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4350/2HLondon ExaminationsIGCSEEconomicsPaper 2HHigher TierWednesday 9 May 2007 – MorningTime: 2 hours 15 minutes

Materials required for examination Items included with question papersCalculator Nil

Instructions to CandidatesIn the boxes above, write your centre number, candidate number, your surname, initials and signature. Check that you have the correct question paper.Some questions must be answered with a cross in a box ( ).If you change your mind about an answer, put a line through the box ( ) and then mark your new answer with a cross ( ).Answer ALL the questions. Write your answers in the spaces provided in this question paper.

Information for CandidatesThe marks for individual questions and the parts of questions are shown in round brackets: e.g. (2).There are 4 questions in this question paper. The total mark for this paper is 100. There are 20 pages in this question paper. Any blank pages are indicated.Calculators may be used.

Advice to CandidatesWrite your answers neatly and in good English.You are advised to spend the same amount of time on each of the 4 questions.

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1. Study the information given in Figure 1.

Figure 1

2005–2012 (estimated change)

Demand for diamonds +50%

Supply of diamonds No change

Price of diamonds +30%

Figure 2, below, represents the market for diamonds.

(a) (i) On Figure 2, below, draw a demand and supply curve for diamonds in 2005. Label the demand curve, D, the supply curve, S, equilibrium price, P, and equilibrium quantity, Q.

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Figure 2

(ii) On Figure 2, draw a new demand curve to show the rise in the price of diamonds between 2005–2012. Show the new equilibrium Price PP1 and Quantity QQ1.

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(b) (i) Identify two reasons why the demand for diamonds might change by +50%.

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Price

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(ii) Using the information given in Figure 1, estimate the elasticity of supply for diamonds. Explain your answer.

Elasticity of supply = _______________(1)

Explanation:

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(c) (i) Define income elasticity of demand.

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(ii) What is meant by a normal good?

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(iii) Explain why diamonds are considered normal goods.

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(d) (i) Botswana is one of the world’s largest producers of diamonds. It has a mixed economy. Explain two characteristics of a mixed economy.

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(ii) Consider an economy of your choice. To what extent can it be described as a mixed economy?

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2. Alan Wong is a taxi driver. Like many other taxi drivers in his city, he owns his taxi and runs his own business. His monthly costs are show in Figure 3.

Figure 3Costs June

$July

$Petrol 200 350Loan repayment 100 100Insurance 60 60Licence fee 50 50Advertising 40 40Telephone charges 50 70

Figure 4June July

Number of customers 250 300

(a) (i) Using Figure 3, calculate Alan’s total costs for June.

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(ii) Alan had 250 customers in June. Calculate the average cost. Show your workings.

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(iii) Using examples from Figure 3, distinguish between fixed and variable costs.

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(b) In a nearby city The Red Taxi Company has a monopoly.

(i) Identify two main features of a monopoly.

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(ii) Is such a monopoly good or bad for customers? Give reasons for your answer.

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(c) (i) Briefly explain two ways in which a government can promote competition in an economy.

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(ii) To what extent have government measures to promote competition been successful in a country of your choice?

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3. Figure 5

Income $ per year $ per year taken in tax

Tax A Tax B Tax C10 000 1 000 1 000 1 00020 000 2 000 2 500 1 00030 000 3 000 4 000 1 00040 000 4 000 6 000 1 000

Study Figure 5 above.

(a) Which of the taxes, A, B or C is

(i) Progressive = _________________________

(ii) Proportional = _________________________(2)

(b) (i) Define “indirect taxation”. Give an example.

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(ii) Identify two ways, other than taxation, in which a government can raise revenue.

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(c) (i) Identify two measures of supply side policy.

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(ii) Can supply side policies reduce unemployment? Justify your answer.

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(d) (i) What is meant by inflation?

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(ii) “During periods of inflation there are winners and losers.” Do you agree with this statement? Justify your answer.

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(iii) One policy to reduce the rate of inflation is raising the rate of interest. Assess the effects of this policy on other economic objectives.

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4. The Multi-Fibre Agreement set a limit on the number of textile imports from developing countries to Europe. This agreement ended in 2005. Figure 6 below shows some changes after the agreement ended.

Figure 6China: Lower costs in clothing manufacturing led to a rapid increase in clothing exports.

Philippines: Export earnings from clothing fell by 50%.

Cambodia: Clothing accounted for 90% of export earnings before 2005. Since 2005, 20,000 workers have been laid off.

European Union: Cheap imports from China are forecast to eventually lead to 250,000 job losses.

(a) Study the information given in Figure 6. State one effect that the ending of the Multi-Fibre Agreement had on each of the following countries:

(i) China:

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(ii) Philippines:

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(iii) Cambodia:

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(b) (i) What type of trade restriction was the Multi-Fibre Agreement? Place a cross in the correct box.

Quota

Tariff

Exchange control

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(ii) Explain how a subsidy can reduce imports.

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(iii) On Figure 7 below show how tariffs can reduce imports of a good. Explain the diagram.

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Price

Quantity

Supply of imported good

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(c) (i) Explain what is meant by a trading bloc.

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(ii) Explain why trade is likely to increase when a country joins a trading bloc.

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(iii) Could the disadvantages of joining a trading bloc be greater than the advantages? Give reasons for your answer.

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(d) (i) In 2001 China joined the WTO (World Trade Organisation). State two aims of the WTO.

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(ii) What do other WTO members gain from Chinese membership?

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TOTAL FOR PAPER: 100 MARKS

END

Q4

(Total 25 marks)

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