Cambridge A Level Economics 9708 — 2012 Oct/Nov Paper 2 · Variant 2

* 9 6 8 3 2 7 0 8 7 6 * This document consists of 3 printed pages and 1 blank page. DC (SJF/CGW) 52444/2 © UCLES 2012 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graphs or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer this question. Brief answers only are required. Section B Answer any one question. You may answer with reference to your own economy or other economies that you have studied where relevant to the question. 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. ECONOMICS 9708/22 Paper 2 Data Response and Essay (Core) October/November 2012 1 hour 30 minutes Additional Materials: Answer Booklet/Paper

2 9708/22/O/N/12 © UCLES 2012 Section A Answer this question. The Price of Sugar 1 In August 2009, sugar reached its highest pr ice for 28 years at 23 US cents per pound of sugar . Changes in the price of sugar and in average food prices are shown in Fig. 1. Fig. 1 Indices of sugar and average food prices, January 2008 to August 2009 (January 2008 = 100) Content removed due to copyright restrictions. One explanation of the world sugar price rise was the weather. 2009 proved particularly unfavourable in major producing countries, with drought in India, too much rain in Brazil and hailstorms in Russia. Another explanation offered was motorists’ increased use of ethanol as a car fuel. One way to produce ethanol is by using sugar cane as a raw material. Sugar prices in individual economies changed in a variety of ways. In 2008 sugar prices in India fell partly because the Indian Government banned sugar exports. In response to this price fall, Indian farmers planted less sugar cane. Malaysia was affected by rising sugar prices but mainly as a consumer. The Malaysian Government set a maximum price of 1.45 ringgit per kilogram. Tesco hypermarkets in Malaysia reacted to this price by rationing customers to 2 kilograms per customer. On the black market in Malaysia sugar was sold at 1.70 ringgit per kilogram, while it fetched 2.90 ringgit in neighbouring Thailand.

3 9708/22/O/N/12 © UCLES 2012 (a) (i) Calculate the approximate price of sugar in January 2008. [2] (ii) Compare the behaviour of sugar prices with that of average food prices between January 2008 and August 2009. [3] (b) With the use of diagrams, contrast the weather explanations of the sugar price rise with the ethanol explanations of the price rise. [5] (c) Explain the likely reaction of (i) consumers of sugar, and (ii) producers of sugar to a continual, rapid rise in its price. [4] (d) With reference to the data, discuss the likely effects of (i) the actions of the Indian government, and (ii) the actions of the Malaysian government. [6] Section B Answer one question. 2 (a) Explain, with the help of a production possibility diagram, how the opportunity cost of producing different combinations of goods can be measured. [8] (b) Discuss the ease with which a planned economy may be changed into a market economy. [12] 3 (a) Explain what determines the demand for and supply of a currency in the foreign exchange market. [8] (b) Discuss the extent to which a decline in the value of the national currency (depreciation or devaluation) will improve a country’s balance of trade. [12] 4 (a) Explain why governments measure changes in the general price level and why they usually have more than one measure of these changes. [8] (b) Discuss whether it is better for a government to raise the economy’s rate of productivity growth or to control its rate of inflation. [12]

4 9708/22/O/N/12 © UCLES 2012 Copyright Acknowledgements: Question 1 © The Economist; http://www.economist.com/node/14209265; 13 August 2009. Permission to reproduce items where third-party owned material protected by copyright is included has been sought and cleared where possible. Every reasonable effort has been made by the publisher (UCLES) to trace copyright holders, but if any items requiring clearance have unwittingly been included, the publisher will be pleased to make amends at the earliest possible opportunity. University of Cambridge International Examinations is par t of the Cambridge Assessment Group. Cambridge Assessment is the brand name of Univ ersity of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge. BLANK PAGE

CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary Level and GCE Advanced Level MARK SCHEME for the October/November 2012 series 9708 ECONOMICS 9708/22 Paper 2, (Data Response and Essay – Core), maximum raw mark 40 This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the details of the discussions that took place at an Examiners’ meeting before marking began, which would have considered the acceptability of alternative answers. Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for Teachers. Cambridge will not enter into discussions about these mark schemes. Cambridge is publishing the mark schemes for the October/November 2012 series for most IGCSE, GCE Advanced Level and Advanced Subsidiary Level components and some Ordinary Level components.

Page 2 Mark Scheme Syllabus Paper GCE AS/A LEVEL – October/November 2012 9708 22 © Cambridge International Examinations 2012 1 (a) (i) Calculate the approximate price of sugar in January 2008. [2] Approximate value is 11.5 US cents per pound (2). (ii) Compare the behaviour of sugar prices with that of average food prices between January 2008 and August 2009. [3] Similar until July 2008 (1), sugar price then rose, while average food price fell (1), sugar price rose overall, all food price fell overall (1), both fluctuated, (1) (b) With the use of diagrams, contrast the weather explanations of the sugar price rise with the ethanol explanations of the sugar price rise. [5] Bad weather decreases supply (1), with diagram showing leftward shift of the supply curve and rise in price (1). Ethanol use increases demand (1) with diagram showing rightward shift of the demand curve and rise in price (1). Reserve (1) for clear understanding of the quantity change in both cases. (c) Explain the likely reaction of (i) consumers of sugar, and 1 mark for understanding that consumers would reduce quantity demand and 1mark for some elaboration of this idea. (2) (ii) producers of sugar 1 mark for understanding that producers would increase quantity supplied and 1 mark for some elaboration of this idea (2) to a continual, rapid rise in its price. [4] (d) With reference to the data, discuss the likely effects of [6] (i) the actions of the Indian government, and Increased supply of sugar as a result of the export ban has reduced prices of sugar in India. This will help Indian consumers, especially the lower income groups. India's current account will be affected as sugar exports fall. Sugar farmers will reduce cultivation of sugar and this is likely to increase prices in the future. It may also lead to unemployment. Allow comment on world impact, such as new areas under cultivation. Also impact on Indian's balance of trade. (Up to 4 marks) (ii) the actions of the Malaysian government. A maximum price would cause an excess demand in the market for sugar in Malaysia. This would help those lucky enough to obtain sugar but would mean shortages and the problem of allocation would arise. The outcome would be queuing and black markets unless an effective rationing system could be devised. (Up to 4 marks)

Page 3 Mark Scheme Syllabus Paper GCE AS/A LEVEL – October/November 2012 9708 22 © Cambridge International Examinations 2012 2 (a) Explain, with the help of a production possibility diagram, how the opportunity cost of producing different combinations of goods can be measured. [8] For knowledge and understanding of the ppc and opportunity cost (Up to 4 marks. Allow 3/1 or 1/3 split). For an analysis of how the ppc can be used to measure opportunity cost (Up to 4 marks). (b) Discuss the ease with which a planned economy may be changed into a market economy. [12] For knowledge and understanding of planned and market economies (2). For an analysis of the nature of the changes required to transform a planned economy into a market economy. (Up to 2 marks for identified features with implications that they need to change). (Up to 6 marks) For evaluative comment on the ease of transformation. 3 (a) Explain what determines the demand for and supply of a currency in the foreign exchange market. [8] For knowledge and understanding of the determinants of the demand and supply of a currency in the foreign exchange market (Up to 4 marks. Allow 3/1 or 1/3 split). For analysis of how changes in these determinants impact upon the foreign exchange market (Up to 4 marks). (b) Discuss the extent to which a decline in the value ofthe national currency (depreciation or devaluation) will improve a country's balance of trade. [12] For knowledge and understanding of depreciation or devaluation and the balance of trade (2). For analysis of how depreciation affects the balance of trade (Up to 6 marks). For evaluative comment on the conditions for a successful outcome (Up to 4 marks). 4 (a) Explain why governments measure changes in the general price level and why they usually have more than one measure of these changes. [8] For knowledge and understanding of anyone method of measuring changes in the general price level e.g. CPI, RPI, WPI etc (Up to 4 marks). For analysis of why it is measured and why a number of measures are needed (Up to 4 marks. Allow 3/1 or 1/3 split). (b) Discuss whether it is better for a government to raise the economy's rate of productivity growth or to control its rate of inflation. [12] For knowledge and understanding of inflation and productivity (2). For analysis of the effects of inflation and productivity growth (Up to 6 marks). For evaluative comment on 'whether it is better' aspect of the question (Up to 4 marks).