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Paper 2 — Feb/Mar 2025

0455/22/F/M/25 · February/March 2025

91.4%Score
A*Grade
Section A — Romania
Context: Romania's economy has been growing, driven by household spending. The government set a maximum price on electricity and kept interest rates low. The population has been falling due to emigration and lower birth rates.
1a1/1 markscalculate

Calculate Romania's current account deficit from the information provided.

Model Answer
300,000,000,000 / 100 x 9 = $27,000,000,000 ($27 billion).
Mark Scheme Notes

1 mark for correct calculation with working shown.

1b2/2 marksidentify

Identify two reasons why Romania's population fell.

Model Answer
1. Lower birth rate. 2. Emigration to other European countries.
Mark Scheme Notes

1 mark per valid reason, up to 2.

1c2/2 marksexplain

Explain why immigration to Romania may increase.

Model Answer
Recent economic growth driven by household spending makes Romania more attractive. A maximum price on electricity makes it cheaper to live there, and low interest rates make loans and mortgages cheaper, increasing disposable income for potential immigrants.
Mark Scheme Notes

1 mark for identifying a reason, 1 mark for developing the explanation.

1d4/4 marksexplain

Explain two reasons why household spending in Romania increased.

Model Answer
1. Low interest rates mean cheaper mortgages and borrowing costs. This makes it easier for households to buy property and goods on credit, increasing overall spending. 2. The population is becoming wealthier, so people have more disposable income. With higher incomes they can afford to spend more on goods and services.
Mark Scheme Notes

2 marks per reason: 1 for identification, 1 for explanation. Two reasons required.

1e4/4 marksdiagram

Draw a demand and supply diagram to show the effect of a maximum price on electricity.

Draw diagram with labelled axes, curves, shifts, and equilibria
Model Answer
Axes: Price (vertical) and Quantity (horizontal). Draw downward-sloping demand curve and upward-sloping supply curve intersecting at equilibrium. Draw a horizontal line below the equilibrium price labelled 'Pmax'. At Pmax, quantity demanded exceeds quantity supplied, creating a shortage. Label the shortage between Qs and Qd.
Mark Scheme Notes

1 mark axes labelled, 1 mark S and D curves, 1 mark max price below equilibrium, 1 mark shortage shown.

1f5/5 marksanalyse

Analyse the relationship between GDP per head and the percentage of income spent on food.

Model Answer
There is an inverse relationship between GDP per head and the percentage of income spent on food. Countries with low GDP per head such as Ethiopia spend a high percentage on food (around 40-50%), while countries with high GDP per head such as Belgium spend a low percentage on food (around 13%). This is because higher-income households can afford necessities more easily and have money left over for luxuries, making food a smaller proportion of total spending.
Mark Scheme Notes

1 mark relationship, 2 marks data examples from both ends, 1 mark exception if exists, 1 mark for explaining why.

1g5/6 marksdiscuss

Discuss whether multinational companies (MNCs) reduce poverty in a country.

Model Answer
FOR: MNCs increase employment opportunities, providing wages and income to workers who may have been previously unemployed. This directly reduces poverty by raising living standards. MNCs may also offer working benefits such as healthcare and training, further improving workers' quality of life. AGAINST: MNCs may only need skilled or highly-educated workers, meaning the poorest and least-skilled people do not benefit. Additionally, capital-intensive firms may invest heavily in machinery rather than labour, creating relatively few jobs despite large investment in the country.
Mark Scheme Notes

Up to 6 marks: 2 FOR points developed, 2 AGAINST points developed. Mark lost likely for insufficient depth on one point.

1h5/6 marksdiscuss

Discuss whether more women are likely to enter the labour force.

Model Answer
FOR: Improved education for women increases their skills and qualifications, making them more employable and competitive in the labour market. The availability of part-time and flexible work allows women to balance employment with other responsibilities, encouraging participation. AGAINST: Social attitudes and workplace discrimination may still discourage women from entering certain industries or progressing in their careers. Childcare responsibilities often fall disproportionately on women, making full-time employment difficult without affordable childcare services.
Mark Scheme Notes

Up to 6 marks across 4 PEE paragraphs. 1 mark lost likely for insufficient development.

Question 2 — South Korea
Context: South Korea's government faces decisions about spending priorities including environmental policy and energy. The country uses both renewable and non-renewable energy sources.
2a2/2 marksdefine

What is the difference between an economic good and a free good?

Model Answer
An economic good is scarce and has an opportunity cost — resources must be given up to produce it. A free good is available in unlimited supply with no opportunity cost, such as air.
Mark Scheme Notes

1 mark per correct distinction, up to 2.

2b4/4 marksexplain

Explain how the concept of opportunity cost influences government spending decisions.

Model Answer
When the government spends money on one area, e.g. defence, it cannot use those same funds for another area such as healthcare. This is the opportunity cost. For example, building a new military base means fewer hospitals can be built. Governments must weigh up the benefits and costs of each option and allocate scarce resources to maximise social welfare.
Mark Scheme Notes

2 marks for explaining opportunity cost in context, 2 marks for applying to government example.

2c5/6 marksanalyse

Analyse the factors that influence whether supply is price elastic or price inelastic.

Model Answer
Supply is price elastic when firms can easily increase output in response to a price rise. Key factors include: availability of spare capacity (firms with unused machinery can respond quickly), ease of storing goods (storable goods allow quick supply increases), and short production time. Supply is price inelastic when production takes a long time (e.g. agricultural goods that depend on growing seasons), when there is limited spare capacity, or when skilled labour is difficult to find quickly.
Mark Scheme Notes

Up to 6 marks for identifying and explaining factors with examples. 1 mark lost for incomplete analysis.

2d6/8 marksdiscuss

Discuss whether a government should ban the burning of wood for fuel.

Model Answer
FOR: Burning wood causes air pollution and negative externalities — smoke harms public health, increasing healthcare costs. A ban would reduce deforestation, protecting biodiversity and preventing soil erosion, benefiting the environment long-term. AGAINST: Many low-income households depend on wood as their primary fuel source because it is cheap and accessible. A ban would increase their costs if they must switch to more expensive alternatives like gas or electricity. In rural areas, alternative energy sources may not be available, making a ban impractical and reducing living standards for the poorest.
Mark Scheme Notes

Up to 8 marks: 2 FOR and 2 AGAINST paragraphs, each with point + explanation + evidence. 2 marks lost likely for insufficient depth or missing economic concepts.

Question 3 — Estonia
Context: Estonia has a small, open economy with a growing services sector. The government is considering policies related to education, labour mobility, and monetary policy.
3a2/2 marksdefine

Define what is meant by a factor of production.

Model Answer
A factor of production is a resource used in the production of goods and services. The four factors are land (natural resources), labour (human effort), capital (man-made tools and machinery), and enterprise (risk-taking by entrepreneurs).
Mark Scheme Notes

1 mark for definition, 1 mark for identifying or exemplifying.

3b4/4 marksexplain

Explain two reasons why building workers may not easily become teachers.

Model Answer
1. Occupational immobility — building workers lack the qualifications and training required to teach. Teaching requires a degree and specialist knowledge, which takes years to acquire. 2. Geographical immobility — teaching jobs may be in different locations from construction work. Workers may be unable or unwilling to relocate due to family commitments or housing costs.
Mark Scheme Notes

2 marks per reason: 1 identification + 1 explanation.

3c5/6 marksanalyse

Analyse how a small firm might be able to compete with a large firm.

Model Answer
A small firm can compete through specialisation in a niche market — offering personalised or unique products that large firms do not provide. Small firms can also offer better customer service due to closer relationships with customers and more flexible, quicker decision-making. They may have lower overheads as they do not need large offices or many managers. However, they cannot match the economies of scale of large firms, so they must differentiate on quality or service rather than price.
Mark Scheme Notes

Up to 6 marks for identifying and explaining competitive strategies. 1 mark lost for incomplete development.

3d8/8 marksdiscuss

Discuss whether an increase in the money supply benefits an economy.

Model Answer
FOR: An increase in the money supply lowers interest rates, making borrowing cheaper for firms and consumers. This stimulates investment and consumption, boosting aggregate demand and economic growth. Higher spending can lead to job creation and reduced unemployment as firms expand to meet increased demand. AGAINST: If the money supply increases faster than output, it causes demand-pull inflation. Rising prices reduce the purchasing power of consumers, particularly those on fixed incomes. Inflation can also make exports more expensive, worsening the trade balance and reducing international competitiveness. Hyperinflation can destroy confidence in the currency entirely.
Mark Scheme Notes

Full marks: 2 well-developed FOR paragraphs and 2 well-developed AGAINST paragraphs with economic concepts applied.