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3. Table 3 illustrates the exchange rates between the US dollar (US$) and the Mexican
peso (MX$) between 2013 and 2017.

Table 3

MX$ per US$ US$ per MX$

2013 12.77 0.08

2015 15.85

2016 18.66 0.05

2017 18.93 0.05

(a) (i) Calculate the value of the Mexican peso (US$ per MX$) in 2015.
Enter your result in Table 3. [1]

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(ii) Using Table 3, state one possible effect on Mexican consumers and one
possible effect on Mexican producers from the change in the value of the
Mexican peso (US$ per MX$) between 2014 and 2016. [2]

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(Question 3 continued)

Figure 5 illustrates the year-on-year changes in Mexico’s spending on imports of goods and
services between 2008 and 2017.

Figure 5

20.00

15.00

10.00

5.00
% change

0.00

5.00

10.00

15.00

20.00
09

10

12

13

14

15

16

17
08

11
20
20

20

20

20

20

20

20

20

20

Year

(b) (i) Using Figure 5, state two likely causes for the change in Mexico’s spending on
imports of goods and services in 2009. [2]

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(Question 3 continued)

(ii) Using information from Figure 5, sketch an exchange rate diagram to show how
the change in Mexico’s spending on imports in 2010 would have affected its
exchange rate (US$ per MX$), ceteris paribus. [2]

Value of the peso (US$ per MX$)

Quantity of pesos

(c) Explain two factors that may cause the Mexican peso to appreciate against the
US dollar in the future without any official intervention. [4]

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(Question 3 continued)

Figure 6 illustrates the demand and supply conditions for rice in Country B, where Dd is
domestic demand, Sd is domestic supply and Sw is world supply.

Figure 6

12
Sd
11

10

8
Price ($ per kilogram)

5
Sw
4

1 Dd

0
0 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of rice (millions of kilograms per year)

(d) (i) Using Figure 6, identify the equilibrium price when Country B engages in
free trade. [1]

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(Question 3 continued)

(ii) Using Figure 6, calculate the consumer surplus and the producer surplus when
Country B engages in free trade. [2]

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(Question 3 continued)

Country B imposes a tariff on rice imports, which is illustrated on Figure 7.

Figure 7

12
Sd
11

10

8
Price ($ per kilogram)

6
Sw with tariff
5
Sw
4

1 Dd

0
0 1 2 3 4 5 6 7 8 9 10 11 12
Quantity of rice (millions of kilograms per year)

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(Question 3 continued)

(e) (i) Using Figure 7, identify the equilibrium quantity being consumed following the
imposition of the tariff. [1]

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(ii) Using Figure 7, calculate the revenue received by the government as a result of
the imposition of the tariff in Country B. [2]

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(iii) Using Figure 7, calculate the change in consumer surplus as a result of

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(iv) Using Figure 7, calculate the welfare loss as a result of Country B imposing
the tariff. [2]

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(Question 3 continued)

(f) Explain two methods that a government could use to correct a persistent current
account deficit. [4]

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