Country X has the trade figures shown in Fig. 2. $ billion Exported goods 250 Imported goods 300 Exported services 200 Imported services 250 Fig. 2 Use the information given in Fig. 2 to help you answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2015). The mark or mark type is shown in brackets.

1. [1] One mark for banking/transport/insurance/entertainment/films/defence etc.
2. [3] $250bn - $300bn = –$50bn (1 mark)
3. $200bn - $250bn = -$50bn (1 mark)
4. -50bn + -50bn = -$100bn (1 mark)
5. Allow with no billion.
6. OFR applies. Award full marks if the correct answer is given without working.
7. [2] Any two reasons × 1 mark each
8. Country X is importing more goods than it is exporting
9. Country X is importing more services than it is exporting
10. consumers in Country X may prefer foreign goods
11. [4] Any two effects × 2 marks each
12. depletion of foreign reserves (1) because they are being used to pay for imports (1)
13. reduced earnings of foreign currency (1) because of reduced exports (1)
14. growing unemployment (1) as domestic industries fail to develop their export trade (1)
15. need for the government to take action to reduce imports (1) e.g. increased tariffs/quotas
16. government may need to borrow from international sources (1) e.g. IMF with conditions imposed (1)
17. increase in prices (1) leading to inflation and less buying power for the population (1)
18. may lead to devaluation of the currency (1) in order to make exports cheaper and so more competitive on world markets (1)
19. effects on local producers and cheap prices/dumping (1)
20. Any other relevant point.
21. [6] Level 2 (4-6 marks) Has discussed two or more of the options and has given a reasoned recommendation for two of the options.
22. (If a candidate has discussed only one of the options award 4 marks max)
23. If the government decides to join a free trade group it will have access to more export markets where import duties do not have to be paid. On the other hand, these countries will expect to be able to export to Country X without any restrictions and there will be competition for domestic industries who will need to keep prices low.
24. The government may decide to give grants to home industries to encourage them to export. The government will have to make sure that these industries do increase their exports. This option could be costly for the government when it may be short of finance and it may be difficult to decide to whom it should give grants. It will, however, make home industry feel that the government recognises the importance of successful home-based industries.
25. The introduction of quotas on certain imported products will mean that only a certain amount of some imported goods will be allowed into the country. This will assist home industries to produce and to be competitive with imported goods in the home market. On the other hand, importing countries may impose their own quotas on goods coming into their countries as a retaliatory measure and so the benefits of quotas are negated.
26. Raising import duties on all goods will mean a rise in the price of all imported goods. Importers may find that the goods are then too expensive to sell within Country X and the amount of imports is reduced. This may also encourage home-based industries to become more efficient in order to obtain more market share within Country X. Raising import duties may, however, affect certain industries who are dependent on imported raw materials or components in order to produce manufactured goods. Their costs will rise and they will find it difficult to compete both at home and also in the export market.
27. Level 1 (1-3 marks) Has commented on one or two of the options with/without a recommendation.
28. I would raise import duties on all goods. This would make these goods more expensive. People would not buy them. Imports would be reduced.
29. I would join a trading group. This would give free trade. There would be no duties paid. This would increase trade. Consumers would have more to buy.
30. [4] Any four points × 1 mark each or two well-developed points × 2 marks
31. Allow 2 marks max for general points relating to warehouses such as storage, protection against theft and damage, preparation for sale, ensuring supplies, plus:
32. (stores) dutiable goods (1) on which the duty has not yet been paid (1)
33. enables the entrepôt trade to take place (1) – the importer brings in goods, processes them and then exports them again (1)
34. allows the importer to take samples from the warehouse (1) in order to find buyers (1)
35. the importer may also sell the goods in bond and the buyer then pays the duty (1+1)
36. enables the importer to economise on working capital as he pays the duty only when removing the goods from the bonded warehouse (1)
37. Any other relevant point.