The main aim of this booklet is to exemplify standards for those teaching Cambridge IGCSE Economics (0455) and to show how different levels of candidates’ performance relate to the subject’s curriculum and assessment objectives.
In this booklet a range of candidate responses has been chosen from Paper 2 to exemplify grades A, C and E. Each response is accompanied by a brief commentary explaining the strengths and weaknesses of the answers.
For ease of reference the following format has been adopted:
Each question is followed by an extract of the mark scheme used by examiners. This, in turn, is followed by examples of marked candidate responses, each with an examiner comment on performance. Comments are given to indicate where and why marks were awarded, and how additional marks could have been obtained. In this way, it is possible to understand what candidates have done to gain their marks and what they still have to do to improve their grades.
This booklet does not cover Paper 1 candidate responses as it is a multiple-choice question paper. The mark scheme provides sufficient detail and the candidate answers do not require examiner commentary to expand on why the marks were given.
Assessment at a glance
The assessment has two components, Paper 1: Multiple choice and Paper 2: Structured questions. Candidates must take both papers. Candidates receive grades from A* to G.
Paper 2 – Structured questions
Question 1
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- The answer might have provided more evidence but it does note that most of Angola’s output is oil. (1/2)
- A brief but pertinent answer which recognises the significance of there being only one taxi firm in Luanda. (2/2)
- An accurate and well-labelled diagram is produced here. As the question asks candidates to ‘draw a demand and supply diagram to show what is likely to have happened to the price of diamonds in 2012’ it was not necessary to provide written comments. (4/4)
- A perceptive answer which recognises how average income is calculated and explains the impact that a high population growth rate may have on the dependency ratio. (3/3)
- There is a good approach here to the question. The candidate’s answer provides an accurate interpretation of the table to draw the conclusion that most of the evidence does support the view. It backs this up with relevant data and mentions an exception. (4/4)
- This is again a strong answer. There are clear analytical links established between higher GDP, total demand, unemployment, tax revenue and poverty. The discussion then goes on to consider why an increase in GDP may not reduce poverty. This recognises that not everyone may benefit and that the poor may not be able to gain employment. (5/5)
- Two relevant reasons are identified. The explanation is stronger on the lack of education but is just sufficient on health care. (4/4)
- This is good on why a cut in taxes may reduce unemployment, recognising the possible effect on the ability and incentive for firms to take on more workers to increase output. It starts examining the alternative possibility well by mentioning that firms may employ more machinery than workers. It comes close to making a relevant point about how people may not spend more but this could have been clearer. For example, it might have been linked to cuts in income tax rates or to what products the cuts in indirect taxes are affecting. (5/6)
Total mark awarded = 28 out of 30
Example candidate response – grade C
Examiner comment – grade C
- The answer appears to be uncertain of the meaning and significance of specialisation. There is a confusing statement at the end that ‘only because of specialisation output can be increased’. This apparent lack of understanding of the term resulted in the candidate not being able to address the question directly. (0/2)
- The answer does not pick up on the reference to a specific year and so does not concentrate on the particular reason why taxi fares were high in that year. Closer attention to the wording of the question was required. (0/2)
- The diagram shows the demand curve shifting to the right. The axes and the demand and supply curves are accurately labelled. By shifting the supply curve to the left it does, however, not get the new equilibrium correct. (3/4)
- There is some awareness here of the nature of average income. Points, such as the level of education people will have, are asserted rather than explained. (1/3)
- The answer concludes that the data supports the view but does not provide any evidence to back up this finding. Indeed, most of the answer is not making use of the information in Table 1. (1/4)
- This answer contains some good economics and analytical links provided between an increase in a country’s GDP and a fall in poverty via a rise in employment. It is, however, a one-sided answer. There is no attempt to examine why poverty may fall and so a discussion is not established. (3/5)
- A good answer. The impact of a lack of education on skills and efficiency is brought out and the effect of a lack of capital equipment on workers’ ability to increase output is explained. (4/4)
- The reference to ‘since they save more’ might be clearer. The implication is that people will have
more money to spend. The answer is, nevertheless, reasonable on why a cut in taxes may reduce unemployment. Again, however, the candidate does not pay careful attention to the command word at the start of the question and, as a result, a one-sided answer is provided. (3/6)
Total mark awarded = 15 out of 30
Example candidate response – grade E
Examiner comment – grade E
- The candidate is lifting information from the extract but it is neither interpreted nor related to the question. (0/2)
- Some of this answer would have been more relevant to question 1(a). Again, the answer does not directly answer the question. (0/2)
- The axes and the demand and supply curves are labelled accurately. Unfortunately, the supply curve rather than the demand curve is shifted to the right. (2/4)
- There is some awareness shown of the causes of a high population growth rate but there could have been more direct links established between a change in population and a change in average income. (1/3)
- The candidate, unfortunately, does not answer the specific question set. There is no reference to the information in Table 1. (0/4)
- This is a relevant answer but it is one-sided. The candidate recognises that living standards may rise due to higher income and that unemployment may fall. These points might have been developed further and the reasons why a higher GDP may not reduce poverty is not covered. (2/5)
- This is a good answer. Two relevant reasons are identified and the reason why a lack of education leads to low productivity is explained. (3/4)
- The answer starts quite well by recognising that lower taxes may reduce prices. The link to lower unemployment is not established and the answer does not cover any other points. (1/6)
Total mark awarded = 9 out of 30
Question 2
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- A relevant description of the economic problem is provided. (2/2)
- This is a good answer with strong written comments which explained well how a production possibility curve (PPC) shows how choices have to be made as how to allocate resources. Its only shortcoming is that the PPC is not drawn to the axes. (5/6)
- A clear, well written answer which makes a good contrast between how resources are allocated in market and mixed economic systems. (4/4)
- A well-structured answer which makes good use of relevant economic theory and concepts including opportunity cost and productivity in considering both the advantages and disadvantages of an increase in the provision of health care. (8/8)
Total mark awarded = 19 out of 20
Example candidate response – grade C
Examiner comment – grade C
- The answer recognises that the problem is that wants are unlimited whilst resources are limited. (2/2)
- The diagram is not strong. It could have been taken to be a straight line production possibility curve if
it had been drawn to the axes. The labelling of A and B is rewarded as two products as the text makes clear that these two letters refer to two distinct products. The written comments bring out the meaning of opportunity cost. The answer also touches on changing resource allocation although it might be more explicit on how fewer resources would be available to produce Good B. (3/6) - The comments here are relevant but more depth to the answer would have been useful. For example, in connection with a market economy, the role of the price mechanism might have been brought out and, in connection with a mixed economy, how resources are allocated by the two sectors might have been explained. (2/4)
- This answer recognises how an increase in the provision of health care may improve the health of people but at a cost. It is, however, a rather generalised answer which does not include enough relevant economic concepts for a higher mark. The last points mentioned in connection with a developing economy are not adequately explained. Generally the answer requires more width and depth. (3/8)
Total mark awarded = 10 out of 20
Example candidate response – grade E
Examiner comment – grade E
- A brief but relevant description. (2/2)
- The diagram has the possible shape of a production possibility curve. The labelling is, however, that of a demand and supply diagram and no trade off is shown. The written comments are too vague. (1/6)
- The points might be clearer and more developed but the answer does recognise the difference in terms of the role of the government in the two types of economic systems. (2/4)
- Unfortunately, the answer lacks economic content. It is a very generalised discussion which does not even link to the possible effects on living standards and life expectancy. (0/8)
Total mark awarded = 5 out of 20
Question 3
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- A succinct and clear definition bringing out both the willingness and ability to purchase a product. (2/2)
- The answer starts by explaining how a reduction in income tax can increase the ability of consumers to buy bicycles. The effect of the relative price of different forms of transport is well explained. A relevant reason is given for a change in tastes and preferences and it is explored. (6/6)
- The answer starts with an accurate definition of price elasticity of demand and then goes on to analyse three relevant reasons for differences in elasticity in different countries. In each case, the candidate correctly analyses how the influencing factors affect the degree of price elasticity of demand. (6/6)
- The effect of the impact of imposing taxes is explained in terms of price and quantity. This is followed by a confused discussion in relation to demerit goods and firms’ revenues and profits. At the end the answer becomes relevant again by examining the effect on government revenue. (4/6)
Total mark awarded = 18 out of 20
Example candidate response – grade C
Examiner comment – grade C
- An accurate definition is provided. (2/2)
- The answer starts well by explaining how an increase in income may increase demand for bicycles. It then, unfortunately, mentions a price reduction. This would cause an extension in demand rather than an increase in demand. The last reason given is essentially a repetition of an increase in purchasing power. (2/6)
- This answer writes around the question. There is uncertainty shown about what is required and, as a result, some vague statements are made. There is a hint of awareness that cars may be regarded as more essential in some countries. Towards the end, the candidate is seeking to answer a different question i.e. how should a business use knowledge about price elasticity of demand. (1/6)
- The answer makes some relevant points on both sides. It recognises that indirect taxes raise government revenue and may discourage consumption of e.g. alcohol. It also explains the extent of the effect on people and firms and the regressive nature of indirect taxes. Some points might be clearer, in particular, the comment on who pays indirect taxes. (5/6)
Total mark awarded = 10 out of 20
Example candidate response – grade E
Examiner comment – grade E
- This is a partial definition as the answer does not pick up on the ability to buy a product. (1/2)
- This answer would have benefited from focusing more on why demand for bicycles might increase rather than on why bicycles are demanded. More economics needed to be applied. (2/6)
- The influence of income on price elasticity of demand is identified but not explained. What the answer does is to explain how income influences demand rather than price elasticity of demand. (1/6)
- This is a limited answer. It recognises that demand will fall but does not mention that demand will fall by a smaller percentage than the rise in price. Indeed, this answer almost implies that demand will fall by a greater percentage. At the end there is some recognition that particular firms may be adversely affected. (1/6)
Total mark awarded = 5 out of 20
Question 4
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- The answer recognises two functions and describes the function of lender of last resort in enough detail. (3/4)
- Two internal economies of scale are identified. There is a brief link to how managerial economies of scale may benefit a bank. There is not, however, a sufficient link between technical/technological economies of scale and a growing bank. (3/4)
- A relatively brief answer but one which does bring out the differences in the spending patterns of the two groups in terms of the amount spent, the proportion spent and what the two groups buy. (4/4)
- This is a well-structured and pertinent answer. It recognises that bank workers are likely to be more skilled, better trained, may have stronger bargaining power and may be in more limited supply. The answer then does not just reverse these points. It recognises that in some countries, demand for financial services may be relatively low, some agricultural workers may be very experienced and the country may have more ‘expertise’ in agricultural production. (7/8)
Total mark awarded = 17 out of 20
Example candidate response – grade C
Examiner comment – grade C
- The answer identifies three functions of a central bank rather than the two functions required. The time could have been more usefully spent explaining two functions. (2/4)
- Again the answer identifies but does not explain. Buying economies and financial economies of scale are mentioned but the answer does not explain how these could reduce a bank’s average costs of production. The candidate did seem rather confused about the nature of financial economies. (2/4)
- The answer starts well by mentioning that high paid workers will spend more than low paid workers. Later in the answer there is some awareness shown that low paid workers spend more on necessities. The central part of the answer could be clearer as it seems to imply that the poor will spend a smaller proportion of their income which conflicts with the diagram drawn. (2/4)
- The answer recognises the influence of skills and qualifications. Mentioning that banking workers are more skilled and qualified than agricultural workers is, however, the same as stating that agricultural workers are less skilled and qualified than banking workers. There is some confusion between the demand and supply of bank workers although the answer is clear on the influence of a high supply in connection with agricultural workers. Overall the answer is somewhat narrowly focused. (3/8)
Total mark awarded = 9 out of 20
Example candidate response – grade E
Examiner comment – grade E
- The issuing of new notes is identified and influencing the exchange rate is suggested. Unfortunately, neither of these functions are explained. (2/4)
- One type of economies of scale is identified i.e. technical. It is not explained how this would reduce the average costs of a growing bank. (1/4)
- The answer is too vague. There is also a tendency to exaggerate – for example, the idea that low paid workers ‘try to save all their money’. The tendency to exaggerate is seen in a number of answers at this level. (0/4)
- The points mentioned about skills and education are relevant. These could have been developed by examining the effects of differences in education and skills on the demand for and supply of labour in banking and agriculture. Overall the answer is limited in its coverage. (2/8)
Total mark awarded = 5 out of 20
Question 5
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- The answer recognises the key point that a multinational company produces in more than one country. (2/2)
- A brief answer which explains profit satisficing (‘satisfaction’) linked to the need to keep shareholders happy. (2/3)
- The answer recognises that pollution is an external cost. It then seeks to link pollution to the failure to achieve efficiency. There could be rather greater clarity and more development. The reference to ‘the market failing to be productive enough not to let this happen’ is too vague. There could have been an analysis of the market price and output relative to the socially efficient levels. (3/5)
- This initially appears to be in note form and is somewhat disjointed at the start. The points are, however, developed as the answer progresses. There is width in terms of both the government and a multinational company operating the mine with some depth. (9/10)
Total mark awarded = 16 out of 20
Example candidate response – grade C
Examiner comment – grade C
- The answer shows some awareness of a multinational company by mentioning that it ‘operates and has branches outside of the origin of the country’. To gain full marks, however, it needed to be more explicit in terms of the company producing in more than one country. (1/2)
- The goal of growth is implied by reference to expansion. Although this goal is identified it is not explained. The reason why a multinational company may aim for growth is not brought out. The reference to creating employment links more to a benefit to an economy. (1/3)
- The answer shows an awareness of the meaning of market failure in connection with social costs exceeding social benefits and firms not taking into account all the costs they impose. Towards the end of the answer there is some confusion between social costs and external costs – a confusion often shown. (2/5)
- This is a clear, two-sided answer which makes a number of relevant points. The answer could, however, have included more points and more depth. For example, the impact of a multinational company closing down the mine could have been explored as could the impact of a multinational company sending profits back to the home country. (5/10)
Total mark awarded = 9 out of 20
Example candidate response – grade E
Examiner comment – grade E
- The answer reveals some awareness of what a multinational company is but the reference to ‘involved in many countries’ is rather vague. (1/2)
- The answer is moving towards the idea of increased market share but does not quite get there. The comment about ‘being better than the local competitors’, was too vague. (0/3)
- This answer is based on general knowledge rather than economics. It identifies how pollution may harm an economy but does not mention that these are external costs. (0/5)
- There is a reasonable start to the answer focusing on the goals of a government and a multinational company and how the effects on the environment may differ due to ownership. In the second part of the answer, however, the candidate does not establish why a multinational company is more likely to create employment and invest than a government. (4/10)
Total mark awarded = 5 out of 20
Question 6
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- This is a clear and interesting answer. In terms of answering the specific question it is, however, somewhat narrow. It recognises that monetary policy is concerned with decisions on the rate of interest but does not bring out the other monetary policy measures. (1/2)
- The answer starts by identifying a relevant reason ‘to control unemployment’. It then goes on to provide a lucid explanation of how high inflation could cause unemployment. The second reason given is to achieve a balance on the current account of the balance of payments. This, again, is well explained, linking high inflation to a loss of international competitiveness and a reduction in exports. (4/4)
- The answer starts by recognising that an increase in government spending would increase total demand. This might have been developed further at this point. The answer, nevertheless, goes on to explore in sufficient detail how government spending could go on training and subsidies to firms. There are good links provided to productivity and costs of production. Overall this is a thoughtful and intelligent answer. (6/6)
- The answer starts well, indicating that it is going to be a discussion. It mentions that living standards are likely to rise and, unlike some answers, provides a good analysis of why. The effects on economic growth and tax revenue are also covered. The answer then examines the reasons why a reduction in a country’s unemployment rate will not always benefit an economy in just sufficient detail for full marks. (8/8)
Total mark awarded = 19 out of 20
Example candidate response – grade C
Examiner comment – grade C
- The answer identifies one aspect of monetary policy, that is ‘controlling and setting interest rates’. (1/2)
- The second reason identified is well explained. The first reason is, however, not established. It is not explained why low and stable inflation would get people to spend more and nor is it explained in comparison to what circumstance they would spend more. (2/4)
- This answer identifies what the government could increase its spending on to promote growth. It does provide one link to economic growth in the form of higher spending but there needed to be more analytical links to economic growth. (3/6)
- There are some good points on how a reduction in unemployment may benefit an economy. Higher income is linked to improved living standards and higher tax revenue is linked to increased government spending. The point about higher quality products, however, needs more explanation. The answer is also, one-sided, with the reasons why a reduction in unemployment may not always be beneficial not considered. (4/8)
Total mark awarded = 10 out of 20
Example candidate response – grade E
Examiner comment – grade E
- The candidate recognises that monetary policy involves the use of the rate of interest. (1/2)
- This answer starts by including a confusion that was seen in a number of scripts. This is that inflation increases rather than reduces the real value of money. The last two sentences are, unfortunately, too vague. The ‘certain group’ is not identified and how inflation might affect ‘the average income of a country’ is not explained. (0/4)
- This is a reasonable answer but more links to economic growth needed to be established. For example, how increased employment could increase output might have been analysed. (3/6)
- This answer recognises that lower unemployment will increase incomes. This point is, however, not developed. The comments towards the end are too vague and the link between higher employment and poor communication is not established. (1/8)
Total mark awarded = 5 out of 20
Question 7
Mark scheme
Example candidate response – grade A
Examiner comment – grade A
- The answer recognises the nature of a tariff and its effects on price and demand. It would have been strengthened by describing the effect on costs and/or supply. (3/4)
- This is a strong answer. It starts by bringing out the meaning of a current account deficit. Although the candidate is effectively focusing on the causes of an increase in a current account deficit, the answer does clearly bring out the reasons why a country may have a deficit on the current account of the balance of payments. There is clear analysis of the effects of a rise in the exchange rate on exports and imports. It then provides an interesting analysis of the effect of a fall in the rate of interest and a lack of innovations. (6/6)
- The answer tackles the question directly. The first paragraph provides good analytical links to the possible impacts on unemployment and output. There is reference to imported inflation although the point could have been established rather more. The answer then discusses why a government should not be concerned. There is a relevant discussion of how the deficit might be self-correcting with a recognition that this would not be the case if the country is operating a fixed exchange rate. (9/10)
Total mark awarded = 18 out of 20
Example candidate response – grade C
Examiner comment – grade C
- The answer recognises that a tariff may make imports more expensive and implies that demand for them may fall. A number of stages in the process are, however, omitted including the impact on supply. (2/4)
- The answer starts by stating that imports are increasing and exports are falling. These movements would not necessarily mean that the country is experiencing a current account deficit. The answer then mentions that exports may be declining because the products are cheaper in other countries. This point might have been explored in more depth and two other causes needed to be identified and explained. (1/6)
- There is a slip when it is mentioned that ‘employment in the country may start to rise’. This can be taken as unemployment. There are a number of reasons mentioned as to why a government should be concerned about a growing current account deficit. These, again, might have been analysed in more depth. For instance, it might have been explained why the exchange rate may fall and the impact of a rise in unemployment. The answer is also one-sided. There is no discussion as to why a government should not be concerned about a growing current account deficit. Considering only one side in a discussion question limits the maximum marks available. (5/10)
Total mark awarded = 8 out of 20
Example candidate response – grade E
Examiner comment – grade E
- The answer implies a tariff will increase price and states that it will reduce demand. It might have brought out why price may increase in terms of the effects that a tariff would have on costs of production and supply. (2/4)
- The answer starts by giving some idea of the meaning of a current account deficit. It then suggests that a deficit might arise if tariffs are not imposed. This point might have been more clearly expressed and it needed development. Other causes are not covered. (2/4)
- The point about inflation is not established at the start. Imported inflation may occur but a growing deficit could also lower inflation by lowering aggregate demand and reducing the money supply. The answer then recognises that the growing deficit may reduce the exchange rate and explains why a government should be concerned about this. No other reasons for concern are covered. The answer is one-sided as it does not consider in what circumstances a government should not be concerned. (2/10)
Total mark awarded = 6 out of 20
