Read the source material carefully before answering Question 1. Source material: the challenges facing Pakistan Pakistan fact file | | 2016 $ billion | 2017 $ billion | |:------------------|:-----------------|:-----------------| | Exports of goods | 20.5 | 25.2 | | Imports of goods | 47.0 | 61.7 | | Government spending | 40.5 | 43.2 | | Consumer spending | 259.3 | 294.8 | Pakistan faces a number of economic challenges. These include responding to a rising population, improving its trade in goods balance, controlling the country’s inflation rate and increasing the country’s economic growth rate. To overcome these challenges, the Pakistani government is trying to increase investment. Currently, a high proportion of the country’s resources are used to produce consumer goods. The government is subsidising entrepreneurs and charities to open low-cost schools. It wants to reduce the dropout rate from schools and to raise educational standards. Some parents do not recognise the advantages that a merit good such as education can give their children, for example better health and better job opportunities. Some of the poor need their children to work from a young age to support the family. Government reforms have not yet led to a significant rise in teachers’ wages but have improved school buildings and the number of children attending. The qualifications required to teach may be increased in the future. Improved education may affect the number of skilled workers who emigrate and may raise the quantity and quality of goods and services produced. Any resulting higher income may influence the value of imports purchased, as shown in Table 1. Table 1 GDP per head and imports per head in selected countries in 2017. | Country | GDP per head () | Imports per head () | |:----------------|:-------------------|:---------------------| | Norway | 70600 | 14472 | | UK | 43600 | 10419 | | South Korea | 39400 | 11602 | | Russia | 27900 | 4002 | | Mexico | 19500 | 7343 | | Pakistan | 5400 | 1143 | | Haiti | 1800 | 853 | Pakistan has relatively high import tariffs. Revenue from import tariffs is 45% of total tax revenue. The tariffs on vehicles, some of which have inelastic demand, are particularly high. Future Pakistani tariffs may be influenced by changes in other countries’ trade policies, as well as other factors.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [1] -$36.5bn (1).
2. [2] Any two from: Higher government spending (1) higher consumer spending / rising population (1) increased investment (1).
3. [2] Logical explanation which might include: Capital goods (1) resources that could have been used to produce capital goods are being used to produce consumer goods / (next) best alternative forgone (1).
4. [4] Logical explanation which might include: People underestimate full benefit / private benefit (1) not appreciating health and job opportunity benefits (1). People not taking into account external benefits (1) e.g. better quality products/larger quantity of products or economic growth (1).
5. [4] Coherent analysis which might include: The children of the poor may not attend school (1) they may have to work (1) to help support their families (1). Poor families are likely to have difficulty paying to have their children educated (1) some schools in Pakistan are in the private sector (1) there seems to be a lack of low-cost schools (1). The children of the poor may leave school at a younger age (1) may miss more school days due to ill health (1).
6. [5] Coherent analysis which might include: Generally the countries with the highest GDP per head spend the most per head on imports (1) examples e.g. Norway has the highest income per head and the highest spending on imports per head and Haiti has the lowest income and the lowest spending on imports (up to 2) exception: Russia has a higher income per head than Mexico but a lower spending per head on imports (1). Expected relationship as income rises (1) people can afford more imports (1). The four countries with above average GDP per head spend above the global average on imports (1). The two countries with below average GDP per head spend more on imports (1).
7. [6] Award up to 4 marks for logical reasons why it might, which may include: • education standards may rise (1) which may increase those qualified to be teachers (1) • working conditions may improve (1) with better buildings (1) • population is increasing (1) which may increase the size of the labour force (1). Award up to 4 marks for logical reasons why it might not, which may include: • wages may not rise (1) teachers may switch to other jobs (1) • teachers may emigrate to other countries (1) • the qualifications required to be a teacher may increase (1) by more than educational standards rise (1).
8. [6] Award up to 4 marks for logical reasons why it might, which may include: • may reduce the trade deficit (1) by reducing demand for imports (1) • tax revenue may increase (1) enabling the government to increase its spending (1) • may help protect infant industries (1) until they can take advantage of economies of scale (1). Award up to 4 marks for logical reasons why it might not, which may include: • demand for some finished imports may be price inelastic (1) • demand for capital goods / raw materials may be inelastic (1) • incomes may rise (1), leading to higher spending on imports (1) • other countries may impose trade restrictions (1) reducing Pakistan's ability to export (1).