Cambridge O Level Economics: Poverty (2281) – 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.

These questions cover section 5.2 (Poverty, 5.2.1 to 5.2.3) of the Cambridge O Level Economics (2281) syllabus for examination in 2026, version 2. There are no tiers. Every country, household and figure is invented and illustrative. Revise first with the study guide and the revision notes. Other links: the Cambridge O Level Economics hub, the printable checklist and the free diagnostics. Show your working, then read the worked answer.

Questions

1. Define absolute poverty. [2]

2. Seven households in Country S have these incomes per person per month: 25, 48, 60, 72, 95, 130 and 250. The basic basket costs 55 per person per month. Here the relative poverty line is set at 60% of the median, and a household is poor if it falls below it.

(a) State the median income. [1] (b) Calculate the relative poverty line. [1] (c) Identify the households in absolute poverty and those in relative poverty. [2] (d) Explain why a country can have more households below the absolute line than below the relative line. [2]

3. Explain two causes of poverty, one of which must be illness. [4]

4. In Country S a household of three has one earner on 1.8 an hour. The absolute poverty line is 70 per person per month. Use 4 weeks to a month.

(a) The earner works 35 hours a week. Calculate the household income per person per month and state whether the household is in absolute poverty. [3] (b) Hours are cut to 25 a week. Calculate the new income per person and the percentage fall in household income. [2]

5. In Country T real GDP rises by 6.5% and population by 2.5%.

(a) Calculate the percentage rise in real GDP per head (one decimal place). [2] (b) The income of the poorest fifth of households rises 3% while the median income rises 6.5%. Explain what happens to relative poverty. [3]

6. Country U (illustrative) charges a monthly income tax: 0% on the first 300, 10% on income from 300 to 1,000, and 30% on income above 1,000.

(a) Calculate the tax paid by households with incomes of 250, 800 and 2,000. [3] (b) Calculate the average tax rate for each and state whether the tax is progressive. [2] (c) Calculate how many times larger the 2,000 income is than the 250 income before tax and after tax. [2] (d) Evaluate the use of this tax to reduce poverty. [3]

7. A worker on state benefit takes a job and earns 120 more a month, but the benefit falls by 78. Calculate the extra income kept and the withdrawal rate, and explain why a high withdrawal rate may keep people in poverty. [4]

8. A training course costs 3,000 and raises a worker’s earnings by 125 a month.

(a) Calculate the payback period in years. [2] (b) Explain why improved education may not reduce poverty quickly for the poorest households. [3]

9. The labour market for unskilled workers in Country V (illustrative) has demand for workers = 700 - 100W and supply of workers = 100 + 100W, where W is the hourly wage. A national minimum wage of 3.5 is introduced.

(a) Find the equilibrium wage and employment, then employment and the supply of workers at 3.5. [3] (b) Calculate the response of employment to the wage rise, using percentage changes. [2] (c) Calculate the change in the total wage bill of the workers employed, in per cent to one decimal place. [2] (d) Discuss whether the minimum wage is a good way to reduce poverty. [4]

10. In Country W, 600,000 people live below the absolute poverty line. A survey finds that 50% of them are elderly, 30% are in households with an unemployed adult and 20% are in work but low paid. The government can spend on only one of: higher state pensions, an unemployment programme with retraining, or a higher minimum wage. Calculate the number in each group, then discuss which policy to choose. [8]

11. In Country X the price of the basic basket rises 8% in a year, from 80 per person per month. A household’s income per person rises 5% from 82. Calculate the new poverty line and income, and explain how the household can be poorer in real terms even though its income has risen. [4]

Answers

1. Absolute poverty is when a person or household lacks the income to buy the minimum needed to live, such as food, water, shelter and clothing [1], measured against a fixed standard, the cost of a basic basket [1]. [2] Examiner insight: Name what is lacking and say the standard is fixed; that is what a good definition contains. “Being very poor” restates the question and gives nothing to credit.

2. (a) The income in the middle of seven ranked values is 72 [1]. (b) 0.6 x 72 = 43.2 [1]. (c) Absolute (below 55): households on 25 and 48 [1]. Relative (below 43.2): only the household on 25 [1]. (d) The absolute line is a fixed basket cost, while the relative line depends on the median [1]. If the basket costs more than 60% of the median, as here (55 against 43.2), the absolute line is higher and catches more households [1]. [6] Examiner insight: Rank the incomes before choosing the median, then test each household against each line.

3. Illness: treatment costs money and sickness reduces hours worked, so household income falls [1]. Income per person drops below the poverty line, and a sick child may miss school, which lowers later earnings [1]. Second cause, for example age: older people stop working and live on a small pension [1], so their income per person is below the line, especially if prices keep rising [1]. [4] Examiner insight: Take each cause through to lower household income and then to the poverty line. Two names with no chains are a list, not an explanation.

4. (a) Monthly income = 1.8 x 35 x 4 = 252 [1]. Per person = 252 / 3 = 84 [1]. This is above 70, so not in absolute poverty [1]. (b) New income = 1.8 x 25 x 4 = 180, so per person = 60, below 70 [1]. Percentage fall = (180 - 252) / 252 x 100 = -28.6% [1]. [5] Examiner insight: Divide by the number of people before comparing with a per-person line. Comparing household income with the line is the commonest slip.

5. (a) 1.065 / 1.025 - 1 [1] = 3.9% [1]. (b) The poorest fifth’s income rises 3%, less than the median’s 6.5% [1], so the relative line (a fraction of the median) rises faster than their incomes [1]. More of them fall further below it, so relative poverty rises even though their incomes grew, and absolute poverty may fall [1]. [5] Examiner insight: A conclusion about relative poverty must compare growth rates, including that of the median.

6. (a) 250: 0 [1]. 800: 0.10 x 500 = 50 [1]. 2,000: 0.10 x 700 + 0.30 x 1,000 = 70 + 300 = 370 [1]. (b) Average rates: 0%, 50 / 800 = 6.25%, 370 / 2,000 = 18.5% [1]. Richer households lose a larger share of income, so the tax is progressive [1]. (c) Before tax: 2,000 / 250 = 8.0 times [1]. After tax: (2,000 - 370) / 250 = 1,630 / 250 = 6.52 times [1]. (d) Valid points: it narrows gaps, from 8.0 to 6.52 times, and raises 420 of revenue to fund benefits and services [1]. Limit: high rates may reduce effort or encourage avoidance, and the effect depends on how the revenue is spent [1]. Judgement: it works best with spending on the poor, since the tax alone does not raise the lowest incomes [1]. [10] Examiner insight: Show each band’s tax separately, then add. An evaluation should end with a reasoned judgement.

7. Income kept = 120 - 78 = 42 [1]. Withdrawal rate = 78 / 120 x 100 = 65% [1]. A worker keeps only 35 of each extra 100 earned [1], so the reward for working more is small, and some may stay on benefit and remain poor [1]. [4] Examiner insight: Give the rate as a percentage, then interpret it.

8. (a) Annual gain = 125 x 12 = 1,500 [1]. Payback = 3,000 / 1,500 = 2 years [1]. (b) The course has a cost, and the poorest may not afford fees, books or transport [1]. Children may need to earn, so they leave school early [1]. Skills take years to earn higher pay, so incomes stay low in the short run [1]. [5] Examiner insight: Education is a long-run policy, so mention timing, and say why the poorest in particular are held back.

9. (a) Equilibrium: 700 - 100W = 100 + 100W gives W = 3 and employment = 400 [1]. At 3.5, demand = 700 - 350 = 350 [1] and supply = 100 + 350 = 450, so 100 workers are without a job [1]. (b) Wage change = 0.5 / 3 = 16.7%. Employment change = (350 - 400) / 400 = -12.5% [1]. Response = 12.5 / 16.7 = 0.75 [1]. (c) Old bill = 3 x 400 = 1,200; new bill = 3.5 x 350 = 1,225 [1]. Change = 25 / 1,200 = +2.1% [1]. (d) For: 350 workers earn more, and the bill rises since the response is below 1 [1]. Against: 50 lose their jobs and 100 more seek jobs that are not there [1]. Firms may raise prices or cut hours [1]. Judgement: a modest minimum helps most low-paid workers, but it does not help the unemployed or the elderly, so it works best alongside other policies [1]. [11] Examiner insight: Use the figures in the discussion, and say who gains and who loses.

10. Elderly: 0.5 x 600,000 = 300,000; unemployed households: 0.3 x 600,000 = 180,000; low paid: 0.2 x 600,000 = 120,000 [1]. Pensions target the largest group (half of those in poverty) [1]. Pensions give fast, direct cash and the elderly cannot be retrained [1], but the cost to taxpayers is high and growing as the population ages [1]. The unemployment programme helps 180,000 and tackles the cause, so it breaks the cycle [1], but it is slower and some will not find jobs [1]. The minimum wage helps only the 120,000 in work and may cut jobs [1]. Judgement: pensions, because they reach the biggest group fastest, and add retraining later [1]. [8] Examiner insight: Calculate the group sizes first, then link each policy to the group it fits.

11. New line = 80 x 1.08 = 86.4 [1]. New income = 82 x 1.05 = 86.1 [1]. Income rose, but less than the cost of necessities [1], so the household is now below the line (86.1 < 86.4) and can buy fewer necessities than before [1]. [4] Examiner insight: Compare the new income with the new line, not the old one. Real income depends on prices as well as money income.

Where marks are usually lost

• Defining poverty as “having no money” with no mention of necessities or a standard.
• Comparing household income with a per-person poverty line.
• Using the mean instead of the median for the relative line.
• Saying equal growth cuts relative poverty.
• Writing causes as one-word lists with no chain to lower income.
• Calculating a tax as one rate on the whole income instead of by band.
• Giving evaluation with no figures and no final judgement.

Next steps

• Re-read the revision notes and the study guide.
• Check your coverage on the printable checklist and see the course hub.
• Take the free diagnostics to find your weakest topics.
• Book a free trial class if you want help from a teacher.

Official syllabus

Cambridge O Level Economics 2281 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment (Cambridge International Education): section 5.2.