IJC H2 ECONS 9757 QP P1

INNOVA JUNIOR COLLEGE JC 2 PRELIMINARY EXAMINATION in preparation for General Certificate of Education Advanced Level Higher 2 ECONOMICS Paper 1 Additional Materials: Writing Paper and Cover Page 9757/01 29 August 2018 2 hours 15 minutes 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/tape. Answer all questions. Please begin each question on a fresh sheet of paper. At the end of the examination, submit each case study question separately. Attach a cover page to each case study question and write the question number on the cover page. 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. You are advised to spend several minutes reading through the data before you begin writing your answers. You are reminded of the need for good English and clear presentation in your answers.

2 ©IJC 9757/01/IJC/18 UK households in the lowest 20% (by income) Innova Junior College [Turn over This document consists of 7 printed pages and 1 blank page. Answer all questions Question 1 United Kingdom’s Food and Drinks Industry and Brexit Table 1: Estimates for elasticities of demand for various items in the UK Price elasticities of demand Income elasticities of demand Bread and cereal -0.14 0.17 Fruit and vegetable -0.22 0.28 Meat -0.28 0.35 Beverage and tobacco -0.35 0.43 Source: Economic Research Service, United States Department of Agriculture Source: https://www.gov.uk, accessed 10th August 2018 Extract 1: Trends in UK food and non-alcoholic drinks prices In the UK, food and non-alcoholic drinks have risen in price since 2007, with rises ranging from 17% to 41%. Successive spikes in the price of agricultural commodities since 2007 have led to higher retail food prices. They have not returned to the low price levels of pre-2007. Food price rises have a strong effect on food shopping for low income households. Source: https://www.gov.uk, accessed 10th August 2018 Extract 2: Food industry shaken by Brexit prospects Figure 1: Trend in share of spending going on food in low income and all UK households

3 ©IJC 9757/01/IJC/18 Business and consumer confidence in the food and drink industry, by far the largest manufacturing sector in the UK, is increasingly fragile since t he upheaval caused by the Br exit vote, with the UK voting to leave the European Un ion (EU). Despite climbing sales, three-quarters of Food and Drink Federation (FDF) members have reported soaring i ngredient prices, plummeting product margins and concerns for the future raised by thei r EU workforce. This trend is expected by most companies to continue over the next year. The FDF’s UK-based members r ange from giant brands such as Coca-Cola and McVitie’s to small-scale producers such as the oatcake maker Maclean’s Highland Bakery. The above findings reflected the sentiment of a thir d of its members including small, medium and large food and drink manufacturers. It is calling for an “industrial strategy partnersh ip” with government and for urgent assurances for the industry’s workforce from the EU that they will have the right to remain in the UK. 71% of companies employing EU staff say these employ ees have expressed concerns about Brexit, with about 8.7% businesses reporting that their EU employees intend to leave the UK. An estimated 130,000 of the industry’s 400,000 workforce are non-UK nationals – many fr om Eastern Europe, often doing valued seasonal work in agriculture and factories. “We share government’s view that we need to make the best of Brexit,” sa id the FDF’s director general Ian Wright. “Food and drink industry confiden ce is low. Slower revenue growth, coupled with prolonged business uncertainty, is affecting the industry’s ability to invest.” The FDF is also calling for urgent action from t he government to ensure that essential imports of ingredients and raw materials from the EU and EU Free Trade Agr eement (FTA) countries do not face tariffs or costly non-tariff barriers. Some British-based busin esses have benefited from the weaker pound, which makes their exports more comp etitive – as long as they still have tariff-free access to the single European market. Source: The Guardian, 12 Oct 2016 Extract 3: Industry leaders’ views on the implications of Brexit Ian Wright of FDF said Br exit could lead to price increases by as much as 10%, and would result in reduced choice, availability and profitability of food and drink for UK consumers and businesses alike. Andrew Kuyk, Director Gener al of PTF highlighted that any tari ffs would have major implications across the food chain. He said that could result in shortages and increased prices, particularly in the short term, as the UK is not self-sufficient in many areas of the food chain. Even where the UK produces enough raw material to supply the dem and they may not have physical production capacity or labour ability to make that work – and developing this all takes time and needs a level of confidence. Food manufacturers and retaile rs often need 12 - 18 months’ supply agreements particularly for certainty of supply through their relationships with primary producers. Source: https://www.bordbia.ie, accessed 10 th August 2018 Extract 4: UK exports and trading partners International trade really matters to UK ec onomy and the government mu st use all resources available to boost exports in a post-Brexit UK. About 28% goods produced in the UK are sold abroad, with the main trading part ners being the EU countries and t he United States. The one exception to Western countries dominance of the top UK trade partners is Chin a, which comes in

4 ©IJC 9757/01/IJC/18 sixth for exports. UK export a wide range of goods , including food and drink, machinery and parts, cars, jewellery, medicines and pl astics. While export of goods are still ahead, service exports, which include financial services, IT services and tourism are increasingly important and they have grown every year. Source: www.bbc.com/news/business, accessed 10 th Aug 2018 Extract 5: New directions for post-Brexit UK At present, products move freely across the border between the UK and other EU member states. As all EU member states have access to the Single Market, there are no tariffs, quotas or taxes on trade and the free movement of goods, services, capital and people. As the UK leaves the EU, the UK government will need to negotiate several new trade deals with her European trade partners and with other countries. Brexit will therefore allow the UK to set its own trade and invest ment policies, however there could be costs in doing so on its own rather than as part of a group of countri es, meaning whether the UK’s trade negotiating strength and efficiency would be greater outside the EU is uncertain. On the one hand, concluding d eals might be easier for the UK alon e, given the greater diversity of interests involved when the EU negotiates as a gr oup. On the other, the sm aller size of the UK market may mean other countries gi ve higher priority to deals with the EU. There are claims that Brexit will offer UK the opportunity to grow their exports. For ex ample, the food and drinks sector can improve the national defences against plant and animal diseases and benefit from the latest scient