Economics · May / June 2024 · Paper 21 · Question 1

Calculate the price elasticity of demand for coffee. (−) 0.3 (1)

1 Accept 0.3

Identify two rewards to factors of production in Nicaragua. Wages (1)

profits (1)

2 Only accept these answers if within the first three listed.

Explain one way in which unemployment is measured. Claimant count (1)

based on workers claiming unemployment benefits (1). OR Labour force survey (1)

asking people if they are out of work and looking for employment (1). 2 One mark for a way identified and one mark for an explanation.

Explain two functions of money in Nicaragua. Medium of exchange (1)

used to buy and sell products / used to trade (1). Store of value (1)

used to save / keeps its value over a period of time (1). 4 One mark each for each of two functions identified and one mark for each of two explanations. Only accept these answers if within the first three listed. Mark

Analyse the relationship between the percentage of the labour force employed in agriculture and GDP per head. Coherent analysis which might include: Relationship: Inverse or negative relationship / move in opposite directions (1). Countries with a high percentage of their labour force employed in agriculture tend to have a low GDP per head (1). Supporting evidence: The four countries with the lowest % of the labour force employed in agriculture had the highest GDP per head (1)

Specific reference to one or more countries e.g. Bahamas had the lowest % employed in agriculture and the highest GDP per head (1). Use of GDP per head data to show comparison between country with high employment in agriculture and one with low percentage employment in agriculture (1). Analysis of expected relationship: Wages may be low in agriculture (1)

wages / value added tends to be higher in the secondary and / or tertiary sector (1). Exception: Nicaragua / Dominica (1)

Nicaragua has the second highest % of labour force employed in agriculture but the lowest GDP per head / Dominica had the highest % of labour force employed in agriculture but the second to lowest GDP (1). Analysis of exception: Explanation of another influence on GDP per head (1). 4 Responses do not have to be in the format suggested but they should address the expected/normal relationship, offer supporting evidence of that, highlight any exceptions to that, and analyse the overall data. Note the four are: Bahamas Barbados Costa Rica Saint Lucia Mark

Analyse, using a demand and supply diagram, how a drought could affect the market for coffee. Coherent analysis which might include: D&S diagram: Axes correctly labelled – price and quantity or p and q (1). Original demand and supply curves correctly labelled (1). New supply curve shifted to the left (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Written analysis: A drought will lead to a shortage / will increase costs of production (1). OR The lower supply will push up price / reduce quantity (traded) (1). Mark

Discuss whether or not small firms benefit Nicaraguan consumers. Award up to 4 marks for logical reasons why they might, which may include:

provide a personal service / see them often (1)

may be flexible (1)

prices may be low (1)

quality may be high (1)

may offer wider choice collectively than a few large firms (1)

niche market (1)

examples (1)

higher average cost of production (1)

higher price (1)

may limit investment / funds available (1)

fail to raise quality (1)

individual small firms may have a limited range of products (1)

cannot provide all that consumers may want (1). Apply this example to all questions with the command word DISCUSS − 1 (g), 1 (h), 2 (d), 3 (d), 4 (d) and 5 (d) Each point may be credited only once, on either side of an argument, but separate development as to how/why the outcome may differ is rewarded. 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. Only reward reference to quality or prices once. Mark

Discuss whether or not Nicaragua should devote more of its resources to coffee production. Award up to 4 marks for logical reasons why it should, which may include:

demand for coffee is price inelastic (1)

revenue / profits may increase (1)

more tax revenue for government (1)

greater specialisation / economies of scale may reduce average costs (1)

raise quality (1)

increase profits (1)

more competitive (1)

improve the current account of its balance of payments (1)

lead to economic growth/higher standard of living (1)

less poverty / less government payments to unemployed (1)

growth will give them more monopoly power (1)

more power to raise price of coffee (1). Award up to 4 marks for logical reasons why it should not, which may include:

these may be more competitive (1)

natural disasters (1)

overproduction can exhaust land (1)

leading to lower yields in future (1)

resources could be used to produce other products (1)

example (1)

coffee workers only receive low pay (1)

resulting in surplus capacity / wasted resources (1)

reduce profits (1). 6 Do not expect, but reward reference to absolute or comparative advantage. Mark