Chile produces a third of the world's supply of copper. A change in demand for, or supply of, copper affects Chile's Gross Domestic Product (GDP) and the current account position on its balance of payments.

Mark scheme

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

1. [2] (a) Output/total output (1) produced in a country (1)
2. [4] (b) One mark each for each of two benefits: • higher living standards • higher employment • more tax revenue • less government spending on benefits • more exports • reduced poverty One mark each for each explanation: • higher living standards as people can consume more goods and services (1) reduces poverty (1) • higher employment as more workers will be needed to produce the higher output (1) • more tax revenue as higher incomes will generate more direct tax revenue (1) higher spending will generate more indirect tax (1) more tax revenue can increase government spending on, e.g. health care and education (1) • less government spending on unemployment benefit would enable the government to spend more on other items (1) • higher exports if demand is present in other countries (1) • reduced poverty as incomes will rise (1)
3. [6] (c) Up to 4 marks for the diagram: PRICE D S S Pi P SI S D QUANTIT demand and supply curves labelled accurately (1) • axes accurately labelled, e.g. price and quantity/P and Q (1) • • shift of supply curve to the left (1) • original and new equilibrium points clearly indicated (1) Up to 2 marks for written explanation: • higher costs will cause a decrease in supply (1) : • price will be expected to rise and quantity (traded) fall (1)
4. [8] (d) Up to 5 marks for why it might: • buyers may chose to buy copper from Chile (1) if Chilean copper is price competitive (1), e.g. due to low exchange rate (1) quality competitive (1) higher demand may increase exports (1) this may increase export revenue (1) higher export revenue may improve the trade in goods position (1) an improved trade position may turn a deficit into a surplus (1) or increase a surplus (1) Up to 5 marks for why it might not: • the demand for copper may be the result of a fall in the price of copper (1) more may be purchased but export revenue may fall (1) • the demand for copper may rise but it may not be possible to supply more (1) as, e.g. mines may be working at full capacity/there may be a lack of skilled workers (1) • other countries may have become more price (1) or quality competitive (1) so the rise in demand may affect other countries' current account positions (1) • Chile may have a large current account deficit (1) so even with higher export revenue, а surplus may not be generated (1) • a trade in goods surplus may be offset by an increasing deficit/lower surplus on another part of the current account (1), e.g. trade in services position may deteriorate (1) or by a rise in imports (1) • higher demand for copper may increase demand for labour (1) this could push up wages (1) increasing costs (1) making Chilean copper less competitive in the longer run (1) • higher demand for copper may push up the exchange rate (1) and so may, in the longer run, reduce a surplus (1)