Cambridge International General Certificate of Secondary Education

0455 Economics November 2020

Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/11
Multiple Choice

There were too few candidates for a meaningful report to be produced.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/12
Multiple Choice

Question Question
Key Key
Number Number
1 B 16 A
2 C 17 A
3 C 18 C
4 A 19 D
5 A 20 C

6 A 21 D
7 D 22 A
8 B 23 B
9 B 24 D
10 B 25 D

11 D 26 A
12 A 27 C
13 A 28 B
14 D 29 C
15 D 30 C

General comments

The questions for which most candidates selected the correct answer were 2, 11, 15, 18 and 19. These
questions were answered correctly by 80% or more of the candidates.

The questions for which the fewest candidates selected the correct answer were 5, 8, 12, 24 and 27. These
questions were answered correctly by fewer than 50% of the candidates.

Comments on specific questions

Question 5

Question 5 was answered correctly by 45% of the candidates who chose option A. 8% chose option B, 22%
chose option C and 25% chose option D. Most resources would not be owned by the government in a market
economy (option D) and there are no public goods in a free market economy (option C). However, in a free
market economy there may well be a lack of accurate information for consumers.

Question 8

Question 8 was answered correctly by 45% of the candidates who chose option B. 43% chose option A, 4%
chose option C and 8% chose option D. This question asked which task is not a function of a trade union.
The level of a national minimum wage is decided by a government and is the only option that would not be
part of a possible discussion with a trade union.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

Question 12

Question 12 was answered correctly by 29% of the candidates who chose option A. 5% chose option B,
10% chose option C and 56% chose option D. The question asked what is the average fixed cost of
producing 10 000 units. Those who chose option D may have mis-read the question and calculated the
average total cost, not the average fixed cost. Total fixed cost is given at zero output. It is 50 000. So, the
average fixed cost for 10 000 units is option A.

Question 24

Question 24 was answered correctly by 39% of the candidates who chose option D. 33% chose option A,
25% chose option B and 3% chose option C. Option C gave an initial link between low incomes and low
investment leading to higher profits. Such a link was probably quickly recognised as being an incorrect
answer. The other three options had more likely initial links from low incomes. From the supply-side, the
circle is explained by low incomes leading to low savings leading to low investment and low productivity.

Question 27

Question 27 was answered correctly by 29% who chose option C. 4% chose option A, 58% chose option B
and 9% chose option D. The infant mortality rate is the number of children that die under one year of age in a
year, per 1000 live births. Perhaps those who chose option B thought that if the infant mortality rate is rising
people would be wary of having more children in the family. The infant mortality rate is not as likely to cause
the birth rate to fall as the knowledge that because of improvements in medical supplies and healthcare
children are more likely to survive.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/13
Multiple Choice

Question Question
Key Key
Number Number
1 C 16 A
2 B 17 A
3 B 18 C
4 D 19 D
5 C 20 B

6 A 21 B
7 D 22 A
8 C 23 B
9 A 24 C
10 B 25 D

11 D 26 A
12 D 27 C
13 A 28 D
14 B 29 A
15 B 30 C

General comments

The questions for which most candidates selected the correct answer were 1, 2, 6. 9, 11, 14, 20, 21, 22, 26,
28 and 29. These questions were answered correctly by 80% cent or more of the candidates.

The only questions that were answered correctly by fewer than 50%of the candidates were Questions 4, 15,
27 and 30.

Comments on specific questions

Question 4

Option D was answered correctly by 10% of the candidates. 54% of candidates chose option C and this
question proved the most challenging on the paper. The stem provided two statements about the price of a
single product, oil. When dealing with the price of a single product it is classified as microeconomics. Those
who chose option C might have thought that because the organisation can influence the price of oil in
several countries it is a macroeconomic statement. Despite this influence the reference is still to an individual
product.

Question 15

For Question 15 options B and C were roughly equally popular (31% and 33%), with A chosen by only 21%
of the candidates. B was the correct answer. Division of labour allows greater specialisation in the workforce
and an increased use of machinery. For the worker, this is often quoted as a disadvantage because the task
becomes monotonous. The ability to move between tasks (option C) is limited and this is not an advantage. It

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

may be thought that high labour turnover occurs (option A) but, should this happen, it would be a
disadvantage to the firm, not an advantage.

Question 27

33% of the candidates chose the correct option C for Question 27. 30% chose option A. 17% chose option
B and 20% option D. Candidates probably confused the receipt of a dividend with the expenditure on an
investment asset. Dividends (option A) are not classed in the same way as the investment in an asset such
as a house (option C).

Question 30

For Question 30, 47% chose the correct option C. The most popular option selected by those who did not
answer this question correctly was B (42%). Both options showed an increase in the value of imports which
the question asked candidates to identify. However, the question also asked candidates to identify an
improvement in the trade balance. In both year 2 and year 3 exports were greater than imports but in year 3
there was a smaller difference between exports and imports than there was in year 2. This meant that the
trade balance had not improved.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/21
Structured Questions

There were too few candidates for a meaningful report to be produced.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/22
Structured Questions

Key messages

To do well candidates need to:

• Use the time appropriately – approximately 45 minutes on Question 1 and 30 minutes on each of the
optional questions selected.
• Make use of the source material in answering all parts of Question 1.
• Consider each word in the questions carefully to ensure that the actual question set is answered.
• Select the three optional questions carefully. Consider the (c) and (d) parts, as well as the (a) and (b),
parts before starting to answer.
• Spend time planning answers to the (d) parts of the optional questions before starting to write them so
that there is a logical structure to the answer.
• To gain the highest level (3) on the (d) parts of the optional questions, both (two) sides of the question
have to be analysed and evaluated, without repetition. The answer needs depth, with clear and
relevant links provided.
• Write in paragraphs on the (d) parts. It is particularly useful to start a new paragraph when moving
from answering one side to answering the second (other) side of the question.
• Write in relatively short sentences. This will help the clarity of answers. Some candidates write
sentences that are too long which can result in links being missed out and points being repeated.
• Draw production possibility curves (PPCs) to the axes and label PPC diagrams appropriately.

General comments

This was the first November session with four rather than six optional questions and Levels of Response
marking used on the (d) part of the optional questions. Most candidates did select three optional questions. A
very small proportion of candidates selected only two questions. A larger proportion, although still a minority
of candidates, answered all the optional questions. Answering only two optional questions obviously limits
the marks available. Answering four questions limits the time that can be spent on each question and the
depth is likely to be less on the (c) and (d) parts than if three questions had been answered.

As in previous sessions, there was a spread of performance. There were some excellent scripts which made
good use of both the stimulus material and economic understanding in answering Question 1. They also
included precision on the (a) parts, both identification and explanation on the (b) parts, good analytical links
on the (c) parts and in-depth exploration of the issues covered in the (d) parts of the optional questions.

There was a relatively even spread of the optional questions selected with Question 4 being slightly less
popular than the other questions. A number of candidates who selected Question 5 did not attempt part (d).
Some of the candidates who answered Question 3 and Question 4 did not read carefully enough what the
(d) parts were specifically asking.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

Comments on specific questions

Section A

Question 1

There were some good answers provided to this question. The largest spread of marks was on the (f), (g)
and (h) parts.

(a) Most candidates were able to calculate the percentage of total world output of palm oil produced by
Indonesia in 2017. The method was 60 / 36 x 100.

(b) Candidates had to select two variable costs out of five costs of producing palm oil mentioned in the
source material. Out of the five costs, three are variable and two are fixed. Some candidates gave
more than two costs. In this situation, examiners can reward only the first two responses.

(c) The strongest answers here brought out the nature of opportunity cost when considering one
opportunity cost of conserving forests in Indonesia. For example, one candidate wrote correctly:

Opportunity cost is the best alternative given up when a decision is made. Here it is the palm oil
which could have been grown.

(d) Most candidates were able to identify two external costs of the destruction of forests in Indonesia
mentioned in the source material. The strong answers went on to explain how the loss of wildlife
habitats could result in the extinction of some species and how air pollution can damage the health
of those living nearby.

(e) A high proportion of candidates drew an accurate, well-labelled diagram that shifted the supply
curve to the left and clearly indicated the original equilibrium and the new equilibrium. Most
candidates, however, wasted time and effort by providing a written explanation of the effects. If a
question asks candidates to ‘Draw a … diagram…’, they only have to draw the diagram. If
candidates are required to explore the effect in a written form, they are asked to; ‘Analyse or
Explain, using a diagram’.

(f) Some candidates showed confusion about the nature of GDP per head ranking and HDI ranking.
For example, some thought incorrectly an HDI ranking of 20 meant that Luxembourg had a low
GDP while Ethiopia with an HDI ranking of 174 had a high GDP. It is useful when candidates are
learning the topic of HDI for them to examine their country’s HDI ranking and changes in that
ranking. A number of candidates just reproduced the data without any analysis or interpretation.
For example:

Luxembourg had a GDP per head ranking of 2 and an HDI ranking of 20. Mauritius had GDP per
head ranking of 64 and an HDI ranking of 64. Indonesia had a GDP per head ranking of 99 and an
HDI ranking of 113. Cuba had a GDP per head ranking of 134 and an HDI 68. Ghana had a GDP
per head ranking of 134 and an HDI ranking of 134. Ethiopia had a GDP per head ranking of 167
and an HDI ranking of 174.

This is not rewarded.

A small proportion of candidates thought that a GDP per head ranking of 120 meant that average
income was $120.

Other candidates, however, produced clear and well thought out answers. For example, one
candidate wrote:

The relationship between countries’ GDP per head ranking and HDI ranking is direct, as higher
average income means that people can afford basic necessities such as health and education,
improving life expectancy and the number of years in school. Luxembourg has the highest GDP per
head and the highest HDI ranking while Ethiopia has the lowest GDP per head ranking and the
lowest HDI ranking. However, Cuba is an exception as it has a lower GDP per head ranking than
Indonesia but a higher HDI ranking than Indonesia. This could be due to the Cuban government
spending more on health and education.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

(g) There was a range of responses to this question. The strongest answers made good use of the
source material and answered the question in terms of the Indonesian economy. For example:

Immigration of workers would be likely to benefit the Indonesian economy. Some of the workers are
coming to do high-paid jobs. These workers might bring new ideas and skills, increasing
productivity. Higher productivity may lower costs of production, increase output and so lower price.
This could increase international competitiveness, increasing demand for exports and improving
the current account of the balance of payments. They will increase the size of the labour force and,
with more earners, there will be higher tax revenue.

However, immigrant workers may take high-paid jobs from the local workers. Also, foreign workers
may send their income back to their home countries, worsening the current account of the balance
of payments. Also, Indonesia’s population is growing, so more people in the country may be
inefficient if Indonesia becomes overpopulated.

Other answers were limited and did not develop the points mentioned. For example:

Immigration of workers would be likely to benefit the Indonesian economy because there will be
more labour. However, Indonesia could suffer from overpopulation if people come to work.

This answer touched on two of the same points as the first answer but did not analyse/evaluate
(establish/develop) why more labour may be a benefit and why overpopulation may occur, or why it
might be a disadvantage.

(h) A few candidates wrote about people coming to live in the country rather than people coming to
visit the country as tourists. Again, the strongest answers usually made very good use of the
source material. Some of these answers were relatively brief but still satisfactory, which is a clear
indication that quality rather than quantity is required, for example:

Tourism is likely to increase as the rupiah depreciated in 2017 which means tourists will have to
pay less in terms of their currency to visit Indonesia. Indonesia has natural tourist attractions which
will lead to an increase in tourism. Tourism could further increase as they are price competitive and
they may be able to get in front of their neighbouring countries.

It is also likely that tourism will fall as Indonesia may not be careful about its environment such as
pollution and due to deforestation which harms the wildlife that people may like to see.

Section B

Question 2

There was quite a spread of marks on this question with the best performance being on Question 2(b).

(a) There was some confusion shown in the answers to this question. A number of candidates
mentioned services and some did not recognise that the trade in goods balance deducts import
expenditure from export revenue.

(b) There were some good responses to this question. A number of candidates explained that access
to a larger market may enable producers to increase the size of their output and take greater
advantage of economies of scale. The ability to purchase cheaper raw materials, due to the
absence of import tariffs, and so experience higher profits was also well explained.

(c) The key to answering this question was to recognise that unemployment means that some of the
labour force is not used, rather than the size of the labour force declines. Those who had that
correct, drew a production possibility curve (PPC) diagram showing the production point moving
further inwards from the curve. These candidates also wrote about how an increase in
unemployment would mean a rise in inefficiency and a fall in output. A relatively high proportion of
candidates incorrectly shifted the PPC to the left - they did not recognise that the unemployed are
likely to remain in the labour force.

(d) There were some strong answers which explored how an increase in the rate of income tax might
reduce inflation by lowering total demand. Strong answers also analysed why the policy measure

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

may not be successful by considering how it might result in a rise in wages and how saving rather
than spending may be reduced. An example of a strong answer:

An increase in the rate of income tax is a measure of contractionary fiscal policy to reduce
inflationary pressure. As people pay more taxes their disposable income falls and, as it falls,
consumption falls. This is because the disposable income is the main factor that determines
people’s spending. A fall in consumption would reduce total demand and demand-pull inflation.
Also, as spending falls, entrepreneurs would be less willing to invest as the return on investment
would be lower because profit would fall as sales fall. Falling investment also decreases total
demand and demand-pull inflation.

However, people might be confident about the future and reduce their saving, so total demand
does not fall. Firms may also be confident and still invest in capital goods. Also, it can help raise
more government tax revenue which it can spend on major projects and so raise employment and
spending leading to higher inflation.

Question 3

There was a wide spread of performance on all the parts of this question.

(a) The strongest answers gave two characteristics of a demerit good. Some mentioned that a demerit
good is not only overconsumed, it also creates external costs. A relatively high proportion of
candidates restricted their answers by only mentioning that demerit goods are harmful to health.

(b) There were some good and accurate answers to this question which showed an awareness of how
an extension, and an increase, in demand differ in their cause and how they are represented on a
diagram. Some candidates, however, seemed unaware of these different terms. A number thought
incorrectly that an extension in demand means a rise in demand that lasts a long time.

(c) The strong answers here started by exploring why an increase in indirect taxes is likely to have
more of an impact on the purchasing power of the poor than of the rich. They then went on to
analyse that, despite this effect, income might become more evenly distributed if the government
spends any extra tax revenue on measures that could reduce poverty. However, some candidates
showed confusion between the amount, and the proportion, of income that the poor pay in the case
of a regressive tax.

(d) A number of the strongest answers began by defining a maximum price. They then explored how it
could help some of the poor by lowering the price paid for a basic necessity. They then went on to
examine the possible disadvantages of a maximum price. There were some particularly good
comments on how the consumption of all types of food should be not encouraged.

An example of a good two-sided answer with depth:

A government should impose a maximum price on food as if the maximum is below equilibrium,
producers are only able to change a price lower than maximum price. The price of food is reduced
and as food is a basic necessity, this makes it more affordable by poor and everyone, so increases
access to basic necessities, reducing absolute poverty. Poor can now spend more on other
necessities, like education and healthcare so increases their productivity, so higher employment
choice, lower absolute poverty and lower relative poverty.

Governments should not impose maximum price on food, as if it is above equilibrium it will not be
beneficial as producers could still change equilibrium prices, so no effect. Maximum price also
leads to a black market where government has no control and cannot tax or regulate anything, so
producers exploit consumers. The lower price of food could encourage consumers to buy large
quantities of food, increasing wastage and leading to obesity, so harming health of individuals, so
lower life expectancy. Maximum prices on food could lead to shortage of food as producers do not
want to supply that much as price is too low. Demand for food exceeds supply. It could drive firms
out of the market and lower output.

Some candidates, however, confused a maximum price with a minimum price and some wrote
incorrectly about imposing a tax on food rather than a maximum price.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

Question 4

A relatively high proportion of candidates did well on the (a), (b) and (c) parts. There was a greater spread of
performance on the (d) part.

(a) The two most common functions stated were lending and allowing people to save money in deposit
accounts. A small proportion of candidates stated functions of a central bank.

(b) Most candidates were able to explain two relevant reasons. There was some good explanation of
how high unemployment and low living standards could encourage some people to move to other
countries.

(c) This was a generally well answered question. Most candidates were able to explain a number of
possible causes of a rise in the wages of workers. There was some particularly good analysis of an
increase in demand for banking services, and so demand for bank workers, and decreases in
supply of bank workers due to a rise in the qualifications required. Strong answers made good use
of demand and supply analysis and linked it to a number of influences, including higher productivity
and higher bank profits. There was also some good analysis linked to changes in trade union
power and the measures a trade union may take to increase bank workers’ wages.

(d) A number of candidates wrote about what could cause an increase and a decrease in demand for
cars, rather than whether demand for cars would become more price-elastic in the future. Some of
these weaker answers appeared to think that elastic demand meant an increase in demand and
inelastic demand meant a decrease in demand. Other candidates also wrote unnecessarily about
the extent to which price might change.

Those candidates who did produce good answers often started by defining price elasticity of
demand. This seemed to help them focus on the factors that would influence price elasticity of
demand of cars.

An example of good analysis and evaluation of why demand for cars may, and may not, become
more price-elastic:

Demand for a good is price-elastic when the quantity demanded is responsive towards a change in
price. Price elasticity of demand depends on whether or not a good has a substitute or not, the cost
of consuming a substitute, and ease of changing to a substitute. If more substitutes for cars will be
available in the future, for example trains, the more price-elastic demand for cars will be. If there is
a lack of substitutes, consumers have no choice but to pay high prices for cars as there is no other
option.

Price elasticity also depends on the proportion of income spent on cars. The higher the proportion
that will be spent on cars, the more price-elastic the demand will be. If GDP per head increases in
the near future, it will become more price-inelastic. Also, if people consider a car a necessity, cars
will be more price-inelastic. People may have to travel further to work and people may prefer the
comfort of a car to buses and trains.

Question 5

The performance on parts (a) and (c) tended to be stronger than on parts (b) and (d).

(a) Most candidates were able to provide an appropriate definition of wages.

(b) Not all candidates paid attention to the words ‘other than methods of protection’ in the question. As
a result, they wrote incorrectly about a rise in import tariffs and quotas. The strongest answers
tended to be those which explained how a rise in the exchange rate and a reduction in the quality
of exports could result in a fall in exports.

(c) Good understanding of investment was shown in answers to this question. Relevant links were
provided to an increase in a country’s economic growth rate via increases in total demand and
productive capacity. There were good comments about how new capital goods are likely to make
use of advances in technology and may raise not only the quantity made but also the quality of
output, and so influence international price competitiveness.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

(d) As previously mentioned, some candidates who selected this question did not attempt this part. A
number wrote in very vague and confused terms, revealing a lack of understanding of a fixed
foreign exchange rate system and a floating foreign exchange rate system. Other candidates
produced perceptive and well-informed answers. These provided an in-depth analysis and
evaluation of the advantages and disadvantages of the two systems.

An example of a strong answer:

A country should switch from a fixed foreign exchange rate system to a floating foreign exchange
rate system as a floating system automatically adjusts exchange rate. The demand of the currency
equals the supply of the currency, so moves current account position to current account balance,
eliminating any deficit or surplus on the current account. If there is a deficit, floating exchange rate
will decrease, price of exports decrease, demand increases, increase price of imports and demand
falls. Floating exchange rate also reduces need of central bank to hold reserves of foreign
currency, so foreign currency could be used for another purpose. This also stops exchange rate by
a policy objective, so government could pursue other policy objectives as it increases the ability to
use monetary policy. So, it increases interest rate, for example, to reduce total demand and to
reduce demand-pull inflation.

A country should not switch from a fixed to a floating foreign exchange rate system. A floating
exchange rate could have more fluctuations, increase uncertainty, create instability, reducing
confidence in the economy, so discourages MNCs, discourages investment, so lower GDP and
economic growth. Fixed exchange rate has benefit it is maintained by central bank and government
by buying and selling the currency, so it could set it low to increase its exports as its price
decreases, improve current account of balance of payments, or set high to reduce demand on
exports to reduce net exports, so reduce total demand and demand-pull inflation.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

ECONOMICS

Paper 0455/23
Structured Questions

Key messages

It is essential that candidates take their time to read through the questions and the key words that are in
those questions to ensure that the actual question set is answered. Reducing from five to three questions in
Section B allows more time for question selection. There were a few questions in this paper where some
candidates did not fully consider what was required in their answer.

Common errors were:

• 1 (e) labelling the demand and supply diagram with the price for car parking when the question was
about the market for cars
• 2 (b) writing about indicators rather than the causes of economic development
• 4(d) writing about the impact of trade protection rather than the reduction in trade protection on the
current account surplus
• 5 (a) including issuing of notes and coins in their answer when the question specified not to use it as an
example.
• 5 (c) writing about the disadvantages of division of labour when the question only asks for the
advantages.

General comments

It was the first time that candidates in these centres had been assessed under the revised syllabus and the
reduced number of questions in Section B.

There appeared to be an increase in the number of candidates breaking up their answers within a question
and writing their answers out of order of the questions – this can be confusing to Examiners so should be
avoided. Candidates should not cross out their work when they decide to switch to another question. If the
candidate does not make a second attempt at answering that question, Examiners mark all the responses
and there were some instances this year where the crossed-out work gained higher marks than the new
question attempted.

Some candidates did not attempt the part (d) question in answers to Section B. This suggests more practice
of constructing answers for Discuss/evaluation questions is needed.

Comments on specific questions

Section A

Question 1

(a) External cost is the difference between social costs and private costs. To calculate the costs for
2017, candidates needed to subtract the private cost from the social cost, $1.22 – $0.68 = $0.54.
However, a significant number of candidates added private costs to social costs to give an incorrect
answer of $1.90.

(b) This was generally well answered with candidates identifying economic growth and full
employment. A few candidates misunderstood the source material and selected instead the
concerns that the government had about reduced growth and reduced unemployment. A few
wrongly identified a macroeconomic aim such as low inflation which was not mentioned in the
source material.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

(c) The fact that traffic congestion led to workers arriving late to work, feeling tired and stressed was
mentioned by most candidates. However, many did not explain how this linked with lower
productivity; they just stated that it led to lower productivity. Candidates needed to show an
understanding that lower productivity meant a reduction in output due to less working time or days
off through illness.

A typical weak response that did not mention output was ‘Traffic congestion causes workers to
arrive late, reducing their hours and productivity’.

(d) A significant number of candidates did not recognise that this question was about how better
geographical and occupational mobility would increase the opportunities for employment. Instead,
many wrote about the increased ease of moving around the Philippines with less traffic congestion.
Strong answers explained that greater geographical mobility enabled workers to move from areas
of high unemployment to areas with vacancies. Greater occupational mobility enabled workers to
move to expanding industries such as computer, retail and education thereby reducing structural
unemployment.

An example of a very weak response was ‘an increase in mobility allows workers to get to their
work more easily and reduces the chances of being sacked for arriving late’.

(e) This question required a demand and supply diagram showing a shift to the left in the demand
curve resulting in a lower market price and quantity of cars. An explanation was not required.
However, most candidates also gave a written explanation which meant that they lost valuable time
for answering other questions as marks were only awarded for the diagram. In addition, while many
candidates drew a correct diagram, common errors included labelling it as the market for car
parking rather than for cars, wrongly labelling the demand and supply curves and shifting the
supply curve to the left.

(f) There was a wide range of responses to this data interpretation question. The data is there for
candidates to use to analyse and identify the relationship between the two variables. There were a
small minority of weaker candidates who did not use any data in their answer and give a purely
theoretical explanation of what they perceive to be the relationship between consumer expenditure
and imports. Others use the data incorrectly. For example, a few calculated what proportion of
consumer expenditure was accounted for by imports and others merely described what was in the
table, usually on a country by country basis.

The skill being tested by this question is to use the data to recognise patterns and deduce
relationships. The table shows that except for Argentina, there is a positive relationship as
countries with higher consumer expenditure import more goods and services. You would expect
this to be the case as both would generally rise as income rises. In the case of Argentina, the most
probable reason for low imports is that it applies high trade restrictions / is more self-sufficient.
Strong answers were able to identify this positive relationship and select countries and the data to
support it. Weaker responses did not understand that most imports were consumer goods and
services and therefore part of overall consumer expenditure.

(g) Generally, candidates did not provide good answers to this question. This was probably because
they did not understand that enterprise is a different factor of production to labour. For many
candidates, an incorrect answer applied more to the supply of labour than it did to enterprise, e.g.,
that a rising population meant more workers. Those that did recognise the distinction, correctly
wrote about the young and well-educated population having the skills to set up their own
businesses and benefit from the growing economy. On the other side, many recognised that there
were factors that could lead to a decrease in enterprise. A typical response was ‘Additionally, the
high taxes may mean lower profits demotivating people to become entrepreneurs.’

(h) In contrast, this question was well answered by most candidates who were able to give reasonable
answers to both sides of the argument. Weaker answers identified that building more roads would
reduce congestion and enable greater output, but little else. Strong answers took a more
macroeconomic approach about leading to higher employment and economic growth in the
country, attracting MNCs. They continued to highlight that more roads could lead to an increase in
negative externalities, and that there was an opportunity cost as monies used for road building
could have been used for education, which could result in higher taxes to pay for the roads and
less land for houses or businesses.

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

Section B

Question 2

(a) Some candidates showed a basic understanding of what was microeconomics but had difficulty in
explaining the term. A clear answer was ‘The study of individual markets such as ice cream’. Other
less accurate answers included ‘how households behave’. Very weak responses were linked to
their understanding of micro e.g., ‘microeconomics is a small part of the economy.’

(b) Some candidates read the question wrongly and wrote about the difference in economic
development rather than the cause of it. These incorrect answers wrote about the how some
countries had higher national income and people lived longer. Many candidates, however, were
able to identify two causes, such as the productivity of workers, the availability of resources and
better healthcare and education, but often did not explain clearly how that led to economic
development.

(c) Candidates generally understood what was meant by poverty. However, some were unclear how a
cut in interest rates would affect poverty. A few confused interest rates with taxes and wrote about
how this resulted in higher (disposable) incomes and consumers could simply afford more goods
and services. Other weak responses took the view that a cut in interest rates made it easier for the
poor to borrow and buy necessities. Some stronger answers distinguished between the impact on
absolute and relative poverty. Typical stronger answers explained that a cut in interest rates
encouraged greater expenditure and resulted in higher demand leading to higher output. Firms
would employ more workers which reduced unemployment which was a cause of relative poverty.

(d) This was generally well answered. Candidates understood what a demerit good was and usually
gave cigarettes as an example, which was mentioned in the question. A common response made
the point that the government could impose an indirect tax to increase the price. Other responses
included imposing a ceiling price and better education for consumers about demerit goods. The
second side - why the government might not correct a market failure - was less well answered. A
reasonable response was that goods were often inelastic in demand and therefore, despite the
price increase, goods were still consumed. Stronger answers also referred to the creation of a
black market if prices were raised too much.

Question 3

(a) Most candidates had some understanding that privatisation involved the movement of firms from
the public to the private sector. However, a key characteristic is that there is a change in
ownership, and this was missing from many answers. A strong answer was ‘Privatisation is the
transfer of ownership of firms and resources from the public sector to the private sector’. Weak
answers often confused public limited companies with state-owned companies.

(b) Answers to this question showed that some candidates were unclear what was meant by the term
‘birth rate’. Some incorrect answers stated that the birth rate would fall due to poor hospital/health
facilities leading to more babies dying, perhaps confusing the birth rate with infant mortality rates.
Weaker answers tended to give a cause but then not develop the answer to explain why this led to
a lower birth rate e.g. ‘Two causes of a fall in birth rate are family planning and women no longer
wanting early marriage.’ Stronger answers tended to refer to the changing role of women in society
with the cause being a rise in the education of women and more women working which often meant
later marriage and fewer children.

(c) Candidates gave two contrasting answers to this question. A significant number of candidates, who
did well on the paper overall, incorrectly assumed that a decrease in quantity of capital goods
simply meant a movement along the existing PPC, meaning fewer capital goods produced but
more consumer goods. However, as capital is a factor of production, fewer capital goods means a
reduction in factors of production available to the economy. The correct diagram would show an
inward movement of the PPC. Some candidates drew a PPC diagram showing a new PPC with
fewer capital goods and the same quantity of consumer goods which is also correct.

(d) Candidates understood what was meant by a monopoly and most were able to give several
reasons why a government should or should not allow monopolies. Weaker answers gave less
depth to their reasons and tended to be stronger on not allowing monopolies. Strong answers gave

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 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

a reasoned discussion of the merits of monopolies with greater depth in their evaluation of the
benefits that monopolies bring to consumers and the economy e.g., through better quality goods,
through having the funds for research and development, and successfully competing with large
firms in other countries. On the downside, strong answers discussed how monopolies may abuse
their market strength at a cost to consumers through higher prices, less choice and poorer quality
goods.

Question 4

(a) Weaker answers showed an understanding that deregulation was a supply side-policy but were
unable to state what it did. The weakest answers showed no idea what the term meant. A common
weak response was ‘Deregulation is the decrease in regulation’. A simple correct response was
that it was the removal of rules and regulations. Some answers explained that it was a supply-side
policy and that the outcome was to encourage competition in the market.

(b) A market economic system was understood by most candidates although a few confused it with a
system that involved government intervention. Benefits that were commonly identified included,
consumer sovereignty, range of choice and low prices. As with other explanation questions, some
candidates identified the benefit but then did not explain how consumers gained from it. For
example, stating that consumers benefited from low prices but not explaining that this was because
firms compete to attract and keep their customers.

(c) Most candidates were able to identify one way in which education and the provision of subsidies by
the government would benefit a country. However, this was not always linked to economic growth.
For example, candidates wrote about education leading to workers having better skills and being
able to earn higher wages but not then looking at the aggregate supply impact of raising quality and
quantity produced, leading to greater exports. Similarly with subsidies, weaker responses were
limited to stating that it led to lower costs of production. Stronger answers built on that to analyse
the impact on increasing supply in the economy. Some strong answers also linked the two and
wrote about how subsidies for education (or health) meant there would be a more skilled and
productive workforce leading to higher economic growth.

(d) This question required candidates to understand what was meant by both a current account
surplus and trade protection. Generally, most knew that the current account consisted of imports
and exports and therefore the quality of answers given depended on their understanding of what
happened when trade protection was reduced. Some of the weak answers may have misread the
question because they wrote about the impact of rising tariffs and quotas or simply explained how
tariffs or quotas worked. However, most candidates were able to discuss how the reduction in trade
protection would lead to higher imports which would lead to a smaller surplus or possibly a deficit in
the current account, but they were less clear about how exports might change. Stronger answers
were more balanced, by stating how countries might benefit, for example, if the country were
dependent on importing raw materials the removal of trade protection could lead to lower costs of
production and lower export prices. Some strong answers also analysed that other countries might
respond by reducing their trade protections and countries would all benefit from greater free trade.
The last point was included in some weak responses that simply concentrated on writing about the
benefits of free trade.

Question 5

(a) Most answers correctly stated two functions of a central bank e.g., ‘it acts as banker to the
commercial banks as well as controlling the supply of money’. However, a few still gave issuing of
bank notes and coins as one of their two functions despite being directed not to in the question.

(b) Candidates generally do not recognise that the main reason for difference in pay is demand and
supply of workers for that occupation or sector. All that was required here was to identify one
demand and one supply factor and explain how this affected workers in the tertiary and primary
sector. Weak answers were limited to stating that higher education and qualifications were required
in the tertiary sector but often without explaining why. Good answers referred to how tertiary
workers were paid more since they added more value to the product/service and employers could
afford to pay them more and that lower supply also meant that employers had to pay higher
salaries to attract and then keep them at the business.

© 2020
 Cambridge International General Certificate of Secondary Education
0455 Economics November 2020
Principal Examiner Report for Teachers

(c) Not all candidates answered the question correctly. Some answers wrote about the impact on
individual workers rather than on firms and some wrote about both the advantages and
disadvantages when the question only required advantages. It is important that candidates respond
to the question set and not simply write the answer they may have mentally prepared for a question
on division of labour. There were good answers given explaining how division of labour enables
specialist workers with a high level of skills to produce quality products at lower cost. Firms benefit
from being more competitive, leading to greater demand, higher revenue, and possibly higher
profits as well.

(d) Most candidates understood that deflation resulted in lower prices. However, fewer were able to
explain that the cause of the prices being lower affected whether an economy benefited from
deflation. For some, a simple answer was that lower prices meant greater purchasing power for
consumers and rising demand would lead to greater employment. Others stated that deflation was
good because it would stop inflation or in some cases hyper-inflation. However, the strongest
answers made it clear that deflation due to low demand or recession was not a benefit as it would
lead to low confidence by firms and this could result in high unemployment. Another stronger
argument was that deflation could be due to greater productivity leading to lower costs of
production making goods competitive globally. Strong answers also discussed how deflation, if it
continued for too long, would lead to consumers not spending as they expected prices to fall
further, causing lower demand, output and eventually higher unemployment resulting in recession.

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