GCE

Economics
Advanced GCE
Unit F585: The Global Economy

Mark Scheme for January 2011

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This mark scheme is published as an aid to teachers and students, to indicate the requirements
of the examination. It shows the basis on which marks were awarded by Examiners. It does not
indicate the details of the discussions which took place at an Examiners’ meeting before marking
commenced.

All Examiners are instructed that alternative correct answers and unexpected approaches in
candidates’ scripts must be given marks that fairly reflect the relevant knowledge and skills
demonstrated.

Mark schemes should be read in conjunction with the published question papers and the Report
on the Examination.

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

1 (a) (i) The average price of a country’s exports relative to the 2 Annotate using (1 tick for each mark)
average price of its imports
Also accept for 2 marks the terms of trade formula:
2 marks for an accurate definition = (index of average price of exports/index of average price
of imports) x 100

Award 1 mark for:

 missing out ‘average’ or n ‘index’ from the formula
 formula is correct but wrong way around
 X 100 is missing from formula
 amount of imports a country can buy for a set amount of
exports or the rate of exchange between two countries.
 the price at which goods and services can be exchanged
 understanding of the basic idea of the price of exports
relative to the price of imports

Award 0 marks for:

 price of exports or price of imports ONLY
 no reference at all to price

1 (a) (ii) Award 1 mark for what is likely to have happened to the 2 For the second mark to be awarded there must be reference
terms and trade and 1 mark for the reason (this can be a simple statement) to banana exports as a % of
 Terms of trade are likely to have total export earnings as the question explicitly requires
improved/strengthened/increased/ better (1) candidates to make use of Fig. 2.1
 This is because banana exports are a significant % of
St Lucia’s total export earnings AND world banana Award only 1 mark where a candidate says terms of trade
prices have risen (1) have improved because banana prices have risen.

0 marks for ‘value’ (P x Q) rather than ‘price’ (P)

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

1 (b) Primary commodities tend to have both price inelastic 6 To access the four diagram marks the axes must be correctly
demand and supply and are subject to demand and/or labelled.
supply shocks. The result is that price changes tend to be Wrongly labelled axes no marks for diagram (must be price
large. The causes of these shifts depends on the commodity and quantity or quantity traded or quantity demanded and
but may include reference to derived demand for supplied)
commodities (such as bauxite, alumina), rising/falling global No marks for labelling equilibrium POINTS not PRICES.
income/GDP, good/poor harvests (crop disease, weather),
new suppliers. NOTE: there should only be 4 diagram marks (check the
number of ticks awarded)
 1 mark for correctly drawn and labelled demand and Two acceptable diagrams are shown below.
supply curves (must be D and S and not AD and AS) Price S
S1
 1 mark for a shift in demand/shift in supply (shift can be
either leftward or rightward) P
 1 mark for old equilibrium price (must be labelled)
 1 mark for new equilibrium price (must be labelled)
 1 mark for explicit recognition that demand or supply of
primary commodities are price inelastic. P1
 1 mark for the cause of the shift in demand/supply or
the reason why PED or PES is inelastic.
D
Quantity

Price S

P1

D1 D
Quantity

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

Content Levels of Response
1 (c) Case for preferential access to EU markets 10 Answers in Level 4 should be Level 4 [7 – 10 marks]
for bananas from ACP states underpinned by relevant economic For a commentary on the case for
 without preferential access ACP analysis and marks should be awarded preferential access to EU market.
bananas would struggle to compete as follows: This is most likely to be an analysis
because producers lack economies of  one stated comment 7 marks of the arguments for and against.
scale and/or yields are low; maximum
 low yields may be the result of a lack  several stated comments 8 marks Level 3 [4 – 6 marks]
of capital for investment or  one comment with brief elaboration For analysis of the case for or case
inappropriate resource endowment; 8 marks against but not both.
 access to EU markets generates  one comment with brief elaboration Candidates in this level will make
higher export revenue, higher + one stated comment 9 marks use of some economic concepts
employment and incomes contributing  one comment well developed or show an ability to explain cause
to higher levels of development. two comments with brief and consequence.
elaboration 10 marks
Case against is limited and there is a strong Level 2 [3 marks]
case against preferential access RESPONSES WHICH USE A TRADE For an application of knowledge
 it raises prices for EU consumers, CREATION/DIVERSION DIAGRAM TO and understanding of arguments
reducing consumer surplus; ANALYSE AND COMMENT ARE for and against preferential access.
 ACP states’ gain is Latin America’s CAPPED TO BOTTOM OF L4 Answers in this level will contain
loss eg income, employment and NO economic analysis/concepts eg
GDP; Level 3 responses are characterised by they will make NO use of the
 preferential access promotes the use of the economist’s toolkit of economic concepts and not make
inefficient production and runs concepts, theories and models. This clear cause and consequence.
contrary to free trade/comparative could include: a tariff diagram; AD/AS
advantage; analysis Level 1 [1 – 2 marks]
 it may trap ACP states in a low level of For knowledge and understanding
development by creating a Level 2 responses will be descriptive of preferential access only.
dependency on the EU market and on and lack analytical reasoning.
primary production so it is difficult to
diversify the economic structure.

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

2 (a) Up to 2 marks for knowledge of the composition of the HDI: 4 Composition of HDI was changed in 2010 – some candidates
may be aware of this. New components of HDI are referred to
 GDP per capita (PPP US$) (1) or GNI per capita (PPP in acceptable answers opposite.
US$) (1);
 life expectancy at birth (1); Watch out for explanations, therefore, that refer to differences
 adult literacy (1); in mean years of schooling, expected years of schooling or
 primary, secondary or tertiary education enrolment (1); net property income from abroad (given that reference is
 mean years of schooling (1); made to GDP per capita in the question).
 expected years of schooling (1).
Reference to ‘other components increasing less rapidly’ is
Up to 2 application marks for explanation of why Dominican only worth 1 mark for application
Republic has a lower rate of growth in its HDI than
Guatemala. Since Dominican Republic has a higher growth Do not accept ‘lower level of HDI therefore easier to achieve
rate in GDP per capita than Guatemala, relevant higher growth rate in HDI’ for application marks
explanations include:
1 mark only for reference to spending on ‘measures which
 lower growth/fall in life expectancy (1); improve HDI’ without specific mention of education or health
care
 lower growth/fall in adult literacy rates (1);
 lower growth/fall in primary, secondary or tertiary
education enrolment (1);
Use to indicate knowledge marks (max 2)
 lower growth in government expenditure on health care
(1) or lower priority given to government expenditure
on health care (1);
Use to indicate application marks (max 2)
 lower growth in government expenditure on education
(1) or lower priority given to government expenditure
on education (1) ;
 greater priority given to government expenditure on
area not related to components of HDI eg defence (1);
 lower growth in foreign aid directed to these areas (1).

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

2 (b) Application marks 6 Use the following annotations in Scoris to distinguish between
Up to 2 marks for an application of knowledge and application and analysis marks
understanding of the structure of Caribbean economies:
 heavy dependence on exports (1) for application marks (max 2 marks)
 dependence on exports of primary commodities (1) OR
specific mention of one commodity (1) eg bananas,
for analysis marks (max 4 marks)
bauxite, gas, oil, food;
 dependence on tourism (1), offshore banking (1),
remittances (1). Analysis may be shown through the use of an AD/AS diagram.
Only reward as analysis if the diagram is incorporated into the
Analysis marks textual explanation ie no marks for unexplained diagrams
Up to 2 marks only for a basic analysis of the impact on
Caribbean economies such as:
 fall in demand for tourism because it is income elastic
(1);
 fall in exports earnings (1);
 worsening of current account position (1);
 lower employment/higher unemployment (1);
 fiscal deficit (1);
 increased debt (1);
 fall in remittances (1);
 reduction in FDI/construction projects (1);
 capital outflows (1).

Up to 4 marks where the impact is analysed using the

AD/AS framework or multiplier or multiplier/accelerator
relationship

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

Content Levels of Response
2 (c) Government debt is the total amount of 10 The most common route into Level 4 is Level 4 [7 – 10 marks]
money owed by central and local going to be via an analysis of the ways For a commentary on the extent to
government. Such debt can be internal in which government debt constrains which high levels of government
(owed to lenders within the country) or economic development followed by an debt, such as those experienced by
external (owed to lenders from abroad). explanation of why it might not. St. Kitts and Jamaica, act as a
constraint on economic
High levels of government debt may act as a In Level 4 award marks as follows: development.
constraint on economic development  one stated comment 7 marks Must be supported by economic
because: maximum analysis
 it limits government expenditure on  several stated comments 8 marks
health and education or capital  one comment with brief elaboration Level 3 [4 – 6 marks]
investment reducing life expectancy 8 marks For an analysis of how economic
literacy causing fall in HDI ;  one comment with brief elaboration development is constrained by high
 it limits government expenditure on + one stated comment 9 marks levels of government debt.
capital investment which may impact  one comment well developed or Candidates in this level will make
negatively on AS and on economic two comments with brief use of economic concepts and
growth in the long run; elaboration 10 marks explain cause and consequence.
 results in high levels of debt interest
payments = opportunity cost; Level 2 [3 marks]
For an application of knowledge
The extent to which depends on: and understanding of how high
 scale of the debt in relation to GDP; levels of government debt may
 interest rate on the debt; impact on economic development.
 what debt has been used for; Answers in this level will contain
 how the debt is managed; NO economic analysis/concepts
and not make clear cause and
 whether debt is internal or external;
consequence.
 whether there are other more
significant constraints on
Level 1 [1 – 2 marks]
development.
For knowledge and understanding
of government debt and/or
economic development

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

Content Levels of Response
3 Economic integration brings benefits in Candidates are expected to introduce Level 4, Band 3 [18 – 20 marks]
terms of: some analysis of the benefits opposite For a discussion that includes a
20
 trade creation; (Level 3) in their responses rather than judgement on the benefits of
 greater competition; just list the benefits (Level 2). regional economic integration for a
 more innovation and R&D; small economy, such as St. Lucia.
 a larger market and economies of Watch out for candidates who confuse a At least one judgement must be
scale. single market with a single currency. developed for 20 marks to be
Give BOD for a single error but not awarded.
In addition, there are benefits from a where there is consistent confusion.
monetary union which include: Level 4, Band 2 [15 – 17 marks]
 reduced transaction costs; Candidates who recognise any of the For a discussion of the benefits of
 elimination of exchange rate risk; discussion points opposite are likely to regional economic integration for a
 increased price transparency; be awarded marks in Level 4 of the mark small economy, such as St. Lucia.
scheme assuming this builds upon There will be some development of
Discussion is likely to include a analysis of the benefits of integration. the benefits and costs and a
consideration of the costs of economic recognition that the question
integration, which might include issues such Where the issues have not been focuses specifically on a
as: expressed clearly and fluently and where small/Caribbean economy.
sentences and paragraphs have not
 trade diversion;
been well structured marks at the bottom Level 4, Band 1 [11 – 14 marks]
 core-periphery in the region;
of Level 4 Band 1 should be awarded. For a basic discussion of the
 regional and structural unemployment; benefits of regional economic
 the need for common regional policy Candidates need to base their integration without reference to a
to ensure the benefits are spread discussion on the context of a small small economy. This is likely to be
equally; economy (this can be a European an analysis of the benefits of
 the need for competition policy to economy such as Ireland or Belgium) integration plus a list of some of the
prevent the abuse of monopoly power; OR a typical Caribbean economy (such costs of integration without
 the loss of monetary policy as St Lucia) in order to access marks in reference to a small OR a
sovereignty; Band 2 and above. Please highlight Caribbean economy.
 constraints on fiscal policy; relevant context.
 the degree of economic convergence
and optimal currency area issues.

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F585 Mark Scheme January 2011

Question Answer Marks Guidance

Content Levels of Response
Judgement is likely to include a Candidates offering judgements such as Level 3 [5 – 10 marks]
consideration of: those opposite will be awarded marks in For an analysis of the benefits of
 the significance of the benefits and/or Level 4, Band 3 of the mark scheme. regional economic integration for a
costs to a small economy such as St. Annotate judgements using small economy, such as St. Lucia.
Lucia;
 the degree to which the benefits of Level 2 [3 – 4 marks]
economic integration shield a small For an application of knowledge
economy from the negative aspects of and understanding of the benefits
globalisation; and/or costs of regional economic
 the extent to which regional integration integration for a small economy,
allows a small economy to maximise such as St. Lucia.
the gains from globalisation;
 the factors that determine the extent of Responses must NOT be placed in
the benefits and/or costs. this Level where candidates have
included relevant, if limited,
economic analysis of either
benefits or costs of economic
integration

Level 1 [1 – 2 marks]
For knowledge and understanding
of regional economic integration
only.

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F585 Mark Scheme January 2011

APPENDIX 1: QUALITY OF WRITTEN COMMUNICATION

Quality of written communication is embedded into Levels of Response mark schemes as follows:

Level 4
Complex issues have been expressed clearly and fluently using a style of writing appropriate to the complex subject matter. Sentences and
paragraphs, consistently relevant, have been well structured, using appropriate technical terminology. There may be few, if any, errors of spelling,
punctuation and grammar.

Level 3
Relatively straightforward ideas have been expressed with some clarity and fluency. Arguments are generally relevant, though may stray from the
point of the question. There will be some errors of spelling, punctuation and grammar, but these are unlikely to be intrusive or obscure meaning.

Level 2
Some simple ideas have been expressed. There will be some errors of spelling, punctuation and grammar.

Level 1
There are likely to be some errors of spelling, punctuation and grammar of which some may be noticeable and intrusive.

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