Cambridge A Level Economics 9708 — 2013 May/June Paper 2 · Variant 2

This document consists of 3 printed pages and 1 blank page. DC (NF) 66275/1 © UCLES 2013 [Turn over UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level * 5 6 1 7 5 2 6 8 6 0 * ECONOMICS 9708/22 Paper 2 Data Response and Essay (Core) May/June 2013 1 hour 30 minutes Additional Materials: Answer Booklet/Paper 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.

2 9708/22/M/J/13 © UCLES 2013 Section A Answer this question. Palm Oil Production 1 Palm oil is used in the production of many goods, including cooking oil, margarine, ice cream, soap, shampoo and more recently fuel for vehicles. It competes with other vegetable oils, made from soyabeans, rapeseed, sunflowers and groundnuts. While palm oil production takes up 6% of the land used for vegetable oil plants across the world, it produces 38% of the total output of vegetable oil globally and accounts for 60% of world exports of vegetable oil. Palm oil is produced from the flesh of the palm fruit and, at the same time, palm kernel oil is produced from the kernel or seed. After the extraction of the oils the waste is turned into palm kernel cake that is then sold for animal feed. In Malaysia the palm oil industry employs 570 000 people of which 405 000 are engaged in cultivation. Malaysia and Indonesia are the world’s two most important palm oil producers and details of their production are given in Table 1. Table 1: Palm oil production in Malaysia and Indonesia, 1995 and 2008 Malaysia Indonesia 1995 Production (’000 tonnes) 7 811 4 480 1995 Area cultivated (’000 hectares) 2 540 2 025 2008 Production (’000 tonnes) 17 734 18 090 2008 Area cultivated (’000 hectares) 4 488 7 008 The increase in the cultivation of palm oil has been criticised on environmental grounds. There have been accusations of deforestation, reduction of biodiversity, harm to wildlife and increasing emissions of greenhouse gases. One response has been an organisation of growers, processors, and food companies to encourage the production of sustainable palm oil that limits the harm to the environment. (a) Give two reasons why palm oil is an important product for the economy of Malaysia. [2] (b) Analyse, with the aid of diagrams, the impact of an increase in demand for palm oil on the markets for palm oil and palm kernel cake. [5] (c) (i) How can Table 1 be used to provide one measure of productivity in palm oil production? [2] (ii) Use Table 1 to compare the productivity of palm oil production in Indonesia in 1995 and 2008. [2] (d) What additional information would give a better understanding of changes in productivity in palm oil production in Indonesia? [3] (e) Discuss any two policies that governments might use to prevent harm to the environment from palm oil production. [6]

3 9708/22/M/J/13 © UCLES 2013 Section B Answer one question. 2 In a free market price rations scarce goods. (a) Explain this statement and, with the help of a diagram, show how price rations scarce goods when there is an increase in the costs of production. [8] (b) Discuss whether preventing the price mechanism from working freely by using government price controls can ever be effective. [12] 3 (a) Define the components of aggregate demand and, with the help of a diagram, explain how an increase in spending in an economy might result in inflation. [8] (b) If an economy is experiencing inflation, discuss the view that its government should be more concerned about the external effects than its effects within the domestic economy. [12] 4 (a) Explain the meaning of the term ‘protection’ in the context of international trade and describe two methods of protection used by governments. [8] (b) Discuss, with examples, how international trade protection may affect consumers and producers in an economy and whether on balance protection can be justified. [12]

4 9708/22/M/J/13 © UCLES 2013 BLANK PAGE Copyright Acknowledgements: Question 1 © World Growth; Palm Oil the Sustainable Oil; September 2009; www.worldgrowth.org; 8 March 2011. 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 part of the Cambridge Assessment Group. Cambridge Assessment is the brand name of University of Cambridge Local Examinations Syndicate (UCLES), which is itself a department of the University of Cambridge.

CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary Level and GCE Advanced Level MARK SCHEME for the May/June 2013 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 May/June 2013 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 – May/June 2013 9708 22 © Cambridge International Examinations 2013 1 (a) Give two reasons why palm oil is an important product for the economy of Malaysia. [2] To provide employment (1), to raise export revenue (1), to meet domestic demand (1) Any two reasons (b) Analyse, with the aid of diagrams, the impact of an increase in demand for palm oil on the markets for palm oil and palm kernel cake. [5] Palm kernel cake is in joint supply as a by product of palm oil (1). Increased demand for palm oil results in a higher price and quantity (1), corresponding diagram (1), increased supply of palm kernel cake results in lower price and greater quantity (1), corresponding diagram (1) (c) (i) How can Table 1 be used to provide one measure of productivity in palm oil production? [2] Total production divided by area (1) gives output per hectare (1) (ii) Use Table 1 to compare the productivity of palm oil production in Indonesia in 1995 and 2008. [2] 1995: 4480/2025 = 2.2, 2008: 18 090/7008 = 2.6 (1) productivity rose (1) (d) What additional information would give a better understanding of changes in productivity in palm oil production in Indonesia? [3] Possibilities include improvements in labour (training), capital equipment, fertiliser and land quality, technology that may raise productivity, movement of skilled labour to urban employment and unfavourable natural conditions that might reduce productivity. (e) Discuss any two policies that governments might use to prevent harm to the environment from palm oil production. [6] Possible policies include subsidies for research and more environmentally friendly technology, taxes to bring the market outcome to the socially optimal position, government rules and inspection, subsidies to alternative production. Policies may be judged in terms of their cost, effectiveness, drawbacks and acceptability. Both policies need to be considered, credit a reasoned conclusion.

Page 3 Mark Scheme Syllabus Paper GCE AS/A LEVEL – May/June 2013 9708 22 © Cambridge International Examinations 2013 2 In a free market price rations scarce goods. (a) Explain this statement and, with the help of a diagram, show how price rations scarce goods when there is an increase in the costs of production. [8] The basis of a good answer must be an accurate diagram of market equilibrium showing shifts in the supply curve and changes in equilibrium price and quantity. • For knowledge and understanding of the way in which price rations scarce goods. Up to 4 marks. • For application using an appropriate diagram showing shifts in the supply curve and the resulting change in equilibrium price and quantity. Up to 4 marks. (b) Discuss whether preventing the price mechanism from working freely by using government price controls can ever be effective. [12] Candidates should provide examples of circumstances when prices are controlled such as maximum or minimum price legislation and have a good appreciation of the problems that these controls bring to the market. With maximum prices for example shortages occur and an alternative system of allocation needs to be introduced. The candidate also needs to address the issue of whether these controls can be effective. So difficulties in the policing of the system and the problem of black/hidden/underground markets should be considered. • For analysis of the effect of these controls on the market mechanism and the problems that arise. Up to 8 marks. • For evaluative comment on whether these controls can be effective considering for example black markets, policing and monitoring. Up to 4 marks. 3 (a) Define the components of aggregate demand and, with the help of a diagram, explain how an increase in spending in an economy might result in inflation. [8] • For knowledge and understanding of the components of aggregate demand. Up to 4 marks. • For application using an appropriate diagram showing an increase in aggregate demand and the relationship with aggregate supply at a point where inflation would occur. Up to 4 marks. (b) If an economy is experiencing inflation, discuss the view that its government should be more concerned about the external effects than its effects within the domestic economy. [12] Candidates need to be able to distinguish between the external and internal effects of inflation and then they should reach an evaluative conclusion based upon an examination of the evidence. Discussion might include whether the economy is relatively open to international trade, whether the economy has a fixed or floating exchange rate, etc. • For analysis of the external and domestic effects of inflation. Up to 8 marks. • For evaluative comment on the ‘more concerned’ aspect of the question. Up to 4 marks.

Page 4 Mark Scheme Syllabus Paper GCE AS/A LEVEL – May/June 2013 9708 22 © Cambridge International Examinations 2013 4 (a) Explain the meaning of the term 'protection' in the context of international trade and describe two methods of protection used by governments. [8] Very often candidates describe methods of protectionism without thinking clearly about the meaning of the term. A good answer will go beyond a list of the types of protectionism and will provide a more general explanation perhaps referring to prevention of market forces working freely. • For knowledge and understanding of the meaning of the term ‘protection’ in the context of international trade illustrated with two examples of methods of protection. Up to 4 marks. • For application that describes how the two methods mentioned work to protect an economy. Up to 4 marks. (b) Discuss, with examples, how international trade protection may affect consumers and producers in an economy and whether on balance protection can be justified. [12] Consumers lose through for example reduced choice and higher prices, producers gain through reduced competition and increased profits. Economic theory usually concludes that protectionism can be justified in the case of infant industries. Other arguments are usually dismissed as social or strategic arguments for protectionism. • For analysis of the way in which consumers and producers are affected with valid examples. Up to 8 marks. • For evaluative comment on whether on balance protection can be justified. Up to 4 marks.