Cambridge IGCSE and O Level Economics Workbook Answer
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Cambridge IGCSE
and O Level
Economics Workbook Answers
●
●
1 The basic economic problem
1
The correct answer is Option B. Resources in
and therefore represent maximum output in the
an economy are scarce and needs and wants
economy. Point
E
is unattainable given the current
(of individuals, firms and governments) are
resources in the economy.
unlimited. Option A states that wants are limited
6
Country X could invest in machinery and/or
and resources are unlimited which is incorrect
technology and this will increase the productive
as wants are unlimited and resources limited.
capacity of the economy as more oil and wheat
See pages 2–3 in the textbook for a more detailed
can be produced with the same amount of
explanation of the basic economic problem.
resources.
2
The correct answer is Option A. Public domain
Country X could train workers to increase their
web pages are available to anybody with access
skills and this may increase their productivity as
to the internet. Access therefore is unlimited.
workers become more efficient at producing oil
The other options (running shoes, housing and
and wheat.
tennis rackets) are all limited in supply and are
therefore economic goods. See page 2 in the
Award 2 × 2 marks for stating and explaining
textbook for more examples of economic and
two ways to increase the productive capacity of
free goods.
Country X.
3
The correct answer is Option C. Selling and
See pages 132–133 and 217–218 in the textbook
distributing olive oil is in the tertiary sector of the
for more information on how to increase the
economy. Options A and D are in the secondary
productive capacity of the economy.
sector as both are part of the manufacturing
7
Examples of capital-intensive industries: car
process. Option B (growing of olive trees) is in the
manufacturing and glass making.
primary sector. See pages 5–6 in the textbook for
Examples of labour-intensive industries: garment
more detailed information on the three sectors of
manufacturing and teaching.
industry.
Award 1 mark for each relevant example of each
4
The correct answer is Option
C
. To increase
type of industry, up to the maximum of 2 marks.
production of wheat from
W
to
W
it is necessary
2
1
to decrease production of oil from
O
to
O
. This is
8
Opportunity cost is the cost of the next best
2
1
because the PPF represents the maximum amount of
alternative foregone when making a decision.
wheat and oil that can be produced at each level of
For example, if a school spends money on a new
output, with all resources used efficiently. Options
sports hall, the opportunity cost might be a new
A
and
B
are incorrect because to increase production
science laboratory which could have been built
of wheat it is necessary to decrease oil production.
instead. See page 7 in the textbook for a more
Option D requires an increase in the productive
detailed explanation of opportunity cost.
capacity of the country. See pages 7–9 in the
9
The agricultural sector has become less valuable
textbook for more detailed information on
PPFs
.
as a percentage of GDP for Country Y because
5
The correct answer is Option
B
. It is possible
the price of goods being produced may have
to increase production within the economy
fallen or people may be leaving the agricultural
without incurring an opportunity cost, i.e. it is
industry. Instead, with economic development,
possible to increase both production of wheat
these people have entered the manufacturing or
and oil without any opportunity cost. Options
service sector because earnings are higher in these
C
and
D
are on the production possibility curve
industries.
1
Cambridge IGCSE
®
and O Level Economics Workbook Answers
Cambridge IGCSE and O Level
Economics Workbook Answers
● ● 1 The basic economic problem
1 The correct answer is Option B. Resources in and therefore represent maximum output in the
an economy are scarce and needs and wants economy. Point E is unattainable given the current
(of individuals, firms and governments) are resources in the economy.
unlimited. Option A states that wants are limited
6 Country X could invest in machinery and/or
and resources are unlimited which is incorrect
technology and this will increase the productive
as wants are unlimited and resources limited.
capacity of the economy as more oil and wheat
See pages 2–3 in the textbook for a more detailed
can be produced with the same amount of
explanation of the basic economic problem.
resources.
2 The correct answer is Option A. Public domain
Country X could train workers to increase their
web pages are available to anybody with access
skills and this may increase their productivity as
to the internet. Access therefore is unlimited.
workers become more efficient at producing oil
The other options (running shoes, housing and
and wheat.
tennis rackets) are all limited in supply and are
therefore economic goods. See page 2 in the Award 2 × 2 marks for stating and explaining
textbook for more examples of economic and two ways to increase the productive capacity of
free goods. Country X.
3 The correct answer is Option C. Selling and See pages 132–133 and 217–218 in the textbook
distributing olive oil is in the tertiary sector of the for more information on how to increase the
economy. Options A and D are in the secondary productive capacity of the economy.
sector as both are part of the manufacturing
7 Examples of capital-intensive industries: car
process. Option B (growing of olive trees) is in the
manufacturing and glass making.
primary sector. See pages 5–6 in the textbook for
more detailed information on the three sectors of Examples of labour-intensive industries: garment
industry. manufacturing and teaching.
Award 1 mark for each relevant example of each
4 The correct answer is Option C . To increase
type of industry, up to the maximum of 2 marks.
production of wheat from W to W it is necessary
2 1
to decrease production of oil from O to O . This is 8 Opportunity cost is the cost of the next best
2 1
because the PPF represents the maximum amount of alternative foregone when making a decision.
wheat and oil that can be produced at each level of For example, if a school spends money on a new
output, with all resources used efficiently. Options sports hall, the opportunity cost might be a new
A and B are incorrect because to increase production science laboratory which could have been built
of wheat it is necessary to decrease oil production. instead. See page 7 in the textbook for a more
Option D requires an increase in the productive detailed explanation of opportunity cost.
capacity of the country. See pages 7–9 in the
9 The agricultural sector has become less valuable
textbook for more detailed information on PPFs .
as a percentage of GDP for Country Y because
5 The correct answer is Option B . It is possible the price of goods being produced may have
to increase production within the economy fallen or people may be leaving the agricultural
without incurring an opportunity cost, i.e. it is industry. Instead, with economic development,
possible to increase both production of wheat these people have entered the manufacturing or
and oil without any opportunity cost. Options service sector because earnings are higher in these
C and D are on the production possibility curve industries.
1
Cambridge IGCSE ® and O Level Economics Workbook Answers
Answers
The service sector may have increased in value
The introduction of the internet café causes
due to growth in the tourism industry and related
the PPF curve for the village to shift outwards,
trades. For example, an increase in tourism will
from PPC
to PPC
.
1
2
bring about income for the hotel industry, airlines,
Award 2 × 1 marks for drawing and correctly
restaurants, retail outlets (shops) and tourist
labelling the axes.
attractions.
Award 1 mark for drawing the original PPF
The change in the structure of industry in
curve.
Country Y could be due to economic growth
Award 1 mark for drawing the new PPF curve
caused by an increase in the tourism industry
to the right of the original PPF curve.
typical of a less economically developed country
See pages 7–9 in the textbook for further
such as Cambodia or Laos.
information about production possibility curves.
Award 2 × 2 marks for stating and explaining two
b
The shift is due to the increased productivity
reasons for the change in the structure of industry.
of farmers who can now get the best price
10
a
for their produce and increase yields of their
crops due to improved production techniques.
Existing and new businesses can communicate
more easily with suppliers and customers,
e.g. by using email and Skype. They can
also research the market, their competitors
Goods
and potentially access finance available for
PPC2
investment.
PPC
1
Award 2 × 2 marks for identifying and
explaining two possible reasons for increased
O
Services
productivity.
●
●
2 Economic systems
1
The correct answer is Option C. See page 12 in
options are disadvantages of operating a planned
the textbook for an overview of the three main
economy. See pages 14–15 in the textbook for an
types of economic systems. Refer to Chapter 1 in
explanation of these disadvantages.
the textbook for details about the basic economic
5
The correct answer is Option C. Production
problem (Option A) and scarcity (Option B).
takes place to fulfil people’s needs and wants,
Economic agents (Option D) refers to households
irrespective of the prevailing economic system.
and firms involved in economic activities.
Hence,
why
production should take place is
2
The correct answer is Option B. In a mixed
not a fundamental economic question. See
economy there is both a private sector
page 13 in the textbook for an explanation of
(comprising of both households and firms) and a
why the other options are key questions that
public sector (the government). See pages 17–18
economists ask.
in the textbook for an explanation of a mixed
6
Features of a planned economic system include:
economy.
production decisions are made by the
●
●
3
The correct answer is Option B. In a planned
government
economy, the government oversees production
production schedules are devised on a long-term
●
●
decisions (what, how and for whom production
basis
should take place). See page 12 in the textbook for
wage differentials are minimal
an explanation of the various types of economic
●
●
systems.
the economy prefers to be self-sufficient.
●
●
4
The correct answer is Option D. In a free market
See pages 13–14 in the textbook for an explanation
●
economy, resources are allocated on the basis of
of the above features of a planned economy.
demand and supply, e.g. highly skilled workers
7
An explanation that prices are determined by the
are paid more than those with a lack of desirable
interacting forces of demand (consumers) and
work skills. This can result in huge inequalities
supply (producers). Prices are determined when
in income and wealth (Option D). The other
2
Cambridge IGCSE
®
and O Level Economics Workbook Answers
Answers
The service sector may have increased in value The introduction of the internet café causes
due to growth in the tourism industry and related the PPF curve for the village to shift outwards,
trades. For example, an increase in tourism will from PPC to PPC .
1 2
bring about income for the hotel industry, airlines, Award 2 × 1 marks for drawing and correctly
restaurants, retail outlets (shops) and tourist labelling the axes.
attractions.
Award 1 mark for drawing the original PPF
The change in the structure of industry in curve.
Country Y could be due to economic growth Award 1 mark for drawing the new PPF curve
caused by an increase in the tourism industry to the right of the original PPF curve.
typical of a less economically developed country
See pages 7–9 in the textbook for further
such as Cambodia or Laos.
information about production possibility curves.
Award 2 × 2 marks for stating and explaining two b The shift is due to the increased productivity
reasons for the change in the structure of industry. of farmers who can now get the best price
10 a for their produce and increase yields of their
crops due to improved production techniques.
Existing and new businesses can communicate
more easily with suppliers and customers,
e.g. by using email and Skype. They can
Goods also research the market, their competitors
and potentially access finance available for
PPC2
investment.
PPC 1
Award 2 × 2 marks for identifying and
explaining two possible reasons for increased
O Services
productivity.
● ● 2 Economic systems
1 The correct answer is Option C. See page 12 in options are disadvantages of operating a planned
the textbook for an overview of the three main economy. See pages 14–15 in the textbook for an
types of economic systems. Refer to Chapter 1 in explanation of these disadvantages.
the textbook for details about the basic economic
5 The correct answer is Option C. Production
problem (Option A) and scarcity (Option B).
takes place to fulfil people’s needs and wants,
Economic agents (Option D) refers to households
irrespective of the prevailing economic system.
and firms involved in economic activities.
Hence, why production should take place is
2 The correct answer is Option B. In a mixed not a fundamental economic question. See
economy there is both a private sector page 13 in the textbook for an explanation of
(comprising of both households and firms) and a why the other options are key questions that
public sector (the government). See pages 17–18 economists ask.
in the textbook for an explanation of a mixed
6 Features of a planned economic system include:
economy.
● ● production decisions are made by the
3 The correct answer is Option B. In a planned government
economy, the government oversees production
● ● production schedules are devised on a long-term
decisions (what, how and for whom production
basis
should take place). See page 12 in the textbook for
wage differentials are minimal
an explanation of the various types of economic ● ●
systems. ● ● the economy prefers to be self-sufficient.
4 The correct answer is Option D. In a free market ● See pages 13–14 in the textbook for an explanation
economy, resources are allocated on the basis of of the above features of a planned economy.
demand and supply, e.g. highly skilled workers 7 An explanation that prices are determined by the
are paid more than those with a lack of desirable interacting forces of demand (consumers) and
work skills. This can result in huge inequalities supply (producers). Prices are determined when
in income and wealth (Option D). The other
2
Cambridge IGCSE ® and O Level Economics Workbook Answers
Answers
the demand for and supply of a product are equal
9
A planned economic system enables basic needs
(in equilibrium). See page 15 in the textbook for
to be met for everyone in society. By contrast,
an explanation. An appropriate example must be
production is disproportionately geared towards
provided for full marks.
those with high incomes and wealth in market
economies. See page 16 in the textbook for a more
8
a
An economic system that comprises both a
detailed explanation.
public sector and a private sector.
Alternatively, a combination of planned and
10
Arguments in favour of a free market economy,
free market economies.
include:
See page 12 in the textbook for a definition
greater efficiency
●
of a mixed economy, and pages 17–18 for an
freedom of choice/more competition
●
explanation of mixed economies.
incentives to work and to innovate.
●
b
Reasons why most countries operate mixed
Possible disadvantages of a free market economy
economies include:
include:
misallocation of resources under a free
●
●
environmental issues
market economy (see Chapter 5 in the
●
●
textbook to read more about market
income and wealth inequalities
●
failures), e.g. merit goods, demerit goods,
social hardship, i.e. inequalities in the
●
public goods and externalities
distribution of income and wealth
government intervention is required for
wasteful competition
●
●
●
numerous reasons, e.g. environmental
the existence of unregulated monopolies.
●
protection and to redistribute income and
See pages 16–17 in the textbook for an explanation
wealth (through the tax system)
of the advantages and disadvantages of market
government intervention is also required to
●
●
economies.
regulate and control the activities of private
sector firms in mixed economies, e.g.
Award up to 5 marks for a one-sided answer.
employment rights and anti-competitive
Award up to 8 marks for a balanced answer that
business activities.
considers both advantages and disadvantages of a
Award 1–3 marks for a brief explanation which
free market economic system.
●
shows a limited understanding.
Award 4–6 marks for an explanation which
●
shows a good level of understanding. The
use of appropriate examples should be
demonstrated.
●
●
3 Demand and supply
1
The correct answer is Option A. Effective demand
for an explanation of why an increase in interest
is used to suggest that demand is backed by both
rates will affect borrowing, spending and saving.
the ability and the willingness of customers to pay
4
The correct answer is Option A. Customers who
a certain price to buy a particular good or service.
buy shampoo are likely to need conditioner
See page 20 in the textbook for further guidance.
too. Option C is incorrect as sugar is not jointly
demanded with tea (indeed, not all tea drinkers
2
The correct answer is Option D. If consumers
use sugar, and it really depends on the type of tea
become more aware of the health issues related
being considered). Options B and D are examples
to sugar, they are less likely to buy sugar, shifting
of substitute products.
the demand curve to the left. See pages 23–24
in the textbook to read about the differences
5
The correct answer is Option D. At $10 per unit,
between shifts and movements in demand.
supply is 21
000 units whilst demand is only
18
000 units, i.e. there is excess supply (a surplus,
3
The correct answer is Option C. Higher interest
rather than a shortage) of 3000 units.
rates in China make it more expensive to borrow
money to buy cars and encourage more saving
6
A movement along the demand curve is caused
rather than spending. See page 104 in the textbook
by changes in the price of a good or service.
3
Cambridge IGCSE
®
and O Level Economics Workbook Answers
Answers
the demand for and supply of a product are equal 9 A planned economic system enables basic needs
(in equilibrium). See page 15 in the textbook for to be met for everyone in society. By contrast,
an explanation. An appropriate example must be production is disproportionately geared towards
provided for full marks. those with high incomes and wealth in market
8 a An economic system that comprises both a economies. See page 16 in the textbook for a more
public sector and a private sector. detailed explanation.
Alternatively, a combination of planned and 10 Arguments in favour of a free market economy,
free market economies. include:
See page 12 in the textbook for a definition greater efficiency
●
of a mixed economy, and pages 17–18 for an freedom of choice/more competition
●
explanation of mixed economies.
● incentives to work and to innovate.
b Reasons why most countries operate mixed
Possible disadvantages of a free market economy
economies include:
include:
● ● misallocation of resources under a free
environmental issues
market economy (see Chapter 5 in the ● ●
textbook to read more about market ● income and wealth inequalities
failures), e.g. merit goods, demerit goods, social hardship, i.e. inequalities in the
●
public goods and externalities distribution of income and wealth
● ● government intervention is required for ● wasteful competition
numerous reasons, e.g. environmental
● the existence of unregulated monopolies.
protection and to redistribute income and
wealth (through the tax system) See pages 16–17 in the textbook for an explanation
of the advantages and disadvantages of market
● ● government intervention is also required to
economies.
regulate and control the activities of private
sector firms in mixed economies, e.g. Award up to 5 marks for a one-sided answer.
employment rights and anti-competitive Award up to 8 marks for a balanced answer that
business activities. considers both advantages and disadvantages of a
Award 1–3 marks for a brief explanation which free market economic system.
●
shows a limited understanding.
● Award 4–6 marks for an explanation which
shows a good level of understanding. The
use of appropriate examples should be
demonstrated.
● ● 3 Demand and supply
1 The correct answer is Option A. Effective demand for an explanation of why an increase in interest
is used to suggest that demand is backed by both rates will affect borrowing, spending and saving.
the ability and the willingness of customers to pay
4 The correct answer is Option A. Customers who
a certain price to buy a particular good or service.
buy shampoo are likely to need conditioner
See page 20 in the textbook for further guidance.
too. Option C is incorrect as sugar is not jointly
2 The correct answer is Option D. If consumers demanded with tea (indeed, not all tea drinkers
become more aware of the health issues related use sugar, and it really depends on the type of tea
to sugar, they are less likely to buy sugar, shifting being considered). Options B and D are examples
the demand curve to the left. See pages 23–24 of substitute products.
in the textbook to read about the differences 5 The correct answer is Option D. At $10 per unit,
between shifts and movements in demand. supply is 21 000 units whilst demand is only
18 000 units, i.e. there is excess supply (a surplus,
3 The correct answer is Option C. Higher interest
rather than a shortage) of 3000 units.
rates in China make it more expensive to borrow
money to buy cars and encourage more saving 6 A movement along the demand curve is caused
rather than spending. See page 104 in the textbook by changes in the price of a good or service.
3
Cambridge IGCSE ® and O Level Economics Workbook Answers
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