IGCSE Economics 0455 Paper 2 Practice Paper (Set 2)

IGCSE Economics 0455 Paper 2 Practice Paper (Set 2) | 100 marks, 2 hours 15 minutes

2026-10-30

IGCSE Economics 0455 Paper 2, Set 2 (2 hours 15 minutes, 100 marks)

IGCSE Economics 0455 Paper 2 practice paper, set 2: 8 structured questions, 100 marks, 2 hours 15 minutes, covering demand and supply equilibrium, price elasticity of demand, subsidy incidence, the marginal revenue product of labour, the consumer price index, the current account and the J-curve, evaluation of indirect tax and GDP per capita comparisons, with full worked answers and a mark scheme.

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Paper details　Level: IGCSE ｜ Subject: Economics 0455 ｜ Paper 2 ｜ Time: 2 hours 15 minutes ｜ Marks: 100 ｜ Questions: 8 ｜ Calculator allowed

Question 1 (12 marks)

Study the market information below and answer the questions.

#	Question	Answer and marking notes
1	A brand of chocolate cookies (500 g per box) has the following market data: at a price of 20, quantity demanded is 400 thousand boxes and quantity supplied is 100 thousand boxes; at 40 the figures are 300 and 300; at 60 they are 200 and 500. (a) Calculate the shortage at a price of 20. (2 marks) (b) State the equilibrium price and quantity and explain how the market returns to equilibrium. (4 marks) (c) If the government sets a maximum price of 20, state two non-price rationing methods that may appear. (3 marks) (d) If the price of cocoa beans rises, how will the equilibrium price and quantity change? (3 marks)	(From the table: Qd = 500 – 5P and Qs = 10P – 100.) (a) Shortage = 400 – 100 = 300 thousand boxes. (2) (b) Equilibrium price 40, equilibrium quantity 300 thousand boxes. Quantity demanded equals quantity supplied, so there is neither a shortage nor a surplus; sellers need not cut prices and buyers need not bid higher, so the price is stable. (4) (c) Queuing on a first-come-first-served basis, ration coupons or purchase limits, sellers allocating stock to regular customers, balloting – any two. (3) (d) Higher costs reduce supply (the supply curve shifts left), so the equilibrium price rises and the equilibrium quantity falls. (3)

Question 2 (12 marks)

Study the information below and answer the questions.

#	Question	Answer and marking notes
2	The price of a brand of instant noodles rises from 25 to 30 and monthly sales fall from 500 to 440 cartons. (a) Calculate the price elasticity of demand, showing your working. (4 marks) (b) State whether demand is elastic, unit elastic or inelastic. (2 marks) (c) Calculate total revenue before and after the price rise and state the change. (3 marks) (d) What should the producer consider before raising the price again? (3 marks)	(a) Percentage change in price = (30 – 25) / 25 x 100 = 20 per cent; percentage change in quantity = (440 – 500) / 500 x 100 = -12 per cent; price elasticity of demand = -12 per cent / 20 per cent = -0.6. (4) (b) The numerical value 0.6 is less than 1, so demand is inelastic. (2) (c) Revenue before = 25 x 500 = 12,500; revenue after = 30 x 440 = 13,200; revenue rises by 700. (3) (d) When demand is inelastic a price rise raises revenue, but the producer must consider whether rivals will follow, whether consumers will switch to substitutes, the fact that elasticity usually rises in the long run, and the effect on brand image. (3)

Question 3 (13 marks)

Study the information below and answer the questions.

#	Question	Answer and marking notes
3	To promote renewable energy the government pays a subsidy of 1.5 for every solar panel sold. Before the subsidy the market price is 12 and monthly sales are 80,000 panels; after the subsidy the price falls to 11 and sales rise to 92,000 panels. (a) Calculate the total monthly cost of the subsidy to the government. (3 marks) (b) Calculate the benefit of the subsidy received by consumers and by producers. (4 marks) (c) Explain why the benefit is shared between consumers and producers. (3 marks) (d) State one drawback of such a subsidy. (3 marks)	(a) Total cost = 1.5 x 92,000 = 138,000. (3) (b) Consumer benefit = price fall 1 x 92,000 = 92,000; producer benefit = (1.5 – 1) = 0.5 per panel x 92,000 = 46,000. Together they equal the total cost of 138,000. (4) (c) The subsidy increases supply and lowers the price, but the price falls by less than the subsidy, so producers keep part of it. The split depends on the elasticities of demand and supply: the more inelastic supply is, the more producers keep. (3) (d) Taxpayers bear the cost, output may be excessive and resources wasted, the benefit often goes to better-off households, and firms may become dependent on the subsidy and stop cutting costs – any one. (3)

Question 4 (13 marks)

Study the factory data below and answer the questions.

#	Question	Answer and marking notes
4	A factory employing 5 workers produces 300 units a day. With one more worker daily output rises to 345 units. Each worker is paid 60 a day and each unit sells for 2. (a) Calculate the marginal product of the sixth worker. (2 marks) (b) Calculate the marginal revenue product of that worker. (3 marks) (c) Should the factory hire the sixth worker? Use the figures to explain. (4 marks) (d) How would your answer change if the price of the product fell to 1.2? (4 marks)	(a) Marginal product = 345 – 300 = 45 units. (2) (b) Marginal revenue product = 45 x 2 = 90. (3) (c) Yes: the marginal revenue product of 90 is greater than the daily wage of 60, so one more worker adds 30 to profit. (4) (d) At a price of 1.2 the marginal revenue product is 45 x 1.2 = 54, less than the wage of 60, so hiring the sixth worker would cut profit by 6 and the factory should not hire. (4)

Question 5 (12 marks)

Study the consumer price index data below and answer the questions.

#	Question	Answer and marking notes
5	The weights and index numbers in the consumer price index basket of a country are: food weight 40 per cent, index 130; housing weight 30 per cent, index 115; transport weight 20 per cent, index 110; other items weight 10 per cent, index 105 (base year = 100). (a) Calculate the weighted consumer price index for the year. (4 marks) (b) Calculate the rate of inflation. (2 marks) (c) How does inflation affect savers? (3 marks) (d) Why might the consumer price index overstate the rise in the cost of living? (3 marks)	(a) Weighted index = 0.4 x 130 + 0.3 x 115 + 0.2 x 110 + 0.1 x 105 = 119. (4) (b) Inflation rate = 119 – 100 = 19 per cent. (2) (c) The real purchasing power of savings falls: if the interest rate is below 19 per cent, the real return is negative and savers can buy less in future. (3) (d) Weights are updated only occasionally and ignore substitution between products, quality improvements are hard to strip out, and regional differences are not fully reflected – any two. (3)

Question 6 (12 marks)

Study the balance of payments data below and answer the questions.

#	Question	Answer and marking notes
6	The figures for a country over one year (in billions of US dollars) are: goods exports 220, goods imports 260; services exports 90, services imports 60; net income -5; net current transfers +2. (a) Calculate the visible trade balance. (2 marks) (b) Calculate the services balance. (2 marks) (c) Calculate the current account balance and state whether it is a surplus or a deficit. (4 marks) (d) How does a depreciation improve the current account? Explain the J-curve. (4 marks)	(a) Visible balance = 220 – 260 = -40 billion (a deficit). (2) (b) Services balance = 90 – 60 = +30 billion (a surplus). (2) (c) Current account = -40 +30 -5 +2 = -13 billion, a deficit. (4) (d) A depreciation makes exports cheaper in foreign currency and imports dearer, so export volumes rise and import volumes fall, improving the current account. In the short run, however, contracts are already priced and demand responds slowly, so the balance may worsen before it improves – the J-curve. (4)

Question 7 (13 marks)

Study the policy information below and answer the questions.

#	Question	Answer and marking notes
7	To reduce sugar intake the government imposes a tax of 0.5 per litre on sugary drinks. Before the tax the price is 3 per litre and monthly sales are 40 million litres; afterwards the retail price is 3.5 and sales fall to 34 million litres. (a) Calculate the percentage change in quantity demanded. (3 marks) (b) Calculate the monthly tax revenue. (3 marks) (c) Is this a direct or an indirect tax? Explain. (3 marks) (d) State two criteria for judging whether the tax has worked. (4 marks)	(a) Change in quantity = (34 – 40) / 40 x 100 = -15 per cent, a fall of 15 per cent. (3) (b) Revenue = 0.5 x 34 million litres = 17 million. (3) (c) It is an indirect tax: the retailer collects it within the price and passes it to the government, the taxpayer (the consumer) differs from the payer (the seller), and it is charged per unit so it can be passed on. (3) (d) Criteria include: whether sales fell noticeably, the burden on low-income households (regressiveness), whether substitutes or health awareness changed, the use of the revenue and the administrative cost, and whether cross-border buying or a black market appeared – any two, each with a way of measuring it. (4)

Question 8 (13 marks)

Study the data for two countries below and answer the questions.

#	Question	Answer and marking notes
8	Country A has a GDP of 600 billion US dollars and a population of 30 million; country B has a GDP of 240 billion US dollars and a population of 16 million. This year real GDP in country A grows by 5 per cent and its population grows by 2 per cent. (a) Calculate GDP per head in both countries. (4 marks) (b) Calculate the growth rate of GDP per head in country A. (4 marks) (c) State two limitations of using GDP per head to compare living standards. (5 marks)	(a) Country A = 600 / 30 million x 1,000 = 20,000; country B = 240 / 16 million x 1,000 = 15,000. (4) (b) Growth of GDP per head = (1.05 / 1.02 – 1) x 100 = 2.94 per cent (about 2.9 per cent); the new level is 20,588. (4) (c) Limitations include: non-market and subsistence output is left out, the distribution of income is ignored, environmental costs and pollution are not measured, leisure and quality of life are omitted, exchange-rate conversion distorts comparisons, and education and health are not reflected – any two, explained. (5)

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