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Economics · May / June 2025 · Paper 22 · Question 1

0455

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  • 1(a)[1]

    Calculate St. Kitts and Nevis’s Government budget deficit in 2022. $18 m / – $18 m (1). 1 Accept 18m. ($) 18 000 000 / – ($) 18 000 000.

  • 1(b)[2]

    Identify two examples of the factor of production land in St. Kitts and Nevis. Two from:

    beaches (1), (coral) reefs (1), marine life / fish (1)

    rainforests (1)

    and soil (1). 2 If more than two examples given, consider the first three.

  • 1(c)[2]

    Explain how tourism causes external costs in St. Kitts and Nevis.

    Social costs are greater than private costs / social costs include private costs and external costs / harmful effects on third parties / those not directly involved in producing or consuming the product (1).
    Example of an external cost caused by tourism in St Kitts and Nevis e.g. pollution / environmental damage / death of wildlife / death of marine life / overcrowding (1). 2 One mark for explanation of external costs. One mark for example based on tourism. Mark

  • 1(d)[4]

    Explain two reasons why a foreign bank may open a branch in St. Kitts and Nevis. Logical explanation which might include:

    High incomes in the country (1)

    high demand for banking services / high demand for loans / may save more / borrowers likely to be able to repay loans / high profit / high revenue (1).

    Absence (low) of personal income tax (1)

    workers would be able to keep all of their income / more disposable income / firms may be able to pay lower wages / increase workers’ motivation (1).

    Relatively high literacy rates (1)

    awareness of benefits of having a bank account / saving / skilled workers / high productivity (1). 4 One mark each for each of two reasons identified and one mark each for each of two explanations. If more than two reasons given, consider the first three. Most of the explanation points e.g. high profit could be linked to any of the three identification points except high disposable income should be linked to absence of personal income tax. Do not give two explanation marks for one identification. Explanation marks here are dependent on the identifications.

  • 1(e)[4]

    Draw a demand and supply diagram to show the effect of an increase in the productivity of onion farmers on the market for onions. 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 right (1). Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1). Mark

  • 1(f)[5]

    Analyse the relationship between healthcare spending as a percentage of GDP and life expectancy. Expected relationship: Direct / positive relationship (1). Generally, the higher healthcare spending, the higher the life expectancy (1). Supporting evidence: E.g.: Haiti has the second lowest % healthcare spending and the shortest life expectancy (1)

    Canada spends a higher % on healthcare than Egypt and has a longer life expectancy / Canada spends the highest percentage on health care and has the second highest longest life expectancy / Canada and Sweden spend a high % on healthcare and have long life expectancy (1). Analysis of the supporting information: Higher spending on healthcare would be expected to raise the health of the population / provide better quality healthcare (1)

    increase awareness of need for healthy living / provide more check-ups / preventative medical care / reduce the death rate (1). Exception: Monaco (1)

    spends the lowest % on healthcare but has the longest life expectancy (1). Analysis of exception: 1.9% of a very high GDP can mean higher spending than e.g. 12.9% of a lower GDP / Monaco may have a high GDP (1). There are other influences on life expectancy e.g. nutrition / education/housing/war (1). 5 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. Supporting evidence should involve interpretation, not just description. Mark

  • 1(g)[6]

    Discuss whether or not an increase in the size of its fishing industry would benefit St. Kitts and Nevis. Award up to 4 marks for logical reasons why it might, which may include:

    may reduce imports of fish (1)

    reduce risk of supply-side shocks / imports being cut off (1)

    enable fish to be exported (1)

    may improve the current account balance / improve the balance of payments (1)

    may increase employment / increase job opportunities / reduce unemployment (1)

    raise incomes (1)

    increase living standards (1)

    increase GDP / increase output / cause economic growth (1)

    higher tax revenue (1)

    may enable greater advantage to be taken of economies of scale (1)

    example (1)

    lower average cost (1)

    lower fish prices (1)

    (larger boats) may be more efficient / more productive (1)

    make the industry more profitable / increase profits from fishing (1). 6 Award one mark in total for higher / lower average costs, one mark for lower / higher fish prices, one mark for higher / lower profits (1). Higher / lower profits should be linked to the fishing industry. 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. Mark Guidance Award up to 4 marks for logical reasons why it might not, which may include:

    opportunity cost (1)

    could use resources in other industries / government can spend more on e.g. education / increase budget deficit (1)

    over-fishing (1)

    deplete fish stocks / lose marine life / deplete resources (1)

    raise fish prices in the long run (1)

    may experience diseconomies of scale (1)

    example (1)

    higher average cost (1)

    reduce profit (1)

    may cause external costs / environmental harm (1)

    may damage coral reefs / cause pollution (1)

    harm tourism (1)

    may be a dangerous occupation (1)

    may be low-paid (1)

    low-skilled (1)

    may experience seasonal unemployment (1)

    risk of over specialisation / too great a dependency on the industry (1)

    may be harmed by a fall in demand for fish / rise in competition from other countries (1). Mark

  • 1(h)[6]

    Discuss whether or not deflation is likely to have harmed St. Kitts and Nevis. Award up to 4 marks for logical reasons why it might, which may include:

    may have increased real value of debt (1)

    may default (1)

    may have decreased investment (1)

    may have resulted in a deflationary spiral (1)

    may have resulted from lower total demand (1)

    lower GDP / lower output / reduce economic growth / may cause a recession (1)

    lower employment / increased unemployment (1)

    lowered wages / income (1)

    may reduce confidence (1)

    may discourage MNCs (1)

    may reduce consumer expenditure / save more / create uncertainty (1)

    delay buying goods and services (until price is lower) (1). Award up to 4 marks for logical reasons why it might not, which may include:

    may have increased purchasing power / real income / with the same income more goods and services can be purchased (1)

    (some) people may spend / consume more (1)

    value of saving may have increased (1)

    increasing wealth (1)

    may be the result of higher total supply (1)

    due to advances in technology / lower costs of production (1)

    higher output / economic growth (1)

    higher employment (1)

    may have increased international competitiveness of its products / lower export prices (1)

    increased exports / export revenue (1)

    reduced imports / import expenditure (1)

    improve current account balance (1). 6 Award one mark for malign (bad) deflation is harmful whereas benign (good) deflation is beneficial. Mark for higher employment and mark for higher GDP can only be awarded if come from higher total supply. ‘save more’ may be credited on either side but only once. Mark

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