2022 H2 Economics EOY P1 QP

Class Adm No Candidate Name: 2022 Preliminary ExamsPre-university 3 ECONOMICS 9757/01 Paper 1 31 August 20222 hours 15 minutesAdditional Materials: Answer Booklet 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, highlighters, glue or correction fluid. Answerallquestions. You are reminded of the need for clear presentation in your answers. Ananswer booklet will beprovidedwiththisquestionpaper. Youshouldfollowtheinstructionsonthefront cover of theanswer booklet. If youneedadditional paper, asktheinvigilator for acontinuation booklet. The number of marks is given in brackets [ ] at the end of each question or part question. Answerallquestions. This question paper consists of9printed pages and1blank page. [Turn over

2 Question 1: Bittersweet chocolate Extract 1: Soaring price could make it 'Like Champagne' As chocolate prices surged to near-record highs on demand from emerging markets,chocoholicsbraceforahikeinprice.ThisgrowthhasbeendrivenbydemandfromIndiaandChina, withconsumptionof the‘luxury” sweet treattriplingoverthelastfewyears.However,worldwide chocolate market sales revenue was affected by the lockdown measures andeconomic slowdown duetoCOVIDpandemic, but supplysidedidnot impact thechocolatemarket during the pandemic. Source: Adapted from https://www.cnbc.com17 April 2014 Figure 1: India chocolate market: Sales revenue 2016-2024 (in USD billion) Source : Adapted from mordorintelligence Figure 2: Worldwide chocolate market: Sales revenue 2012-2025 (in USD billion) Source : Adapted statista.com MI/9757/01/PU3/EOY2022

3 Extract 2: Chocolate or not? Cocoabutter madefromcrushingandgrindingcocoabeansisusedinmakingchocolatetogive the smooth, melt-in-the-mouth flavour and texture. Reduced rainfall and increasedtemperatures, which led to prolonged periods of drought, are causing a reduction in soilmoisture during the dry seasons. These conditions often lead to the killing of cocoaseedlings. If prices of cocoa butter go up too much, chocolate makers may shift tosubstitutes such as palm oil or even cotton seed oil instead of using cocoa butter. Thelimitation, ofcourse,isthatifyouputintoomuchofthepoorsubstitutes,youarenotallowedto call it chocolate. Noalternativesof cocoabutter havebeenfoundsofar that couldmeetthe exact demand of cocoa butter. Table 1: Price elasticity of demand and supply for cocoa butter Price elasticity of demand Price elasticity of supplyShort term -0.06 0.07Long term -0.34 0.57 Source: Adapted from African Journal of Agricultural and Resource Economics 2018 Extract 3: Volatility of cocoa prices Ivory Coast and Ghana in Africa are the largest global producers of cocoa, supplying 70percent of theworld’scocoabeans.Currently,cocoafarmers’ incomeislowcomparedtotheprofit madebythechocolateindustry.Whiletheprofitsofmultinational chocolatecompanieshave increased since the 1980s, the world market price for cocoa beans has declined byhalf. Manycocoafarmersandworkershavetogetbyonlessthan1.25USdollarsadayanda study in April 2018 showed that 58 percent of cocoa farming households had incomesbelow the extreme poverty line. Cocoa production is carried out mostly by small and marginal farmers which are rarelyorganised, and they sell their cocoaat lowpricesdictatedbythecocoatraderswhoact asthe middlemen for farmers. Farmers’ income insecurity is affected byvolatilecocoapricesstemsfromchangingsupplyvolumes. Goodseasonswhichproducegoodcropsinthemaincocoa producing countries lead to a high supplyandcanbringabout afall inprices, whilepoor cropscausedbycropdiseaseorbadweatherconditionsinsomemajorregionsleadtoa low supply and can increase the price. Cocoatradersareabletomitigatethesevolatilepricesbystoringbeansandcontrollingthesales volume onthemarket. Farmerswhoneither set pricesnor reapanyprofitsfromhighprices are often forced to sell their beans at low prices immediately due to poor livingconditions, theimmediateneedfor moneyandalackofstoragefacilities.Farmersalsostopinvesting in their farms, they cut salaries, cannot provide workers with proper workingconditions, and in the worst cases are prone to use child labour. Source: Adapted from Euromonitor International and mightyearth.org 2019 Extract 4: Give cocoa farmers a living income Despite forecasts that the demand for cocoa will rise by nearly 20 percent in the comingyears and the increasing revenues for chocolate companies, many farmers cannot covertheir living costs anymore. With limited income and lack of information on marketdevelopments, the cocoa farmers and their familiesarethelosersinalucrativecocoaandchocolate industry. MI/9757/01/PU3/EOY2022 [Turn over

4 KwameBoaduwasforcedtoabandonhiscocoaplantationtoworkinGhana'scapital Accra,but whenthegovernmentannouncedplansforapricefloorhebegandreamingofareturntohisfields. Apricefloorwouldgivecocoafarmersalivingincome–andtoensurefarmersgetafair shareof thewealthaswell astoprotect farmersfromdirepovertyandfluctuationsinthe cocoa market, likewhenthepriceof cocoaabruptlyfell by30percent threeyearsago,leaving many farmers struggling desperately. Guaranteed minimum prices for cocoa would lead to a hefty bill for the government as itspendsbillionstomopupcocoastockpile. Someofthestockpilemayjustrotingovernmentwarehouses. The minimumpricealsoencouragesfarmerstoproducemuchmoreof cocoathan they would have otherwise. It also means less funds for other programs such aseducation and healthcare. Source: Adapted from Euromonitor International and https://makechocolatefair.org Extract 5: Growing concern for farming cocoa Cocoacultivationhasbeensynonymouswithextremepovertyandhasresultedinsignificantdestruction of ancient rainforests, including illegal deforestation inside national parks.Traditionally, if afarmer wantedtoearnmore, heor shehadtoproducemore, whichwouldmeanusingmoreland. Researchsuggeststhatoverthelast50years,cocoacultivationhascontributed to the disappearance of 14–15 million hectares of tropical forests globally.Moreover, productioncontinuestoexpandtomeetthegrowinginternational demand,furtherincreasing pressure on forest areas. Côte d’Ivoire and Ghana have already lost over 90percent of their forests, and in 2018 had the two most severe increases in rates ofdeforestation worldwide. Environmental externalities are a growing concern anddeforestation has resulted in excess carbon emissions that contribute to the greenhouseeffect and accelerate climate change where communities have been deeply affected. Source: Adapted from mightyearth.org 21 Jun 2019 Extract 6: What policies / government interventionsmight successfullyreduceratesof deforestation? What little forests remain must be vigilantly protected for future generations. Apart fromusing price floors to raise prices to increase farmers income which could help toslowtheburning of more lands to get more income, regulations andpoliciesareincreasinglybeingdeployed to address these externalities in Africa which include the use of taxes to clampdown on farmers burning protectedforest for farmingcocoaandtaxrevenuecollectedcansupport reforestation programs. Governments are encouraging farmers to raise productivity by investing in research anddevelopment (R&D) to increase crop yield per acre with better farmingmethods. Thiswillallowthemto increase crop yield over time and reduce the pressure on usingmoreof itsnatural forests and better productivity lowers cost of productionwhichcanhelptoimprovetheir livelihoods with higher profits. However, R&Dwould require government subsidies toencourage productivity. The extra billions being spent on subsidies would inflate thecountry’sbudget deficit anddrainingthepool offundsavailableforotherimportantprogramsfor farmers, including road, power, and irrigation networks as well as education andhealth-care infrastructure for the country. Source: Adapted from https://www.cambridge.org 2018 MI/9