2013 SAJC H1 Econs 8819 (Suggested Answers and Mark Schemes)

ST ANDREW’S JUNIOR COLLEGE PRELIMINARY EXAMINATIONS – 2013 General Certificate of Education Advanced Level Higher 1 ECONOMICS 8819/01 Paper 1 29 August 2013 3 hours Additional Materials: Answer Paper READ THESE INSTRUCTIONS FIRST Write your name and class on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 30 printed pages. [Turn Over © SAJC 2013 Suggested Answers and Mark Schemes

© SAJC 2013 8819/01/PRELIM Suggested Answers and Mark Schemes 2 Section A Answer all questions in this section. Question 1 Chocolate and Soda – Love them, Hate them Extract 1: Higher Chocolate Prices May Follow Africa's Cocoa Shortfall Villagers in West Africa, which produces 70 percent of the world’s cocoa, are abandoning the crop because its price is volatile, farms are too small to be economical, yields haven’t risen for decades, and alternative crops such as rubber are more lucrative. “They produce half a ton per hectare of cocoa, and it has been that way forever. All major agricultural prod ucts have improved their yields by a factor of 5 to 10 in the last 50 years, and cocoa hasn’t,” says Barry Parkin, the head of global procurement and sustainability at Mars, whose products include M&M’s, the best -selling chocolate candy in the U.S. He reck ons that demand will outpace production by 1 million tons by the end of the decade. To deal with more frequent cocoa shortages, confectioners have been shrinking the size of chocolate bars, adding more air bubbles to chocolate, or simply substituting more vegetable oil for cocoa butter. They also can pull from global stockpiles, which stood at 1.8 million metric tons as of Sept. 30, according to the International Cocoa Organization. But experts say it will be tougher to cope beyond 2020 without improved production. Source: Bloomberg Business Week, 7 February, 2013 Extract 2: Tax chocolate to beat obesity, say doctors Chocoholics face a fight with doctors who want to slam heavy taxes on their favourite treat. Doctors say too much chocolate makes them fat and it should be priced up – like alcohol and tobacco – so they buy less. Nutritionist Dr David Walker yesterday claimed chocolate is a big factor in the obesity epidemic and the explosion of conditions such as Type 2 diabetes. “I see chocolate as a majo r player in this and the related medical conditions and I think a tax on products containing chocolate could make a real difference.” But the sweet -toothed masses and industry chiefs branded the idea unfair and stupid. Julian Hunt, of the Food and Drink Fe deration, declared: “Taxes on foods that consumers love would result only in lighter wallets, not smaller waists. We already have to pay VAT on all our chocolates. While good for grabbing headlines, there is no evidence to suggest such ‘fat taxes’ would work in reality. Such a tax won't make people lose weight, it will just make them spend more money.” “Education and information are needed to help make the right food choices and people should be encouraged to increase physical activity.” Source: Mirror News, Mar 13, 2009 Extract 3: Chocolate bars to be made smaller in Government anti-obesity drive The Government is set to order manufacturers to shrink the size of chocolate bars and fizzy drinks. The Health Secretary will tell firms such as Mars, Coca -Cola and Nestlé that smaller versions of their products should be available in all garages and corner shops to help stop people piling on weight. He will also say small packs of dried fruit, nuts and fresh fruit should be widely available at places where people buy on impulse and warn that sugar levels must be cut in all products.

© SAJC 2013 8819/01/PRELIM Suggested Answers and Mark Schemes 3 The obesity drive is part of the Change4 Life campaign and could lead to tougher regulation if the warnings go unheeded. The Government believes businesses can create a new world leading 'healthy market' to help drive down obesity. Source: The Daily Mail, 5 February 2009 Extract 4: Chocolate price hikes won't put off consumers, predict analysts Confectioners will probably get away with increasing prices on chocolate bars without significantly denting demand because they are generally low ticket items bought as treats in an area with high brand loyalty, analysts have predicted. Everybody is raising prices in this industry right now; the million dollar question is to what extent retailers will absorb rises or pass them on to the consumer. The consumer will ultimately decide whether he will pay. But while 10 percent is a pretty hefty and aggressive increase, they will probably get away with it. Source: http://www.foodnavigator-usa.com, 4 Apr 2011 Extract 5: The Battle Over Taxing Soda This soda debate is probably going to be around for some time. Cities and counties, desperate to find money to pay for schools and roads, are starting to see a soda tax as a way to raise revenue. The tax also appears to be one of the most promising ways to attack obesity, given the huge role sugary drinks play in the epidemic. The argument for a soda tax is the same as the argument for a tax on tobacco or pollution. When an activity imposes costs on societ y, economists have long said that the activity should be taxed. Doing so accomplishes two goals: it discourages the activity, and it raises money to help pay society’s costs. In the case of soda, those costs come in the form of medical bills for diabetes, heart disease and other side effects of obesity. We’re all paying these bills, via Medicare, Medicaid and private insurance premiums. Obesity has become a significant cause of our swelling long-term budget deficit. However, small tax changes don’t always change behavior, as a recent study by the RAND Corporation found. So a small soda tax could actually have a worse impact on some families’ budgets than a substantial one — by raising the price of soda without affecting consumption. Such a tax would certainly raise the cost of living for some heavy soda drinkers, just as cigarette taxes have stretched the budgets of some smokers and mandatory seat belts have added costs to car production. But consider the benefits from those other public health initiatives . They have vastly outweighed the costs. Source: The New York Times, 19 May 2010

© SAJC 2013 8819/01/PRELIM Suggested Answers and Mark Schemes 4 Figure 1: Cocoa Prices (1960 – 2011) Source: UNCTAD Questions (a) (i) Describe the trend in the price of cocoa from 1990 onwards. [2] (ii) Explain how the above trend can affect the market for chocolate candy bars. [2] (b) Explain the impact of the following on the market for cocoa: (i) a more lucrative rubber production; [1] (ii) the greater availability of “small p