Cambridge A Level Economics 9708 — 2016 May/June Paper 2 · Variant 1

This document consists of 4 printed pages and 1 Insert. DC (LK) 118022/4 © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level * 5 5 1 4 2 9 2 0 9 6 * ECONOMICS 9708/21 Paper 2 Data Response and Essay May/June 2016 1 hour 30 minutes No Additional Materials are required. READ THESE INSTRUCTIONS FIRST An answer booklet is provided inside this question paper. You should follow the instructions on the front cover of the answer booklet. If you need additional answer paper ask the invigilator for a continuation booklet. Section A Answer this question. Brief answers only are required. Section B Answer any one question. You may answer with reference to your own economy or other economies that you have studied where relevant to the question. The number of marks is given in brackets [ ] at the end of each question or part question.

2 9708/21/M/J/16 © UCLES 2016 Section A Answer this question. 1 The Fiji economy: a positive outlook Fiji is a small island country in the Pacific with a population of 860 000. In 2014 its economy was reported to be continuing to grow steadily. It remained on course for a fifth consecutive year of expansion, boosted by high tourist arrivals and visible export earnings, particularly from sugar. The factors that were expected to restrict growth in 2015 included ongoing dry weather conditions causing lower output of agricultural goods, with the exception of sugar. Table 1: Selected economic indicators for Fiji 2014 estimate 2015 forecast Economic growth rate % 3.3 3.0 Inflation rate % 3.0 3.5 Current account balance as % share of GDP –6.0 –7.0 Source: Asian Development Bank, 2014 Consumption remained strong in the first five months of 2014, and imports of consumer goods, mainly vehicles, rose by 15.6%. Personal remittances increased, boosting consumption expenditure. The tourism sector – Fiji’s main source of foreign exchange – continued to perform strongly. Visitor arrivals increased by 4.0% year-on-year, with 4.6% more visitors from Australia and 11.6% more from New Zealand, but there was a significant fall in visitor arrivals from Japan. Sugar production increased, aided by government investments in new technology that improved efficiency of production and reduced price. Despite higher growth, inflationary pressures were eased by declining international commodity prices. However, annual average inflation in 2014 was not expected to fall below 3.0%, as economic activity was expected to revive. In addition, continuing dry weather was affecting the food supply. Despite the positive growth outlook, increased investment is needed to improve productivity and address supply-side capacity constraints. Source: Asian Development Outlook 2014 Update

3 9708/21/M/J/16 © UCLES 2016 [Turn over (a) How and where would revenue from tourist arrivals in Fiji be recorded in Fiji’s balance of payments? [2] (b) Use a supply and demand diagram to show how the government investment referred to in the article affected the price of sugar produced in Fiji. [2] (c) Explain what the changes in sugar’s contribution to visible export earnings and in the price of sugar might suggest about the price elasticity of demand for sugar. [3] (d) Using aggregate demand and aggregate supply analysis, explain why inflationary pressures remained subdued in Fiji despite higher growth. [3] (e) Explain how increased investment could address supply-side capacity constraints in the Fiji economy. [4] (f) Discuss any economic factors that might help to explain the changes in visitor arrivals to Fiji from Australia and Japan. [6]

4 9708/21/M/J/16 © UCLES 2016 Section B Answer one question. 2 (a) Explain the meaning of the term ‘equilibrium price and quantity’ in the market for a good or service, and show how a new equilibrium position is established when there is a decrease in demand. [8] (b) Discuss whether attempts to help poorer consumers through the introduction of a maximum price for necessities can ever be successful. [12] 3 (a) Outline the functions of the factor enterprise in a modern economy, and explain how enterprise responds to a rise in the demand for a good. [8] (b) Discuss why some goods and services are provided by private enterprise and others are provided by the government in a mixed economy. [12] 4 (a) Explain what might cause a favourable movement in an economy’s terms of trade. [8] (b) Discuss whether overall a favourable movement in an economy’s terms of trade would be likely to have positive or negative effects on the economy. [12] Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. To avoid the issue of disclosure of answer-related information to candidates, all copyright acknowledgements are reproduced online in the Cambridge International Examinations Copyright Acknowledgements Booklet. This is produced for each series of examinations and is freely available to download at www.cie.org.uk after the live examination series. Cambridge International Examinations is part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

® IGCSE is the registered trademark of Cambridge International Examinations. This document consists of 5 printed pages. © UCLES 2016 [Turn over Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level ECONOMICS 9708/21 Paper 2 Data Response and Essay May/June 2016 MARK SCHEME Maximum Mark: 40 Published This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the May/June 2016 series for most Cambridge IGCSE®, Cambridge International A and AS Level components and some Cambridge O Level components.

Page 2 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 21 © Cambridge International Examinations 2016 SECTION A 1 (a) How and where would revenue from tourist arrivals in Fiji be recorded in Fiji’s balance of payments? [2] A credit [1 mark] in the services section of invisibles/the trade in services/the current account (accept any one of these) [1 mark]. (b) Use a supply and demand diagram to show how the government investment referred to in the article affected the price of sugar produced in Fiji. [2] For a supply and demand diagram showing a shift in the supply curve to the right [1 mark] and the subsequent fall in price [1 mark]. [Up to 2 marks] (c) Explain what the changes in sugar’s contribution to visible export earnings and in the price of sugar might suggest about the price elasticity of demand for sugar. [3] For a clear understanding of the concept of price elasticity of demand [1 mark]. The price elasticity of demand for sugar must be elastic [1 mark] because a fall in price has resulted in an increase in demand by a greater % resulting in a rise in expenditure [1 mark]. (d) Using aggregate demand and aggregate supply analysis, explain why inflationary pressures remained subdued in Fiji despite higher growth. [3] For aggregate demand analysis that explains the potential impact of economic growth upon prices through increasing aggregate demand. [Up to 2 marks] For aggregate supply analysis that explains how declining international commodity prices would increase aggregate supply to prevent price rises. [Up to 2 marks] [3 marks maximum] (e) Explain how increased investment could address supply-side capacity constraints in the Fiji economy. [4] For a clear understanding of the meaning of the supply-side of the economy [1 mark]. For explanation of the link between investment and an increase in supply-side capacity [1 mark] with appropriate examples of supply-side policies [1 mark]. For comment on the strength of the link [1 mark].

Page 3 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 21 © Cambridge International Examinations 2016 (f) Discuss any economic factors that would help to explain the changes in visitor arrivals to Fiji from Australia and Japan. [6] At least two factors must be identified and discussed. For example: • differences in relative exchange rates • differences in income changes • differences in price of related goods, for example travel. For full marks some evaluative comment is required on the likely impact of each factor identified. For example the impact of income changes depends upon the income elasticity of demand. Up to 4 marks for each factor discussed. If no evaluative comment, 2 marks maximum on each factor discussed. [6 marks maximum]

Page 4 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 21 © Cambridge International Examinations 2016 SECTION B Essays 2 (a) Explain the meaning of the term ‘equilibrium price and quantity’ in the market for a good or service, and show how a new equilibrium position is established when there is a decrease in demand. [8] For knowledge and understanding of equilibrium price and equilibrium quantity. [Up to 4 marks] Candidates need to show good understanding that equilibrium price and quantity is a position in the market where there is ‘no tendency to change’. This can be illustrated and explained with the use of a supply and demand diagram. For application showing the process through which equilibrium is established when there is a decrease in demand. (Up to 4 marks) Candidates are expected to provide a supply and demand diagram showing a shift in the demand curve to the left, the consequent excess supply that this will cause together with the downward movement of price and quantity to re-establish equilibrium. (b) Discuss whether attempts to help poorer consumers through the introduction of a maximum price for necessities can ever be successful. [12] For analysis showing the impact of a maximum price below equilibrium, the consequent shortage and the likely emergence of black markets. (Up to 8 marks) In this case, there will need to be an alternative system of resource allocation, such as rationing. For evaluative comment making a judgement about whether this can ever be successful. (Up to 4 marks)

Page 5 Mark Scheme Syllabus Paper Cambridge International AS/A Level – May/June 2016 9708 21 © Cambridge International Examinations 2016 3 (a) Outline the functions of the factor enterprise in a modern economy, and explain how enterprise responds to a rise in the demand for a good. [8] For knowledge and understanding of the functions of enterprise. For the organisation function [Up to 3 marks] For risk taking [Up to 3 marks] [4 marks maximum] For application showing how enterprise responds to an increase in demand and the consequent rise in price. [Up to 4 marks] (b) Discuss why some goods and services are provided by private enterprise and others are provided by the government in a mixed economy. [12] For analysis explaining how governments and private enterprise produce: • private • merit • demerit and • public goods. [Up to 8 marks] For evaluative comment that considers the effectiveness of government provision and provision by private enterprise. [Up to 4 marks] 4 (a) Explain what might cause a favourable movement in an economy’s terms of trade. [8] For knowledge and understanding of the terms of trade. [Up to 4 marks] For application to show how changes in the price of exports relative to the price of imports cause a favourable movement in the terms of trade. [Up to 4 marks] (b) Discuss whether overall a favourable movement in an economy’s terms of trade would be likely to have positive or negative effects on the economy. [12] For analysis of the impact of a favourable change in the terms of trade: • Up to 6 marks for the possible positive effects. • Up to 6 marks for the possible negative effects. [8 marks maximum] For evaluative comment upon the ‘overall’ aspect of the question. [Up to 4 marks]