Economics 9708/23 May/June 2022: question paper and mark scheme

Mark scheme

1(a) Describe the change in the level and source countries of 2 the US’s imports of avocados from 2013 to 2018. Various possibilities including Overall increase in imports Big increase in imports from Peru Mexico remains the most important source of imports Imports from Chile and Dom. Republic more variable Award 1 mark for any of these points, 2 max. 1(b)(i) Calculate the percentage change in the wholesale price 1 Percentage increase is based on an increase from of Mexican avocados between April 2019 and the end of approximately 300 pesos per 10 kg box to 600 pesos July 2019. per 10 kg box using change from the start of April 100 increase approximately (1) Accept answers in the range 95 to 105 However, if data used is from end of April then the change is c33 i.e. 150/450 × 100. Take note of when the data is taken from in April when marking the answer. 1(b)(ii) Explain one possible demand reason and one possible 4 The question implies that an explanation of changes in supply reason for this change in price. demand and supply over the period April to July 2019 is required. So, no marks should be awarded for the usual For recognition of a valid demand reason (1) for a valid general demand and supply factors. explanation as to why price has increased as a result (1) Demand side: new research into health benefits of avocados, buying for a special event e.g., Superbowl, For recognition of a valid supply reason (1) for a valid panic buying. These changes will lead to a shift to the explanation as to why price has increased as a result (1) right of the demand curve. Supply side: bad weather in Mexico leads to less supply; increased demand elsewhere reduces supply available to USA leading to a shift to the left of the supply curve 1(c) Using the information provided, consider whether the 4 The data refers to the supply of avocados as being supply of avocados is price elastic or price inelastic in ‘unpredictable’ and therefore difficult to control when the short run and in the long run. price changes. This is a short run consideration. Longer term improved methods of farming and irrigation Price inelastic in short run (1 mark) valid reason e.g., can make supply more responsive to price changes. reference to drought and lack of water affecting supply (1 mark) Price elastic in long run (1 mark) valid reason e.g., New producers enter the market (1 mark) 1(d) Explain with the help of a PPC diagram, the opportunity 3 Correct labels and curve touching both axes cost to a New Zealand farmer of converting from dairy to avocado production. Diagram used to explain the idea of choice on at least 2 different points on the curve. PPC diagram with axes correctly labelled (1 mark) Curve may be used to explain constant opportunity cost Use of PPC diagram to show choices between dairy and (straight line) OR increasing opportunity cost (concave Avocados (1 mark) curve) Application of opportunity cost to the shape of the PPC (1 mark) 1(e) Discuss whether the price mechanism in the avocado 6 The market is operating effectively-price is signalling market is working to allocate resources successfully. consumer preferences and being responsive to changes in demand and supply. For analysis that shows that the market is in fact operating successfully Market could collapse if the health benefits prove to be (up to 3 marks) wrong. New producers such as Kenya could flood the market with additional supply leading to a collapse in For analysis that explains why the market may not operate prices. Environmental pressures due to pressure on successfully in the future water supplies and forests being destroyed to plant new (up to 3 marks) avocado bushes. 5 marks maximum for analysis leading to A valid conclusion as to whether the price mechanism in the avocado market is working to allocate resources successfully (1 mark)

Mark scheme

2(a) A government has decided to spend money building a 8 Public goods have two key characteristics. These are new barrier to prevent flooding across a city. Explain that they are non-excludable and non-rival. Both need why this flood defence barrier is likely to meet the to be explained and the explanation applied to a new characteristics of a public good. flood defence barrier. Better answers will then point out the free rider problem in the provision of public goods For knowledge and understanding of the difference and why it would be difficult for funding to be from the between a private good and a public good by reference to the private sector as a private good. characteristics of excludable (1 mark) and rivalry (1 mark) For application, explain that a flood defence system is a public good (1 mark), why it is non excludable (1 mark), why it is non rival (1 mark) For application, explain that it cannot be a private good (1 mark) by accurate reference to both excludability and rivalry (1 mark) and the free rider problem (1 mark) 2(b) Education and healthcare are considered to be merit 12 Merit goods have positive side effects when consumed. goods. They are provided because of information failure which can lead to under consumption and under production. Discuss why merit goods are provided by both the Consumers of things like education and healthcare do private sector and the public sector. not perceive the true benefits usually because they do not have either any information or true information. For analysis of the reasons why merit goods are provided by Therefore, the government often provides merit goods. the public sector (up to 4 marks) Merit goods in many countries are provided by the private sector as well as the public sector. This is often For analysis of why merit goods are provided by the private because the cost of provision to the public sector is too sector great or because the cost cannot be met in full. The (up to 4 marks) case of healthcare is important in most low and middle- income countries. For evaluation that considers why merit goods are likely to be provided by both the private and public sector (up to 3 There are no marks awarded in part b for merely marks) to arrive at a reasoned conclusion explaining / defining terms or phrases within the (1 mark) question.

Mark scheme

3(a) Explain the difference between cost-push and demand- 8 Cost-push inflation is the outcome of a rise in the costs pull inflation. of production. This results in a shift to the left of the AS curve, increasing the price level. Possible causes could For knowledge and understanding of what is meant by be an increase in wages above the rate of inflation, an inflation e.g., it is a situation where there is a increase in raw material costs or an increase in the sustained / persistent rise (1 mark) in the general / average price of fuel imports due to the depreciation of the price level / prices (1 mark) currency For application that explains what is meant by cost push Demand-pull inflation occurs when there is an increase inflation (1 mark) an appropriate example of a cause (1 in aggregate demand not matched by an increase in mark) duly explained as to why it causes inflation (1 mark) aggregate supply. This will have a strong effect if the economy is at or close to the level of full employment. For application that explains what is meant by demand pull The cause could be an increase in government inflation (1 mark) an appropriate example of a cause (1 spending, a reduction in taxation leading to a consumer mark) duly explained why this is different to cost push boom or an increase in demand for exports following a inflation (1 mark) depreciation of the currency. 3(b) Discuss whether a contractionary monetary policy is the 12 Monetary policy involves measures that influence the best way to reduce the rate of inflation. price or quantity of money. These include interest rates and the money supply. In some countries exchange For analysis that considers the advantages and rate policy is included. Interest rate changes though disadvantages of using monetary policy to reduce the rate of have tended to be the main policy used to control the inflation (up to 4 marks with a max of 3 if only advantages rate of inflation in most countries. In theory, an increase or disadvantages are analysed) in the rate of interest should encourage more saving by consumers and less funding for investment by For analysis that considers the advantages and businesses. If effective, an increase in interest rates disadvantages of at least one other policy to reduce the rate should reduce the rate of inflation. of inflation (up to 4 marks per policy with a max of 3 if only advantages or disadvantages are analysed) Fiscal policy can also be used. This involves increasing taxation or reducing government spending to reduce For evaluation that considers which is the best way to inflation. Both measures are at the cost of increasing reduce the rate of inflation (3 marks) to reach a justified the level of unemployment. Supply side policies are conclusion as to which is the best way (1 mark) also possible, especially if there are structural weaknesses in an economy. There are no marks awarded in part b for merely explaining / defining terms or phrases within the question.

Mark scheme

4(a) Explain why some countries consistently have a deficit 8 The current account should be defined as trade in on the current account of the balance of payments. goods, services plus other income. For knowledge and understanding of what the current For the second mark, a deficit is where payments account of the balance of payments measures (1 mark) and received by a country are exceeded by payments made what is meant by a deficit (1 mark) by a country / where income from exports is exceeded by expenditure on imports. For application that explains the causes of a current account deficit There are many causes of a current account deficit. (up to 3 marks) These include an appreciation of the exchange rate; a reduced supply of primary goods for exports; For application that explains why some countries may deterioration in the terms of trade; reduced level of aid; experience a persistent deficit reduced transfer of earnings from migrant workers (up to 3 marks) overseas; increased protection from trading partners. The answer should focus on why some countries consistently have a deficit. 4(b) Discuss the extent to which expenditure-switching 12 Candidates need to have a clear understanding of policies and expenditure-reducing policies might be able expenditure reducing and expenditure switching to reduce such a deficit. policies together with an understanding of the advantages and disadvantages of each. For analysis that considers the advantages and disadvantages of using expenditure-switching policies to Examples of expenditure reducing policies which are remove a deficit on the current account of the balance of designed to reduce domestic aggregate demand to payments. (a maximum of 3 marks if only advantages or reduce imports and increase goods for export may disadvantages are analysed) include: (Up to 4 marks) raising taxes reducing government spending etc. For analysis that considers the advantages and disadvantages of using expenditure-reducing policies to Examples of expenditure switching policies which are remove a deficit on the current account of the balance of designed to encourage people to switch from buying payments (a maximum of 3 marks if only advantages or imported goods to buying domestically produced goods disadvantages are analysed) may include: (Up to 4 marks) protectionist policies supply side policies For evaluation that compares the advantages and exchange rate policies etc. disadvantages of the two approaches (3 marks) to arrive at a reasoned conclusion on which is to be of greater overall Analysis and evaluation should focus on how a benefit in reducing a deficit on the current account of the persistent deficit on the current account may be balance of payments (1 mark) removed using these policies but may also consider other impacts on the wider economy. There are no KU marks awarded in part b for merely explaining / defining terms or phrases within the question.