The New Suez Canal In August 2015 the Egyptian Government opened a second Suez Canal, alongside the original canal, to enable more and larger ships to sail from the Mediterranean Sea to the Gulf of Suez. It cost more than US$8 billion to build, with land having to be purchased, capital equipment acquired and wages paid to the workers building the canal. This was at a time when there were calls for increased spending on healthcare, in particular improving the quality of public hospitals and improving education, especially adult literacy. The Egyptian Government believes that the canal will attract more ships, both those carrying goods and those carrying people. The number of goods and people using sea transport is influenced by a variety of factors. These include the speed of the transportation, the level of economic activity and the price of other forms of transport. Some goods have to be transported quickly, and recent years have shown how sensitive demand for sea transport is to recessions and economic booms. Fig. 1 shows how the market for sea transport has recently been affected by the change in the market for air transport. [Figure 1 The market for sea transport] The Egyptian Government is hoping that new industries connected to the shipping industry will be built along the canal. Developing infant industries may help to reduce the country's unemployment rate, which in 2015 was 12.5%. In 2015, the country had a population of 90 million, a population growth rate of 1.5% and a labour force of 28 million. Its death rate was falling. The government's spending on healthcare was equivalent to 4% of Gross Domestic Product (GDP). 2015 also saw GDP at US$280 billion with an economic growth rate of 5%.

Mark scheme

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

1. [2] A cost borne by those directly producing or consuming a product (1) cost of land/capital/equipment/wages/$US8 billion to build second Suez canal) (1).
2. [4] Opportunity cost is the (next) best alternative (1) forgone (1). Government spending on the canal (1) could have been used on e.g. healthcare/education (1). Land used for the canal (1) could have been used for e.g. farming (1).
3. [2] 3.5 million (2). Correct method i.e. 12.5% of 28 million (1).
4. [2] $11.2 billion. (2). 11.2 billion or $11.2 or 11.2 (1). Correct working i.e. 4% of $280 billion (1).
5. [5] A global recession means that global output/supply will fall / two or more quarters of negative growth (1). Fewer goods will be transported/moved (1) less trade/lower imports and exports (1) demand for freight/sea transport will fall (1). Incomes will fall (1) spending will fall (1) demand for leisure travel by sea will decrease (1) demand for passenger transport will fall (1).
6. [5] Up to 3 marks for why it might: A fall in the death rate may mean people live longer (1) maybe due to improvements in health (1) the birth rate may now exceed the death rate (1) resulting in an increase in population (1). A lower death rate may attract more people to migrate to the country (1) resulting in net immigration (1). Up to 3 marks for why it might not: The death rate may still exceed the birth rate (1) so a fall in the death rate may just reduce the decline in population size (1). The death rate may equal the birth rate (1) and so population size may not change (1). The death rate may be less than the birth rate (1) but this may be exceeded by net emigration (1). Birth rate may also fall (1) if related to higher standard of living / improved healthcare (1)
7. [4] The diagram shows demand decreasing (1) price falling (1) supply contracting/falls (1) air transport is a substitute for sea transport (1). Supply is inelastic (1). Demand is inelastic (1).
8. [6] Up to 4 marks for why it should: Infant industries may struggle to compete against foreign competitors (1) because they are not large enough to take advantage of economies of scale (1) example/s of economies of scale (1) average cost higher (1). To offset predatory pricing from overseas (1) or to develop a strategic or innovative new industry (1) to reduce reliance on other countries (1). Imposition of tariffs (1) would benefit the government through higher tax revenue (1). Infant industries may grow (1) increasing output/GDP/economic growth (1) increasing employment/reduce unemployment (1). Up to 4 marks for why it should not: Infant industries may become reliant on protection (1) not become efficient/not reduce average costs (1) may not work (1). It is difficult to determine which industries have the potential to grow (1). Protection of infant industries may provoke retaliation (1) reducing exports of other industries (1). There is an opportunity cost (1) example (1).