12 A 22 D

3 C 13 D 23 C

4 A 14 C 24 C

5 D 15 A 25 C

6 B 16 C 26 D

7 D 17 C 27 C

8 C 18 D 28 A

9 D 19 A 29 C

10 A 20 B 30 B

General comments

The questions for which most candidates selected the correct answer were 1, 2, 4, 8, 20 and 30. 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 3, 6, 9, 13 and 16. These
questions were answered correctly by fewer than 50 per cent of the candidates.

Comments on specific questions

Question 3

Question 3 was answered correctly by 38 per cent of the candidates who chose option C. 22 per cent chose
option A, 6 per cent chose option B and 34 per cent chose option D. The boundary of the production
possibility curve shows the maximum amount of production available to an economy using all its resources.
The boundary would not change simply because consumers changed their buying preferences (option A). If
resources were previously unused, the original position of point K would be inside the production possibility
curve, the use of those resources would move K nearer to, or on to, the curve, not beyond it. (option D).

Question 6

Question 6 was answered correctly by 47 per cent of the candidates who chose option B. 6 per cent chose
option A, 8 per cent chose option C and 39 per cent chose option D. Those who chose option D confused

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

the reason for a movement along the demand curve and a reason for a complete shift of the curve. A price
change for the good would cause a movement along the curve. (option D). A decrease in the price of a
complementary good would cause more of that good to be demanded and thus more of its complementary
good but with no change in the price of that complementary good. Thus, it would cause a shift in the curve
not a movement along the curve of the complement. (option B).

Question 9

Question 9 was answered correctly by 46 per cent of the candidates who chose option D. 19 per cent chose
option A, 7 per cent chose option B and 28 per cent chose option C. The question shows a diagram
indicating total fixed cost, total variable cost and total cost. The fixed cost is represented by the horizontal
line, or RS. Above that is added the variable cost of PR. However, with no fixed cost the variable cost would
start at zero and is shown as the upward sloping line from O to Q. At output S, the variable cost is, thus, QS.
PQ (option A) is the fixed cost; PS (option B) is the total cost.

Question 13

Question 13 was answered correctly by 47 per cent of the candidates who chose option D. 23 per cent
chose option A, 9 per cent chose option B and 21 per cent chose option C. Operating a loss-making
business would not be compatible with the aims listed in options A, B and C. It would not be efficient, it
would not be likely to lead to a growth in the business and it would not be making profits.

Question 16

Question 16 was answered correctly by 35 per cent of the candidates who chose option C. 10 per cent
chose option A, 4 per cent chose option B and 51 per cent chose option D. To answer this question
candidates had to determine which of the spending by the government was on public goods. Of those listed
only law and order and defence are classed as public goods. Option D, the most popular option is calculated
by adding the expenditures on health and education. These may be provided by the public sector but they
are usually classed as merit goods, not public goods.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/13
Multiple Choice

Question Question Question

Key Key Key
Number Number Number

1 D 11 B 21 C

2 B 12 A 22 A

3 D 13 A 23 A

4 A 14 C 24 C

5 B 15 A 25 C

6 B 16 B 26 D

7 A 17 B 27 B

8 D 18 B 28 A

9 D 19 C 29 C

10 C 20 C 30 B

General comments

The questions for which most candidates selected the correct answer were 2, 7, 11, 12, 23 and 30. These
questions were answered correctly by 85 per cent or more of the candidates. They covered different parts of
the syllabus and were set to test different skills.

The questions that candidates found the most challenging were 9, 10, 22 and 29. These questions were
answered correctly by fewer than 40 per cent of the candidates.

Comments on specific questions

Question 9

Question 9 was answered correctly by 30 per cent of the candidates who chose option D. 21 per cent chose
option A, 10 per cent chose option B and 39 per cent chose option C. The question shows a diagram
indicating total fixed cost, total variable cost and total cost. The fixed cost is represented by the horizontal
line, or RS. Above that is added the variable cost of PR. However, with no fixed cost the variable cost would
start at zero and is shown as the upward sloping line from O to Q. At output S, the variable cost is, thus, QS.
PQ (option A) is the fixed cost; PS (option B) is the total cost.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

Question 10

Question 10 was answered correctly by 29 per cent of the candidates who chose option C. 34 per cent
chose option A, 9 per cent chose option B and 28 per cent chose option D. If there was a price elasticity of
demand that was elastic, the total revenue to the cinema would go down if it raised the price as the question
states that total revenue increased. Option A is, therefore, incorrect. The cinema has a fixed number of
seats. Supply of seats cannot be changed so option B is incorrect. There is no information about cost so it is
not possible to conclude anything about profits (option D).

Question 22

Question 22 was answered correctly by 37 per cent of the candidates who chose option A. 4 per cent chose
option B, 31 per cent chose option C and 28 per cent chose option D. The question describes a situation
where prices are rising by 10 per cent but the interest rate remains at 7 per cent. Those who lent money or
saved money would find that the value of their money has declined as the return on the money is now lower
than the rate of inflation. Employers would find that they would have to pay more for their inputs. They may
be able to raise the price of their products but this is not certain so it cannot be concluded that they would
necessarily be likely to benefit. The group most likely to benefit are borrowers.

Question 29

Question 29 as answered correctly by 33 per cent of the candidates who chose option C. 51 per cent chose
option A, 9 per cent chose option B and 7 per cent chose option D. If the country experiences a devaluation
of its currency, if the government subsidies its exporters or if productivity in export industries increases, the
country’s exports will become cheaper for other countries to buy and this would be likely to increase demand
and the surplus on current account would increase, not decrease (option A, option B and option D).
Improved technology in other countries would most likely mean that the other countries would not buy as
many exports from the exporting country which would worsen the current account (option C).

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/21
Structured Questions

Key messages

Command words matter as they help candidates to know what is expected from them in their answer. For
example, in Section B, the key command words are usually explain, analyse and discuss and they require
different types of responses. Often candidates are asked to define a term for 2 marks. All that is required is a
precise meaning but sometimes candidate give a lengthier explanation which is not needed. Questions
starting with ‘discuss’ will often require a balanced and structured answer whereas ‘analyse’ may well not
and may simply require an explanation of a relationship e.g. Question 2(c) the relationship between an
increase in income tax and the rate of inflation. The meaning of command words used in the exam is set out
on page 23 of the syllabus.

General comments

Generally speaking, candidates used the source material well in answering the questions in Section 1. The
only issue was with Question 1(f) as the majority of candidates did not understand that in figure 1.1 the size
of a country’s current account balance was expressed as a percentage of GDP. This was because the
countries were of different size and expressing the balance in $m would have given a misleading
comparison. Too many candidates did not analyse whether or not the inflation rate affected the size and
direction of the current account balance. The data showed that only 2 countries have a current account
balance surplus, but this was rarely picked up by candidates. Instead, many just described the percentages
for the inflation rate and current account balance without identifying the relationship.

Candidates should spend a few minutes at the start of the exam, or after they have completed Question 1,
determining which three questions to answer in Section B. They should look carefully at the part (d)
questions as they carry the most marks. There were quite a few cases of candidates answering parts (a), (b)
and sometimes (c) before deciding to start another question when presumably they realised they could not
give a good answer to part (d). It is also important that candidates do not cross out any work if they do
attempt all four questions in Section B as the examiner will mark all their work and the three questions with
the highest marks will count. There were a limited number of candidates where the answer they had crossed
out actually gained more marks than the replacement question.

Comments on specific questions

Section A

Question 1

(a) Less than half the candidates got this question right. With a population of 1.2 m and a birth rate of
10.2 per cent, the correct calculation was 1.2 m × 10.2 / 1000 = 12 240, as the birth rate is
calculated as the number of births per 1000 of the population. Quite a few candidates arrived at an
answer of 10 200 as they simply multiplied 10.2 by 1000. In quite a few cases the answer given
was 122 240 as candidates divided by 100 and not 1000.

(b) The most common correct answers given were GDP per head and HDI. Life expectancy and
education which were also mentioned in the source material were also frequently identified by
candidates. A few incorrectly stated GDP which is not an indicator of living standards unless
expressed as per head (or per capita). Some candidates selected terms in the source material that
are not used as indicators of living standards, e.g., income and highly qualified workers.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

(c) It was common for candidates to write out in full the two sentences in the source material that
stated that the bad weather had led to global grape production falling by 35 per cent resulting in a
shortage. Some candidates correctly wrote about the bad weather but then did not explain why this
caused disequilibrium in the market. In many cases they just stated that production had fallen by 35
per cent. A few did not mention bad weather but did show some understanding by stating that
disequilibrium was caused by a fall in supply without a change in demand which was an acceptable
answer to give.

(d) There were three possible reasons in the extract material for why well-educated workers tend to
work past retirement age. First, they were well paid and therefore motivated to continue working.
Second, their income enabled them to be healthy and therefore were fit to continue to work. Third,
their jobs did not require physical strength which lessens with age. Most candidates did identify two
reasons but often only gave one explanation, e.g., did not explain why remaining healthy enabled
them to continue working. A few approached it from the angle of why low-educated workers tend
not to work past retirement age, e.g., ‘their health would be affected by things such as machines
and pollution’ and this approach was also acceptable.

(e) A rise in the retirement age usually increasing the size of the labour force and reducing the
numbers receiving a pension. Thus, the government benefits from extra tax revenue, e.g., from
income tax or sales tax as people remain at work. The government also spends less on pensions
as fewer people have retired. The majority of candidates demonstrated they understood at least
one of those effects. A small minority of candidates mistakenly believed that raising the retirement
age would lead to the government having to pay out more in pensions or benefits. Others wrote
about the effect on younger workers being unable to find jobs as they were still filled by older
workers. This might be an outcome, but the question was about the impact on the government’s
budget. Others expressed the view that the government would have to spend more on healthcare,
hospitals and homes for old people which again is an incorrect analysis of people working beyond
retirement age and more to do with an aging population.

(f) In general, there were few strong answers to this question. Overall, answers were weak with many
not even identifying the inverse relationship. Many candidates simply described the differences in
the percentages between inflation and balance of payments. They did not appear to understand
that a negative percentage for current account balances meant that the country had a deficit, and a
positive percentage meant a current account balance surplus. The question requires candidates to
analyse the data and look for a trend and any exceptions. Few managed to do this but many did
correctly identify that the relationship was inverse, e.g., that the higher the rate of inflation, the
higher the current account deficit. A common error was to describe the data, e.g. ‘In Iceland, the
inflation rate was 3 per cent and the current account balance was 6 per cent which is 3 per cent
higher’ or ‘Mongolia has a high rate of inflation, and the current account balance is –16 per cent’
whereas the correct analysis would be ‘Mongolia has the highest rate of inflation and the highest
current account balance deficit at –16 per cent of GDP.’ Quite a few correctly explained that
Iceland/Slovenia were different, e.g. ‘The inverse relationship applies for all countries except for
Iceland and Slovenia because both their inflation rate and current account balance were positive.’
Surprisingly, quite a few candidates wrote about the relationship between interest rates and current
account balance.

(g) Most candidates showed in their answer that they understood what caused a PPC to shift to the
right or to the left. Candidates needed to identify, from the source material, factors that affected the
level of resources in Cyprus, e.g., land, labour, capital, or enterprise. Generally speaking,
candidates were better at explaining what would cause the PPC to shift to the left, e.g., the
emigration of entrepreneurs and that the quality of agricultural land was decreasing. The shift to the
right could be caused by lower rates of interest leading to more investment and the rise in
retirement age and population leading to a larger workforce. Weaker answers tended to discuss
changes in the level of production and the effect of the bad weather on grape production which
shows a misunderstanding of what causes a shift in the PPC. A PPC shows the productive
capacity rather than actual output of a country.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

(h) What was meant by capital-intensive production was understood by most candidates. Candidates
generally did better on the benefits stating lower costs and prices, better quality goods, faster and
more efficient production. Answers for why it might not be beneficial were less well done although
good answers described less variety of goods, higher maintenance costs, and equipment might
break down. Quite a few candidates assumed consumers were also employees and wrote about
being replaced by capital equipment and losing their jobs. This approach would not gain marks as it
falls outside of the scope of the question.

Question 2

(a) This was correctly answered by many candidates as they understood that the foreign exchange
rate was the price or value of a currency in terms of another currency. Some gave examples, e.g.,
£1 = $1.2. Weaker answers got the idea of the comparison with another currency, without stating
price or value. Very weak answers confused this term with the balance in value between total
imports and total exports, e.g., ‘it’s when a country exchanges goods and services with another
country at a particular rate.’

(b) This question was not well answered as candidates struggled to identify causes; often explaining
why exports were more expensive than imports rather than the total value of exports was greater
than imports. Good answers explained the impact of higher demand for exports arising from better
quality goods or cheaper goods due to low inflation or weaker currency or specialisation. They also
commented on imports being low because of recession in the home economy or protective
measures in place. Some mentioned high value exports such as oil and gas not unexpected given
the current high world market prices of energy. Weak answers used incorrect analysis, e.g., that a
high rate of inflation led to exports having a higher value leading to the value of exports being
higher than imports.

(c) Most candidates showed a good understanding of both income tax and inflation rate. Good
answers simply stated that higher income tax reduced disposable income, reducing consumer
spending and total demand which led to lower prices and lower inflation. A few stated lower
demand-pull inflation. The strongest answers also commented that if workers asked for pay rises to
offset lower disposable income. This would lead to firms putting up prices as their costs had risen
causing cost-push inflation. Quite a few candidates mistakenly only referred to changes in demand
for a good - a microeconomic term - whereas the question was about macroeconomics. A few
confused income taxes with taxes on goods and wrote about it leading to higher prices and
increasing the inflation rate.

(d) The term economic growth was understood by most candidates. Good answers were well balanced
with reasons for why the government should aim for it and why it should not. Answers tended to be
stronger on the reasons for economic growth. These included higher output, more employment,
better standard of living and more tax revenue to develop the economy and help reduce poverty.
Common answers for why it should not include depletion of resources, environmental issues such
as pollution and inflation. Weak answers tended to pick up one or two points without developing
them whereas strong answers covered more points with greater depth.

Question 3

(a) A wide range of answers were possible for this question and many candidates correctly identified
two influences. Common influences given were price, quality, and advertising of the goods; plus,
the income and tastes/habits of consumers. There were a few wrong answers which for some
reason did not relate to what a person may buy but why demand for a product may be high.

(b) Candidates showed a good understanding of what was a demerit good. Good answers explained
two ways of reducing consumption such as tax on the good making it more expensive and less
affordable to buy and a government advertising campaign to provide information on the harmful
effects of consuming the good. Weaker answers tended to identify a way without explaining the
impact, e.g., ‘government should place quotas on imports of demerit goods.’ In some cases this
simply meant that they stated that imposing a tax would lead to lower consumption which was in
the question. A few mistakenly referred to giving subsidies to merit goods in the belief that merit
goods were an alternative to demerit goods, which is usually not the case.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

(c) Most candidates were able to analyse at least one reason why a worker would want to join a trade
union. The most common reasons given were greater bargaining power for higher wages and
better working conditions. Strong answers were able to give depth to their answers citing other
reasons such as protecting rights, increasing job security and service provided by trade unions to
their members. Weak answers often only gave one reason and, in some cases, believed that the
trade union was the employer.

(d) Strongest answers were from candidates who were able to discuss both why tertiary workers would
normally receive higher pay than primary sector workers, but also why in some cases primary
workers may get paid more. Common reasons given were that of higher demand and lower supply
of tertiary workers due to skill levels and value added to the product or service they provided. For
primary workers, reasons why some might be paid more included dangerous occupations e.g., gold
mining or working with high value-added product, e.g., oil. A few noted that cleaners were usually
low-paid and worked in the tertiary sector. Weaker answers tended to be one-sided or simply
reversed the argument for tertiary workers when explaining why primary workers got paid less. A
few confused primary workers with the secondary sector. A few made the valid point that a primary
worker in a developed country might be paid more than a tertiary worker in a developing country.

Question 4

(a) The majority of candidates understood that privatisation was ‘the selling of firms in the public sector
to the private sector.’ A few mistakenly referred to a public company becoming a private company
which is not the same thing as both are in the private sector.

(b) Most candidates understood that absolute poverty meant a lack of necessities and/or low income.
A few gave an example of under $2 a day or referred to lack of housing, food, or clothing. Relative
poverty was less understood. Most knew that those with relative poverty had less income than
others but were unable to explain how this relativity was measured. A typical answer was ‘Relative
poverty is when a person can afford their basic needs but compared to another person cannot
afford all their wants.’

(c) The term specialisation was understood by most candidates although a few did not apply their
analysis to firms but to individual workers which resulted in weak answers. For most, the benefits
for firms were explained well. Quality and lower prices led to higher demand, higher sales /revenue
for firms and therefore higher profits. It led to good brand image and reputation. Strong answers
also often explained how such firms benefited from economies of scale. Weak answers often
lacked depth and, in some case, included disadvantages of specialisation which was not required
by the question being asked.

(d) Supply-side policies were not understood by many candidates. Instead, weak answers often
referred to other policy measures such as fiscal and monetary policies which affected the level of
unemployment. Answers often concentrated on how government could reduce unemployment, and,
in some cases, no supply side measures were mentioned. Strong answers were well balanced with
a discussion on how actions such as education and training for workers and subsidies and grants
for firms would encourage more employment of workers. The reasons why not were less well
discussed. The most common reasons given was that it took longer to implement than other
policies and that firms might not use any subsidies given to them to employ more workers but keep
it as profit or invest in capital equipment instead.

Question 5

(a) This question was well answered with most candidates identifying that the reward for labour was
wages and for land it was rent. Weak answers instead referred to other features such as profit or
having a job for labour and building premises or ‘plants and crops’ for land.

(b) Answers to this question were poor as many candidates were unable to relate earning higher
income to mobility of labour. Some thought it simply meant working faster or greater job
satisfaction. Others explained that higher income meant that they would simply move to jobs with
higher pay. Good answers explained that higher income meant that workers could afford to move
other areas for jobs increasing geographical mobility or use the income to get better qualifications
or skills which would improve their occupational mobility.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

(c) Most candidates were able to draw an accurate diagram showing how greater awareness of the
benefits of eating fruit would lead to an increase in demand and higher prices. There were some
errors such as wrong labelling of the demand and supply curves, the shifting of the supply curve
rather than the demand curve and mixing up the price and quantity labelling of the axis. A few also
did not show the change in equilibrium in the market for fruit but got everything else right!

(d) Some candidates did not understand that a market economic system did not include government
intervention, so they often discussed involvement of the government in applying taxes and
providing public goods. Better answers concentrated on the benefits of competition both for firms
and consumers based upon the profit motive for firms. Strong answers looked at the impact on
economic growth and ability to compete internationally. Strong answers also mentioned that the
profit motive led to the provision of demerit goods and lack of public and merit goods. This could
lead to market failure and the creation of monopolies if there was no government intervention.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/22
Structured Questions

Key messages

The performance on Section A was generally strong. Candidates made good use of the source material.
The exceptions to this were the answers to Question 1(c) and Question (f) where a proportion of
candidates did not make use of the fact file, in the case of Question 1(c), and did not refer to the evidence in
Table 1.1 in the case of Question 1(f). In terms of Question 1(f), it was important that candidates analysed
the data provided. They should have explained the expected relationship between the two sets of economic
variables, considered what evidence in the data supported this and whether there was an exception.

A relatively high proportion of candidates could have improved their performance on the (d) questions in
Section B by explaining the points they made and by examining the questions in more depth. For example,
in their answers to Question 5(d), some candidates wrote that an increase in output would benefit firms as it
would increase their profits. They did not, however, explain how higher output might affect both revenue and
costs.

A small proportion of candidates answered all four optional questions rather than the three required. As
mentioned in previous reports, this is not a good use of time.

This session, there was an increase in the number of candidates adding additional points at the end of their
papers. It is more straightforward for Examiners to consider these if they are identified as e.g.
Question 2(d), Question 4(c) and Question 5(d) rather than 1, 2 and 3.

It is important that candidates understand key economic concepts. As mentioned in previous PERTS,
candidates need to know the difference between productivity and production. A high proportion of candidates
this session showed a confusion between the two in their answers to Question 1(e),
Question 2(c), Question 4(c) and Question 5 (d). A relatively high number of candidates, in their answers
to Question 4(c), also did not seem to understand that the unemployed are included in the labour force.

General comments

There were some excellent answers produced. A relatively high proportion of the answers to the (c) question
parts in Section B were impressive. These provided relevant links and were logically structured. As indicated
in Key messages, the main area for improvement needs to be in the quality of answers to the (d) questions
in Section B. Candidates need to explore answers in detail, considering both sides and making use of
relevant economic concepts. Candidates should devote approximately twelve minutes each to answering
these questions.

There was little evidence of candidates running out of time. There was, however, evidence that some
candidates did not use their time appropriately. Some answered the (a) questions in Section B in more detail
than required and some repeated points in their answers to the (d) parts.

It appeared that candidates took care in reading the questions carefully this session. There was little
misinterpretation of the questions.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
Principal Examiner Report for Teachers

Comments on specific questions

Section A

Question 1

This was generally well answered with some particularly strong answers to Question 1(g) and
Question 1(h).

(a) The key issue here was that a number of candidates did not take care about the size of Bhutan’s
GDP. For example, some candidates multiplied $3,259 by 0.8 (rather than 0.8m) and arrived at a
figure of $2,600 rather than $2,600m ($2.6 bn).

(b) Most candidates did identify life expectancy and GDP per head. Some, however, referred to just
GDP and others quoted ‘life expectancy, freedom, social support, trust, generosity and GDP per
head’ without selecting the relevant time.

(c) A number of candidates wrote about a high level of government spending without considering the
relationship between government spending and taxation. Those candidates, however, who did look
at the fact file recognised that Bhutan’s government spending exceed its tax revenue and that there
was a budget deficit of $70m.

(d) Some candidates wasted time by describing, in some depth, the primary and tertiary sectors before
starting to answer the specific question. However, the question was generally well answered. Many
candidates identified higher pay as a possible reason and linked this to the possible high skills of
workers in the tertiary sector. A high proportion of candidates wrote about better working
conditions, often on the form of, for example, a cleaner and safer environment.

(e) A number of candidates confused productivity with production and concentrated on more machines
producing more goods and services. Those candidates who did link to productivity, did this by
explaining how new capital goods may incorporate advances in technology and how more skilled
workers could speed up the production process and result in higher output per resource unit.

(f) A number of candidates provided strong analysis. They started by explaining that higher GDP per
head would be expected to be associated with higher net immigration. They then provided
evidence from Table 1.1 to support the positive relationship. They recognised that
Kenya/Mozambique was an exception as Kenya had the second lowest GDP per head
(Mozambique had the lowest GDP per head) but the highest net emigration (Mozambique the
second highest net emigration). A number of the strong answers explained how a high GDP per
head would attract migrants who move in search of higher living standards.

Some candidates, however, were confused and wrote about some countries, GDP per head
exceeding their net immigration figure while others had a lower figure for GDP per head than the
figure it had for net immigration. A number of candidates, in their explanation, wrote about the
relationship between GDP rather than GDP per head and net migration. What was disappointing,
was the number of candidates who answered the question without any reference to the evidence
provided.

(g) Most candidates revealed a good understanding of the nature of enterprise. Many drew on the
source material in an intelligent way and examined a number of reasons both why enterprise may
have increased in New Zealand after 2019 and why it might not have done so. There were some
particularly good comments linked to changes in government spending, possible tax changes,
improvement in education and immigration. An example of a strong answer:

Yes, to an extent, it is likely that enterprise would have increased after 2019. This is because the
increased government spending on mental health, child poverty and pollution is an instrument of
expansionary fiscal policy. This means it would boost total demand, raise productivity and
encourage investment. Moreover, as New Zealand experiences inward net migration, it is highly
likely that some of these immigrants would set up new enterprises and increase the customer base.
However, perhaps due to an increase in corporation taxes to earn revenue and spend on welfare, it
may serve as a disincentive for starting enterprises in New Zealand. Furthermore, if the consumer
confidence is low and the public is uncertain about future finances, saving is likely to increase,

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reducing economic activity. Total demand and GDP could fall, stopping firms being set up and
expanding.

(h) This was well answered. Many candidates showed a good awareness of the likely impact on living
standards of higher consumer expenditure and higher government spending. An example of a good
answer is:

A cut in income tax rates would increase living standards. Lower income tax rate means more
disposable income, which increases consumer spending. Consumers can buy more of their wants,
increasing satisfaction and living standards. As consumer spending increases, demand for
products will rise, so will the demand for workers. This will increase employment, and hence
income. This will reduce poverty.

A cut in income tax rates, however, may not increase living standards. Lower income tax rate
means less tax revenue for the government. This will reduce government spending on other areas
such as health care, education and infrastructure. As the spending on healthcare decreases, the
quality will decrease as well. This may decrease life expectancy and hence lower living standards.
Lower spending on education decreases the literacy rate, so people may only be able to get low-
paid jobs, which also lowers living standards.

Some candidates, however, wrote about people’s income rather than their disposable income rising
and a number appeared to think that an increase in the ability to save would be a disadvantage.

Section B

Question 2

The strongest performance was on Question 2(c) with most candidates doing well.

(a) Candidates identified a variety of forms of money. A proportion of candidates identified ways of
transferring money, such as cheques, rather than the form of money itself.

(b) The most common functions explained were acting as banker to the government, issuing bank
notes and operating monetary policy. A number of candidates confused the functions of a central
bank with those of a commercial bank. These candidates wrote about providing loans to
households and firms.

(c) A high proportion of candidates analysed a number of connected reasons why a government might
want to have lower unemployment as its main aim. A good starting point was to mention that
unemployment might be at a high rate. Candidates made some good points about the impact on
economic growth, government spending and tax revenue and living standards. In analysing the
impact on economic growth, however, some candidates confused productivity and production.
These candidates wrote that lower unemployment would increase productivity. The impact on
productivity is uncertain and if more low-skilled workers are employed, production may rise but
productivity may fall. A number of candidates, having analysed why a government may have it as
its main aim, then analysed why it might not have it as an aim. This was not required.

(d) The strong answers to this question contrasted how demand-pull inflation and cost-push inflation
may affect producers. A number also distinguished between creeping inflation and hyperinflation,
the effects on planning. borrowing and international competitiveness and the different impact on
producers making products with elastic and inelastic demand. However, a number of candidates
just stated points. For example, some wrote that inflation would reduce demand for producers’
products without considering what might have caused the inflation.

An example of a Level 4 answer which provides good coverage of the possible effects of inflation
on producers with some depth:

Inflation is a sustained increase in price levels over time.

Inflation is very beneficial to producers as it increases their profits. As prices rise, if the demand is
inelastic, revenue will increase. They may be able to expand and grow as a result. It might increase
investment which will increase productivity and output. It will also reduce the real value of their
debts, allowing them to pay it off easily and get rid of the burden. This would allow them to expand

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as they would have more money available to spend as they would not have to use money to pay
back the debt.

The inflation rate may be lower than the inflation rate of other places, thus the firms would be able
to export their goods as there would be a high international market for them. This would increase
profits and would be beneficial for producers.

However, because of the inflation, labourers would demand higher wages, If the trade unions are
strong, they may succeed. This would increase the total cost of production and thus the price of the
good, causing cost-push inflation. This could cause a wage-price spiral with a reduction in output
and profits. The cost of raw materials may also be the cause of inflation and this would not be
beneficial. Producers may also face menu costs. Lastly, due to an increase in profits, they might be
pushed into a higher tax bracket, increasing the tax paid. This reduces the profits and is not good
for producers.

Question 3

The performance on this was question was evenly spread over the question parts.

(a) Most candidates were able to define a production possibility curve. Some just drew a diagram. A
diagram was not asked for and does not provide a definition.

(b) This was quite well answered. Many candidates wrote about the difference in the extent to which
the two products were necessities and the proportion of income that their purchase takes. A
smaller proportion wrote about the possible difference in the availability of substitutes and whether
the purchase could be postponed.

(c) Most candidates drew an accurate diagram and analysed the impact on quantity and price. A small
proportion of candidates mislabelled the axes. They labelled them as demand and supply or the
vertical axis as income. A number of candidates labelled the demand curves as supply curves and
the supply curve as a demand curve.

(d) The majority of candidates recognised the difference between the public and private sectors. Many
wrote about the difference in the objectives of the two sectors. Some candidates made good use of
economic theory in their answers. A number of candidates, however, seemed to think that because
the public sector would be unlikely to charge a high price, it must not be a monopoly. Some other
candidates assumed that the government would make a loss without mentioning the relationship
between revenue and cost.

An example of a Level 2 answer which is reasonable on both sides, but which lacks depth:

The public sector should be responsible for all internet services as the public sector is controlled by
the government, and the government would take into account the standard of living of individuals in
an economy. The public sector aims to improve welfare and would try to ensure that all individuals
have access to the internet by charging a low price. This can reduce poverty and may increase the
productive capacity of the economy as it could improve the quality of labour.

However, the public sector is not profit-motivated. It may be providing service that are not of good
quality. It may also be placing restrictions on certain websites that speak ill of the government in
order to prevent citizens from bad-mouthing the government. Private sector firms, on the other
hand, would have a profit incentive. They may provide better quality services to consumers to
receive greater sales and, in turn, a higher profit.

Question 4

This was the least popular question. Some candidates struggled with Questions 4(a) and 4(b) but there
were some strong answers to Questions 4(c) and 4(d).

(a) A number of candidates who answered this question seemed unaware of the meaning of dumping.
Some candidates were, however, able to give a clear definition of the term.

(b) There were some good answers to this question which linked, for example, lower demand for
exports with lower demand for the currency. A number of candidates, however, showed confusion

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 Cambridge International General Certificate of Secondary Education
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between a depreciation and an appreciation in a foreign exchange rate. Even more candidates
wrote about a fall in the internal value of the currency without providing a link with the external
value.

(c) What largely distinguished the quality of the answers to this question was the extent to which they
focused on the specific question. Some candidates wrote about the benefits of an MNC to a host
country without linking them to a reduction in poverty. For example, some candidates wrote about
the effect an MNC may have on the host country’s balance of payments without examining what
effect this might have on poverty. There were, nevertheless, some good analysis of the possible
effect of an MNC on employment, tax revenue and government spending to reduce poverty. As
with Question 2(c), some candidates approached this as a discuss question, examining both why
an MNC might reduce poverty in a host country and why it might not. Candidates were not required
to examine why an MNC might not reduce poverty.

(d) Most candidates mentioned that a very low birth rate might result in a fall in population size. A
number recognised that it would reduce the size of the labour force and increase the average age
of the labour force. Stronger answers explained the impact of a smaller population on total demand
and total output. Some candidates made unsupported statements. For example, some candidates
wrote that a smaller labour force would reduce the unemployment rate. Such a statement on its
own, does not take into account both the supply and demand for labour.

An example of a Level 4 answer which provides a well-thought-out examination of the question:

Birth rate is the number of births per 1,000 of a population in a given period of time. It could mean
that the labour force in a country could fall in the long run. This will mean the country may produce
less output in the future, which may reduce GDP of a country as well as income. With fewer young
workers, the labour force will be older. Older workers may be less mobile and less up to date with
advances in technology. If a fall in the birth rate coincides with no change in the death rate, there
may be a fall in the population size, and this could reduce total demand.

However, a low birth rate may be good for a government and country. If a low birth rate is
accompanied by a fall in the death rate, then there would be no major change in population size
and could be a sign of economic development. Older workers may be more skilled as they will be
more experienced. A low birth rate also lowers the dependency ratio in a country. This will reduce
pressure on resources and reduce poverty. Similarly, a fall in births will reduce the pressure on a
country’s resources, allowing more to be conserved and the amount of resources per person will
rise. A fall in the birth rate could not only signify development and medical advances but could be
offset by immigration into the country. If immigration is high, then a country’s population can keep
growing, while the country has gained skilled workers, increasing productivity and living standards.

In conclusion, a fall in the birth rate could only be a concern to a government if it is not
accompanied by other factors to offset it, or a symptom of a problem such as lack of confidence in
the future. The government should work towards an optimum population to ensure all resources
are used to their fullest. This will benefit a government and an economy.

Question 5

This was the most popular question with a wide range of responses.

(a) The strongest answers recognised that supply involves the willingness and ability to sell or provide
products.

(b) The two most common ways that candidates explored were giving subsidies to producers of merit
goods and providing information about the benefits of merit goods. Some candidates wrote about
ways to reduce the consumption of demerit goods and just stated these would result in the
consumption of merit goods. They did not establish why this might occur. These candidates
seemed to think that all products could be divided into demerit and merit goods and that if demand
for one type fell, the other would rise. An increase in the tax on cigarettes, for example, may reduce
demand for cigarettes but there is no guarantee that it would increase demand for merit goods.

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 Cambridge International General Certificate of Secondary Education
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(c) Some answers were limited to explaining that household income would be likely to fall and so they
would spend less. The stronger answers also explored the likely change in the pattern of
household spending. There was some good analysis linked to necessities, luxuries and the
influence on the motives for saving and borrowing.

(d) The strong answers to this question made good use of economic theory. As well as economies and
diseconomies of scale, candidates wrote about the advantages and disadvantages of gaining
greater market power, elasticity of demand and the difference between what is produced and what
is sold. In contrast, some answers just stated that a firm would benefit from an increase in its output
as revenue and profit would rise. Such answers did not take into account what would happen to
costs of production. A number of candidates who did discuss costs, wrote that higher output must
increase total costs and so reduce profits. These candidates did not compare the impact on both
total or average revenue and total or average cost.

An example of a Level 1 answer that stated points rather than explaining them is shown below. For
example, it states that if demand is high, a rise in output would increase profits. It does not,
however, explain the relationship between higher output, revenue and costs. There is also some
confusion about productivity.

It depends on the demand of the product that the company is producing. If it is high then the
company will profit, if it is low, then they will face losses. Generally higher output means higher
productivity, so having more products and selling it in batches is easier than making a product
constantly when it is demand. High output could lead to bankruptcy in some cases. This is because
you could have a large stock of products and not be able to sell them leading to giant losses.

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 Cambridge International General Certificate of Secondary Education
0455 Economics June 2022
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ECONOMICS

Paper 0455/23
Structured Questions

Key messages

There are two key messages to emerge from candidate responses in this examination: the requirement to
read and consider the wording of the questions very carefully and the need to give sufficient time and
consideration to the long part (d) (Section B) questions that are each worth eight marks.

In Question 1(f) the requirement is for candidates to analyse a relationship between two variables that have
been presented in a table in the source material: GDP per head and proportion of females in the labour
force. The instructions on the question paper clearly state that the source material should be used in
answers but many candidates made little use of the data provided, whilst some ignored it completely. This
led to answers that contained only general comments about labour as a factor of production rather than
comprehensive answers that referred to the data in the table throughout, in order to provide supporting
evidence and exceptions for the observed relationship in the data. In Question 1(g) the focus was
specialisation at a national level but some candidates wrote about specialisation in a firm, and in Question
2(c) a large number of candidates ignored the word ‘few’ in the question: ‘Analyse why so few MNCs may
choose to locate in a particular region’.

In order to provide a comprehensive answer to part (d) questions in Section B, it is important that
candidates produce a ‘reasoned discussion’ of both sides of the economic argument. Very short answers are
unlikely to achieve the depth of response required here, especially answers that are shorter than those for
part (b) questions (4 marks). Many candidates wrote discursive answers for the shorter questions, such as
Question 3(a), when two words e.g. purchasing and managerial, were all that was required to in order to
identify two of the economies of scale. It is a basic principle that answers to part (d) questions should be
longer and have more depth than answers to the other parts of the question.

General comments

Rubric errors were less frequent than in recent examinations but there is still a small minority of candidates
who answer all of the questions rather than choosing three questions from Part B, and there are others who
only answer three in total rather than all of Question 1 in Part A plus three from Part B.

Sometimes the candidate neglects to label the question correctly or does not label a question at all. This
difficulty may be compounded by poor handwriting too. Every attempt is made to link the question to the
answer written by the candidate by looking at the context of the answer, but evidence may not be apparent
from the candidate’s answer if there is incorrect labelling, or if the question is not labelled at all.

Comments on specific questions

Section A

Question 1

(a) This question proved straightforward for most candidates, with simple arithmetic (300 m divided
1000 m multiplied by 100) providing the answer of 30 per cent. Some candidates gave no response
to this question at all however, whilst others tried to do the sum ‘upside down’, producing an
incorrect answer of 3.3 per cent.

(b) Most candidates could find the two conditions of increased incomes and decrease in technology
prices from the source material.

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(c) Some candidates misread this question as ‘greater participation by women in eSports’ rather than
participation the labour force, as indicated in the wording of the question. This made a correct
answer difficult for these candidates. On the other hand, good answers were able to point to
increased wages and education as reasons why more women might participate in the labour force.

(d) There was good understanding of the difference between the public sector and the private sector
displayed in answers to this question. Not all candidates considered the investment featured in the
question however. The best answers commented that public sector investment aims to benefit
society whilst the chief aim of private sector investment is to make a profit.

(e) Good responses to this question were ones where a clear structure for an answer was provided by
the candidate. This involved identifying the ‘macroeconomic aims’ outlined in the question and then
analysing in turn how the development of eSports could achieve those aims. Having, for example,
identified economic growth and full employment as aims, it was then straightforward to refer to the
1 per cent of Malta’s GDP and the 3000 jobs created in Malta, as outlined in the source material.

(f) The key to a good answer for this question was to refer to the data provided using a structured
approach. The best responses started with a simple overview of the data, concluding that there is a
positive relationship (higher GDP per head/higher female participation rate) shown in the table of
countries. The next step was to look for supporting evidence, and this is clearly observed in the
highest country for both (Luxembourg) and the lowest country for both (Yemen). There is however
an exception in the positive trend, and the next step was to identify this exception. Bangladesh and
Saudi Arabia are 4th and 5th in the female participation table respectively but 5th and 4th in the table
for GDP per head. Answers that did not use the data to draw conclusions, but simply transcribed
figures from the table however, could not be rewarded here. For example, candidates who pointed
out that Yemen had only 6 per cent female participation rate and only $710 GDP per head, rather
than explaining that these are the lowest figures, did not analyse these figures at all.

(g) Most candidates could identify overdependence or over-specialisation as a reason why a country
could find specialisation harmful. Better responses then used examples to illustrate this, with
dependence upon food imports, potentially leading to starvation, being the most popular approach.
Other candidates then explored the problem of resource exhaustion to complete that side of the
discussion. Good answers to the other side of the answer explained that efficiency could improve if
countries focused on what they do best economically. There were however candidates who
concentrated incorrectly on specialisation of workers (division of labour) but that was not the focus
of the question. Therefore, points about workers being bored on a production line were not really
appropriate for this question.

(h) The following is response is from a candidate who scored maximum marks for this question.
Despite its relative brevity, it is a comprehensive answer:

‘Education and training would be very beneficial to the Maltese economy because it will give
workers more skills and they will become more productive. This allows workers to produce at a
good quality and with low costs of production, which would decrease prices and increase
consumption.

However, it might not benefit the economy because it would significantly increase government
spending. Without an increase in tax revenue, this would significantly create a budget deficit. The
country would be in a deficit for too much time waiting for education to have its effect. To support
the government’s spending they might raise taxes. This would decrease living standards and
discourage investment and MNCs. Finally, it creates an opportunity cost because that money could
be spent on healthcare and infrastructure.

This candidate has produced a relatively short answer, but it contains analysis that covers both
sides of the question in sufficient depth.

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Section B

Question 2

(a) Answers to this question generally showed understanding of the nature of free trade but some
candidates merely defined free trade as’ ‘trade without restrictions’ and did not specify exports and
imports, or an exchange of goods and services, and so could not achieve full marks.

(b) Those candidates who looked carefully at the wording of the question (causes of better healthcare)
tended to do well on this question, with analysis of high incomes and better training for doctors
proving most successful here. On the other hand, those candidates who misread the question as
consequences rather than causes of better healthcare, tended to analyse the issue in terms of
higher productivity and this approach could not be rewarded.

(c) As noted above, a large number of candidates read this question as ‘why MNCs may choose to
locate’ rather than ‘why few MNCs may choose to locate’ and so it was answered from the opposite
point of view. Answers that had misinterpreted the question in this way were accepted but it was
difficult for them to analyse the question in the way that had been intended.

Good candidates tended to identify three reasons for not locating in a particular location, e.g. high
taxation, lack of resources, lack of demand, and then develop these points by explaining how they
affected firms’ decisions.

(d) The following answer is an excellent Level 3 response that comprehensively discusses both sides
of the economic argument, in this case whether or not inflation is always a disadvantage to an
economy:

Inflation is not always a disadvantage to an economy. This is because countries want inflation to
happen at a low and stable rate (L1) of no more than 2 per cent. Inflation is the general rise of price
level in an economy. With low inflation it leads to economic growth and economic activity, so GDP
of a country rises. This is because demand –pull inflation could occur which means that there is
high consumer demand. This means that consumer spending will increase (L2) and firms would
experience higher sales and increased profit which they could then re-invest and expand creating
more jobs for people and lower income employment. Low inflation is also good because it means
that government can get more tax revenue. This is because prices rise so tax revenue will also rise
as consumers and firms have to pay more money for taxes. This is good because it can increase
government expenditure which they can provide welfare benefits to help the dependent population
and the unemployed who inflation will affect the most.

However, inflation is a disadvantage to an economy as if it becomes too high it will hurt the
economy and consumers and firms. This is because hyperinflation means the price of goods
dramatically increase. This means that your currency depreciates in value and it is worth less and
has less buying power. Therefore creditors, people that are owed money after lending it, will lose
money (L3) as debtors have to work less to pay back the same amount if inflation was not
accounted for. Since your money has less buying power it means that importing goods into your
country are more expensive. This is cost-push inflation. This means that firms’ costs increase so
prices rise. Therefore there will be people who can not afford goods and will have a decreased
standard of living. (L3) overall.

Question 3

(a) As noted in the key messages, most candidates could identify two economies of scale e.g.
purchasing and financial, and this was all that was required for this question. Many candidates
however were determined to develop this answer, some of them much further, by writing a short
essay on these economies of scale that they had prepared before the examination. This however
merely wasted time that could have been spent developing answers to the longer questions that
come later, especially the discussion question in part d.

(b) Most candidates who attempted this question could score well on it. It was a straightforward
process to identify two methods of protection, such as tariffs and quotas, and then explain how they
worked. The main weakness in some answers was to identify the methods and stop, without going
on to explain the methods identified.

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 Cambridge International General Certificate of Secondary Education
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(c) The key to a good answer in diagram questions is clarity. Those candidates who label the diagram
accurately tend to score highly but those who are careless with labelling, or who leave areas of the
diagram unlabelled, will not do so. Common errors here included putting price and quantity on the
wrong axes and not indicating the shift of the demand curve clearly. In addition there were those
who labelled the axes capital goods and consumer goods, confusing PPC diagrams with supply
and demand diagrams, whilst others put supply on one axis and demand on the other. It is also
important to include written comments in answers, in this case indicating that more jewellery would
be bought because of higher quality and that price will be higher. Simply describing the diagram
however (e.g. price goes from P1 to P2), is not sufficient.

(d) The following answer is an L1 response that has simple attempts at using economic concepts, but
there is little depth and it does not produce a sufficiently reasoned discussion in order to develop
and evaluate the arguments about whether or not protection benefits an economy:

Protection in international trade benefits and economy as people will have less incentive to buy
products from other countries and would buy locally sourced goods (L1) meaning higher economic
growth within a country for a time.

Protection in international trade would not benefit an economy as trade allows countries to export
goods from their own country and protectionism can deter other countries from exporting needed
goods (L1) to your country as well as stopping goods from that country importing to theirs. (L1)
overall.

Question 4

(a) Most candidates could provide a satisfactory definition of GDP per head. The answer required
more than Gross Domestic Product divided by population however, because it is taken as read that
candidates will know the meaning of the abbreviation GDP. Therefore, it was necessary to explain
that GDP is total output/income/expenditure to answer the question in full.

(b) Very few candidates understood the reasoning behind this question. The basis of a good answer
was to identify the composition of the current account of the balance of payments: trade in goods,
trade in services, primary income and secondary income. Understanding the contribution of the last
two components enabled a candidate to see that a surplus could still be achieved, even if exports
of goods and services were less than imports. Thus, primary income (e.g. profits from foreign
investments) and secondary income (e.g. income from development aid) could offset the deficit of
trade in goods and services. Explanations that focused on high export prices/low import prices
were however able to gain some credit in this question, although not sufficient to obtain maximum
marks.

(c) Good answers to this question began with a clear definition of market failure in terms of inefficient
resource allocation and then considered examples such as merit goods, demerit goods and
monopolies to illustrate the concept. Weaker candidates however, often confused market failure
with business failure, and answers such as this: ‘if the government does not give subsidies, there
will be market failure because there will be less income for companies’ completely misunderstood
the terms of the question.

(d) The following answer is an L2 response but it is imbalanced, with a reasonable analysis of the
advantages of a large primary sector but only a limited discussion of the disadvantages.

Having a large primary sector can be a disadvantage to an economy because the primary sector
consists of the use of raw materials and extraction (L1). It can be a disadvantage because the
primary sector does not always provide final consumer goods which means that firms can not
charge as high a price and revenue will be low (L2). Although it can be argued that having a large
primary sector is an advantage. This is because the primary sector is very important for all other
sectors of the economy and the secondary sector is heavily reliant on it; having a large secondary
sector would allow the other sectors to expand and new industry within the economy meaning
economic growth. The primary sector does not require very skilled workers so it can become
productive faster and provide jobs for a lot of the population without good education. Similarly,
many countries that lack natural resources may rely on importing resources like Nauru’s phosphate
and would pay lots for it. This could improve places like Nauru’s balance of trade and allow for a
steady surplus.

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 Cambridge International General Certificate of Secondary Education
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Overall, although the primary sector has lots of advantages, having it as a large part of the
economy is a disadvantage because the labour force will be less skilled and therefore less
experienced and occupationally mobile as well as taking longer to train in different growing
industries – which affects profits, GDP and economic development of an economy negatively as
lots of other economies develop into tertiary and quaternary sectors. (L2) overall.

Question 5

(a) In answers to this question, there was a clear divide here between candidates who had a clear
understanding of monetary policy, in term of supply of money, interest rates and the exchange rate,
and those who had very little understanding of the concept, or who offered no response at all.

(b) Candidates who began their answers to this question by giving a clear definition of opportunity cost
were usually successful in developing a comprehensive answer. The best approach was then to
give an example of the way in which governments might use the concept of opportunity cost in their
decision-making, the most popular being choosing between a new school and a new hospital.
Candidates who used examples from their own experiences however, such as choosing between a
cup of coffee and a cup of tea, were ignoring the context of the question (governments), and these
types of examples could not gain reward.

(c) This question produced some very good answers, with candidates producing a comprehensive
analysis of reasons why trade union membership had decreased in some countries. The most
popular approaches were to discuss improved pay and working conditions, along with government
restrictions imposed on trade unions in some countries. The main weakness in the answers of
candidates was lack of depth and it was not unusual to see only one reason analysed when several
were required for a comprehensive answer.

(d) The following answer is a good Level 3 response to this question:

Supply side policies promote economic growth. For instance, greater education and training (L1)
will increase the productivity of workers, so they can produce more and produce higher quality
output (L2). This will decrease unit costs of production for firms, who can export a part of the output
at low prices and increase export earnings.

Furthermore, higher availability of quality healthcare will also increase productivity (as workers are
healthier), and increase the amount of goods and services produced per head of the population in
a given year. In addition, more capital will imply that scale of production will increase leading to
economic growth.

Nevertheless, supply side policies can take a long time to be implemented (L3), and are also costly
to apply. For instance, a reduction in direct taxation (to encourage work) may lead to budget deficit
and national debt. Government may borrow and take money away from firms, which may decrease
the productive capacity of an economy and prevent economic growth, as there is less financial
capital to produce more goods and services. (L3) overall.

There is clear discussion of both sides of the argument. It is not a long answer, and the economic
analysis is not always accurate, but economic concepts are used throughout in order to explain
how supply-side policies can lead to growth and alternatively how they might not be effective. The
candidate identifies education and training as a supply-side policy and then explains how this leads
to more output, following this with more analysis of potential policies. The possible ineffectiveness
of supply-side policies is then examined, first by outlining how they can take a long time, and then
by explaining other factors that might prevent economic growth. The key feature of this answer is
that it maintains its focus on the aim of the question, economic growth, throughout.

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