Question 18N.3.HL.TZ0.2e.iii
| Date | November 2018 | Marks available | [Maximum mark: 4] | Reference code | 18N.3.HL.TZ0.2e.iii |
| Level | HL | Paper | 3 | Time zone | TZ0 |
| Command term | Explain | Question number | e.iii | Adapted from | N/A |
Figure 3 illustrates the market for cotton in the country of San Marcus, a small closed economy. Cotton is used as an input in the San Marcus textile industry. Quantity is in thousands of kilograms (kg).
The Government of San Marcus decides to provide a subsidy equal to $8 per kilogram to its producers of cotton.
San Marcus now joins the World Trade Organization (WTO) and agrees to slowly liberalize trade, becoming an open economy.
The world price for cotton is $2 per kg. The WTO permits the government of San Marcus to maintain the $8 subsidy.
Explain one possible advantage and one possible disadvantage for the San Marcus economy of the decision to join the WTO and slowly liberalize trade.
[4]
NB Responses should refer to the economy of San Marcus, not just one industry such as the consumers or producers of cotton.
