Section A

Answer ALL questions. This section carries 40 marks.

Questions A1 – A20

Answer Grid

Question A21

a) 1 mark for full understanding only

Negative externality – Social cost > private cost, spill over effects to 3rd parties.

A distinction between consumption and production externalities is NOT required.

b) 2 marks for correct diagram including labelling, 1 mark for supporting explanation

Anticipated diagram

S + TAX

Price

S

P2

P1

D

Q2    Q1

Quantity

in the costs of production for a firm, and as such shift the S curve to left,

leading to a contraction of the demand curve, and a change in equilibrium

price and quantity as a consequence. [ 3 ]

c) 1 mark for identification + 2 for development.

Possible negative externalities that might be created by the over-consumption of sugary drinks may include

-    Obesity and associated healthcare issues

-    Tooth decay and associated healthcare issues

-    Impacts on NHS

-    Impacts on productivity

d) 1 mark for identification + 2 for development.

Possible methods that could be used to reduce the problems caused by the over-consumption of sugary drinks in Malaysia may include

Subsidies to substitute products

Regulation

Education and information

Minimum prices [ 3 ]

Question A22

a) 1 mark for full understanding only

A trade deficit is when the sum of exports of goods and services is less than imports.

b) 2 marks for correct diagram including labelling, 1 for supporting explanation

Anticipated diagram (long run aggregate supply diagram should also be rewarded)

Price Level

P1 P2

Q2     Q1

Supporting explanation should highlight that a trade deficit implies net          exports as a component of aggregate demand are negative, and therefore    might shift the AD curve to the left, thus weakening inflationary pressure but slowing the rate of growth of real national output and potentially harming

employment.

c) 1 mark for identification + 2 for development.

Possible reasons why Japan may have experienced a fall in exports may include

-    Overvalued exchange rate

-    Poor domestic productivity

-    High domestic inflation hampering competitiveness of exports

-    Weak economic growth/recession in export markets

-    Poorer relative quality of Japanese goods/services

d) 1 mark for identification + 2 for development.

Possible methods of improving trade position may include

-    Weakening exchange rate

-    Improve productivity

-    Supply side policies

-    Encourage innovation

-    Reduce tariff barriers

-    Subsidise Japanese manufacturers to improve competitive position

-    Constrain demand for imports via constraining domestic consumption