Assuming that there are no restrictions on the importing of bananas into Country A:

State the quantity of bananas which will be purchased each month in Country A.

Assuming that there are no restrictions on the importing of bananas into Country A:

Calculate the monthly expenditure on bananas imported into Country A.

Assuming that there are no restrictions on the importing of bananas into Country A:

Calculate the domestic producer surplus.

Identify the price which would be paid by consumers in Country A per kg of bananas following the imposition of the quota.

Identify the quantity of bananas which would be purchased in Country A per month following the imposition of the quota.

Calculate the change in revenue earned by domestic producers of bananas in Country A as a result of the quota.

With reference to the diagram, explain why the welfare loss from the imposition of the quota is likely to be greater than the welfare loss resulting from a tariff of $2 per kg.

Outline the reason why a fall in the price of the dollar should lead to an increase in the quantity of dollars demanded.

Assume that the dollar/yen exchange rate is in equilibrium. Using the functions, calculate the cost, in dollars, of a motorbike which costs ¥552 640.

Using examples from Table 1, outline the difference between debit items and credit items in the balance of payments.

Calculate the current account balance from the data given in Table 1.

Explain two implications of a rising current account surplus.

400 000 kg

350 000 × $3 = $1 050 000 

An answer of $1 050 000 or $1.05million without any valid working is sufficient for [1].

0.5 × 50 000 × 1 = $25 000 

An answer of $25 000 without any valid working is sufficient for [1].

$5

300 000 kg [1]

OFR applies if (b)(i) is incorrect eg $5.50 for (b)(i) would lead to 275 000 kg for (b)(ii).

Initial revenue = 3 × 50 000 = 150 000 [1]

Final revenue 5 × 150 000 = 750 000 [1]

N.B. For the marks above, it is not necessary to specify the initial and final revenue – a candidate may simply write (5 × 150 000) – (3 × 50 000) and be fully rewarded.

Change in revenue = 750 000 – 150 000 = $600 000 [1]

OFR applies within part (iii) if at least one of the revenue figures is calculated correctly.
OFR may also be applied if a candidate has identified the price(s) incorrectly in (a)(ii) or (b)(i).

N.B. Some candidates may annotate the diagram – and use to show revenues – these annotations can be seen and rewarded by looking at the script in full response mode.

One example of OFR might be: P = $5.50 and so final revenue would be 5.5 × 175 000 = $962 500, so the change would be 962 500 – 150 000 = $812 500.

Another example of OFR might be if a candidate identifies the new price as $3, rather than $5, then the change in revenue could be 3 × 150 000 – 3 × 50 000 = $300 000.

Level 
0 The work does not reach a standard described by the descriptors below. [0]

1 The written response is limited. [1–2]
For explaining that the impact on price and quantity of consumption and imports would be identical to that of the quota, but the welfare loss would be greater with a quota.
P= $5, imported quantity = 150 000 kg, Qd = 300 000 kg.

If the result of the tariff (price, Qd, imports) is identified correctly award [1].
OR
If one welfare loss is identified accurately, award [1].

A response which indicates that the foregone tariff revenue is the reason for the difference, but with little/no accurate supporting evidence, should be awarded [2].

2 The written response is accurate. [3–4]
For explaining that the welfare loss is likely to be greater for the quota, because, even though the impact on price and quantity is the same in this diagram in the case of a $2 tariff, the government does not necessarily benefit in terms of revenue from a quota.

A response which explains that price, quantity (and imports) would be the same with a tariff or quota, but that there would be no tariff revenue with the quota so welfare loss would be greater without reference to the diagram should be awarded [3].

N.B. Some candidates may annotate the diagram – these annotations can be seen and rewarded by looking at the script in full response mode.

Level 
0 The work does not reach a standard described by the descriptors below. [0] 
If there is no reference to exports and the answer relies on the general law of demand, award [0].

1 There is limited understanding. [1]
For stating that more exports would be sold at a lower exchange rate.

2 There is clear understanding. [2]
For explaining that more exports would be sold at a lower exchange rate and that as a result more dollars would be demanded in order to purchase these exports.

1900 − 18P = 580 + 12P

1320 = 30P
P= ¥44 (or P = 44) [2]

Any valid working is sufficient for [1].
An answer of ¥44 or 44 without any valid working is sufficient for [1].

The bike will cost $\frac{552640}{44}=$ $12560

OFR applies if the exchange rate calculated is incorrect.

Level 
0 The work does not reach a standard described by the descriptors below. [0]

1 Vague distinction. [1]
The idea that debits are negative and credits are positive.

2 Accurate distinction. [2]
A clear statement that debit items signify currency outflows while credit items signify currency inflows, with an accurate example of each from the table.

Current account balance = exports of goods and services − imports of goods and services + net income + net current transfers
= 3240 + 1928 − 3519 − 1590 − 456 − 488

= − $885 billion

Valid working is sufficient for [1]. Working should not be considered valid if items from the financial or capital accounts are included. The minimum requirement for valid working is that the elements 3240 + 1928 – 3519 – 1590 are present and correct.

An answer of − $885 billion or – 885 without any valid working is sufficient for [1] only.

Level 
0 The work does not reach a standard described by the descriptors below. [0]

1 The written response is limited.
For providing one implication without explanation. [1]
For providing two implications without explanation OR for providing one implication with explanation. [2]

2 The written response is accurate.
For providing one implication without explanation and one implication with explanation. [3]
For providing two implications with explanation. [4]

Implications include:

• appreciation of the currency as the demand for the currency has increased relative to its supply
• reduced export competitiveness as the currency strengthens
• reduced domestic spending as a result of increased exports or reduced imports
• worsening relations with countries who suffer a corresponding deficit on their current accounts
• a rising deficit on the financial/capital accounts
• as X>M, AD will increase, possibly leading to inflation and/or growth.

N.B. An explanation that AD will increase should be awarded [1] only.

This question was generally answered very well, although with some responses omitting the relevant units (kg).

This question was generally well-answered, although a significant proportion of candidates ignored the word “imported” in the question and provided total spending on bananas ($3 x 400 000 = $1.2 million).

This question was generally well-answered, with a range of errors, most notably incorrect calculation of the area of the triangle providing an answer of $50 000.

The majority of candidates identified $5 as the correct response, although a significant proportion gave $5.50 as the answer, presumably the result of placing the new domestic supply curve in the incorrect position.

This question was generally well-answered, with a large number of OFR (Own Figure Rule) marks awarded.

The majority of candidates correctly identified the initial revenue earned by domestic producers while the calculation of the new revenue proved troublesome. However, there were again many OFR marks awarded, taking account of errors in part (b)(ii).

The majority of candidates were able to identify the welfare loss resulting from a tariff of $2 per kg. Lower achieving responses then relied on the diagram, indicating relevant areas, to explain, while higher achieving responses addressed the key issue – that tariff revenue is received by the domestic government while the revenue resulting from a higher price resulting from a quota (“quota revenue”) typically does not.

A significant number of candidates relied simply on the law of demand for the answer to this question. In the context of exchange rates, the idea that goods/services priced in the depreciating currency would become cheaper was necessary.

The vast majority of candidates were able to calculate the exchange rate accurately, although a surprising number then multiplied the ¥/$ rate of 44 by the ¥ price, with the result that the motorbike would cost more than $24 million!

The majority of candidates were able to discriminate between debit and credit items, but many failed to relate these terms to the direction of currency flows.

Although there were many correct answers, it was concerning that so many responses indicated a lack of awareness regarding which items should not appear in the current account.

This question was generally very well-answered.