Economics 9708/21 May/June 2021: question paper and mark scheme
Cambridge AS & A Level Economics (9708), Paper 2 Data Response and Essay, May/June 2021. Read both free below, or download them. Done the paper? Get it marked by AI against this mark scheme.
Vietnam’s exports of fruit and vegetables to exceed US$4 billion
The value of Vietnam’s fruit and vegetable exports reached US$1.3 billion in the first four months of 2018, a year-on-year increase of 30%, according to the Vietnam Ministry of Agriculture. With a high export growth rate in the past four years, the sector is expected to exceed the export target of
US$4 billion set for 2018.
A government spokesperson stated that because world trade in fruit and vegetables is worth
US$230 billion a year, with an annual growth rate of 3% to 5%, there is more scope for Vietnam to increase its fruit and vegetable exports. The spokesperson said that Vietnam must use more land to grow crops to export and build additional modern food processing facilities to take advantage of these opportunities.
The increase in the export of fruit and vegetables will add to Vietnam’s current account balance.
Fig. 1.1 below shows the balance of the current account of the balance of payments for Vietnam from Q1 2016 to Q2 2018.
6000
4000
US$ million
2000
0
–2000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2016 2017 2018
Fig. 1.1 Vietnam’s current account balance, Q1 2016 to Q2 2018 (US$ million)
Source: tradingeconomics.com, accessed October 2019
Despite its impressive results in exporting fruit and vegetables, Vietnam faces possible risks because it relies very heavily on China, its biggest fruit and vegetable importer. China accounted for 77% of Vietnam’s exports of fruit and vegetables in the first four months of 2018 while the
United States, its second biggest importer, accounted for just 2.8% and Japan, its third biggest importer, accounted for 2.7%. Some analysts believe that Vietnam’s agricultural sector in general, and fruit and vegetable producers in particular, should explore other potential countries for their exports.
According to the Vietnam Fruit and Vegetable Association, fruit and vegetable exporters face additional costs in complying with administrative burdens on trade, such as strict hygiene and food safety regulations. Vietnam’s producers need to ensure that product quality is as high as possible and production costs as low as possible if they are to succeed.
Source: adapted from Vietnam News, 7 May 2018
(a) (i) Describe the overall trend in Vietnam’s current account balance between Q1 2017 and
Q2 2018. [1]
(ii) Calculate the value of Vietnam’s exports of fruit and vegetables to China in the first four months of 2018. [1]
(b) Explain one possible demand factor and one possible supply factor that could have caused the increase in Vietnam’s export sales of fruit and vegetables. [4]
(c) Explain how complying with administrative burdens on trade will affect Vietnam’s supply of fruit and vegetables for export. [2]
(d) Discuss whether the risks of Vietnam relying very heavily on the Chinese market for the export of its fruit and vegetables are greater than the potential benefits. [6]
(e) Using aggregate demand and aggregate supply analysis, discuss the possible impact on
Vietnam’s economy of a sustained increase in its net exports. [6]
Section B
Answer one question.
Mark scheme
1(a)(i) Describe the overall trend in Vietnam’s current account balance 1
between Q1 2017 and Q2 2018.
A deficit at the beginning of the period, followed by surpluses OR
Generally increasing/improving balance over the period (one exception)
(1 mark)
1(a)(ii) Calculate the value of Vietnam’s exports of fruit and vegetables to 1 (Line one gives the total as US$1.3bn and
China in the first four months of 2018. the fourth paragraph says that China
accounts for 77% of this.)
US$1 billion
(US$1.001 billion) (1 mark) Candidates do need to refer to billion, but
not necessarily to US$
1(b) Explain one possible demand factor and one possible supply factor that 4 Demand factors could include:
could have caused the increase in Vietnam’s export sales of fruit and • increase in income
vegetables. • more effective advertising
• population growth
For an explanation of one possible demand reason (Up to 2 marks)
(1 mark for identification, 1 mark for further development) • tastes have changed in favour of the
products, e.g. healthy living
For an explanation of a one possible supply reason (Up to 2 marks) Supply factors could include:
(1 mark for identification, 1 mark for further development) • use of more land
• more favourable weather conditions
• reduction in costs of production
• improved technology
1(c) Explain how complying with administrative burdens on trade will affect 2 Possible effects could include:
Vietnam’s supply of fruit and vegetables for export. • fruit and vegetable exporters could
face additional costs in satisfying
Higher costs of production will shift supply to the left and decrease the administrative burdens on trade
amount available to export. (Up to 2 marks) • these could include strict hygiene and
food safety regulations
• this could bring about an increase in
the price of the products
• regulations could, however, lead to a
higher quality of products being
supplied
1(d) Discuss whether the risks of Vietnam relying very heavily on the 6 Potential risks of the Chinese market:
Chinese market for the export of its fruit and vegetables are greater • high proportion of trade in fruit and
than the potential benefits. vegetables with China may mean that
Vietnam is neglecting other potential
For an explanation of the potential risks. (Up to 3 marks) trading contacts
• very large gap from China (77%) to
For an explanation of the potential benefits. (Up to 3 marks) second country (US with 2.84%) and
third country (Japan with 2.70%)
Reserve 1 mark for a conclusion • external shocks, or changes in the
Chinese economy, such as a
recession, would have a large impact
on Vietnam’s fruit and vegetables
industry
Potential benefits of the Chinese market:
• with 77% of the trade in fruit and
vegetables with China, close trading
contacts would have been established
• security of trade in fruit and vegetables
resulting from these trading contacts
• with established customers, discounts
could be negotiated to secure future
trade
1(e) Using aggregate demand and aggregate supply analysis, discuss the 6 Potential advantages:
possible impact on Vietnam’s economy of a sustained increase in its • increase in exports would contribute
net exports. positively to Vietnam’s current account
balance
For an explanation of the potential advantages of a sustained increase in net • increase in aggregate demand
exports using AD/AS analysis. • increase in incomes and employment
(Up to 3 marks)
Potential disadvantages:
For an explanation of the potential disadvantages of a sustained increase in • increase in exports could mean less is
net exports using AD/AS analysis. available for the domestic market
(Up to 3 marks) • could impact on the rate of domestic
inflation
Reserve 1 mark for a conclusion
(a) Explain whether private goods, free goods and public goods will all be sold in a free market economy. [8]
(b) Discuss whether the direct provision of goods and services by the government prevents the price mechanism from working effectively. [12]
Mark scheme
2(a) Explain whether private goods, free goods and public goods will all be 8 Free goods are not sold in a free market
sold in a free market economy. economy:
• are not scarce and so do not have a
For Knowledge and Understanding market price attached to them
• the supply equals the demand at zero
For knowledge and understanding of private goods, free goods and public price
goods. Up to 2 marks) • have no property rights associated with
them
For knowledge and understanding of just two types of good. • require no factors of production for
(Up to 1 mark) their enjoyment
Private goods are sold in a free market
2 marks maximum economy:
• economic goods that are consumed by
For Application an individual for their own benefit
• there is rivalry in consumption, i.e.
Explanation of the market mechanism in relation to the three types of good when a product is consumed by one
Up to 2 marks for an explanation of each type of good) person, it cannot be consumed by
another
6 marks maximum • there is excludability in consumption,
i.e. when a product is consumed by
one person, all others are excluded
from it
Public goods are not sold in a free market
economy:
• are non-rival
• are non-excludable
• are non-rejectable
2(a) Examples of free goods: air, sunshine
Examples of private goods: most products
in an economy, such as food and clothing;
can include examples of merit
goods/demerit goods
Examples of public goods: street lighting,
defence and police
2(b) Discuss whether the direct provision of goods and services by the 12 The effect of direct provision of goods and
government prevents the price mechanism from working effectively. services by the government:
• does it prevent the price mechanism
For Analysis from rationing?
Analysis of the prevention of the price mechanism from working effectively. • does it prevent the price mechanism
(Up to 4 marks) from signalling?
• does it prevent the price mechanism
Analysis of the potential fact that it does not prevent the price mechanism from transmitting preferences?
from working effectively. (Up to 4 marks)
The direct provision of goods and services
8 marks maximum by the government will be financed through
the tax system, e.g. education and health
For Evaluation care, and so will not be allocated through a
For exercising some judgement on whether the direct provision of goods and price mechanism.
services by the government prevents the price mechanism from working
effectively. (Up to 4 marks) However, education and health care can
also be provided through a price
Reserve 1 mark for a conclusion mechanism and in this situation the
mechanism can function as a rationing and
4 marks maximum signalling device and as a way of
transmitting preferences
(a) With the aid of diagrams, explain how consumer surplus is affected by a decrease in the price of a luxury product with many substitutes, and of an essential product with few substitutes.[8]
(b) Discuss the extent to which knowledge of the income elasticity of demand for its product is likely to be more useful to a business than knowledge of the cross elasticity of demand for its product. [12]
Mark scheme
3(a) With the aid of diagrams, explain how consumer surplus is affected by 8 A decrease in the price of a product will
a decrease in the price of a luxury product with many substitutes, and increase the consumer surplus as more
of an essential product with few substitutes. consumers are willing to pay the lower
price.
For Knowledge and Understanding
The extent of this will depend on the price
For correct diagram: elasticity of demand for a product.
Axes correctly labelled: P/Q (1 mark)
Existence of consumer surplus (1 mark) In the case of a luxury product with many
substitutes, PED will be elastic.
2 marks maximum
In the case of an essential product with few
For Application substitutes, PED will be inelastic.
How consumer surplus is affected by a decrease in the price of a luxury
product with many substitutes: elastic PED. (Up to 3 marks)
How consumer surplus is affected by a decrease in the price of an essential
product with few substitutes: inelastic PED’ (Up to 3 marks)
6 marks maximum
3(b) Discuss the extent to which knowledge of the income elasticity of 12 Income elasticity of demand can be useful
demand for its product is likely to be more useful to a business than to a business in relation to:
knowledge of the cross elasticity of demand for its product • normal goods (positive YED)
• inferior goods (negative YED)
For Analysis
• economic development of a country
Analysis of the usefulness of income elasticity of demand to a business, with • boom or recession: effect on business
the use of appropriate scenarios. (Up to 4 marks) planning
Analysis of the usefulness of cross elasticity of demand to a business, with
the use of appropriate scenarios. (Up to 4 marks) Cross elasticity of demand can be useful to
a business in relation to:
8 marks maximum • substitutes/alternative demand
For Evaluation (positive XED)
• complements/joint demand (negative
For exercising some judgement on whether knowledge of the income
XED)
elasticity of demand for its product is likely to be more useful to a business
than knowledge of the cross elasticity of demand for its product with regard to
changes in the price of the products of other businesses. (Up to 4 marks)
Reserve 1 mark for a conclusion
4 marks maximum
(a) With the aid of a diagram(s), explain one demand factor and one supply factor that would cause the value of a currency in a floating exchange rate system to depreciate. [8]
(b) Discuss how likely it is that monetary policy would be successful in reducing inflation in an economy with a floating exchange rate. [12]
Mark scheme
4(a) With the aid of a diagram(s), explain one demand factor and one supply 8 A fall in demand for a currency could be
factor that would cause the value of a currency in a floating exchange caused by a:
rate system to depreciate. • the goods and services of a country
are demanded less
For Knowledge and Understanding • a country’s interest rate is decreased
For correct diagram:
Axes correctly labelled: P/Q of currency. (1 mark) An increase in the supply of a currency
(The vertical axis needs to make it clear that it is an exchange rate) could be caused by:
Market equilibrium shown. (1 mark) • an increase in interest rates in other
countries
2 marks maximum • imported products are demanded more
For Application Note: the question specifically refers to the
depreciation of an exchange rate
Explanation of one reason for a fall in demand (Up to 3 marks)
(1 mark for identification of a relevant factor; up to 2 marks for a detailed
explanation)
Explanation of one reason for an increase in supply (Up to 3 marks)
(1 mark for identification of a relevant factor; up to 2 marks for a detailed
explanation)
6 marks maximum
4(b) Discuss how likely it is that monetary policy would be successful in 12 Monetary policy can be used to correct
reducing inflation in an economy with a floating exchange rate. inflation in an economy by:
• an increase in interest rates
For analysis • a reduction in the money supply
Analysis of the likely success of monetary policy in reducing inflation in an Cost-push inflation: an appreciation of a
economy with a floating exchange rate (Up to 4 marks) currency would lower import prices of
finished products and raw
Analysis of the likely difficulties of monetary policy in reducing inflation in an materials/component parts
economy with a floating exchange rate. (Up to 4 marks)
Demand-pull inflation: an increase in
8 marks maximum interest rates and/or a decrease in the
For evaluation money supply would reduce aggregate
demand and appreciate the currency
For exercising some judgement on how likely it is that monetary policy would
be successful in reducing inflation in an economy with a floating exchange Evaluation: appropriate reference to
rate. (Up to 4 marks) elasticities, the J-curve effect and the
Marshall-Lerner condition
Reserve 1 mark for a conclusion
4 marks maximum
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Economics 9708/21 for May/June 2021 is out of 40 marks, with 1 hour 30 minutes to answer it.
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