Singapore is usually ranked as one of the best countries in which to do business. It is an open economy engaging in free trade. It has a history of strong entrepreneurship, low unemployment, low average costs and relatively low tax rates. Its example may encourage other countries to remove trade restrictions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [2] (a) Total cost divided by output (2). Cost per unit / average fixed cost plus average variable cost (1).
2. [4] (b) 1 mark each for each of two factors identified: rise in education; reduction in corporation tax / tax holidays; increase in subsidies for business/entrepreneurs; reduction in the rate of interest; privatisation / move to market economy; immigration; reduction in barriers to entry / deregulation; economic boom / high level of economic activity; improved legal framework / reduction in crime. 1 mark each for each of two explanations given: rise in education will develop the skills needed to be an entrepreneur; reduction in corporation tax will increase financial return from being an entrepreneur; subsidies may make it easier / cheaper to start-up a business; a lower rate of interest will make it cheaper to borrow to start up a business / increase expectation of higher demand; privatisation / move to market economy will increase the opportunities to set up new firms; a relatively high proportion of immigrants tend to set up their own businesses; lower barriers to entry / deregulation would make it easier to set up new firms; economic boom / high level of economic activity may increase the expectation that firms will be profitable; improved legal framework / reduction in crime would be likely to make entrepreneurs feel more confident.
3. [6] (c) Reducing the tax will lower costs of production (1) increase supply – written or drawn (1). A complement is a product bought to use with another product (1) a fall in its price would increase demand for this product – written or drawn (1). Effect on price is uncertain (1) would depend on relative size of changes (1). Quantity would rise – written or drawn (1).
4. [8] (d) Up to 5 marks for why it might: Low unemployment may indicate a strong economy / economic growth (1) high incomes (1) a high level of demand (1) may expect to be able to sell a large amount in the country (1) make a high profit (1). Low unemployment may mean high tax revenue (1) government spending on education may be high (1) improving quality of workers (1) spending on infrastructure e.g. roads may be high (1) lower MNCs' costs of production (1). Production may be capital-intensive (1) and so labour shortages may not be a significant problem (1). Other benefits may be greater than higher labour costs (1) e.g. not having to pay an import tariff (1). Up to 5 marks for why it might not: There may be difficulty in recruiting workers (1) may be a shortage of skilled workers (1) may increase trade union power (1) may have to pay high wages (1) which would increase costs (1) lower profits (1). Low unemployment may create demand-pull inflation (1) and cost-push inflation (1) this may make it relatively expensive to produce in the country (1).