Define the term excess demand indicated in bold in the text (paragraph [3]).

Define the term structural unemployment indicated in bold in the text (paragraph [4]).

Using a supply and demand diagram and data from the text, explain how a “disequilibrium in the domestic US tinplate steel market” would occur if there were no imports (paragraph [3]).

Using an international trade diagram, explain the effect of a tariff on the imports of tinplate steel (paragraph [1]).

Using information from the text/data and your knowledge of economics, discuss possible economic impacts of the tariff on tinplate steel.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

For a supply and demand diagram, the vertical axis should be price or p. The horizontal axis should be quantity or q. A title is not necessary.

Candidates who incorrectly label diagrams can be awarded a maximum of [3].

The use of P and Q on the axes is sufficient for a demand and supply diagram. The world supply curve must be labelled S_w, or S_world. A title is not necessary.

Examiners should be aware that candidates may take a different approach which, if appropriate, should be rewarded.

Do not award beyond level 2 if the answer does not contain reference to the information provided.

Command term
“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors, or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

Responses may include:

• definition of tariff
• international trade diagram to explain impact of the requested tariff on consumers, producers, government, importers and efficiency (paragraph [1]).

Possible impacts:

• some candidates may question the claims of the CMI, noting that they have a vested interest in tinplate steel being exempted from a tariff (paragraph [1])
• severe economic impacts on the tin can manufacturing industry (paragraph [2])
• job losses and potential structural unemployment in the tin can industry (paragraphs
  [2] and [4])
• inefficient domestic tinplate steel producers are supported (paragraph [3]), causing a misallocation of resources
• the inferior “quality of domestically-produced tinplate steel” (paragraph [3]) may result in a decline in quality and higher price of final products
• tariff allows domestic steel tinplate producers to maintain higher revenues / incomes to allow them to compete with higher quality imports (paragraph [3])
• higher input prices for can manufacturers may force closures of some can producers and a consolidation within the tin can industry (paragraph [4])
• tariff will increase input costs for can manufacturers requiring tinplate steel as an input (paragraph [4])
• tin can producers disadvantaged when substitute packaging is not exposed to a tariff (paragraph [4])
• impact on economic growth in communities dependent on tin can manufacturing (paragraph [4])
• impact on low-income households as tariffs are regressive taxes and food is a staple; low income households spend a higher proportion of their income on canned food (paragraph [5])
• trading partners might retaliate by imposing their own protectionist measures
• tariffs provide a source of tax revenue that can be reinvested
• as domestic production can only meet 57% of domestic demand, it might take a substantial increase in price to resolve the shortage (paragraph [3])
• may affect the competitiveness of US exports, which require tin-plate steel as a factor input. 

Unfortunately, most candidates did not reach L2. Those who were awarded L1 often referred simply to demand exceeding supply. An explanation that quantity demanded was greater than quantity supplied would have added precision to the definition.

Most candidates exhibited knowledge of one factor which could contribute to structural unemployment. Some confused this type of unemployment with cyclical or frictional employment.

Surprisingly, many candidates struggled with this question. A lot of diagrams illustrated a change in equilibrium, with supply or demand shifting, rather than a disequilibrium. Many candidates also failed to make use of the text. Some centres expressed concerns that use of data was required in a question part other than (d). However, the purpose of (b) and (c) remains application of simple concepts to the text/data provided.

This was generally a well answered question. A few candidates addressed the welfare effects and/or impact on tax revenue, which was not required by the question. A common problem was a missing label for the world supply curves (e.g. Sw, Sw + tariff).

“Discuss” requires candidates to offer a considered and balanced review that includes a range of arguments, factors or hypotheses. Opinions or conclusions should be presented clearly and supported by appropriate evidence.

As for many past questions on tariffs, answers were often generic, going through the tariff diagrams and the ‘standard’ impacts on domestic production, imports, the price, etc. In such cases, the tariff diagram was over-elaborated on and lacked application to the text. It was not uncommon for answers to cite the infant industry argument, which was clearly not relevant in this case. Such answers reflect economic analysis but limited application to the text and would generally remain in level 2. Another common problem which kept answers in level 2 was that many candidates simply repeated the text or only slightly expanded upon what was presented.

A level 3 answer is one where the candidate applies economic analysis to the text. In this case, some good responses considered (with or without reference to an international trade diagram) that the tariff would increase the price of tinplate steel and commented that this could contribute to cost-push inflation but since only 2 % of all American steel was tinplate, the impact would not be significant.