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Question 21M.3.HL.TZ0.e

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Date May 2021 Marks available [Maximum mark: 4] Reference code 21M.3.HL.TZ0.e
Level HL Paper 3 Time zone TZ0
Command term Explain Question number e Adapted from N/A
e.
[Maximum mark: 4]
21M.3.HL.TZ0.e

Country D is an economically less developed country that specializes in the production of primary products. 

Explain two implications for Country D of a relatively low income elasticity of demand for its primary products.

[4]

Markscheme

Implications may include:

  • countries that specialize in primary products may need to diversify in order to achieve economic growth
  • (relative) income for those working in the primary sector might decrease, leading to greater inequality
  • as economic growth occurs, demand for primary products will increase more slowly than the demand for secondary/tertiary products, causing the prices of primary products to increase more slowly than the prices of secondary/tertiary products
  • as economic growth occurs, there will be differences in the rate of expansion of primary industries in relation to secondary/tertiary industries/employment
  • because the prices of primary products fall relative to manufactures, the terms of trade for countries specializing in the export of primary products may deteriorate. This may threaten the process of economic development
  • as Country D specializes in the export of (income inelastic) goods, it will not benefit from global economic growth (the income gap will widen), or the converse could be true. This implication may be phrased as export revenue being relatively stable despite changes in the global economy
  • any other reasonable response.

NB Reference to the effects of negative economic growth should be rewarded.

Examiners report

This question was generally answered very poorly. Many candidates simply re-stated the definition in the context of primary products. The link to Section 4 of the course was not generally made, with candidates limiting their answers to the likelihood of stability in times of positive growth or recession. Few candidates referred to the idea of slow growth in demand for exports, with implications for the current balance and terms of trade. The strongest responses explained the need for diversification as a result of low YED for primary products. 

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