Cambridge IGCSE Economics: Living standards and poverty (0455) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

This set tests sections 5.1 and 5.2 of the Cambridge IGCSE Economics 0455 syllabus for examination in 2026. All countries and figures are invented. Teaching is in the study guide and the revision notes. Other links: the Cambridge IGCSE Economics hub, the printable checklist and the free diagnostics.

Questions

1. Define real GDP per head. [2]

2. In an illustrative year, Country K has nominal GDP of 1,260 billion, a price index of 105 (base year 100) and a population of 40 million.

(a) Calculate real GDP. [1] (b) Calculate real GDP per head. [1] (c) Explain why real GDP is better than nominal GDP for comparing living standards over time. [2]

3. Country L has consumption of 520, investment of 160, government spending of 150, exports of 140 and imports of 90 (billions).

(a) Calculate GDP. [2] (b) Imports rise to 120 with everything else unchanged. Calculate the new GDP. [2]

4. Country M has real GDP of 800 billion and a population of 25 million in year 1, and real GDP of 840 billion and a population of 25.5 million in year 2.

(a) Calculate real GDP per head in each year. [2] (b) Calculate the percentage change in real GDP per head, to 2 decimal places. [2] (c) Explain why a rise in real GDP may not mean higher living standards. [2]

5. A simplified index gives equal weight to a health index, an education index and an income index. The health index is (life expectancy - 20) / 65.

(a) Identify the three components of the Human Development Index. [3] (b) Country P has life expectancy 65 years, education index 0.70 and income index 0.45. Calculate its simplified index to 3 decimal places. [3] (c) Explain one advantage of the HDI over real GDP per head. [2]

6. Analyse two reasons why living standards are lower in some countries than in others. [6]

7. Mean income per person in both Country R and Country S is 8,000. Income shares by quintile (fifths of households) are:

	Poorest	2nd	3rd	4th	Richest
Country R	3%	6%	12%	19%	60%
Country S	7%	12%	17%	24%	40%

(a) Calculate income per person in the poorest and richest quintiles in Country R. [2] (b) Calculate how many times larger the richest share is than the poorest share in each country, to 1 decimal place. [2] (c) Explain two reasons why income may be distributed unequally within a country. [4]

8. In Country T the cost of a basic basket of necessities is 4,500 a year. Median household income is 15,000. Relative poverty is defined as income below 60% of the median. Four households earn: A 4,000; B 8,500; C 9,500; D 16,000.

(a) Distinguish between absolute poverty and relative poverty. [4] (b) Identify the households in absolute poverty and in relative poverty. [3] (c) Later, median income rises to 18,000 and household B earns 9,200. Explain why B is relatively poor although its income has risen. [3]

9. Explain how each of the following can cause poverty.

(a) Age [3] (b) Low wages [3]

10. Country U taxes income at 0% on the first 6,000, 12% on income from 6,000 to 30,000 and 32% on income above 30,000.

(a) Calculate the tax paid and the average tax rate on incomes of 10,000 and 40,000, to 2 decimal places where needed. [4] (b) Explain why this tax is progressive. [2] (c) Analyse how the government could use the revenue to reduce poverty. [2]

11. In a labour market, demand equals supply at a wage of 4 with 1,000 workers. A national minimum wage of 6 is introduced. At 6, demand is 850 workers and supply is 1,150.

(a) Calculate the number of unemployed workers at the minimum wage. [2] (b) Calculate the change in the total pay bill. [3] (c) Discuss whether a national minimum wage is an effective way to reduce poverty. [6]

12. Country Z’s real GDP rises by 3% and its population by 3.5%.

(a) Calculate the percentage change in real GDP per head, to 2 decimal places. [2] (b) Discuss whether improved education is likely to reduce poverty more effectively than more generous state benefits in Country Z. [8]

Answers

1. Real GDP (GDP adjusted for price changes) [1] divided by the population [1]. [2] Examiner insight: “Real” and “divided by population” are the two ideas to state; “average income” on its own is too vague to show both.

2. (a) 1,260 / 105 x 100 [1] = 1,200 billion. [1] (b) 1,200 billion / 40 million = 30,000 [1]. [1] (c) Nominal GDP can rise purely because prices rise [1]; real GDP removes inflation, so changes show changes in output and what people can buy [1]. [2] Examiner insight: Show the division by the price index. The explanation needs the contrast between price change and output change.

3. (a) GDP = C + I + G + (X - M) = 520 + 160 + 150 + (140 - 90) [1] = 880 [1]. [2] (b) 520 + 160 + 150 + (140 - 120) [1] = 850 [1]. [2] Examiner insight: Imports are subtracted. Adding them is a common slip, so write out the formula before substituting.

4. (a) Year 1: 800 billion / 25 million = 32,000 [1]; year 2: 840 billion / 25.5 million = 32,941 [1]. [2] (b) (32,941 - 32,000) / 32,000 x 100 [1] = 2.94% [1]. [2] (c) Population may grow as fast as or faster than output, so output per person falls [1]; or the gains may go to a few people, so most households see no improvement [1]. [2] Examiner insight: Real GDP grew 5%, yet per head grew less than 3%. Quote both numbers if you can, to prove you used the data.

5. (a) Health (life expectancy) [1]; education (years of schooling) [1]; income per head [1]. [3] (b) Health index = (65 - 20) / 65 = 0.692 [1]; sum = 0.692 + 0.70 + 0.45 = 1.842 [1]; average = 1.842 / 3 = 0.614 [1]. [3] (c) The HDI includes health and education, not only income [1], so it shows well-being better where income is high but people are unhealthy or poorly educated [1]. [2] Examiner insight: An advantage needs a “so” or “because” that links it to living standards. Saying “it is more accurate” is a bare claim.

6. Reason 1 identified, for example low capital or technology [1]; developed: less output per worker, so lower incomes, so less spending and saving [1] and lower living standards [1]. Reason 2, for example poor education and health [1]; developed: lower productivity, so lower wages [1] and less tax revenue for services [1]. [6] Examiner insight: Other reasons that work: unstable institutions, debt, conflict, lack of trade links. Each needs a chain; a list of four reasons earns less than two developed ones.

7. (a) Poorest: 0.03 x 5 x 8,000 = 1,200 [1]; richest: 0.60 x 5 x 8,000 = 24,000 [1]. [2] (b) R: 60 / 3 = 20.0 [1]; S: 40 / 7 = 5.7 [1]. [2] (c) Reason 1, for example unequal ownership of land or wealth [1], so some earn rents and profits others cannot [1]. Reason 2, for example differences in education and skills [1], so pay differs widely between jobs [1]. [4] Examiner insight: Both countries have the same mean income, so use that to say that the mean alone hides the difference.

8. (a) Absolute: income too low to buy basic necessities, a fixed standard [1][1]. Relative: income much lower than most others in the same society, a standard that moves with average incomes [1][1]. [4] (b) Relative line = 0.6 x 15,000 = 9,000. Absolute: A only [1]. Relative: A [1] and B [1]. [3] (c) New line = 0.6 x 18,000 = 10,800 [1]. B’s 9,200 is below this [1]. The line rose by 20% but B’s income by only 8.2%, so B fell behind the typical household [1]. [3] Examiner insight: Show the line calculation. C is above the line (9,500), a common check you can make.

9. (a) Older people may have retired and rely on small pensions or savings [1]; young and elderly people cannot earn, so their households depend on others’ wages [1]; spending needs, such as health care, may rise as incomes fall [1]. [3] (b) Low wages arise from low skills or low productivity [1]; wages may not cover basics, especially in households with many dependants [1]; weak bargaining power or part-time hours keep pay down [1]. [3] Examiner insight: A chain from cause to low income to unmet needs gains more credit than the phrase “they cannot afford things”.

10. (a) 10,000: 0.12 x 4,000 = 480 [1]; average 480 / 10,000 = 4.8% [1]. 40,000: 0.12 x 24,000 + 0.32 x 10,000 = 2,880 + 3,200 = 6,080 [1]; average 6,080 / 40,000 = 15.2% [1]. [4] (b) The average rate rises as income rises (4.8% to 15.2%) [1], so higher earners pay a higher proportion of income [1]. [2] (c) Revenue can fund benefits or education [1], which raises incomes of poor households or their future earning power [1]. [2] Examiner insight: Progressive concerns the proportion, not the amount. Quote both average rates to prove it.

11. (a) Unemployed = supply - demand [1] = 1,150 - 850 = 300 [1]. [2] (b) Before: 1,000 x 4 = 4,000 [1]. After: 850 x 6 = 5,100 [1]. Change = +1,100 [1]. [3] (c) For: those who keep jobs earn more [1], lifting some households out of poverty [1]. Against: demand for labour falls, so some lose jobs [1] and may become poorer than before [1]. Evaluation: the effect depends on the level of the minimum wage relative to the market wage [1] and on how responsive demand for labour is; a judgement is reached [1]. [6] Examiner insight: Use the data: 300 unemployed and a pay bill 1,100 higher. A judgement that names a condition is better than “it depends”.

12. (a) 1.03 / 1.035 [1] - 1 = -0.48% [1]. [2] (b) Education: raises skills, productivity and wages [1], reduces unemployment and so reliance on benefits [1]; but it is costly [1] and takes years to work, with the poorest possibly not attending [1]. Benefits: raise income at once [1] and help those who cannot work, such as the old and ill [1]; but cost taxpayers and may reduce work incentives [1]. Judgement with reason: education is better for long-run reduction, benefits for immediate relief; with falling output per head, benefits may be needed first [1]. [8] Examiner insight: Weigh the two policies against each other on speed, cost and who gains. Two separate descriptions with no comparison leave the judgement unsupported.

Where marks are usually lost

• Leaving out “real” or “per head” in definitions.
• Using nominal GDP in a question about real values, or forgetting to divide by population.
• Subtracting the wrong way in unemployment: supply minus demand.
• Describing the HDI without naming its three parts.
• Treating relative poverty as the same as being at the bottom of the distribution in a poor country.
• Defining progressive tax by the amount paid rather than the proportion.
• Writing “it depends” instead of a reasoned judgement with a stated condition.
• Not showing the line or formula before substituting numbers.

Next steps

• Revise with the revision notes and the study guide.
• Go to the Cambridge IGCSE Economics hub and tick off topics on the printable checklist.
• Take the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment (Cambridge International Education): sections 5.1 and 5.2.