2022 SH2 H2 Prelim CSQ2 (Suggested answer).docx

2022 SH2 Prelim CSQ 2 Suggested Answer Outline(a) With reference to Extract 4 and Table 2, explain two reasons why India is against theremoval of import tariffs.[4] Any Two well-explained argument for protectionism(i.e. against the removal of importtariffs) below with clear reference to Extract 4 or Table 2: Protect Domestic Employment● India is against the removal of import tariffs onindustriessuchasthe‘textiles, agricultureanddairysectors’ (Extract 4) asthiswouldresult inincreaseinitsdomesticunemploymentas such sectors employ ‘hundreds of millions of workers’.[1]● With the removal of import tariffs in such sectors, the lowered relative price of tariff-freeimports fromcountriessuchasChinawouldleadtoamorethanproportionateincreaseinquantitydemandedof importsgiventhat suchgoodsarelikelyprice-elasticindemandwiththegreat availabilityof substitutesfromothercountries.Thiswouldthusleadtoanincreasein import expenditure, andceterisparibus, wouldleadtoafall inaggregatedemand(AD),which would lead to a fall in derived demand of labour, causingcyclical unemployment inIndia.[1] Protect Balance of Payment● AsseeninTable2, Indiahasacurrent account deficit upto2019andthusmaybeagainstthe removal of import tariffs to protect against an overall balance of payment deficit.[1]● By reducing import expenditure, it will help India avoid depleting its foreign exchangereserves, thusallowingIndiatobeabletointervenetosell foreigncurrenciestoappreciateits exchange rate when necessaryfor exampletodeal withpossibleconcernsof importedinflation or boost foreign investor’s confidence in India.[1] (b) Using a diagramand Extract 5, explain howtheremoval of import tariffswouldimpactconsumer surplus.[3] ● There will thus be an increase in consumers’ surplus where consumers will benefit from‘cost-savings passed down’ (Extract 5), where the lowered cost of import tariff which isremovedispasseddowntoconsumersintermsof lower pricesof importedendconsumergoods.[1]● With an import tariff, equilibrium price in the economy would be at PT and quantitydemandedwill beat Q3asseeninFigure1.Withtheremoval ofimporttariffs,therewill beanincreaseinquantitydemandedbyconsumersfromQ3toQ4aswell asfall inequilibriumprice fromPT to PW as seen in Figure 1 thus leading to a greater differencebetweentheprice consumers are willing to pay and actually pay.[1]● Thus, there is an increase in consumers’ surplus is seen in Figure 1 fromarea ABPT toACPW . Well-labelled and well-referenced diagram.[1]

Fig. 1: Tariff Diagram (c) With reference to Extract 6:(i) Explain how an increase in foreign direct investment may impact the balance ofpayment in Singapore in the short run and the long run.[3] ● In the short run, an increase in foreign direct investment (FDI) will meanmoredebittransactionsincreasingthelongtermcapital flowsthusworseningthecountry’scapitaland financial account, despite leading to an improvement in the overall balance ofpayment (BOP) position.[1]● IncreasedFDI alsosuggestsrepatriationof profitsbytheFDIfr