Cambridge International Examinations

Cambridge Ordinary Level

001
*2846520525*

ECONOMICS 2281/20
Paper 2
1 hour 30 minutes
Candidates answer on the Question
Paper.

No Additional Materials are required.

READ THESE INSTRUCTIONS FIRST

Write your Centre number, candidate number and name in the spaces at the top of this
page. Write in dark blue or black pen.
You may use an HB pencil for any diagrams, graphs or rough
working. Do not use staples, paper clips, glue or correction fluid.
DO NOT WRITE IN ANY BARCODES.

Answer all questions.

The businesses described in this question paper are entirely fictitious.

At the end of the examination, fasten all your work securely together.
The number of marks is given in brackets [ ] at the end of each question or part
question. The total number of marks for this paper is 80.
 QUESTION 1:
This exercise is based on some of the key terms used in economics. Match the
following terms with their appropriate definitions. For instance, if you think an
‘inability of workers to change jobs and location’ defines ‘scarcity’, match 1 with c.
Each term has an appropriate definition. If you find that you are left with a term and
a definition which does not appear to match, you should review your other matches.
1. Scarcity a. Natural resources
2. The economic problem b. Economic resources
3. Wants c. Inability of workers to change jobs and location
4. Land d. Inability to produce everything that people want
5. Capital e. Products that have an opportunity cost
6. Labour immobility f. Products that do not have an opportunity cost
7. Factors of production g. Products people desire to have
8. Opportunity cost h. Human made resources
9. Economic goods i. An insufficient quantity to satisfy everyone’s
wants
10. Free goods j. Best alternative forgone
QUESTION 2:
Good economists can write clearly, interpret data and can undertake numerical
calculations. At IGSCE/O level the calculations involve additions, subtractions,
multiplications and working out averages and percentage changes.
1. A firm employs twenty six workers, paying each one US $ 75 a week. What is the
firm’s total wage cost?
2. A country produces US $ 900m capital goods in a year. There is depreciation of
US $ 620m. What is net investment? 10
Capital Goods (million)

Economists make widespread use of

diagrams. A diagram can be used to
80
illustrate economic concepts, to analyse
60 changes in economic conditions and to
assess the effects of economic policies.
50 Indeed a diagram can be worth a hundred
words!
O 60 90 110 Production possibility curves can be used
Consumer Goods (million*) to show a number of economic concepts
including opportunity cost.
Fig. 1 * Henceforth, ‘m’ denotes Using Figure 1 state:
‘millions’.
 a. The opportunity cost of increasing the output of consumer goods from 60m to 90m
consumer goods.
b. The opportunity cost of producing 80m capital goods.

QUESTION 3: 10
Identify one way in which each of the following pairs is different:
1. Capital goods and consumer goods
2. Economic goods and free goods
3. Capital and land
4. Geographical immobility and occupational immobility
5. Opportunity cost and financial cost
On 11 January 2008, Tata, an Indian producer, launched a new
model, the Nano. On this day it became the cheapest car
available, selling for half the price of the next cheapest car. For
the price of 100,000 rupees, a brand new Nano could be bought
or, for instance, a second hand 1993 Land Rover.
The car is intended initially for the home market. It is thought that
millions could be sold in India. The firm
also plans to export the car to Latin America, South-east Asia and Africa.
Although selling the car at such a low price will make car ownership more affordable for more
people, there are still many millions of people who would like a car but do not have the income
to buy one.
a. Using examples, identify three factors of production used in making cars. [6]
b. Give an example of opportunity cost from the passage. [2]
c. What evidence is there of the economic problem from the passage? [2]
QUESTION 4:
Tata produces a range of cars. Use a production possibility curve to illustrate the effect of Tata
devoting more of its resources to producing Nano cars.
QUESTION 4:
A German travel company considers its future
A German travel company decides to stop selling holidays in
Italy and instead to offer holidays in a new destination. This is
the Maldives, a group of islands in the Indian Ocean, famous
for their long hours of sunshine and sandy beaches.
Tourism is a fast growing industry. Not all families, however,
are able to go on holiday whether at home or abroad. Most of
those who take holidays would like to have more holiday
breaks.
a. What evidence is there in the passage of scarcity? [3]
b. Using examples, identify three factors of production involved in providing holidays in the
Maldives. [6]
c. (i) Explain the difference between an economic good and a free good. [4]
(ii) Identify a free good from the passage. [1]
d. Explain the relevance of opportunity cost for a travel firm in deciding how to use its
resources. [6]