Cambridge IGCSE™

ECONOMICS 0455/23
Paper 2 Structured Questions October/November 2022

2 hours 15 minutes

You must answer on the enclosed answer booklet.

* 0 1 2 8 4 0 7 4 9 3 *

You will need: Answer booklet (enclosed)

INSTRUCTIONS
● Answer four questions in total:
Section A: answer Question 1.
Section B: answer three questions.
● Follow the instructions on the front cover of the answer booklet. If you need additional answer paper,
ask the invigilator for a continuation booklet.
● You may use a calculator.

INFORMATION
● The total mark for this paper is 90.
● The number of marks for each question or part question is shown in brackets [ ].

This document has 8 pages. Any blank pages are indicated.

DC (NF) 216803/1
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Section A

Read the source material carefully before answering Question 1.

Source material: Changes in Ecuador’s economy

Ecuador Fact file 2019 2014–2016

Population 18m Change in price in –50%
Ecuador’s oil
Number of Ecuadoreans 3m Change in supply of –8%
living and working abroad Ecuador’s oil

Oil makes up one third of Ecuador’s exports. Ecuador has, however, decided to produce less oil and
more of other goods and services. This decision has affected how products are made in Ecuador. For
example luxury textile production, such as luxury scarves and jumpers, uses fewer capital goods than
oil production. Tourism relies on natural resources including sunshine and beaches.

One reason Ecuador’s government has encouraged less reliance on oil, is the large changes that often
occur in the oil market. Between 2014 and 2016, demand for Ecuador’s exports fell which caused
a significant reduction in export revenue. This reduction, combined with a decrease in government
spending, caused the country’s output to decline.

Between 2016 and 2019, there was some improvement in Ecuador’s economy. Incomes and household
spending increased and more cars were purchased. Table 1.1 shows the GDP per head ($) and car
ownership (per 1000 people) in selected countries in 2019.

Table 1.1 GDP per head ($) and car ownership (per 1000 people) in selected countries 2019

Country GDP per head Car ownership

($) (per 1000 people)
Ecuador 6 200 160
New Zealand 44 000 865
Senegal 1 600 50
Spain 32 000 650
Switzerland 83 000 720
Uruguay 18 000 300

Ecuador’s government borrowed from China to spend on building more roads. The construction of
these roads increased employment and was expected to influence transport costs in the long run.

Between 2016 and 2019, Ecuador’s textile industry benefited from the improvement in the road
network. Despite strong competition from foreign textile firms, Ecuador’s textile firms increased the
scale of their production. Wages paid in the textile industry did not rise significantly. A very small wage
increase can affect trade union activity and emigration.

Some of Ecuador’s workers emigrate to find jobs in other countries, particularly Italy, Spain and the
US. These workers have a range of skills and they work in a variety of jobs abroad, some of which
provide training. Many, but not all, workers send money home to their families.

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Answer all parts of Question 1. Refer to the source material in your answers.

1 (a) Calculate the price elasticity of supply of Ecuador’s oil. [1]

(b) Identify two key resource allocation questions. [2]

(c) State why sunshine has no opportunity cost. [2]

(d) Explain two reasons why Ecuador experienced a recession between 2014 and 2016. [4]

(e) Analyse how building more roads can increase a country’s economic growth rate. [4]

(f) Analyse the relationship between GDP per head and car ownership. [5]

(g) Discuss whether or not the profits of Ecuador’s textile firms are likely to have increased
between 2016 and 2019. [6]

(h) Discuss whether or not Ecuador benefits from the emigration of some of its workers. [6]

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Section B

Answer any three questions.

Each question is introduced by stimulus material. In your answer you may refer to this material and/or
to other examples you have studied.

2 Washington State is the state which grows the most apples in the US. In 2019, apple production
increased in Washington State but the market was in disequilibrium. Apple farming is a labour-
intensive industry because apples are picked by hand. The market for apples in the US is
competitive.

(a) Define market disequilibrium. [2]

(b) Explain opportunity cost and how it can influence a farmer’s decision to grow apples. [4]

(c) Analyse how labour-intensive production can benefit an economy. [6]

(d) Discuss whether or not consumers benefit from a competitive market. [8]

3 Romania’s indirect tax rate was 19% between 2017 and 2019. There is a high proportion of
foreign multinational companies (MNCs), especially US MNCs, in Romania. MNCs have helped
to increase productivity in Romania and lower its unemployment rate. There are also benefits of
MNCs to their home countries.

(a) Define, with an example, an indirect tax. [2]

(b) Explain two benefits of MNCs to their home countries. [4]

(c) Analyse how an increase in productivity can affect unemployment. [6]

(d) Discuss whether or not a decrease in a country’s unemployment rate will reduce poverty. [8]

4 Poland is the world’s top exporter of toothpaste, a product that is in inelastic demand. In 2019,
some Polish firms producing toothpaste considered a horizontal merger. Also in 2019, the wages of
dentists increased globally. This increase was particularly high in the UK where dentists received,
on average, a 25% wage rise.

(a) Identify two determinants of price elasticity of demand. [2]

(b) Explain two advantages to a firm of a horizontal merger. [4]

(c) Analyse, using a demand and supply diagram, how the market for toothpaste would be
affected by an increase in population. [6]

(d) Discuss whether or not an increase in the wages of dentists will increase the number of
dentists employed. [8]

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5 Palau is a small island country in the Pacific Ocean. It has received considerable financial support
from the US. Living standards are thought to be lower in Palau than in the US. Palau imposes some
of the highest tariffs in the world. These trade tariffs affect Palau’s current account of its balance of
payments. In 2019, commercial bank lending to firms and households in Palau increased.

(a) Identify two components of the current account of the balance of payments. [2]

(b) Explain two reasons for differences in living standards between countries. [4]

(c) Analyse the reasons why a country may impose tariffs on imports. [6]

(d) Discuss whether or not an increase in commercial bank lending will increase economic
growth. [8]

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