Suggested Answers of BT2 Revision Package - ASKnLearn

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Illustration:Assumptions:• Only two countries• Only two products• No transport costs between countries• Perfect factor mobility between the two product industries• Constant return to scale in productionShoes (units)Machines (units)UK 100 20Portugal 50 5Shoes (units)Machines (units)UK 0.2 machine 5 shoesPortugal 0.1 machine 10 shoesUK’s comparative advantage lies in machine production, where its comparativeadvantage is larger and its opportunity cost is lower. Portugal’s comparative advantagelies in production of shoes, where her opportunity cost is lower. Therefore, based on thepattern of comparative advantage, UK should specialize in machines and Portugal inshoes.The Terms of Trade is the ratio of export and import prices. It determines the extent ofgains from trade.Shoes (units)Machine (units)UK 0.2 machine 5 shoesPortugal 0.1 machine 10 shoesAssuming the trade price between the two goods is 1 machine= 8 units of shoesFor both countries to mutually gain from free trade the trade price of a good must liewithin the opportunity cost limits of the two countries – in this case price of machine must
exceed 5 shoes and lower than 10 shoes. In terms of price of shoes 1 shoe = 0.125machine which is a mutually beneficial trade price for both countries. Terms of tradedetermines whether there is a basis for trade although comparative advantage exists.TOT also determines the extent of the gain of trade.2. Explain free trade and the benefits of free trade as a basis for its promotion.a. Free trade is a system in which goods, capital, and labor flow freely between nations,without barriers which could hinder the trade process.b. By encouraging nations to freely exchange goods, free trade can foster internationalcooperation and raise standard of living.c. Reducing tariff barriers leads to trade creation. Trade creation occurs whenconsumption switches from high cost producers to low cost producers.d. The removal of tariffs leads to lower prices for consumers and an increase in consumersurplus.e. Increased exports: as well as benefits for consumers importing goods, firms exportinggoods where the country has a comparative advantage will also see a big improvementin economic welfare. Lower tariffs on the country’s export will enable a higher quantityof export boosting jobs and economic growth.f. Economies of scale: if countries can specialize in certain goods they can benefit fromeconomies of scale and lower average costs, this is especially true in industries withhigh fixed costs or that require high levels of investment. The benefits of economiesscale will ultimately lead to lower prices for consumers.g. Increased competition: With more trade domestic firms will face more competition fromabroad therefore there will be more incentives to cut costs and increase efficiency.h. Trade is an engine of growth: World trade has increased significantly, causing this tobe one of the big contributors to economic growth.L3L2L1Clear explanation of all required concepts with links to the economic basis forspecialization and free trade.An explanation of comparative advantage without links to the basis forspecialization and free tradeOR explanation of only the benefits of Free trade.For an answer which has some basic correct facts such as unexplainedcomparative advantage and benefits of free trade.
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ST ANDREW’S JUNIOR COLLEGEH1 ECON
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demand for hotel accommodation. The
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Cost/Benefits/$ Welfare loss MSC =
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more than proportionate fall in qua
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Price S P 1 P 2 D 1 D 2 Market for
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ERP• Works by charging drivers an
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2010 YJC Prelims H1 Paper CSQ1: Hou
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quantity transacted increases and h
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with the large amount of subsidies
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(b) With the help of a diagram, ana
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Hence as long as the West is willin
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Marks Scheme:L3( 7 - 8m)L2(4 - 6m)L
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conclusion about absolute value of
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• Germany’s revival has been bu
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ising making labour relatively more
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(ii)With reference to the data, ass
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L3L2L1EA balanced discussion of the
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(b)Explain how a rise in interest r
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(d)Consider whether the evidence in
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The higher spending, translating in
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2010 RI (JC) Prelims H1 Paper CSQ2:
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This will increase SOL of Chinese a
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2. Appreciation is also needed to d
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Increase Real output for Asiaproduc
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Section B: EssaysMicroeconomics:1.
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Roads for Cars A X B Other infra
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With reference to Figure 2 above, (
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Conclusion:The future impact in the
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ConclusionSummarise and link to par
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Explain causes ofan increase in pri
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(b) Discuss the view that price con
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Take astandConclusionPrice ceiling
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Possible non-price determinants of
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Suggested answer (b)Price elasticit
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Limitations of non-pricing strategi
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Internet broadband connectionFoodEf
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3. Antithesis: success of policy do
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EvaluationE2For a reasoned judgemen
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LevelsL3(7m - 10m)L2(5m - 6m)L1(1m
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Subsidies to ConsumersWith governme
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ooEspecially when demand is price i
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