THE SCHRAM ACADEMY

AN INTERNATIONAL CAMBRIDGE SCHOOL

Term 1 Examination

Economics/0455 Grade: PIGCSE

Name ___________________________Candidate No: _____________ Date ____________

Duration: 1hour Maximum Marks: 45 Invigilator Signature _________

General Instructions
 Write your name, candidate number and date in the spaces provided at the top of this
page.
 Additional sheets required.
 Answer four questions in total:
 Section A: answer Question 1. Section B: answer two 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 45.
 The number of marks for each question or part question is shown in brackets [ ].

For Examiners Use

Total Scored

Examiner Signature

This document contains 3 printed pages.

Section-A

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PIGCSE\ ECONOMICS\0455\22\TERM1\2022-23
Read the source material carefully before answering Question 1.
Source Material: Laos, a land-locked country
Laos is a land-locked country, surrounded by Vietnam, Cambodia, Thailand, Myanmar and
China. Access to seaports helps an economy take full advantage of international trade. The
economy of Laos has grown rapidly since the government initiated free market reforms, with
an average growth rate of approximately 7% annually in the last 10 years.
The free market reforms have encouraged Laos to sell their abundant raw materials
internationally and also attracted foreign investment. Laos has large deposits of copper which
are in high demand by global manufacturing industries. A new rail link connecting China and
Laos is expected to make such transactions easier.
The government of Laos has also put a lot of emphasis on education. The adult literacy rate
of both males and females has increased from 60% to 85% over the last 20 years.
The financial sector, including commercial banks, is growing. This has enabled local
entrepreneurs to borrow money and encouraged more households to save.
However, investors are still uncertain about investing in Laos. There are strict rules and
regulations for foreign investors, especially in industries such as mining. The government
says the regulations are needed to avoid market failures, such as external costs, and abuse of
monopoly power. However, these rules and regulations are sometimes unclear. Laos is one of
the lowest in the World Bank’s Ease of Doing Business index, which measures how easy it is
to start up and run a business in a country. Fig. 1.1 shows the Ease of Doing Business ranking
(1 = easy) and GDP per head of selected countries in 2018.

The recent economic slowdown of China may have harmful effects on Laos. China is Laos’s
largest trading partner and also the largest source of foreign investment into Laos.
Answer all parts of Question 1. Refer to the source material in your answers.
1 (a) Define mixed economy system [1]
(b) Explain two benefits of the free market reforms introduced by the government of Laos.
[4]
Section B
Answer any two questions.
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Each question is introduced by stimulus material. In your answer you may refer to this
material and/or to other examples that you have studied.

2 Firms use different quantities of land, labour, capital and enterprise in producing their
products. The ways in which a country’s resources can be used, and the extent to which they
are employed, can be shown on a production possibility diagram.
(a) What is the difference between capital and land? [2]
(b) Explain two reasons why a firm may decide to use more labour and less capital in
producing its products. [4]
(c) Analyse, using a production possibility diagram, the effect on an economy’s output when
there is a change from full employment to unemployment. [6]
(d) Discuss whether it is always possible for a country to have low unemployment and low
inflation at the same time [8]

3 In 2013, an earthquake on the Iran/Pakistan border destroyed many factories and homes.
Some officials wanted the Governments to rebuild the factories and homes, even though there
would be an opportunity cost. Others suggested that some people should be encouraged to
emigrate.
(a) Define ‘opportunity cost’. [2]
(b) Explain why the economic problem can never be solved. [4]
(c) Using a production possibility curve diagram, analyse the effect of the destruction of
some of its resources on an economy. [6]
(d) Discuss whether a country will benefit from the emigration of some of its people. [8]

4 A lack of electricity regularly results in power failure in the Lebanon. The daily gap
between supply and demand may increase in the Lebanese economy continues to grow. The
Lebanese government is planning to build more power station but there is a risk that the
social costs of operating power stations may be greater than the social benefits.
(a) Define ‘demand’. [2]
(b) Explain what impact an imbalance between supply and demand is likely to have on price
and the quantity traded. [4]
(c) Analyse why economic growth may increase demand for electricity. [6]
(d) Discuss whether the social costs of operating power stations are likely to be greater than
the social benefits. [8]

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