ACJC H1 ECONS P1 ans

Anglo-Chinese Junior College/2016/Prelims H1 Economics Answers 1 2016 Prelims H1 Case Study Question 1 The Market for Steel Suggested Answers (a) Using Tables 1 and 2, compare the relative changes in China’s crude steel production and consumption from 2011-2014. [2] Tables 1-2 Similarity: Both crude steel production and consumption increased from 2011 to 2014. Difference: Crude steel production increased more relative to consumption (17.2% compared to 10.2% respectively). (b) Using Extracts 1 and 2, explain one demand factor and one supply factor that could support the trend in global steel prices from 2011 to 2014. [4] Extracts 1-2 Identify trend: Global steel prices were generally decreasing from 2011 to 2014. Demand factor: Demand for steel decreased due to fewer metal pipe purchases in lieu of a weakening of oil and gas markets (extract 1) Supply factor: Subsidies from government increased the willingness and ability for steel producers to increase supply, OR China expanding steel production in Africa Combining both factors (students may draw graph), overall price for steel will fall. Mark scheme:  1 mark for identifying falling global steel prices  1 mark for explaining why demand fell  1 mark for explaining why supply increased  1 mark for on how combined effect of DD and SS changes lead to falling global steel prices. (c) Explain how the “current global glut” would affect the price elasticity of supply for metal. [2] Extract 2 “Current global glut” refers to a surplus or excess supply in production of metal. This would mean that there is an increase in spare capacity of metals, leading to a supply which is more price elastic as quantity supplied would be more responsive to a change in price. Full 2 marks for answers which show accurate conceptual knowledge of price elasticity of supply. (d) Explain the opportunity cost of Anglo American’s decision to sell its niobium mining business. [3] Extract 1 Define opportunity cost: value of the next best alternative forgone Identify & explain the opportunity cost in this context:  Opportunity cost in this context is potential revenue that could be earned from niobium mining business.  Anglo-American’s decision to sell its niobium mining business to invest in other commodities means that it is forgoing the revenue earned from niobium mining for higher revenue earned from other markets. Mark scheme:  1 mark for defining opportunity cost  2 marks for identifying & explaining the opportunity cost in the context of Anglo American’s decision (lost revenue)

Anglo-Chinese Junior College/2016/Prelims H1 Economics Answers 2 (e) With the use of relevant economic theory, explain why there have been protests against niobium mining proposals in Kanesatake and Oka. [5] Extract 3 There have been protests against niobium mining proposals in these two towns because of the harmful effects to environment and citizens’ health which would arise if niobium mining were to take place. The protests are about negative externalities or external costs which arise due to the market failure arising from niobium mining.  In their decisions, niobium producers consider only their MPB and MPC. MPB in this case is the additional revenue that they would receive from the additional unit of niobium mined. Their MPC would include start-up costs, expenditure on machinery and cost of hiring labour.  Due to self -interest, they do not take into account the external cost on third parties (in this case the protestors living in the two towns) such as the contamination of water sources which would affect the livelihood of the residents, mo stly farmers. Other external costs include healthcare costs due to radioactive pollution (Extract 4). Draw graph: The high negative externality causes a large divergence between social and private costs. Hence, the equilibrium quantity supplied is at Qm w hich is higher than Qs, which is the social efficient output (MSB=MSB). This results in a deadweight loss as indicated in the graph above. Mark scheme:  Up to 4 marks for accurate conceptual explanation of external cost and cost divergence, with use of examples from the context in question  5 marks for answers that give precise definitions of negative externality and cost concepts used in answer (f) To what extent should the Quebec government accede to the protests by Kanesatake and Oka residents? [6] Extract 3 Unpacking the phrase “accede to protests”: The government has to decide whether to allow niobium mining activities to start. To accede to the protests would be to reject Eco -niobium’s mining proposals and disallow niobium mining. Thesis: Quebec government should accede to the protests.  Evidence in Extract 3 suggests that the claims of external costs by protestors are indeed true. Niobium mining releases harmful radioactive waves and negatively impacts water for farming and drinking. Extract 3 mentions that this was not a new concern as it closed in 1977 due to unsustainable production back then. Moreover, this is crucial because Oka is known to be a small agricultural town. Contaminating the sources would severely impact livelihoods and culture of Mohawks (the country’s indigenous group). This could also further affect food chains which may have long term detrimental effects. Anti-thesis:  Allowing mining activities in the towns would create employment and improve the economic growth. As niobium is an important industry for the production of metal, there is potential for growth in the future. This would increase the income of citizens, leading to an increased standard of living. Counter argument: However, the numbers of jobs created are only a small amount of 250 (Extract 3). This may not be significant enough to justify the large external costs incurred.  Extract 3 mentions that the potential revenue and taxes collected are very high. This could benefit the two towns as the government revenue can be used for redistribution efforts or on further developing the town. This could lead to an increase in AD and sustain economic growth into the future. For e.g. Extract 1 para 2 mentions that Canada is home to the third largest niobium producer. This is evidence of the large potential of niobium industry.

Anglo-Chinese Junior College/2016/Prelims H1 Economics Answers 3 Synthesis: Whether the government should accede to requests of protestors would depend on a few things. If niobium mining activities were to take place in the two towns, they have to consider whether they are able to limit production and monitor to ensure the environment’s sustainability. The government should als o consider if there are other alternative industries for economic growth where there are fewer external costs. They may also want to consider the future of the agriculture town, if agriculture, their main source of income, is a relevant industry to sustain economic growth. Level Descriptors for (f) Marks 3  Balanced & sufficiently developed analysis on whether Quebec government should accede to protests.  Has good and accurate use of economic analysis and reasoning to make a reasoned conclusion  Making references to information in case study  Clear synthesis of arguments 5-6 2  Balanced but underdeveloped OR one-sided analysis on whether Quebec government should accede to protests  Has some economic analysis but may have minor inaccuracies, or lack reasoning to make a reasoned conclusion  Makes little or no reference to information in case study· 3-4 1  Answers has major conceptual inaccuracies  Descriptive answer with no economic analysis and framework to support. 1-2 (g) Discuss whether for the UK government should protect the country’s steel industry. [8] Fig 1-3, Ext 2 & 4 Introduction: Steel prices have been generally declining from 2011 to 2014. Extract 4 suggests that UK’s steel industry