SAJC H1 ECONS SAMS

ST. ANDREW’S JUNIOR COLLEGE PRELIMINARY EXAMINATIONS – 2017 (JC2) General Certificate of Education Advanced Level Higher 1 ECONOMICS 8819/01 28 August 2017 3 hours Suggested Answers with Examiners’ Comments 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 your answers for each question separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages. © SAJC 2017 [Turn Over]

Suggested Answers for CSQ 1 (a) (i) Describe the trend in world food prices from 2011 to 2015. [2] Suggested Answer: World food prices generally fell from 2011 to 2015 [1], with the sharpest fall from 2014 to 2015 [1]. (ii) Using a diagram and Extract 1, explain one demand a nd one supply factor that could support the trend in world food prices from 2011 to 2015. [4] Suggested Answer: One demand factor that could support the fall in fo od prices would be the fall in demand for biofuels. Biofuels require food crops as a factor of production. As mentioned in extract 1, “Falling oil prices have also affected the demand for biofuels, made from crops like maize and potatoes,” hence, the derived demand for food falls. [1] One supply factor that could support the fall in food prices would be the fall in cost of production for food. From extract 1, “Ch eap oil contributed to abundant global supplies of food”. Oil is an important factor of production for food, as it is used to run tractors, transporta tion, etc. Cheaper oil will cause COP of food to fall, resulting in increase in supply of food. [1] Diagram [1] below shows a simultaneous fall in dema nd and increase in supply of food. Therefore, a simultaneous fall in demand and increa se in supply of food resulted in a fall in price of food. [1] (extent of shift not needed) 0 Quantity DD 1 DD 0 Price of food SS 1 SS 0 P0 P1

(b) From Extract 2, explain how the price elasticity of demand and price elasticity of supply of potatoes have changed over the years. [4] Suggested Answer: Price elasticity of demand (PED) for potatoes has increased over the years [1]. This is seen from extract 2, “potato has risen to become the third most important food crop” and the Chinese government’s “push for consumption of potatoes as a staple food”. This shows that the degree of necessity for potatoes have increased, resulting in demand for po tatoes becoming relatively more price inelastic over the years [1]. Price elasticity of supply (PES) for potatoes has a lso increased over the years [1]. From extract 2, “Enhanced technology and growing techniques, especially when it comes to controlled irrigation, have allowed potato farmers to be more productive with the same amount of land.” This shows that producers of potatoes are better able to increase spare capacity and factor mobility has improved, resulting in PES of potatoes [1]. (c) (i) Using Extract 4, explain the source of market failure. [4] Suggested Answer Extract 4 explains the case of negative externalities in the production of agricultural products [1]. From extract 4, “harm to natural ecological systems is either unnecessary or outright undesirable,” and “more than 60 percent of irrigated agriculture and 85 percent of drinking water supplies dependent on it, groundwater is a vital resource of clean water for both rural and urban areas.” This shows that there is external costs incurred on 3 rd parties , who are not involved in the economic transaction, such as other producers w ho also depend on the ecological system, and people who live near the farms and consumes ground water. [1] With the presence of MEC, there will be divergence between MPC and MSC, where MSC>MPC. [1] This leads to over-production of agricultural products, causing allocative inefficiency and hence market failure [1]. Max 2m if no reference made to extract. (ii) Comment on the options available to the Indian gove rnment as possible responses to the above market failure. [6] Suggested Answer 1. Environmental taxation this will reduce consumption and cut down on wasta ge

problems include time lag, enforcement and the amo unt of tax to implement 2. Pollution permits this will decrease the number of people tapping in to the limited availability of groundwater problems include enforcement, who to get the permi ts to tap into the water 3. Subsidies for innovation into curtailing usage R&D needs a lot of funding and results are often u ncertain. Government subsidies will increase the private sector’s investment into R&D problems include limited availability of governmen t funds, uncertainty of results 4. Subsidies to encourage firms to recycle water this will reduce the amount of groundwater used up problems include the acceptance of people to using recycled water and the enforcement of the policy Identify 2 options and explain how they work [3] Explain the limitations or disadvantage of the 2 options [2] Make a stand, conclude [1] Max 3m if no reference made to extract.

(d) (i) Explain what is meant by dumping as seen in Extract 5. [2] Suggested Answer Dumping refers to the sale of goods abroad at a pri ce that is below the marginal cost of production or below the price at which the product is sold for in the domestic market. As seen in extract 5, potatoes sold in Brazil are “ 18% to 41% below the prices used by those same four European countries to export to the United Kingdom. Belgian prices apparently differ nearly 25%.” This could be seen as dumping by other nations into the Brazilian market. (ii) Discuss whether the Brazilian government should impose ‘anti - dumping duty’ on frozen potatoes. [8] Question Analysis Command: ‘Discuss whether’ 2-sided analysis needed Content: ‘anti-dumping duties’ reasons for and against protectionism Context: Brazil and other related international markets Schematic plan Suggested Answer Introduction Anti-dumping duty is a form of protectionist measur e. Protectionism is defined as the setting up of trade barriers with th e intention of protecting/sheltering domestic firms from foreign competition. THESIS Brazilian govt should impose anti-dumping measures - THESIS Brazilian govt should not impose anti-dumping measures - Synthesis/Conclusion Make a reasoned judgement - INTRO Define protectionism Give preview of answer -

Body Thesis: Brazilian government should impose anti-dum ping duty on frozen potatoes to protect domestic employment, inc rease actual economic growth and improve BOP current account position. There is evidence in extract 5, as mentioned in d(i ), that frozen potatoes are being ‘dumped’ into the Brazilian market. An “a nti-dumping duty’ will protect Brazilian potato producers from the unfair competition from abroad by increasing the price of imported frozen potatoes . This will help to prevent Brazilian potato producers from being compe ted out of their own domestic market due to the cheaper prices of import ed potatoes from abroad. Domestic potato producers may continue operation and domestic employment can be s