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GCE MAY 2008 : (A2 1) Production and Competition

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ADVANCED General Certificate of Education 2008 Economics assessing Module 3: Production and Competition A2E11 Assessment Unit A2 1 [A2E11] TUESDAY 27 MAY, MORNING TIME 1 hour 20 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number on the Answer Booklet provided. Answer Question 1 and either Question 2 or Question 3. INFORMATION FOR CANDIDATES The total mark for this paper is 60. Quality of written communication will be assessed in parts (a), (b), (c) and (d), of Question 1 and all parts of Question 2 or 3. Figures in brackets printed down the right-hand side of pages indicate the marks awarded to each question or part question. ADVICE TO CANDIDATES You are advised to take account of the marks for each part question in allocating the available examination time. A2E1S8 4173 You must answer this question. 1 Study the information below and answer the questions which follow. Is competition the key to affordable food? The market for agricultural commodities is regarded by some commentators as being close to perfectly competitive, therefore resources and output will be directed to where rewards are highest. Free market economists claim that this will ensure that the industry will respond to changing circumstances being experienced and that a perfectly competitive market will be the best vehicle to deliver the food needed across the world. 5 However, competition is not so intense at other stages of the supply chain. There are much greater levels of concentration at the distribution stage. Dairy Crest has a nearmonopoly on milk delivery to households in England and Wales. The company has just announced a rise in the price of a pint of milk on the doorstep from 50p to 54p. The Office of Fair Trading is conducting an enquiry into whether the big four supermarkets colluded to fix the price of dairy products between 2002 and 2003. Its provisional findings suggest that the sharing of commercially sensitive information between supermarkets and dairies meant that shoppers had to pay an extra 270 million. Meanwhile, Tesco is at the centre of the Competition Commission s current investigation into the UK supermarket sector. It has a market share of 32%, almost double that of Asda, its closest rival. Despite these threats, Sir Terry Leahy, Tesco s chief executive, is radiating optimism. He asserted that he was very confident about the competition enquiry, and that the real judge is the consumer . Indeed, the price of Tesco shares has risen 6.3% in the wake of the announcement that pre-tax profit has increased more than 14% to 1.3 billion. Higher profits, though, are not the only cause of increases in food prices. Farmers are facing increasing costs. Livestock feed prices are being forced up by poor harvests, demands from the biofuel industry and rapidly rising consumption in Asia. The rising costs of feed have been compounded in Britain by summer floods, the poor weather and the outbreak of foot and mouth disease, which have damaged crops, reduced yields and halted meat exports. Profit margins on beef production are falling, and increased costs are likely to be passed on to the consumers. Increased demand for grain and meat worldwide has been led by China and India where consumers have more money to spend on foodstuffs because of expanding economies. The Chinese have developed a taste for yogurt, cheese and milk, pushing milk prices up from 17p to 25p per litre and farmers are now directing their output to this market. This may be good news for farmers but for consumers it may herald the end of the era of cheap food. Nevertheless, not everyone agrees that unregulated market forces are the best mechanism for ensuring efficiency in food production and distribution. There are many who argue that food is such a basic commodity that the market should be regulated by the government to ensure adequate production at prices which people can afford. 10 15 20 25 30 35 Source: Adapted from The Times 29th August 2007, The Independent 3 October 2007, author Nic Fildes, The Daily Telegraph, 3 October 2007, author Harry Wallop and The Scotsman, 5 October 2007, author Alastair Jamieson. A2E1S8 4173 2 (a) Explain why the market for agricultural commodities is often regarded as being close to perfectly competitive. [6] (b) Using an appropriate diagram explain how rising feed costs would affect the profit margins of beef farmers in a perfectly competitive industry. [6] (c) Explain how food retailers may earn substantial supernormal profits even if farm incomes were falling. [8] (d) Evaluate the view that the prices and profits of supermarkets should be regulated in order to ensure that food is available at prices which people can afford. [10] A2E1S8 4173 3 [Turn over Answer either Question 2 or Question 3. 2 (a) Describe three characteristics of oligopoly. (b) Analyse why industries such as the oil industry tend to be oligopolistic. [6] [12] (c) Recently some of the giant energy companies in Europe have defended their continuing market dominance to the European Commission, claiming that energy is so important it must be treated differently. Discuss the validity of the view that in some industries fewer firms can actually benefit the customer. [12] 3 (a) Explain the difference between average revenue and marginal revenue. [6] (b) Using the concepts of marginal revenue and marginal cost, illustrate the conditions under which a firm in monopolistic competition will maximise its profits. [12] (c) Entrepreneurs have been buying UK football clubs such as Manchester City, Newcastle United and Southampton which are currently making no or very little profit. Discuss the idea that such behaviour by entrepreneurs shows that profit maximisation is much less important in the real world than in economic theory. [12] THIS IS THE END OF THE QUESTION PAPER Permission to reproduce all copyright material has been applied for. In some cases, efforts to contact copyright holders may have been unsuccessful and CCEA will be happy to rectify any omissions of acknowledgement in future if notified. A2E1S8 4173 SP (SC) T59941/2

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Additional Info : Gce Economics May 2008 Assessment Unit A2 1 Module 3: Production and Competition
Tags : General Certificate of Education, A Level and AS Level, uk, council for the curriculum examinations and assessment, gce exam papers, gce a level and as level exam papers , gce past questions and answer, gce past question papers, ccea gce past papers, gce ccea past papers

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