Define the term absolute advantage indicated in bold in the text (paragraph [3]).

Define the term asymmetric information indicated in bold in the text (paragraph [6]).

Using a costs diagram, explain how the expansion of the coconut industry could lead to economies of scale (paragraph [4]).

Using a production possibility curve (PPC) diagram, explain how damage to Fiji’s infrastructure has affected its production possibilities (paragraph [1]).

Using information from the text/data and your knowledge of economics, discuss the view that government intervention is the best way to achieve economic development in Fiji.

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

For a cost diagram, the vertical axis may be labelled Cost (C) or Average cost (AC) or Long run average cost (LRAC). The horizontal axis may be labelled Quantity (Q) or Output. A title is not necessary.

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

For a PPC, the axes could be two alternative products, one on each axis, eg Good A & Good B or Schools & Motor Cars; or two groups of products, eg Consumer Goods and Producer Goods.

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.

Answers may include:

• Definition of economic development.

Economic analysis may include

• Poverty cycle
• Lorenz curve
• AD/AS diagram
• Externality diagram
• PPC.

Discussion that government intervention is the best way to achieve economic development may include:

• Financial support for sugar cane producers needed for diversification (paragraph [2]) needed for access to credit and to encourage investment.
• The diversification supported through government intervention may lead to more value-added products (paragraph [4]). May result in more jobs, increasing household income, raised standard of living as able to access basic necessities.
• Education for women is highlighted as an area for development (paragraph [2]), leads to improved human capital, productivity, increased incomes, access to health and basic necessities – raising living standards.
• Government strategies are targeting equality for all, including gender equality (paragraph [2])
• Support in coconut production vital for food security (paragraph [4]).
• The investment (paragraph [2]) leads to AD increase and increase in economic growth, may lead to economic development if incomes and access to health and education are improved.
• The government provides subsidies on pesticides to support/increase sugar production (paragraph [3]); this may or may not result in more jobs, which could increase household incomes and thereby standards of living.
• Ginger and coconut production are economically and environmentally sustainable (paragraph [4]) which implies that they are efficient industries, but also environmentally friendly, leading to sustainable growth and development.
• Ginger and coconut production provide “worthwhile income” for an increasing number of Fijians (paragraph [4]), leading to an increased standard of living and breaking out of the poverty cycle.
• Social safety net is limited; therefore, government intervention is needed (paragraph [1]).
• Infrastructure spending vital to support the tourism industry as a major export (paragraph [1]), if exports decrease, economic growth decrease, leads to lower employment opportunities.
• “Green finance” (paragraph [5]) would allow sustainable ginger and coconut farmers to have access to credit and invest in their farms to make them more productive and earn more income.
• To improve information flows by reducing asymmetric information, would improve information between farmers and middlemen (paragraph [6]). When farmers have more information, they can make better economic decisions that benefit their families in terms of income.

Discussion that government intervention may not be best way to achieve economic development may include:

• Intervention may not reach the very poor/those with limited resources. The subsidy for pest control (paragraph [3]) requires excessive paperwork, so not all may benefit from the support.
• To be effective government intervention needs to be targeted to areas of need. Farmers’ financial literacy needs to be improved (paragraph [5]). So, access to credit will only be effective if government can also provide education.
• The government must develop major infrastructure (paragraph [6]), which will be costly and take a long time to develop and will have opportunity costs.
• Potential for corruption means government subsidies may not reach those who need it (paragraph [3]).
• Subsidies for pesticides may create a negative externality (paragraph [3])
• Brazil has absolute advantage in sugar and is Fiji’s competitor, so the subsidies may be better directed alternative development areas (paragraph [3]).

Students may offer alternative strategies to achieve economic development:

• Trade liberalization and development might be better by creating market access through greater economic integration (paragraph [6]), the export revenue earned from this could be used to improve or build new infrastructure in the future, leading to economic development for many in society.
• Grants and concessional loans from Australia (paragraph [6])
• Export promotion – new markets opportunities emerging as products such as coconut water is becoming popular throughout the world (paragraph [4])
• Green finance through Asian Development Bank (paragraph [5]).

Any reasonable discussion.

To reach level 3, students must show awareness of the ways in which government intervention impacts upon economic development (not simply discuss the advantages and disadvantages of government intervention in
general). This means to link the evaluation to how it will reduce poverty, increase living standards, reduce income inequalities and increase employment opportunities, improve health and education indicators.

Generally well answered although some candidates confused "absolute advantage" and "comparative advantage".

Again, generally well answered although some candidates failed to realise the significance that one party to the transaction needs to have 'more' information than the other party.

Answers to this question were disappointing. Cost diagrams were generally incomplete and/or inaccurately labelled, eg AC only instead of LRAC. Too many failed to understand that economies of scale are a long run concept, and some did not provide any reasons for these economies of scale.

This was well answered overall. Most candidates produced accurate diagrams and explanations. Weaker candidates used diagrams where the PPC did not shift /decrease but moved inside the boundary. No marks were awarded in these circumstances. However, the explanation often missed reference to lower quantity or quality of FoPs.

As with most development questions this was not well answered. Many candidates wrote about government intervention but relatively few concentrated on economic development. Most highlighted the impact on economic growth. Also, most students did not reach an appropriate conclusion ie whether government intervention is the 'best way' to achieve economic development.