Nauru is one of the smallest countries in the world with a population of only 10000. Fifty years ago the population was one of the richest per head in the world, largely the result of exporting the phosphate created over many centuries by sea-bird droppings. This labour-intensive industry has declined significantly. Now incomes are much lower and one third of workers are jobless.

Mark scheme

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

1. [2] (a) An industry which has a high proportion of labour compared with the proportion of other factors of production used (2). An industry which uses a large amount of labour (1).
2. [4] (b) 1 mark each for each of two reasons identified: may be a shortage of the product in own country; may want to conserve resources; may be a fall in demand from other countries; may want to switch resources to another product; may lose international competitiveness; trade restrictions may be imposed on the product by trading partners; may be an appreciation of the currency. 1 mark each for each of two explanations: may want to sell the product on the home market to prevent a shortage pushing up price; there may be concerns that e.g. deposits of gold are running out; exports can only be sold if there is a market for them / exports may have risen in price / may have fallen in quality; other products may have become more profitable and so resources may be switched away from the product; other countries may have discovered resources / improved the training of their workers giving them a cost advantage; there may be a tariff imposed which may make the product uncompetitive / an embargo may be imposed on the product stopping other countries importing it; a higher exchange rate will raise the price of exports which may make this product uncompetitive.
3. [6] (c) A rise in unemployment may reduce incomes (1) lower spending (1) lower total demand (1) lower demand-pull inflation (1). A rise in unemployment may reduce rises in wages / lead to a fall in wages (1) reduce costs of production (1) reduce cost-push inflation (1). A rise in unemployment will reduce tax revenue (1) this could cause the government to reduce subsidies (1) this could increase costs of production (1) causing cost-push inflation (1).
4. [8] (d) Up to 5 marks for why it might be an advantage: A small population may mean that resources will last over a longer time period (1) enabling economic growth to continue (1). There may be less environmental damage (1) less risk of overcrowding (1). There may be fewer dependents (1) smaller proportion of children and elderly people (1) which can increase income per head (1) and may reduce the need for some forms of government spending (1). May be less imports (1). Up to 5 marks for why it may be a disadvantage: There may not be enough workers / low labour force (1) to take advantage of resources (1) low output (1) low tax revenue (1) reduces government ability to spend (1). The size of the market for the country's products may not be large enough / low total (aggregate) demand (1) less ability to take advantage of economies of scale (1) may be less attractive to MNCs (1). May be less exports (1).