Mark Scheme (RESULTS)

January 2019
Pearson Edexcel International GCSE
In Economics (4EC0/01) Paper 1
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January 2019
Publications Code 4EC0_01_1901_MS
All the material in this publication is copyright
© Pearson Education Ltd 2019
General Marking Guidance

 All candidates must receive the same treatment. Examiners

must mark the first candidate in exactly the same way as they
mark the last.
 Mark schemes should be applied positively. Candidates must
be rewarded for what they have shown they can do rather than
penalised for omissions.
 Examiners should mark according to the mark scheme not
according to their perception of where the grade boundaries
may lie.
 There is no ceiling on achievement. All marks on the mark
scheme should be used appropriately.
 All the marks on the mark scheme are designed to be
awarded. Examiners should always award full marks if
deserved, i.e. if the answer matches the mark scheme.
Examiners should also be prepared to award zero marks if the
candidate’s response is not worthy of credit according to the
mark scheme.
 Where some judgement is required, mark schemes will
provide the principles by which marks will be awarded and
exemplification may be limited.
 When examiners are in doubt regarding the application of the
mark scheme to a candidate’s response, the team leader must
be consulted.
 Crossed out work should be marked UNLESS the candidate
has replaced it with an alternative response.
Question 1

Question The original equilibrium point is X. For each of the following Mark
Number changes, starting from X, identify the new equilibrium point in
Table 1. Each letter may be used more than once.

1(a)(i)
A rise in the wages of electric car production
workers J

An advertising campaign for electric cars

B
A fall in consumer incomes
G
An increase in subsidies for electric cars and an
increase in tax on petrol cars C
(4)

Question Electric cars require large amounts of copper. It is estimated Mark

Number that production of copper will need to be doubled over the
next 20 years.

Explain why the supply of copper might be price inelastic in

the short term.
Copper is a mineral / primary product (1) new sources need to
1(a)(ii) be found and extracted, this all takes time (1) meaning that (3)
supply cannot be increased rapidly in the short run (1)

Question It has been estimated that the price elasticity of demand for Mark
Number electric cars is price elastic.

An increase in the price of electric cars will therefore

1(a)(iii) B – decrease total revenue (1)

Question Identify and explain two factors that might make a product, Mark
Number such as electric cars, price elastic.

1(a)(iv) Identification of a factor (1 mark) with explanation (4)

(1 mark)

e.g. Many substitutes (1) there are many other types of car
such as petrol, that can be used in place of an electric car if the
price rises (1).

e.g. proportion of income (1) electric cars/cars are expensive

so even a small rise in the price, in percentage terms, will be
too much for many people (1).
Question In 2017 car production workers in the USA earned an average Mark
Number of $25.58 per hour.

The demand for labour is more important in determining wage

rates than the supply of labour. Do you agree with this
statement? Explain your reasons.

1(a)(v) Arguments suggesting the demand for labour is more

important in determining wage rates (1 mark) with
development (up to 2 marks)

• Labour is a derived demand

• Workers that make popular products will be in more
demand
• Their wages are likely to be higher than those workers
who face declining demand for the product they make

The supply of labour is more important in determining wage

rates
(1 mark) with development (up to 2 marks)

• if there are not enough workers with the right skills

• Wages will rise as employers try to attract workers
• Workers with few or no skills are likely to be paid low
wages as their supply is high

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion. E.g.

• Depends on the type of employment, if high levels of

skill needed then supply may be the determining factor
• If low level of skills then demand may be more
important in determining wage rates

(6)
Question Which of the points A, B, C, D or E represents an under Mark
Number utilisation of resources?

1(b)(i) D (1)

Question Using the data in Figure 1b, explain what is meant by Mark
Number opportunity cost.

Opportunity cost is the loss of the next best alternative (1) If

1(b)(ii) the economy moves from C to B consumer goods have to be (2)
sacrificed to increase production of capital goods (1)

Question Briefly explain why point E on Figure 1b is currently Mark

Number unobtainable.
The PPF represents all those combinations possible using all
1(b)(iii) resources (1) point E is beyond that point and there are not (2)
enough resources to produce both more consumer and
capital goods (1)

Question A mixed economy attempts to solve the economic problem of Mark

Number

1(c)(i) C (1)
Question In a mixed economy, the larger the private sector, the more Mark
Number efficient the economy will be in producing goods and services.
Do you agree with this statement? Explain your reasons.

1(c)(ii) Arguments supporting the statement (1 mark) with

development (up to 2 marks)

The larger the private sector, the more efficient because…

• There is more competition in the private sector
• As firms compete, costs are driven down resulting in
lower prices for consumers
• The profit incentive leads to more innovation and
better quality goods and services

Arguments not supporting the statement (1 mark) with

development (up to 2 marks)

The larger the private sector, the less efficient because

• Fewer public and merit goods are likely to be provided
• Competition can be wasteful e.g. excessive advertising
• Individual firms in the private sector can become too
powerful

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion
E.g.
• Some public sector provision is needed to supplement
the private sector
• Depends on the balance between the two
• Depends how well private sector is run and regulated (6)
Question 2

Question On Figure 2, label the axes and show where a firm would Mark
Number experience economies and diseconomies of scale.

2(a)(ii)

Long run
Average
Costs

Average cost on vertical axis – 1 mark

Output on horizontal axis – 1 mark
Economies of scale – 1 mark
Diseconomies of scale – 1 mark

(4)

Question With the aid of examples, explain the difference between Mark
Number internal and external economies of scale.

2(a)(ii) • Internal economies of scale are the reductions in

average costs gained as the firm expands (1)
• For example, supermarkets buy in large quantities and
can negotiate a lower price per item (1)
• External economies of scale are reductions in average (4)
cost gained as the whole industry expands (1)
• For example, the concentration of high tech firms in
‘silicon valley’ means shared expertise, infrastructure
and support facilities which reduce average costs (1)
Question Economies of scale are necessary for a firm to be competitive. Mark
Number Do you agree with this statement? Explain your reasons.

2(a)(iii) Arguments supporting the statement (1 mark) with

development (up to 2 marks)

Economies of scale are necessary for any firm to be

competitive because
• A reduction in average costs means that price can be
reduced without affecting profitability
• Price is a source of competitive advantage
• In a competitive market this can be crucial

Arguments not supporting the statement (1 mark) with

development (up to 2 marks)

Economies of scale are not necessary for any firm to be

competitive because
• Price is only one aspect of competitive advantage
• Quality of product can be the most important factor
• Many small businesses are successful despite their size

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion. E.g.

• depends on the type of market, in a niche market price

is less important
• depends on type of consumer and what they consider
important (6)
Question Using examples from Table 2 explain the difference between a Mark
Number variable cost and a fixed cost.

2(b)(i) A variable cost changes with the level of output (1) Materials (4)
are a variable cost because the more ladders they make, the
more materials they will have to buy (1)
A fixed cost does not change with the level of output (1) Rent is
a fixed cost because it has to be paid regardless of output (1)

Question In October 2017 Aluco sold 1000 ladders at $70 each. Mark
Number
Calculate the profit made by the business. You are advised to
show your working.
Profit = TR – TC (1)
2(b)(ii) TR = 1 000 x $70 = $70 000 (1)
TC = (1 000 + 500 + 1 500) + 1000 x (45 + 5 + 10) (1)
Profit = $70 000 – $63 000 = $7000 (1) (4)

Question Identify and explain one factor that may limit growth for a Mark
Number small business such as Aluco.
1 mark for factor, 1 mark for development
2(b)(iii)
Lack of finance (1) Banks are often reluctant to lend to small
businesses as they are considered risky (1) (2)
Question Like many businesses, Aluco operates in a highly competitive Mark
Number market.

Assess the effectiveness of government policies to promote

competition in a country of your choice.

2(b)(iv) Identify and explain the policies (up to 3 marks)

• e.g. in the UK government regulation of large

firms – competition and markets authority
CMA. This prevents exploitation of monopoly
power
• e.g. the UK government encourages small
firms with grants, subsidies and advice

A judgement is made as to the effectiveness of these policies

(up to 3 marks)

• Some firms still have too much power

• Small firms may become reliant on government
support and may become inefficient
• Level of support may be insufficient for small firms to
survive

(6)
Question 3

Question Identify which stage of the economic cycle Ecuador Mark

Number experienced during 2010 and during 2016. Give reasons for
your answers.
1 mark for correct identification of stage, 1 mark for
3(a)(i) development of reason

e.g. boom (1) rapid growth in space of a year from –2% to 8%

(1)
e.g. recession (1) more than two quarters of negative growth
of GDP (1) (4)

Question By the end of 2017, economic growth in Ecuador was Mark

Number increasing rapidly.

Explain two advantages of economic growth.

1 mark for advantage, 1 mark for development
3(a)(ii)
e.g. increased incomes (1) people can buy more goods and
services than before (1)

e.g. more tax revenue (1) with more tax revenue the
government can spend more on health and education to help (4)
future growth (1)
Question One disadvantage of economic growth is pollution and Mark
Number environmental damage. Ecuador uses an Environmental Tax
on Vehicle Pollution (ETVP), to reduce pollution caused by
motor vehicles.

Taxation is the best way for the government to protect the

environment. Do you agree with this statement? Explain your
answer.

3(a)(iii) Arguments supporting the statement (1 mark) with

development (up to 2 marks)

Taxation is the best way because…

• Taxation increases the cost of the polluting activity
• Less is consumed leading to a fall in pollution and less
damage to the environment
• Tax revenue can be used to protect the environment

Arguments not supporting the statement (1 mark) with

development (up to 2 marks)

Taxation is not the best way because

• It is regressive and hits less well off people the hardest
• Richer people will just continue to pollute
• The polluting activity may be price inelastic and
therefore taxes have little impact

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion. E.g.

• Depends on the size of the tax

• Taxation may well be effective if used with other
strategies such as regulation and/or education

(6)
Question In September 2017 the inflation rate in Ecuador fell to -0.03%. Mark
Number The Central Bank ofEcuador responded by reducing the
interest rate from 8.25% to 7.75%.

This is an example of

3(b)(i) A. Monetary policy (1)

Question Identify and briefly explain two possible causes of inflation. Mark
Number
1 mark for cause, 1 mark for development
3(b)(ii)
e.g. demand-pull (1) demand in the economy exceeds the
supply of goods and services forcing prices up causing
inflation (1)

e.g. cost-push (1) the price of inputs such as oil or raw (4)
materials rises which increases production costs. To maintain
profit levels, firms increase prices leading to inflation (1)

Question Consumers will always benefit from a reduction in interest Mark

Number rates. Assess this statement.
1 mark for identifying impact of reduction in interest rates
3(b)(iii) e.g. borrowing becomes cheaper (1)

Up to 3 marks for how consumers benefit

e.g.
• Consumers can afford to borrow/borrow more (1)
• This enables items such as luxury goods to be purchased
(1)
• Mortgage repayments may fall increasing real income
(1)

Evaluation 1 mark for making a judgement on likely benefit

e.g. savers will receive less interest and will not benefit (1)

(5)
Question Ecuador has one of the lowest unemployment rates in Latin Mark
Number America. In October 2017 it was 5.8%. The government
claimed that this was the result of its focus on supply side
policies.

To what extent are supply side policies the best way to reduce
unemployment in an economy?

3(c) Arguments supporting the statement that supply side policies

are the best way (1 mark) with development (up to 2 marks)

Supply side policies are the best way to reduce unemployment

because
• They can provide training and skills
• This enables unemployed workers to gain the skills
needed for work
• Incentives can attract employers to set up business in
areas of high unemployment

Arguments not supporting the statement that supply side

policies are the best way (1 mark) with development (up to 2
marks)

Supply side policies are the best way to reduce unemployment

because
• No point in training workers if jobs are not available
• Will not work on seasonal or cyclical unemployment
• Can be very expensive to implement

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion. E.g.

• Depends on what has caused the unemployment

• May be best used in conjunction with other policies

(6)
Question 4

Question The Philippines is said to be a developing country. Mark

Number
The characteristics of a developing country include

4(a)(i) C low GDP per capita, high population growth and low (1)
labour productivity

Question The European Union (EU) is the largest source of foreign direct Mark
Number investment (FDI) in the Philippines. It also provides an
estimated 250 million euros in development aid.

Explain the difference between FDI and development aid.

FDI is money invested into a country by a firm from another
4(a)(ii) country (1) Development aid is money and other forms of (2)
assistance given to one country by another country (1)

Question FDI from the EU is said to have created 500,000 jobs in the Mark
Number Philippines.

Apart from direct employment, explain two other benefits

that FDI can bring to the economy of a country such as the
Philippines.

1 mark for benefit, 1 mark for development

4(a)(iii) (4)
e.g. technology transfer (1) new technology can arrive with
foreign firms that can be used and adapted by the host
country (1)

e.g. Infrastructure (1) FDI can take the form of developing

infrastructure to help the incoming firm, this also benefits the
host country (1)
Question Mark
Number The peso is the currency of the Philippines. Between 2013
and 2017 it depreciated against the US dollar and most
major currencies.

Assess the impact this depreciation may have had on firms

involved in international trade in the Philippines.

4(a)(iv) Arguments showing negative impact of depreciation (1 mark)

with development (up to 2 marks)

• Imports become more expensive as more pesos must

be exchanged for each dollar
• Firms that import may lose profitability
• Raw materials and oil will cost more, increasing a firm’s
costs making it less competitive

Arguments showing positive aspect of depreciation (1 mark)

with development (up to 2 marks)

• Exports become cheaper as less foreign currency needs

to be exchanged for the same number of pesos
• Exporting firms become more competitive and see
increased sales
• Domestic firms that compete with the now more
expensive imports may benefit in the form of increased
sales

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion.
E.g.
• Depends on PED for imports and exports as to how
much change there will be (6)
• Depends on extent of depreciation
Question The Philippines has free trade agreements with China, India, Mark
Number Japan, Republic of Korea, Australia and New Zealand under
ASEAN (Association of Southeast Asian Nations).

Explain one advantage and one disadvantage of free trade for

a country such as the Philippines.
1 mark for advantage/disadvantage, 1 mark for development
4(b)(i)
e.g. exports no longer carry a tariff (1) They become more
competitive in foreign markets and sales increase (1)

e.g. no protection from imports (1) imports become more

competitive and may harm the sales of domestic firms (1) (4)
Question The Philippines still imposes tariffs on some imports from Mark
Number other countries, for example, potatoes are subject to a 40%
tariff.
Figure 4 shows the market for imported potatoes in the
Philippines before a tariffis imposed.

Using Figure 4 show the effect of introducing the tariff on

imported potatoes. Label any resulting changes to equilibrium
price and quantity.

4(b)(ii)

Shift of S curve to the left (1) (3)

Correct placement of Pe1 (1)
Correct placement of Qe1 (1)
Question Explain two possible reasons why the Philippines might Mark
Number impose tariffs on some imports.
1 mark for reason, 1 mark for development
4(b)(iii)
e.g. to raise revenue (1) this increases government revenue
enabling greater expenditure to improve economy (1)

e.g. to protect infant industries (1) imports become more

expensive and give domestic firms a chance to grow (1) (4)
Question In the second quarter of 2017, the Philippines’ exports of Mark
Number agricultural commodities rose by 2.6% to just over US$4bn.
This was mainly because of rising global commodity prices.

Assess the benefits that the production of commodities brings

to the economy of a country such as the Philippines.

4(c) Arguments outlining benefits (1 mark) with development (up

to 2 marks)

• Creates employment by making use of natural

resources
• Contributor to GDP and growth
• Positive contribution to current account

Arguments qualifying benefits (1 mark) with development (up

to 2 marks)

• Over reliance on commodities can be dangerous if a

substitute is found or other nations begin to produce
the same commodities
• Commodity prices are volatile and may also drop
• Which will lead to low growth

Further guidance
• Maximum for 1 sided argument (3 marks)
• Maximum for both sides (4 marks)

To reach 5–6 marks needs a reasoned judgement or

conclusion. E.g.

• Depends on the extent to which the economy relies on

the commodities
• Depends on whether the commodities are likely to
continue to be in demand
(6)