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GCE JUN 2008 : (AS 1) The Market Mechanism, Market Failure and Government Response

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ADVANCED SUBSIDIARY (AS) General Certificate of Education 2008 Economics assessing Module 1: The Market Mechanism, Market Failure and Government Response ASE11 Assessment Unit AS 1 (Data Response) [ASE11] FRIDAY 6 JUNE, AFTERNOON TIME 45 minutes. INSTRUCTIONS TO CANDIDATES Write your Centre Number and Candidate Number on the Answer Booklet provided. Answer all five questions. INFORMATION FOR CANDIDATES The total mark for this paper is 40. Quality of written communication will be assessed in questions 1, 2, 3, 4 and 5. 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. ASE1S8 4158 Study the information below and answer the questions which follow. SKY HIGH GRAIN PRICES George Munns farms 200 hectares in Cambridgeshire. In two weeks time he will start harvesting his winter wheat, destined to be made into animal feed. He has already sold it for 112 a tonne, a huge increase on the 70 a tonne he got last year. For the first time in several years he will be making a profit as it costs him around 72 to produce. This surge in wheat prices is the result of the combined impact of increased demand and reduced supply. Supply has been restricted because of a prolonged drought in Australia which normally accounts for 14 per cent of world wheat production. Chinese demand has increased as economic expansion has created a middle class with a taste for western food such as steak. This in turn has resulted in an increase in demand for animal feed. However the most important factor behind the escalating demand for grains is the worldwide interest in biofuels such as ethanol. The amount of corn used to make ethanol in the USA has tripled since 2000 with ethanol distilleries now consuming a fifth of total corn production. Similarly, in Europe EU law now requires that petrol has a 5 per cent bio-content. If this is to be achieved in the UK then 70 per cent of our grain production will have to be diverted from food to fuel. There seems little doubt that this will lead to a massive rise in food prices. Of course, farmers can increase grain production but this will take time. Furthermore it can only be achieved by transferring land from other types of food production with a knock-on effect on food prices. The situation is exacerbated by the fact that wheat and corn are used as animal feed in the production of meat and eggs. Whilst all of this is bad news for consumers it has brought a smile to the faces of farmers who are enjoying much higher incomes. Already in receipt of generous subsidy payments, courtesy of the European Union s Common Agricultural Policy, they are now also making handsome profits from food and bio-fuel production. Many commentators view this as an opportunity to cut Europe s massive bill for farm subsidies. A leading article in the Independent (31/7/07) said We should stop paying European and American farmers to do what African and Latin American nations could do much more cost effectively. Adapted from BBC news July 20th 2007 and The Independent June 23rd 2007 ASE1S8 4158 2 Answer all five questions. 1 With the assistance of a demand and supply diagram, explain the recent increase in world grain prices. [8] 2 Analyse the effect on consumer surplus of a rise in the price of bread. 3 Using the concept of cross-price elasticity of demand, explain the relationship between the price of oil and the demand for grain. [8] 4 Explain how rising grain prices would be likely to affect other markets. 5 Evaluate the view that subsidy payment to European farmers should be phased out. THIS IS THE END OF THE QUESTION PAPER ASE1S8 4158 3 [6] [8] [10] 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. SP (NF/CGW) T59325/2

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Additional Info : Gce Economics June 2008 Assessment Unit AS 1 Module 1: The Market Mechanism, Market Failure and Government Response
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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