Read the source material carefully before answering Question 1. Source material: The future of the economy of St. Kitts and Nevis St. Kitts and Nevis fact file 2022 Population 54800 GDP per head $27000 Government spending $310m Tax revenue 292m Unemployment rate 5.1% Inflation rate 2.4% Current account balance of the balance of payments -56m St. Kitts and Nevis is a small, two-island country in the Caribbean. The country’s three main industries are tourism, financial services and agriculture. Tourists are attracted by the country’s beaches, coral reefs, forts, rainforests and shipwrecks. However, if rainforests continue to be cut down and soil erosion continues to pollute the coral reefs, killing off marine life, tourism may be discouraged. The St. Kitts and Nevis Government is also concerned that the social costs of tourism exceed the private costs. St. Kitts and Nevis’s financial services include a growing banking sector. Among the country’s commercial banks are a few foreign multinational companies (MNCs). These MNCs are attracted by the country’s relatively high incomes, the absence of personal income tax and a relatively high literacy rate. Some of the country’s main agricultural products are carrots, onions, peanuts and sweet potatoes. In 2017, the St. Kitts and Nevis Government introduced a training scheme to raise the productivity of onion farmers. Other important industries in St Kitts and Nevis include healthcare and fishing. Table 1.1 shows healthcare spending as a percentage of GDP and life expectancy in six selected countries in 2022. Table 1.1 Healthcare spending as a percentage of GDP and life expectancy in selected countries in 2022 Country | Healthcare spending as a % of GDP | Life expectancy (years) Canada | 12.9 | 84 Egypt | 4.5 | 75 Haiti | 3.3 | 65 Monaco | 1.9 | 90 St. Kitts and Nevis | 5.4 | 77 Sweden | 11.5 | 83 The small size of St. Kitts and Nevis’s fishing industry means that it imports large quantities of fish. The country’s fishing boats are small and some lack up-to-date equipment. A larger fishing industry, with bigger boats, may bring a number of benefits to the country. Changes in the structure and performance of industries in St. Kitts and Nevis may alter the country’s price level. Between 2018 and 2020, the country experienced deflation. This affected people’s purchasing power, saving and debts. It also affected the country’s exports and firms’ investment decisions. Answer all parts of Question 1. Refer to the source material in your answers.

Mark scheme

Marking points from the official mark scheme (May/June 2025). The mark or mark type is shown in brackets.

1. [1] 18 m / -18 m (1).
2. [1] Accept 18m. ($)18 000 000 / – ($)18 000 000.
3. [1] Two from: beaches (1), (coral) reefs (1), marine life / fish (1) rainforests (1) and soil (1).
4. [1] If more than two examples given, consider the first three.
5. [1] Social costs are greater than private costs / social costs include private costs and external costs / harmful effects on third parties / those not directly involved in producing or consuming the product (1).
6. [1] Example of an external cost caused by tourism in St Kitts and Nevis e.g. pollution / environmental damage / death of wildlife / death of marine life / overcrowding (1).
7. [1] High incomes in the country (1) high demand for banking services / high demand for loans / may save more / borrowers likely to be able to repay loans / high profit / high revenue (1).
8. [1] Absence (low) of personal income tax (1) workers would be able to keep all of their income / more disposable income / firms may be able to pay lower wages / increase workers' motivation (1).
9. [1] Relatively high literacy rates (1) awareness of benefits of having a bank account / saving / skilled workers / high productivity (1).
10. [1] One mark each for each of two reasons identified and one mark each for each of two explanations.
11. [1] If more than two reasons given, consider the first three.
12. [1] Most of the explanation points e.g. high profit could be linked to any of the three identification points except high disposable income should be linked to absence of personal income tax.
13. [1] Do not give two explanation marks for one identification.
14. [1] Explanation marks here are dependent on the identifications.
15. [1] Axes correctly labelled – price and quantity or p and q (1).
16. [1] Original demand and supply curves correctly labelled (1).
17. [1] New supply curve shifted to the right (1).
18. [1] Equilibriums – shown by lines P1 and Q1 and P2 and Q2 or equilibrium points marked as E1 and E2 (1).
19. [1] Direct/positive relationship (1).
20. [1] Generally, the higher healthcare spending, the higher the life expectancy (1).
21. [1] Supporting evidence: E.g.: Haiti has the second lowest % healthcare spending and the shortest life expectancy (1) Canada spends a higher % on healthcare than Egypt and has a longer life expectancy / Canada spends the highest percentage on health care and has the second highest longest life expectancy / Canada and Sweden spend a high % on healthcare and have long life expectancy (1).
22. [1] Analysis of the supporting information: Higher spending on healthcare would be expected to raise the health of the population / provide better quality healthcare (1) increase awareness of need for healthy living / provide more check-ups / preventative medical care / reduce the death rate (1).
23. [1] Exception: Monaco (1) spends the lowest % on healthcare but has the longest life expectancy (1).
24. [1] Analysis of exception: 1.9% of a very high GDP can mean higher spending than e.g. 12.9% of a lower GDP / Monaco may have a high GDP (1). There are other influences on life expectancy e.g. nutrition / education/housing/war (1).
25. [1] may reduce imports of fish (1) reduce risk of supply-side shocks / imports being cut off (1) enable fish to be exported (1) may improve the current account balance / improve the balance of payments (1).
26. [1] may increase employment / increase job opportunities/ reduce unemployment (1) raise incomes (1) increase living standards (1) increase GDP/increase output / cause economic growth (1) higher tax revenue (1).
27. [1] may enable greater advantage to be taken of economies of scale (1) example (1) lower average cost (1) lower fish prices (1).
28. [1] (larger boats) may be more efficient / more productive (1) make the industry more profitable / increase profits from fishing (1).
29. [1] opportunity cost (1) could use resources in other industries / government can spend more on e.g. education / increase budget deficit (1).
30. [1] over-fishing (1) deplete fish stocks / lose marine life / deplete resources (1) raise fish prices in the long run (1).
31. [1] may experience diseconomies of scale (1) example (1) higher average cost (1) reduce profit (1).
32. [1] may cause external costs / environmental harm (1) may damage coral reefs / cause pollution (1) harm tourism (1).
33. [1] may be a dangerous occupation (1) may be low-paid (1) low-skilled (1) may experience seasonal unemployment (1).
34. [1] risk of over specialisation / too great a dependency on the industry (1) may be harmed by a fall in demand for fish / rise in competition from other countries (1).
35. [1] may have increased real value of debt (1) may default (1) may have decreased investment (1).
36. [1] may have resulted in a deflationary spiral (1) may have resulted from lower total demand (1) lower GDP / lower output/ reduce economic growth / may cause a recession (1) lower employment / increased unemployment (1) lowered wages / income (1).
37. [1] may reduce confidence (1) may discourage MNCs (1).
38. [1] may reduce consumer expenditure / save more / create uncertainty (1) delay buying goods and services (until price is lower) (1).
39. [1] may have increased purchasing power / real income / with the same income more goods and services can be purchased (1) (some) people may spend / consume more (1).
40. [1] value of saving may have increased (1) increasing wealth (1).
41. [1] may be the result of higher total supply (1) due to advances in technology / lower costs of production (1) higher output / economic growth (1) higher employment (1).
42. [1] may have increased international competitiveness of its products / lower export prices (1) increased exports / export revenue (1) reduced imports / import expenditure (1) improve current account balance (1).