Practise explaining and evaluating how specialisation and international trade affect developed economies through comparative advantage, scale and adjustment risks.
The share of GDP accounted for by the service sector is much higher in the UK and the USA than in Italy and Canada.
Evaluate the possible benefits of specialisation and trade to a developed country of your choice.
Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the general marking guidance. The indicative content below exemplifies some of the points that candidates may make but this does not imply that any of these must be included. Other relevant points must also be credited.
QS9: Interpret, apply and analyse information in written, graphical, tabular and numerical forms.
Knowledge, Application and Analysis ( 12 marks) - indicative content
- Understanding of specialisation and trade
Possible benefits could include:
- Specialisation according to the law of comparative advantage: greater trade will allow economies to access points outside their PPFs - allow diagrammatic or mathematical illustration of the law of comparative advantage
- To the extent that this leads to more international trade, this may improve a country's trade balance and generate economic growth/raise living standards
- Increased economies of scale results in lower long-run average costs (LRAC) for a developed country, reducing its export prices of services, and therefore leading to higher levels of international competitiveness in the service sector
- Lower prices for services due to greater allocative efficiency, thus leading to lower global inflation rates (welfare gain through trade)
- Specialisation in services leads to increased output and therefore could lead to greater investment and employment in the service sector
N.B. Award maximum of Level 3 (9 marks) if a candidate does not refer to a developed country in their answer
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Displays isolated, superficial or imprecise knowledge and understanding of economic terms, principles, concepts, theories and models.
Use of generic material or irrelevant information or inappropriate examples.
Descriptive approach which has no chains of reasoning.
Level 2
4-6
Displays elements of knowledge and understanding of economic terms, principles, concepts, theories and models.
Limited application of knowledge and understanding to economic problems in context.
A narrow response or superficial, only two-stage chains of reasoning in terms of cause and/or consequence.
Level 3
7-9
Demonstrates accurate knowledge and understanding of economic terms, principles, concepts, theories and models.
Ability to apply knowledge and understanding to some elements of the question. Some evidence and contextual references are evident in the answer.
Analysis is clear and coherent. Chains of reasoning in terms of cause and/or consequence are evident but they may not be developed fully or some stages are omitted.
Level 4
10-12
Demonstrates accurate and precise knowledge and understanding of economic terms, principles, concepts, theories and models. Ability to link knowledge and understanding in context using appropriate examples which are fully integrated to address the broad elements of the question.
Analysis is clear, coherent, relevant and focused. The answer demonstrates logical and multi-stage chains of reasoning in terms of cause and/or consequence.
Evaluation (8 marks) - indicative content
- Prioritisation and significance of the benefits discussed
- Weaknesses in comparative advantage model - for e.g., it ignores transport costs and assumes perfect mobility of factors without any diminishing returns
- Increased vulnerability to external shocks - for e.g., changes in global prices of commodities, suppressed global demand
- Benefits may depend on what services the developed country is specialising in and the extent to which these developed countries can specialise
- Over-dependency on imports of other products;
developed countries may lack the finance to pay for imports (foreign currency gap)
- Possibility of deteriorating terms of trade for some developed countries/trade would only mutually benefit countries after specialisation if terms of trade lie between the two opportunity cost ratios
- Over-exploitation of resources as output may be raised by over-exploiting resources at the cost of the future generations, causing external costs
- Increased specialisation and trade may cause increased levels of external costs, e.g. pollution, global warming as a result of increased transportation
- Risk of structural unemployment;
as a country moves towards specialisation, workers in declining industries may face occupational immobility of labour
- Problem to businesses of long supply chains, JIT production which present difficulties when there are disruptions to supply chains or shortages of key components;
causes problems for consumers - shortages, increased prices
Level
Mark
Descriptor
0
No rewardable material.
Level 1
1-3
Identification of generic evaluative comments.
No supporting evidence/reference to context.
No evidence of a logical chain of reasoning.
Level 2
4-6
Evidence of evaluation of alternative approaches.
Some supporting evidence/reference to context.
Evaluation is supported by a partially-developed chain of reasoning.
Level 3
7-8
Evaluation recognises different viewpoints and/or is critical of the
evidence, leading to an informed judgement. Appropriate reference to
evidence/context.
Evaluation is supported by a logical chain of reasoning.
Question
In 2019 the current account deficit on the balance of payments in Turkey was US$47.4 billion and in Argentina it was US$31.3 billion.
Evaluate the disadvantages of a current account deficit to a developing country of your choice.
Indicative content