EDEXCEL IAL ECONOMICS PAST PAPER QUESTIONS AS LEVEL JAN2019 AND JUNE 2018, Exams of Economics

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WEC01/01 JAN 2019 Q9 Q

Extract 1 Mining in China

Labour markets

China has moved from a manufacturing-based to a service-based economy. At

the same time there is a lack of growth in the European Union. Both of these have contributed to

lower demand for Chinese coal and iron ore. In Heilongjiang, North East China, mining

employment decreased from 488 000 to 359 000 between 5 2008 and 2015.

Many older miners who lost their jobs lack the transferable skills or resources to retrain for other

industries. Coal mining causes environmental damage and significant pollution. These result in

health problems for people living in areas close to coal mines. For firms, these health problems have

resulted in lower productivity and higher levels of absenteeism. 10

Extract 2

Immobility of labour in the USA

In 2016 there were 7.4 million unemployed in the USA. At the same time 27.5% of job vacancies

remained unfilled after 60 days. While such a high level of vacancies exist, people are often

unwilling to move location for the work.

A relocation subsidy financed by the Government could be used to encourage 5 workers to move to

areas with job vacancies. This will help cover transport and housing costs. By moving people to

where jobs exist the need to pay unemployment benefits will fall. Even with the subsidies some of

the unemployed will be reluctant to move because of family and friends in their current location.

Extract 3

Maximum wage for high earners

In the UK there is a widening income gap between the highest paid and the lowest paid workers.

The earnings of business leaders have increased significantly in recent years. For example,

executives of the top 100 businesses in the UK take on average just four days to earn the same as an

average worker earns in a year.

Jeremy Corbyn, a UK politician, has suggested the Government should introduce a maximum wage.

He argued that footballers earning more than £50 million per year was excessive. Similarly, in 2014,

the ten highest earning female models earned in excess of £50 million between them.

The introduction of a maximum wage may cause some high earners to leave the country.

Government tax revenues could fall because 27% of all income tax is paid by the highest-earning

1% of the workforce. In countries where a maximum wage has been introduced for sports players,

some have increased their incomes through sponsorship deals.

(a) With reference to Extract 1, explain the impact of a decline in the demand for coal on

wages and employment of coal miners. Illustrate your answer with a labour market diagram.

(6)

(b) With reference to Extract 1 and Extract 2, explain the difference between occupational

(immobility of labour and geographical immobility of labour. (4)

c) With reference to Extract 1, discuss the likely impact of the decline in coal mining on

external costs. (10)

(d) With reference to Extract 2, evaluate the likely impact of the introduction of a relocation

subsidy for the unemployed in the USA. (14)

(e) With reference to Extract 3, evaluate the likely impact of the introduction of a maximum

wage. Illustrate your answer with a labour market diagram.(14)

Copper market and LCD screens

Figure 1 Copper price in US dollars ($) per pound (lb), January 2013-August 2017

Extract 1 Copper price rises

In August 2017 copper prices increased by 7% to $3.11 per pound, its highest price since September

2014. China’s demand for the metal increased as a result of its continued economic growth. China is

the world’s largest copper consumer buying 46% of global production. China has also restricted

imports of recycled copper which 5 means more businesses have switched to buying newly-mined

copper.

Extract 2 Elasticities of demand and supply in the global copper market

Copper has few close substitutes. Although it is possible to use aluminium in place of copper in

some industries, there are costs and delays involved in switching between the two metals.

The supply of copper is usually unresponsive to price movements in the short term 5 because of the

high fixed costs and lengthy start-up times involved in developing new copper mines. Existing

copper mining businesses are working close to their current capacity. It can take huge price changes

in the industry for supply to respond sufficiently to bring the market back to equilibrium. However,

during the most recent global economic slowdown copper was stored. 10

Extract 3 Subsidy to attract Foxconn to Wisconsin

A Taiwanese manufacturer, Foxconn, is to invest $10 billion in a factory in Wisconsin,

USA. The Wisconsin Government has offered a $3 billion subsidy to Foxconn. It will

employ 13 000 people and produce LCD panels for TVs, computers and medical

equipment. It has been estimated that a further 19 000 to 26 000 jobs will be created 5 at firms

supplying the factory. It is claimed that for every $1 in subsidy there will be a benefit of $3.90 to the

local economy.

The production of LCD panels requires the use of metals including copper, mercury

and zinc. The extraction of these metals and their transport to Wisconsin causes environmental

damage. Foxconn is to be allowed to discharge materials into lakes 10 and to divert streams during

construction of the factory. However, Foxconn will be required to restore two acres of wetlands for

every one acre it destroys.

Businesses in Wisconsin have been struggling to train, attract and retain workers. A significant

number of workers are retiring and birth rates are falling. Further, between 2010 and 2015, net

migration resulted in 17 000 more people leaving Wisconsin than 15 entering it. To reduce the

incentive to leave, more employment opportunities need to be provided to attract new employers to

the region.

(a) With reference to Figure 1 and Extract 1, explain why copper prices increased by 7% in August

2017. Illustrate your answer with a supply and demand diagram. (6) (b) With reference to Extract 2, explain why the demand for copper is likely to be price inelastic.(4) (c) With reference to Extract 2, discuss whether the supply of copper is likely to be price elastic or price inelastic.(10) (d) With reference to Extract 3, evaluate the likely impact of the $3 billion subsidy to Foxconn on people living in Wisconsin.(14) (e) With reference to Extract 3, evaluate the likely impact of Wisconsin’s net migration on the housing market between 2010 and 2015. Illustrate your answer with a relevant diagram.(14)

WEC01/01 JUNE 2018 Q9 Q

Fruit juice and sugar tax Extract 1 The price of orange juice concentrate increases Orange juice concentrate is made by squeezing juice from fresh oranges and then removing the water content. This enables the juice to be exported more cheaply. The water can then be added by the manufacturer in the country that imports the orange juice concentrate.

The price of orange juice concentrate increased by 21% between June and September 2016 to more than $ per kilo, the highest price since 2006. In 2016, the Brazilian orange harvest decreased by 20%, and in Florida, USA, the harvest decreased by 25%. Brazil and Florida are the largest producers in the world. Both orange harvests were affected by a tree-killing bug and heavy rains that left 10 oranges with a low sugar content. Therefore it required more fruit to make one kilo of concentrate. The price of concentrate is likely to remain high because several years of poor harvests mean stocks of frozen juice are running out. Brazilian farmers have been switching to more profitable crops such as sugar cane. Brazil grows several varieties of orange enabling crops to be harvested in eight months of the year between June and January. In Florida harvesting only tends to take place for three months between October and December. Extract 2 Orange production damages the environment To grow orange trees most farmers use chemical fertilisers which have contributed to soil erosion and polluted the water supply. Orange trees also require 62.7 litres of water to grow one orange. This compares to 15 litres for one tomato and 1.8 litres for one strawberry. In California the use of so much water in orange production during 5 a four-year drought led to a deterioration in soil quality. Extract 3 The sugar tax in the UK The UK Government is to introduce a sugar tax on sugary drinks. Consuming too much sugar can cause obesity which increases the risk of cancer. As a result of trends in obesity there could be around 700 000 additional cases of cancer in the UK by 2035. A sugar tax could reduce the number of people suffering from obesity by 5 3.7 million by 2025. The aim of the tax is to provide an incentive to the soft drinks industry to reduce the sugar content of drinks. Soft drinks containing between 5 and 8 grams of sugar per 100 millilitres will be taxed at a standard rate. A higher level of tax will apply to drinks that contain more 10 than 8 grams of sugar. The tax focuses on soft drinks with added sugar, such as fizzy drinks. Drinks containing milk or yoghurt will not be affected because they provide more nutrients. Drinks manufacturers, including Lucozade and Ribena, are committed to lowering the amount of sugar and expanding their ranges of low and zero sugar drinks before the 15 tax comes into effect. The tax is expected to raise £500 million a year which the Government will spend on school sports. (a) Explain why ‘the price of orange juice concentrate increased by 21% between June and September 2016’ (Extract 1, lines 6–7). Illustrate your answer with a supply and demand diagram.(6) (b) With reference to the information provided, explain the likely impact of the rise in the price of orange juice concentrate on the producers of bottled water.(4) (c) With reference to Extract 1, discuss whether the supply of orange juice concentrate is likely to be price elastic or price inelastic.(10) (d) With reference to Extract 2, evaluate the external costs associated with the production of oranges. Illustrate your answer with an externalities diagram.(14) (e) With reference to Extract 3, evaluate the impact of the introduction of an indirect tax on sugary drinks in the UK. Refer to producers, consumers and the Government in your answer.(14)

Extract 1 Canada’s agricultural labour market

Agricultural production normally takes place in rural locations. The problem is that ECrural populations are declining and ageing. People living in urban areas are unwilling to travel to rural locations where agricultural

work is located. Agriculture needs seasonal workers and these workers often have to come from other countries. The number of people seeking employment in Canada’s agricultural sector is falling. In 2014, 59 200 vacancies were unfilled and by 2025 the number is estimated to be 113 800. As a result of this labour shortage, the wages of agricultural workers have increased. However, many Canadians are reluctant to work in the sector. Agricultural work is physically challenging with long hours. In 2015, agricultural employees 10 worked on average 44.8 hours per week, compared to an average of 35.9 hours for all other sectors. The shortage of workers reduces fruit and vegetable production leading to wastage of crops left in the fields. Extract 2 Eighteen states in the USA increase their minimum wage The biggest arguments against increasing the minimum wage are that it causes higher unemployment and increases costs of production. Employers will either pass higher costs onto customers by raising prices or invest in labour-saving equipment. A research institute in the USA analysed the effect of raising the minimum wage 5 above $7.25 in 18 states. It found that the higher minimum wage contributed to substantial increases in average wages for workers in low-wage jobs, helping to reverse a trend in falling real wages. This occurred without any impact on employment levels or hours worked. Extract 3 UK food manufacturing affected by exit from the European Union (EU) In the UK citizens from other EU countries make up 31% of workers in the manufacture of food products. EU citizens can move freely and work in any other EU country. In June 2016 the UK voted to leave the EU. Workers from the EU were allowed to continue to work 5 in the UK for the two years whilst the UK Government agrees the terms of its exit. In the future, EU workers already in the UK may not be able to remain. UK food manufacturers have experienced difficulty in recruiting suitably skilled and well-motivated UK workers. Consequently, the supply of labour in food. manufacturing could fall significantly following the UK’s exit from the EU. 10 However, greater automation could help employers to cope with the loss of migrant workers. Instead of using EU labour they could replace workers with machines. However, this would require significant investment.

Extract 4 Relocation subsidies within Australia

The Australian Government offers subsidies to encourage job seekers to relocate for work. Job seekers who are eligible can receive payments of up to AUD$3 000 if moving to a capital city or AUD$6 000 if moving to a regional area. They can also receive an extra AUD$3 000 if relocating with children. The new location must be 5 at least 90 minutes away from where the job seeker currently lives. If the move is between capital cities, the new location must have a higher unemployment rate than where the job seeker currently lives.