Economics · May / June 2020 · Paper 22 · Question 1

Calculate Pakistan’s trade in goods balance in 2017. –$36.5bn (1).

Identify two possible causes of demand-pull inflation in Pakistan in 2017. Any two from:

Higher government spending (1)

higher consumer spending / rising population (1)

increased investment (1).

Explain the opportunity cost to Pakistan of producing consumer goods. Logical explanation which might include: Capital goods (1)

resources that could have been used to produce capital goods are being used to produce consumer goods / (next) best alternative forgone (1).

Explain two reasons why education is a merit good. Logical explanation which might include: People underestimate full benefit / private benefit (1)

not appreciating health and job opportunity benefits (1). People not taking into account external benefits (1)

e.g. better quality products/larger quantity of products or economic growth (1).

Analyse why the children of poor families tend to receive less education than the children of rich families. Coherent analysis which might include: The children of the poor may not attend school (1)

they may have to work (1)

to help support their families (1). Poor families are likely to have difficulty paying to have their children educated (1)

some schools in Pakistan are in the private sector (1)

there seems to be a lack of low-cost schools (1). The children of the poor may leave school at a younger age (1)

may miss more school days due to ill health (1).

Analyse the relationship between GDP per head and imports per head. Coherent analysis which might include: Generally the countries with the highest GDP per head spend the most per head on imports (1)

examples e.g. Norway has the highest income per head and the highest spending on imports per head and Haiti has the lowest income and the lowest spending on imports (up to 2) exception: Russia has a higher income per head than Mexico but a lower spending per head on imports (1). Expected relationship as income rises (1)

people can afford more imports (1). The four countries with above average GDP per head spend above the global average on imports (1). The two countries with below average GDP per head spend more on imports (1).

Discuss whether or not the supply of teachers in Pakistan is likely to increase in the future. Generic example mark Tax revenue may decrease… ...because of reason e.g. incomes may be lower. Tax revenue may increase because incomes may be higher i.e. reverse of a previous argument. Tax revenue may increase because of a different reason i.e. not the reverse of a previous argument e.g. government spending on subsidies may stimulate the economy more than spending on education. Award up to 4 marks for logical reasons why it might, which may include:

which may increase those qualified to be teachers (1)

with better buildings (1)

which may increase the size of the labour force (1). Award up to 4 marks for logical reasons why it might not, which may include:

teachers may switch to other jobs (1)

by more than educational standards rise (1).

Discuss whether or not an increase in its import tariffs would be likely to benefit the Pakistani economy. Award up to 4 marks for logical reasons why it might, which may include:

by reducing demand for imports (1)

enabling the government to increase its spending (1)

until they can take advantage of economies of scale (1). Award up to 4 marks for logical reasons why it might not, which may include:

reducing Pakistan’s ability to export (1).