Read the source material carefully before answering Question 1. Source material: India's airline industry Air India fact file total revenue 2018 $2.2 bn total cost 2018 $2.9 bn number of passengers carried in 2018 16.4 m number of passengers carried in 2017 14.8m share of India's international and national air travel market in 2018 13% share of India's international and national air travel market in 1994 100% Air India is owned by the Indian government. The entry of new firms into India's air travel market has reduced Air India's ability to set price. The state-owned firm faces competition not only from other airlines but also from other forms of transport including trains and ships. In 2017 the Indian government tried, unsuccessfully, to sell Air India to the private sector. A successful sale would have raised money for the Indian government and might have increased the airline's efficiency. It is predicted that India will have the third largest airline industry by 2025. The growth in the industry may affect the current account position of India's balance of payments. Table 1.1 shows the current account position in India and four other countries. Table 1.1 The current account position of the balance of payments of selected countries in 2017 Country Current account ($bn) Current account % of GDP Brazil -9.8 -0.5 China 164.9 1.4 India -48.7 -1.9 Kenya -5.4 -6.8 Russia 35.4 2.2 A rise in both the number of routes flown and the quality of the passenger experience may increase the number of tourists visiting India. A larger Indian airline industry is likely to increase the ease of movement of people and goods into and out of India. This might attract more multinational companies (MNCs) and reduce firms' costs of production. India's air travel market faces a number of challenges. India has Asia's highest airline fuel tax. Some economists suggest that this should be increased further to increase tax revenue and to reduce market failure. The airlines' other costs are rising but it is difficult for them to raise prices. This is because India's air passengers are among the most price-sensitive in the world. Some airlines stop their costs rising any further by improving their staff training, introducing new technology and improving their pilots' working conditions. The airlines' ability to hire pilots is influenced by, among other factors, the quality of education and other job opportunities.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] (a) 0.7bn, 700m, 700 000 000. 7 × 10 to the power 8. 7 × 10^8.
2. [2] (b) Trains (1) ships (1). For 'ships' accept water travel.
3. [2] (c) Share of the market was 100% (1) only firm / share above 25% of the market / share above 40% / a complete/pure monopoly / no competition (1). Able to set price (1) a price-maker (1).
4. [4] (d) One mark each for each of two reasons identified and one mark each for each of two explanations. Logical explanation which might include: Raise (tax) revenue (1) which could be spent on e.g. education, healthcare / increase government spending (1). Increase efficiency / may perform better in the private sector / higher productivity (1) introduce a profit motive / increase output/GDP / reduce costs of production (1). Increase competition (1) lower price / increase quality / increase choice (1). Industry may be loss making / costly to run (1) reduce need to use tax revenue to finance industry / tax revenue can be used for other purposes e.g. education / increase government spending / national debt / tax rates might be cut (1).
5. [4] (e) Coherent analysis which might include: Brazil, India and Kenya had a current account deficit (1) while China and Russia had a current account surplus (1). India's current account deficit is the largest in terms of $s (1) but the second largest in % terms (1). China's current account had a larger impact on its economy in terms of $s (1) and Kenya's in percentage terms (1). Russia's current account surplus is larger than China's in terms of % of GDP (1). China has the largest surplus in $s (1). Up to 2 marks maximum for idea of size of current account balance without reference to deficit or surplus e.g. China has the largest current account balance and India the lowest. So maximum of 2 marks without reference to deficit/s or surplus/es. No marks for writing about a budget balance.
6. [5] (f) Coherent analysis which might include; May increase number of tourists (1) raise revenue from tourism / increase the size of the tourist industry (1) may increase exports / imports / increase the ease of movement of people and goods into and out of the country (1). May attract more MNCs (1) these will increase the country's output/GDP (1) introduce new technology / new methods of production (1). May lower costs of production (1) raising firms' profits (1) providing the incentive/finance to expand (1) increase the country's output/GDP (1). May increase employment (1) raise incomes (1) increase total demand (1) increase tax revenue (1) more could be spent on e.g. education (1). May increase (geographical) mobility of labour (1) making it easier for expanding firms to recruit workers (1).
7. [6] (g) Award up to 4 marks for why it should: Raise revenue (1) can be used to finance e.g. education / training of pilots / increase government spending (1) burden more likely to fall on the rich / may enable tax on basic necessities to be reduced (1). May reduce market failure (1) air travel causes external costs / social cost exceeds social benefit (1) air/noise pollution (1) a tax may reduce air travel / lower demand for air travel (1) by raising price (1) encourage people to switch to other forms of transport (1). Award up to 4 marks for why it should not: Will increase airlines' costs / reduce airlines' profits / cause a loss (1) airlines' other costs are rising (1) difficult for them to cover higher costs / raise prices (1) due to elastic demand / price sensitive demand (1) may go out of business (1) may discourage investment (1) causing unemployment (1). May reduce tourism in the country (1) harming the current account position (1). Airline fuel is already highly taxed (1) may be difficult to tax further (1). Ait travel is safer than car travel in many countries (1) so injuries may increase if there is a switch between the two (1).
8. [6] (h) Award up to 4 marks for logical reasons why they might: Introduction of new technology (1) will make the job easier (1). Improved staff training (1) improve/increase skills (1) improve motivation / satisfaction (1). improve working conditions (1) airlines want to retain staff (1). More routes are being flown / size of industry is increasing (1) demand for pilots may increase / more job opportunities (1) may raise wages (1). More fringe benefits may be provided (1) example (1). Being a pilot is a highly regarded occupation in many countries (1). Award up to 4 marks for logical reasons why they might not: There may not be more people qualified to become pilots (1) education standards may fall / qualifications may be high (1). Period of training may increase / cost of training may increase (1). Other jobs may offer higher wages / better working conditions / wages of pilots may fall (1) example of other jobs (1). Advances in technology may reduce the need for pilots (1) may increase skills needed (1). Increased tax on fuel may reduce the size of the airline industry (1) causing people to expect fewer job opportunities / unemployment of pilots (1). Price of substitute forms of transport may reduce (1) lowering demand for pilots (1). Job may require workers to be away from their families (1) people may want to stay close to home (1). Working hours may be unsociable (1) people may want to spend more time with their families (1). May be considered in some cases to be a risky job (1).