QCAA Economics Global economic issues

Answer(s) could include:

Tariff diagram:

• price – Y axis, quantity – X axis
• tariff originally set to raise price in market and raise government revenue eliminated
• domestic supply falls, imported supply rises
• domestic consumption expands.

Tariff explanation and short-term effects:

• reduction in price for consumers and expansion in domestic consumption
• switches consumption from domestic producers to imports
• decrease the cost for domestic producers if an imported capital item
• domestic suppliers sell less for less
• possible reduction of government revenue from tariff
• reference to DWL and market effects (CS, PS, TS).

Subsidy diagram:

• price – Y axis, quantity – X axis
• supply curve shifts to the left for domestic suppliers (decrease)
• increased gap between local supply and local demand
• price remains at world price
• domestic consumption is unchanged.

Subsidy explanation and short-term effects:

• increased domestic costs as subsidy removed
• lower competitiveness against imports
• decreased domestic production
• imports increase
• reduction of Government subsidy cost.
• reference to DWL and market effects (CS, PS, TS).

Longer term effects of tariff elimination:

• reduction in retaliatory tariffs
• less Government revenue for spending in other areas
• increase in economic output and employment through increased free trade
• structural change in the economy as resources such as labour shift from uncompetitive trade exposed industries to competitive industries
• higher national income.

Longer term effects of subsidy elimination:

• efficient producers are advantaged
• decreased burden on the tax payer
• promotes innovation in the economy
• government expenditure can be re-allocated to more effective areas of social need.

Common set of rules; further access into other sectors, e.g. financial, healthcare and others listed.

India and the United States

Answer(s) could include:

• free trade based on comparative advantage can lead to greater efficiency and economic growth
• promotes efficiency
• increases economic growth; improves standard of living; increases incomes and consumption
• lower prices; net increase in jobs; lower costs of production/inputs
• gains to consumers
• gains to producers.

Tarriff diagram:

• A clearly and correctly labelled tariff diagram showing price on the y-axis and quantity on the x-axis.
• Tariffs raise the price in the market and raise government revenue, and domestic consumption falls.

Effects on consumers:

• For consumers, imposing a tariff will cause prices to rise, consumption to fall, and decreased consumer surplus, as tariffs increase prices of imports.

Effects on producers:

• For producers, imposing a tariff will cause price increases, domestic producers to increase production, and increased producer surplus, as domestic producers sell more goods.

Answer(s) could include:

• role of WTO, IMF, other global institutions
• decline in globalisation in recent times due to a rise in protection, Nationalist politics, e.g. America First
• lower transportation costs
• significant improvements in communications technologies
• rising global wealth changes consumer tastes and preferences
• government policies lowering barriers to trade
• global trade slowed (deceleration).

Answer(s) could include:

Positive:

• increased technical and allocative efficiency
• increased economic growth due to increased export markets
• lower input costs, lower production costs
• reduced inflationary pressures due to cheaper imports; lower import costs
• increased standard of living, greater range and quality of goods and services
• higher rates of employment and wages growth
• managerial ideas, technology and management transfer
• economies of scale
• multi-national corporations and foreign direct investment.

Negative:

• increased structural unemployment in key manufacturing industries
• dependence upon foreign supply chains
• lower effective rates of protection impacts manufacturing businesses
• vulnerability to global crisis.