Define the term absolute poverty indicated in bold in the text (paragraph [2]).

Define the term investment indicated in bold in the text (paragraph [5]).

Using a perfectly competitive firm diagram, explain the effect of declining prices of coffee beans on the profits of Honduras’ coffee farmers in the short run (paragraph [2]).

With reference to the data in Table 2, explain why the GNI per capita for Guatemala is lower than its GDP per capita.

Using information from the text/data and your knowledge of economics, contrast the potential for economic development in Guatemala and Honduras.

For [4] the candidate must either correctly show the loss on the diagram in the form of a revenue box or have sufficient labelling to be able to correctly identify the loss in their written explanation.

For a perfectly competitive firm diagram, the vertical axis may be labelled Cost (C), Price (P) or Revenue (R). The horizontal axis may be labelled Quantity (Q) or Output. A title is not necessary.

[1] for showing an awareness of the difference between GNI and GDP (by GNI = GDP + Net income abroad OR GNI is income from productive factors owned by residents of the country whereas GDP is income produced in the country).

[1] for an explanation that the GNI per capita in Guatemala at 7278 is lower than the GDP per capita at 8100.

[2] for an explanation that this means that the net income from abroad is negative OR that foreign owners of productive resources in Guatemala are earning more income than owners from Guatemala are earning in foreign countries.

NB Responses that do not refer to the data in Table 2 can be awarded a maximum of [3].

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.

“Contrast” requires candidates to give an account of the differences between two (or more) items or situations, referring to both (all) of them throughout.

Economic analysis may include:

• poverty cycle
• Lorenz curve / Gini
• primary products PED YED
• terms of trade
• FDI
• growth.

Responses may include:

• a definition of economic development
• a comparison of the HDI ranking, noting that Guatemala’s ranking is marginally better than Honduras’ (Table 2)
• GNI per capita is notably higher in Guatemala, but education and health indices are similar for both countries (Table 2)
• the difference in GNI per capita may be exaggerated for Guatemala as it seems to be more dependent on inflows of remittances which would inflate GNI (paragraph [4])
• Honduras’ better access to sanitation (Table 2) may contribute to higher economic development and may result in a similar life expectancy despite its significantly lower GNI per capita
• Honduras’ larger expenditure on education and health care as a percentage of GDP may contribute to higher economic development (Table 2)
• in the long run, greater expenditure on health care and education may result in a healthier and more productive work force, contributing to greater economic growth and development
• Honduras collects more tax revenue (as a percentage of GDP), which may explain its capacity to spend more on merit goods (as a percentage of GDP) (Table 2)
• PPC curve or LRAS curve to show effect of improvement in quality of labour for Honduras
• Honduras’ lower Gini coefficient suggests a more equal distribution of income (Table 2) even though Honduras’ GNI per capita income is lower than Guatemala, income is more equally distributed
• Guatemala probably has more people living in absolute poverty, particularly in rural areas (paragraph [6])
• while Guatemala has a larger population and economy (paragraph [4]), it may be over-reliant on remittances and agricultural exports as a source of economic growth (paragraph [4] and [5]) when compared to Honduras (paragraph [1])
• it takes less time in Honduras to start a business, which encourages entrepreneurship and increases SRAS (Table 2)
• Honduras’ economy is becoming more diversified (paragraph [1]), meaning that it may be more able than Guatemala to withstand global fluctuations in commodity prices in the future
• concerns about poor security in both countries that may discourage FDI
• poor infrastructure in Guatemala (paragraph [5]) may discourage FDI which is needed to diversify the economy and increase economic growth
• use of data to make predictions of future economic development.

Any reasonable evaluation.

Generally poorly defined. Vague and imprecise. Often a confusion arose between absolute and relative poverty. 

This was quite well understood and answered although there was often a confusion between portfolio investment and physical investment.

On balance this was quite well answered. In the main, students understood the theory of perfect competition and were able to apply it to a situation of falling prices and demonstrate both diagrammatically and in terms of an explanation how the falling prices could affect profits. 

Some students did not identify the correct level of output at MR=MC and/or did not clearly identify the loss in the diagram. It seems it was challenging for some students to know whether to start from a position of economic profit or loss.  

The terms were poorly understood, particularly GNI. Many candidates used the value in the table to correctly state that the GNI was lower then GDP, but some did not correctly explain the difference between the two. Similarly, the "per capita" aspect of the question was often missing. Overall, the majority of students were not able to effectively distinguish between the two concepts. 

Again, the development question was poorly answered. 

• many responses tended to be generic, giving a list of differences rather than contrasting the potential for economic development in the context of Guatemala and Honduras
• too descriptive and lacking depth of analysis
• there was minimal application to economic development and as with question 3(d) approached the question in terms of economic growth with minimal reference to development.